Note 3(o): The measurement of the amount and assessment of the recoverability of income tax assets.
assets and income tax provisions
Note 3(q): The measurement and valuation of intangible assets and contingent consideration acquired and recorded as business combinations.
Note 3(r): The incremental borrowing rate (“IBR”) used in the valuation of leases.
Valuation of financial instruments
Financial Assets
Initial recognition and measurement
Upon recognition of a financial asset, classification is made based on the royalty obligation, warrant liabilitybusiness model for managing the asset and the asset’s contractual cash flow characteristics. The financial asset is initially recognized at its fair value and subsequently classified and measured as (i) amortized cost; (ii) FVOCI; or (iii) FVTPL. Financial assets are classified as FVTPL if they have not been classified as measured at amortized cost or FVOCI. Upon initial recognition of an equity instrument that is not held-for-trading, the asset is recorded at FVTPL unless the Company irrevocably designates the presentation of subsequent changes in the fair value of such equity instrument as FVOCI.
Subsequent measurement
The subsequent measurement of financial assets depends on their classification as follows:
Financial assets measured at amortized cost
A financial asset is subsequently measured at amortized cost, using the effective interest method and net of any impairment allowance, if the asset is held within a business whose objective is to hold assets in order to collect contractual cash flows; and the contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments of principal and interest. Cash and cash equivalents, restricted cash, accounts receivable and other long-term liabilityassets are classified within this category.
Financial assets at FVTPL
Financial assets measured at FVTPL are carried in the statement of financial position at fair value with changes in fair value therein recognized in the statement of net (loss) income. There are presently no assets classified within this category.
Financial assets at FVOCI
Financial assets measured at FVOCI are carried in the statement of financial position at fair value with changes in fair value therein recognized in the statement of comprehensive (loss) income. The Investment in Sensible Medical was designated within this category.
Derecognition
A financial asset or, where applicable a part of a financial asset or part of a group of similar financial assets is derecognized when the contractual rights to receive cash flows from the asset have expired; or the Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
Financial liabilities
Initial recognition and measurement
The Company has the following non-derivativerecognizes a financial liabilities which are classified as other financial liabilities: accounts payable and accrued liabilities and long-term debt.
All other financial liabilities are recognized initiallyliability on the trade date atin which the Companyit becomes a party to the contractual provisions of the instrument. Such financial liabilities are recognized initiallyinstrument at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these financialFinancial liabilities are subsequently measured at amortized cost using the effective interest method. Costs incurred to obtain financingor FVTPL, and are deferrednot subsequently reclassified. The Company’s financial liabilities are accounts payable and accrued liabilities, royalty obligation, acquisition payable and holdback payable which are recognized on an amortized over the term of the associated debt using the effective interest method. Amortization is a non-cash charge to finance expense.
The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled, or when they expire.
cost basis. Financial liabilities measured at FVTPL include contingent consideration resulting from business combinations as defined by IFRS 9.
The royalty obligation was recorded at its fair value at the date at which the liability was incurred and subsequently measured at amortized cost using the effective interest rate method at each reporting date. Estimating fair value for this liability requiresrequired determining the most appropriate valuation model which iswas dependent on its underlying terms and conditions. This estimate also requiresrequired determining expected revenue from AGGRASTAT®AGGRASTAT® sales and an appropriate discount rate and making assumptions about them.
The other long-term liability wasacquisition payable liabilities were recorded at its fair value at the date at which the liability was incurred and subsequently measured at amortized cost using the effective interest rate method at each reporting date. Estimating fair value for this liability requiresthese liabilities required determining the most appropriate valuation model which is dependent on its underlying terms and conditions. This estimate also requires determining the time frame when certain sales targets are expected to be met and an appropriate discount raterate.
Contingent consideration resulting from a business combination are valued at fair value at the acquisition date as part of the business combination and makingsubsequently fair valued as described in business combination below.
Offsetting of financial instruments
Financial assets and financial liabilities are offset, and the net amount reported in the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.
Fair value of financial instruments
Fair value is determined based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value is measured using the assumptions about them.
Warrants withthat market participants would use when pricing an exercise price denominatedasset or liability. Typically, fair value is determined by using quoted prices in active markets for identical or similar assets or liabilities. When quoted prices in active markets are not available, fair value is determined using valuation techniques that maximize the use of observable inputs. When observable valuation inputs are not available, significant judgement is required through determining the valuation technique to apply, the valuation techniques such as discounted cash flow analysis and selecting inputs. The use of alternative valuation techniques or valuation inputs may result in a foreign currencydifferent fair value.
Transaction costs
Transaction costs for all financial instruments measured at amortized cost, the transaction costs are recordedincluded in the initial measurement of the financial asset or financial liability and are amortized using the effective interest rate method over a period that corresponds with the term of the financial instruments. Transaction costs for financial instruments classified as FVTPL are recognized as an expense in professional fees, in the period the cost was incurred.
Embedded Derivatives
For financial liabilities measured at amortized cost, under certain conditions, an embedded derivative must be separated from its host contract and accounted for as a liabilityderivative. An embedded derivative causes some or all of the cash flows that otherwise would be required by the contract to be modified according to a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, a credit rating or credit index, or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract. For financial assets at FVTPL, any embedded derivatives are not separated from its host contract.
Accruals for returns, chargebacks, rebates and classifieddiscounts
As of December 31, 2020, excluding Marley Drug, the Company has three commercially available products that generated revenue for the year ended December 31, 2020, AGGRASTAT®, ZYPITAMAG® and Sodium Nitroprusside(the “Products”) which it sells to United States customers. The Products are sold to wholesalers for resale as fairwell as directly to hospitals and pharmacies; with AGGRASTAT® and SNP primarily being sold by the wholesalers to hospitals, while ZYPITAMAG® is primarily sold by wholesalers to pharmacies. Revenue from the sale of the Products is recognized upon the receipt of goods by the wholesaler, or the hospital or pharmacy in the case of a direct sale, the point in time in which title and control of the transferred goods pass from the Company to the customer. At this point in time, the customer has gained the sole ability to route the goods, and there are no unfulfilled obligations that could affect the customer’s acceptance of the goods. Delivery of the product occurs when the goods have been received at the customer in accordance with the terms of the sale.
During 2019, the Company sold ReDSTM medical devices directly to end users. Revenue from the sale of ReDSTM was recognized upon the receipt of goods by the end user, the point in time in which title and control of the transferred goods pass from the Company to the customer. At this point in time, the customer has gained the sole ability to benefit from the product, and there are no unfulfilled obligations that could affect the customer’s acceptance of the goods. Delivery of the product occurs when the goods have been shipped to the customer and the customer has accepted the products in accordance with the terms of the sale.
Sales are made subject to certain discounts available for prompt payment, volume discounts, rebates or chargebacks. Revenue from these sales is recognized based on the price specified per the pricing terms of the sales invoices, net of the estimated discounts, rebates or chargebacks. Variable consideration is based on historical information, using the expected value through profit and loss. The warrantmethod. Revenue is only recognized to the extent that it is highly probable that a significant reversal will not occur. A liability is included within accounts payable and accrued liabilities and is measured for expected payments that will be made to the changecustomers for the discounts in which they are entitled. Sales do not contain an element of financing as sales are made with credit terms within the fair valuenormal operating cycle of the warrants is recorded as a gain or loss in the consolidated statement of net income (loss) and comprehensive income (loss) within finance expense. These warrants have not been listed on an exchange and therefore do not trade on an active market.
The warrant liability was recorded at the fair valuedate of the warrants at the date at which they were granted and subsequently revalued at each reporting date. Estimating fair value for these warrants requires determining the most appropriate valuation modelinvoice, which is dependent onconsistent with market practice.
Through Marley Drug the termsCompany operates a retail pharmacy and conditionsmail order pharmacy business selling pharmaceuticals directly to end users being individual patients. Revenue for in store sales is recognized upon payment by the customer. This is the point where all performance obligations have been met in regards to the product sold. Revenue for mail order sales is recognized upon the shipment of the grant. This estimate also requires determining the most appropriate inputsproducts to the valuation model including the expected life of the warrants, volatility and dividend yield and making assumptions about them.
IFRS 13Fair Value Measurement, establishes a fair value hierarchy that reflects the significance of the inputs used in measuring fair value. The fair value hierarchy has the following levels:
The fair value of the warrant liability is based on level 2 (significant observable inputs) and the fair value of the royalty obligation and other long-term liability are based on level 3 (unobservable inputs).
Provision for returns and discounts
Revenue from the sale of goods, comprising finished and unfinished products, in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of estimated returns, chargebacks, trade discounts and volume rebates. Revenue is recognized when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognized as a reduction of revenue as the sales are recognized.
Net sales reflect a reduction of gross salescustomer, generally at the time of initial sales recognition for estimated wholesaler chargebacks, discounts, allowances for product returns, and other rebates (product sales allowances). Wholesaler management decisions to increase or decrease their inventory of AGGRASTAT® may result in sales of AGGRASTAT® to wholesalers that do not track directly with demand for the product at hospitals. In determiningis picked up from the amounts for these allowances and accruals, the Company uses estimates. Through reports providedCompany’s premises by the Company’s wholesalers and other third party external information, management estimates customer and wholesaler inventory levels, sales trends and hospital demand. Management uses this information along with such factors as: historical experience and average contractual chargeback rates to estimate product sales allowances. Third-party datacarrier. This is subject to inherent limitations of estimates duethe point where all performance obligations have been met in regards to the reliance on information from external sources, as this information may itself rely on certain estimates.product sold.
Estimation of accruals for research and development costs
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognized in profit or loss as incurred.
Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditures are capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset. No development costs have been capitalized to date.
Research and development expenses include all direct and indirect operating expenses supporting the products in development.
Clinical trial expenses are a component of the Company’s research and development costs. These expenses include fees paid to contract research organizations, clinical sites, and other organizations who conduct development activities on the Company’s behalf. The amount of clinical trial expenses recognized in a period related to clinical agreements are based on estimates of the work performed using an accrual basis of accounting. These estimates incorporate factors such as patient enrolment, services provided, contractual terms, and prior experience with similar contracts.
Measurement and period of usemeasurement of intangible assets
Intangible assets that are acquired separately and have finite useful lives are measured at cost less accumulated amortization and accumulated impairment losses. Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which they relate. All other expenditures are recognized in profit or loss as incurred.
Costs incurred in obtaining a patentProduct licenses are capitalized and amortized on a straight-line basis over the contractual term of the acquired license. Pharmacy licenses are amortized on a straight-line basis over their estimated useful life of approximately seven years. Patents and drug approvals are amortized on a straight-line basis over the legal life of the respective patent, ranging from five to twenty years, or its economic life, if shorter. Costs incurred in obtaining a trademarkBrand names are capitalized and amortized on a straight-line basis over the estimated economic life of the brand name estimated at ten years. Trademarks are amortized on a straight-line basis over the legal life of the respective trademark, being ten years, or its economic life, if shorter. Costs incurred in obtaining a customer listCustomer lists are capitalized and amortized on a straight-line basis over approximately tena period of seven to twelve years, or itstheir economic life, if shorter.
Amortization on product licenses commences when the intangible asset is available for use, which would typically be in connection with the commercial launch of the associated product under the license.
Costs incurred in successfully obtaining a patent, trademark or customer listFollowing initial recognition, intangible assets are measuredcarried at cost less accumulated amortization and accumulated impairment losses. The cost of servicing the Company'sCompany’s patents and trademarks are expensed as incurred.
Subsequent expendituresThe amortization method and amortization period of an intangible asset with a finite useful life are capitalized only when they increasereviewed at least annually. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the specific asset to which they relate. All other expenditures are recognized in profit or loss as incurred.
At each reporting date, the Company assesses whether there is objective evidence that a financial asset is impaired. If such evidence exists, the Company recognizes an impairment loss for financial assets carried at amortized cost. The loss is the difference between the amortized cost of the loan or receivable and the present value of the estimated future cash flows, discounted using the instrument’s original effective interest rate. The carrying amount of the asset is reduced by this amount through the use of an allowance account.
Impairment losses on financial assets carried at amortized cost are reversed in subsequent periods if the amount of the loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized.
Assumptions and model used to estimate the value of share-based payment transactions
The grant date fair value of share-based payment awards granted to employees is recognized as a personnel expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.
Share-based payment arrangements in which the Company receives goods or services as consideration for its own equity instruments are accounted for by changing the amortization period or method, as equity-settled share-based payment transactions. In situations where equity instrumentsappropriate, and are issuedtreated as changes in accounting estimates in the consolidated statements of net (loss) income and some or all of the goods or services received by the entity as consideration cannot be specifically identified, they are measured at fair value of the share-based payment.comprehensive (loss) income.
For share-based payment arrangements with non-employees, the expense is recorded over the service period until the options vest. Once the options vest, services are deemed to have been received.
For the year ended December 31, 2015, the Company recorded $1,460,316 related to stock-based compensation (seven months ended December 31, 2014 - $620,705 and year ended May 31, 2014 - $295,144).
MeasurementThe measurement of the amount and assessment of the recoverability of income tax assets
The Company and its subsidiaries are generally taxable under the statutes of their country of incorporation.
Income tax expense comprises current and deferred taxes. Current taxes and deferred taxes are recognized in profit or loss except to the extent that it relatesthey relate to a business combination, or items recognized directly in equity (deficiency) or in other comprehensive income (loss).income.
Current taxes are the expected tax receivable or payable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax receivable or payable in respect of previous years.
DeferredThe Company follows the liability method of accounting for deferred taxes. Under this method, deferred taxes are recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred taxes are not recognized for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred taxes are not recognized for taxable temporary differences arising on the initial recognition of goodwill. Deferred taxes are measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the tax laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax assets and liabilities, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax assets and liabilities on a net basis or their tax assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
InvestmentThe Company has provided for income taxes, including the impacts of tax legislation in Apicorevarious jurisdictions, in accordance with guidance issued by accounting regulatory bodies, the Canada Revenue Agency, the U.S. Internal Revenue Service, the Barbados Revenue Authority, the Mauritius Revenue Authority, as well as other state and long-term derivative
The investment in Apicore representslocal governments through the acquisitiondate of a minority interest in a pharmaceutical manufacturing business as described in note 8the issuance of thethese consolidated financial statements. Additional guidance and interpretations can be expected and such guidance, if any, could impact future results. While management continues to monitor these matters, the ultimate impact, if any, as a result of the application of any guidance issued in the future cannot be determined at this time.
The acquisition was completedCompany and its subsidiaries file federal income tax returns in Canada, the United States, Barbados and other foreign jurisdictions, as well as various provinces and states in Canada and the United States, respectively. Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws and the amount and timing of future taxable income. Given the Company operates within a complex structure internationally, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to taxable income and expenses recorded. The Company establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities of the respective countries in which it operates. The amount of such provisions are based on various factors, such as interpretations of tax regulations by each taxable entity and the responsible tax authority. The Company and its subsidiaries have open tax years, primarily from 2011 to 2020, with significant taxing jurisdictions, including Canada, the United States and Barbados. These open years contain certain matters that could be subject to differing interpretations of applicable tax laws and regulations and tax treaties, as they relate to the amount, timing or inclusion of revenues and expenses, or the sustainability of income tax positions of the Company and its subsidiaries. Certain of these tax years may remain open indefinitely.
Such differences of interpretation may arise on a wholly owned subsidiary, Medicure U.S.A. Inc.wide variety of issues, depending on the conditions prevailing in the respective company’s domicile. As the Company assesses the probability for litigation and wassubsequent cash outflow with respect to taxes as remote, no contingent liability has been recognized.
Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, would be recognized subsequently if information about facts and circumstances changed. The adjustment would either be treated as a reduction to goodwill if it occurred during the measurement period or in profit or loss, when it occurs subsequent to the measurement period.
Business combinations and goodwill
The Company adopted amendments to IFRS 3 with a date of application of January 1, 2020. The IASB issued amendments to the definition of a business in IFRS 3 to help entities determine whether an acquired set of activities and assets is a business or not. They clarify the minimum requirements for a business, remove the assessment of whether market participants are capable of replacing any missing elements, add guidance to help entities assess whether an acquired process is substantive, narrow the definitions of a business and of outputs, and introduce an optional fair value concentration test.
The amendments are applied to transactions that are either business combinations or asset acquisitions for which the acquisition date is on or after the beginning of the first annual reporting period beginning on January 1, 2020. Consequently, transactions that occurred in prior periods do not need to be reassessed.
The Company’s adoption of the amendments to IFRS 3 did not have a significant impact on the Company’s consolidated financial statements for the year ended December 31, 2020.
Business combinations are accounted for using the acquisition method. The consideration for an acquisition is measured at the fair values of the assets transferred, the liabilities assumed and the equity interests issued at the acquisition date. Transaction costs that are incurred in connection with a business combination, other than costs associated with the issuance of debt or equity securities, are expensed as incurred. Identified assets acquired and liabilities and contingent liabilities assumed are measured initially recordedat fair values at the date of acquisition. On an acquisition-by-acquisition basis, any non-controlling interest is measured either at fair value of the non-controlling interest or at the fair value of the proportionate share of the net assets acquired.
Contingent consideration is measured at fair value on acquisition date and subsequentlyis included as part of the consideration transferred. The fair value of the contingent consideration liability is remeasured at amortized cost.each reporting date with the corresponding gain or loss being recognized in profit or loss.
The long-term derivativeGoodwill is initially measured at cost, being the value associated to the options rights received by the Company and is classified asexcess of fair value through profit and loss. The changeof the cost of the business combinations over the Company’s share in the long-term derivativenet fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. Any negative difference is recorded as a revaluation of long-term derivativerecognized directly in the consolidated statementstatements of net income (loss) and comprehensive income (loss).income. If the fair values of the assets, liabilities and contingent liabilities can only be calculated on a provisional basis, the business combination is recognized using provisional values. Any adjustments resulting from the completion of the measurement process are recognized within twelve months of the date of the acquisition.
IBR used in the valuation of leases
At inception of a contract, the Company must assess whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset over a period of time in exchange for consideration. The long-term derivative is non-transferableCompany must assess whether the contract involves the use of an identified asset, whether it has the right to obtain substantially all of the economic benefits from the use of the asset during the term of the contract and is recorded at fair valueif it has the right to direct the use of the asset. As a lessee, the Company recognizes a right-of-use asset and a lease liability at the commencement date of the lease.
Right-of-use asset
The right-of-use asset is initially measured at which it was acquired and subsequently revalued at each reporting date. Estimating fair value for this derivative requires determining the most appropriate valuation modelcost, which is dependentcomprised of the initial amount of the lease liability adjusted for any lease payments made and any initial direct costs incurred at or before the commencement date, plus any decommissioning and restoration costs, less any lease incentives received. The right-of-use asset is subsequently depreciated from the commencement date to the earlier of the end of the lease term, or the end of the useful life of the asset. In addition, the right-of-use asset may be reduced due to impairment losses, if any, and adjusted for certain re-measurements of the lease liability.
Lease liability
A lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date discounted by the interest rate implicit in the lease or, if that rate cannot be readily determined, the incremental borrowing rate. The lease liability is subsequently measured at amortized cost using the effective interest method. Lease payments included in the measurement of the lease liability comprise: fixed payments; variable lease payments that depend on an index or a rate; amounts expected to be payable under any residual value guarantee; the exercise price under any purchase option that the Company would be reasonably certain to exercise; lease payments in any optional renewal period if the Company is reasonably certain to exercise an extension option; and penalties for any early termination of a lease unless the Company is reasonably certain not to terminate early. The Company has elected to not include non-lease components related to premises leases in the determination of the lease liability.
The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of twelve months or less and leases of low-value assets. The lease payments associated with these leases are charged directly to income on a straight-line basis over the lease term.
Estimating the IBR
The Company cannot readily determine the interest rate implicit in its lease, therefore, it uses its IBR to measure lease liabilities. The IBR is the rate of interest that the Company would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what the Company ‘would have to pay which requires estimation when no observable rates are available or when they need to be adjusted to reflect the terms and conditions of the derivative. This estimate also requires determininglease. The Company estimates the most appropriateIBR using observable inputs (such as market interest rates) when available and is required to make certain entity-specific estimates (such as the valuation model, including the expected life of the derivative, volatility, dividend yield and probabilities pertaining to its exercise and making assumptions about them.subsidiary’s stand-alone credit rating).
General
AlthoughThrough 2020, the Company is currentlywas focused on Medicure International’s sole commercial product, AGGRASTAT®, this product has not been able to generate enoughmaintaining and growing the sales AGGRASTAT® and ZYPITAMAG® as well as earning its initial revenue forfrom SNP in January of 2020. Beginning with the Company to reach sustained profitability.
acquisition of Marley Drug on December 17, 2020, the became focused on maintaining and growing the pharmacy business of Marley Drug.
Historically, the Company concentrated primarily on research and development and continues to invest a significant amount of funds in research and development activities. To date, the Company has yet to and may never derive any revenues from its research and development products.
The Company has a limited operating history and its prospects must be considered in light of the risks, expenses and difficulties frequently encountered with the establishment of a business in a highly competitive industry, characterized by frequent new product introductions.
Twelve Months Ended December 31, 20152020 Compared to the Twelve Months Ended December 31, 2014
On December 18, 2014, the Company announcedthat the Board of Directors had approved a change in the Company's fiscal year end from May 31 to December 31. The change resulted in a stub period from June 1, 2014, to December 31, 2014, and as a result of the change, the first full fiscal year ended on December 31, 2015. This change in year end from May 31 to December 31 was being made by the Company to better align the Company’s financial reporting calendar with its industry peers and with most other companies trading on the TSX.V. As a result of this change in year end, it is important to note that the comparable period, being the twelve months ended December 31, 2014 is unaudited and considered estimated.
2019
Net AGGRASTAT® product sales for the year ended December 31, 20152020 were $22,083,000,$10.6 million compared to $8,426,000 in$19.4 million during the comparable period in 2014. year ended December 31, 2019.
The Company currentlyprimarily sells finished AGGRASTAT®AGGRASTAT® to drug wholesalers. These wholesalers subsequently sell AGGRASTAT®AGGRASTAT®to the hospitals where health care providers administer the drug to patients. Wholesaler management decisions to increase or decrease their inventory of AGGRASTAT®AGGRASTAT®may result in sales of AGGRASTAT®AGGRASTAT®to wholesalers that do not track directly with demand for the product at hospitals. The Company has set up a portal called Medicure Direct to market the Company’s branded and generic products directly to hospitals and pharmacies with initial sales occurring during the fourth quarter of 2020 through this initiative.
Hospital demand for AGGRASTAT® has been lower during the year ended December 31, 2020 when compared to the prior year, however the number of hospital customers using AGGRASTAT® continued to remain strong leading to patient market share held by the product of approximately 65% as of December 31, 2020. The Company’s commercial team continues to work on expanding its customer base, however this continued focus has not directly resulted in corresponding revenue increases as the Company continues to face increased competition resulting from further genericizing of the Integrilin market which has created pricing pressures on AGGRASTAT® combined with lower hospital demand for the product including a reduction in procedures being performed as a result of COVID-19. The Company continues to expect strong patient market share despite reduced revenue from the AGGRASTAT® brand and diversifying revenues away from a single product became increasingly important to the Company.
All of the Company’s sales are denominated in U.S. dollars and the U.S. dollar improved in value against the Canadian dollar during the year ended December 31, 2020 when compared to the year ended December 30, 2019, however this improvement was mainly experienced in the first half of 2020 with US dollars.
Net revenue fromdollar exchange rates declining in the salesecond half of finished2020 compared to 2019, particularly in the fourth quarter. This led to increased AGGRASTAT®revenues, offset by the increasing price pressures facing AGGRASTAT® productswhen comparing the two periods as well as decreases in demand.
Net ZYPITAMAG® product sales for year ended December 31, 2020 were $453,000 compared to $183,000 for the year ended December 31, 2015 increased by 162% over2020.
The Company primarily sells ZYPITAMAG® to drug wholesalers. These wholesalers subsequently sell ZYPITAMAG®to pharmacies who in turn sell the net revenue forproduct to patients. The Company expects ZYPITAMAG® revenues to grow throughout 2020 and beyond. Beginning in the twelve months ended December 31, 2014.second quarter, the Company launched a direct to patient online pharmacy program which resulted in sales of ZYPITAMAG®being made directly to pharmacy customers. The increase in revenue from ZYPITAMAG® resulted from increased demand and usage of the product experienced during 2020 as a result of the Company’s sales and marketing initiatives implemented since acquiring control of the product.
The Company recorded initial sales during the year ended December 31, 2020 totaling $116,000 from SNP which became available in the US market in late 2019. The Company primarily sells finished SNP to drug wholesalers. These wholesalers subsequently sell SNPto hospitals where health care providers administer the drug to patients. Wholesaler management decisions to increase or decrease their inventory of SNP may result in sales of SNPto wholesalers that do not track directly with demand for the product at hospitals. The Company has set up a portal called Medicure Direct to market the Company’s branded and generic products directly to hospitals and pharmacies with initial sales expected to occur in the fourth quarter of 2020 through this initiative.
As a result of the acquisition of Marley Drug, which was completed on December 17, 2020, the Company recorded revenue of $340,000 during the year ended December 31, 2020 pertaining to the Marley Drug in store and mail order pharmaceutical business. Marley Drug sells pharmaceutical and over the counter products directly to patients in a retail setting and has a strong mail order business throughout the United States.
During the year ended December 31, 2020, ReDSTM contributed revenue of $95,000 from the sale of the product in the United States compared to $618,000 for the previous year ended December 31, 2019. On August 20, 2020, the Company announced the termination of the marketing and distribution agreement with Sensible for the marketing of the ReDS Pro device in the United States. In connection with the termination, Sensible and the comparable quarterCompany have entered into a transition agreement which provides additional compensation to the Company for the previous year is primarily attributablesales to an increase in the number of new hospital customers using AGGRASTAT® and the increase in market share heldcustomer leads provided by the product. Revenue growth was also aided by favourable fluctuationsCompany. The Company expects minimal sales under the transition agreement in the U.S. dollar exchange rate throughout the third quarter. The Company's commercial team continues to work on further expanding2021 before its customer base.
expiry.
Cost of goods sold represents direct product costs associated with AGGRASTAT®AGGRASTAT®, ZYPITAMAG®, ReDSTMand SNP, including and write-downs for obsolete inventory, and amortization of the related acquired AGGRASTAT®intangible assets.
Costassets and royalties paid on ZYPITAMAG®. Additionally, following the acquisition of Marley Drug, cost of goods sold excluding amortization,includes direct product costs associated with the sale of products through the Marley Drug business.
AGGRASTAT® cost of goods sold for the year ended December 31, 20152020 were $1,604,000$3.0 million compared to $393,000 for the comparable period in the prior year. For the year ended December 31, 2015, increases to cost of goods sold are the result of increases in net sales of AGGRASTAT® during the period when compared to the same period in 2014.
Amortization of AGGRASTAT® intangible assets increased$3.6 million for the year ended December 31, 2015 to $656,000,2019. The decrease in cost of goods sold is the result of reduced product sold when compared to $663,000for the comparable period in the prior year.The increase isyear. Reductions in procedures as a result of fluctuationsCOVID-19 contributed to the decrease in foreign exchange rates causingvolume of product sold relating to AGGRASTAT®.
ZYPITAMAG® cost of goods sold for year ended December 31, 2020 totaled $2.8 million and includes $89,000 relating to product sold to the Company’s customers, $2.4 million from amortization expenseof the ZYPITAMAG® intangible assets, $274,000 relating to bea write-down of expired inventory and $15,000 relating to royalties on the sale of ZYPITAMAG®resulting from the acquisition of the product in September of 2019. This compares to ZYPITAMAG® cost of goods sold for the year ended December 31, 2019 of $1.9 million which was the result of $34,000 relating to product sold to the Company’s wholesale customers, $797,000 relating to amortization of the ZYPITAMAG® license, $1.0 million relating to a write-down of expired inventory and $2,000 relating to royalties on the sale of ZYPITAMAG®resulting from the acquisition of the product in September of 2019. The increase in cost of goods sold between 2020 and 2019 is the result of higher amortization of the Company’s intangible assets relating to ZYPITAMAG®as a result of owning the product for the full 2020 year compared to three months in 2019. Additionally, high volumes of the product were sold during 2020 compared to 2019 contributing to the increase in ZYPITAMAG®cost of goods sold. These increases were offset by reductions in write-downs of expired inventory for the year ended December 31, 2020 compared to the year ended December 31, 2019.
The cost of goods sold related to SNP totaled $524,000 for the year ended December 31, 2020 compared to $940,000 for the year ended December 31, 2019. For year ended December 31, 2020, the cost of goods sold totaling $116,000 related to product sold to the Company’s customers as well as an impairment loss on the write-down of inventory of $408,000 as a result of reduced selling prices for the product experienced in the market pertaining to SNP relating to inventory. The cost of goods sold related to SNP for the year ended December 31, 2019 related to an impairment loss on the write-down of inventory of $940,000 recorded during the year as a result of reduced selling prices for the product experienced in the market pertaining to SNP.
As a result of the acquisition of Marley Drug, which was completed on December 17, 2020, the Company recorded cost of goods sold of $104,000 during the year ended December 31, 2015 as2020 pertaining to the asset is ownedcost of products sold by a subsidiary whose functional currency isMarley Drug’s in store and mail order pharmaceutical business.
There was no cost of goods sold relating to the US dollar.
Total selling, general, and administrative expendituresReDSTM product recorded during the year ended December 31, 2020. ReDSTM cost of goods sold for the year ended December 31, 2015 were $10,237,000, compared2019 totaled $904,000 and consisted of $263,000 paid to $5,549,000 forSensible in relation to ReDSTMfrom the comparable period inrevenue sharing arrangement relating to product sold by the prior year. Selling, general,Company during 2019 and administrative expenditures$641,000 related to AGGRASTAT®were $7,666,000 for the year ended December 31, 2015, comparedamortization of the ReDSTM license, which was recorded on the statement of financial position within intangible assets prior to $4,038,000 for the comparable period inimpairment recorded over the prior year. ReDSTMintangible assets.
Selling general, and administrative expenditures – Other were $2,571,000 for the year ended December 31, 2015, compared to $1,511,000 the comparable period in the prior year. Selling, general and administrative expenses include salaries and related costs for those employees not directly involved in researchthe commercial operations of the Company, as well as costs associated with marketing, promotion, distribution of the Company’s products as well as market access activities and development.other commercial activities. The expenditures are required to support sales and marketing efforts of AGGRASTAT®AGGRASTAT®, ZYPITAMAG®, ReDSTMand SNP and beginning on December 17, 2020, costs pertaining to the Marley Drug business.
Selling expenses for the year ended December 31, 2020 were $5.4 million compared to $13.4 million for the year ended December 31, 2019.
Commercial sales expenses decreasedduring the year ended December 31, 2020 as compared to the prior year due to commercial launch costs relating to ReDSTM being incurred during the 2019 and as a result of cost reductions implemented during late 2019 and throughout 2020 particularly as it relates to the sales and marketing costs associated with ReDSTM as well as decreases in costs as a result of limitations to conference and travel related costs due to COVID-19. Beginning with the acquisition of Marley Drug, which was completed on December 17, 2020, costs associated with the Marley Drug business are included in selling costs for the year ended December 31, 2020.
During the year ended December 31, 2020, the Company recorded a recovery of salary expenditures of $595,000 through government assistance resulting from the Canada Emergency Wage Subsidy (“CEWS”) within selling expenses.
General and administrative expenses include the cost of administrative salaries, ongoing business development and corporate stewardship activities. The balance also includesactivities and professional fees such as legal, audit, investor and public relations.
Selling,General and administrative expenses for the year ended December 31, 2020 were $4.6 million compared to $3.4 million for the year ended December 31, 2019. The increase in general and administrative expenditures – AGGRASTAT®increasedadministration expenses during the year ended December 31, 2015 as2020 when compared to same period in the prior year mainly due to:
Selling, general and administrative expenditures – Other increased during the year ended December 31, 2015 as compared2019 primarily related to same periodhigher legal costs associated with the Company’s patent challenge, which was settled in the prior year mainly due to:fourth quarter of 2020, partially offset by cost reductions implemented by the Company during late 2019 throughout 2020 partially.
Net research and development expenditures forDuring the year ended December 31, 2015 were $4,865,000, compared to $999,000 for2020, the comparable period inCompany recorded a recovery of salary expenditures of $159,000 through government assistance resulting from the prior year. CEWS within general and administrative expenses.
Research and development expenditures include costs associated with the Company’s on-going AGGRASTAT development, clinical development and preclinical programs including salaries, research centred costsmonitoring and monitoringother research costs. The Company expenses all research costs and has not had any development costs that meet the criteria for capitalization under IFRS. The increase inPrepaid research and development costs represent advance payments under contractual arrangements for clinical activity outsourced to research centers.
Net research and development expenditures for the year ended December 31, 2015 as2020 totaled $3.3 million compared to $4.3 million for the twelve monthsyear ended December 31, 2014 is primarily due to the filing of a sNDA during 2015 with the FDA to expand the label for AGGRASTAT® to include the treatment of patients presenting with ST segment elevation myocardial infarction (STEMI). This filing included a one-time filing fee paid to the FDA of $1.5 million ($1.2 million USD), as well as approximately $700,000 in other costs associated with its filing and preparation incurred during the quarter. Additionally research2019. Research and development expenditures increased as a result of manufacturing set-upinclude costs associated with the AGGRASTAT® finished productCompany’s on-going AGGRASTAT® development, clinical development and preclinical programs including salaries, research centered costs and monitoring costs, as well as research and development costs associated with non-AGGRASTAT® projects.
Generally, includedthe development projects being undertaken to develop additional cardiovascular products. The decrease experienced during the year ended December 31, 2020 when compared to the year ended December 31, 2019 is primarily a result of FDA refunds obtained by the Company during 2020 resulting in a recovery of expenses of $677,000 pertaining to previously paid FDA fees as well as reducing the quarterly expense going forward as well as timing of research and development expenses are charges relatedexpenditures resulting in the timing of each development project. During the fourth quarter of 2020, the Company incurred significant expenditures pertaining to impairmentthe MC-1 or P5P development project.
During the year ended December 31, 2020, the Company recorded a recovery of salary expenditures of $106,000 through government assistance resulting from the CEWS within research and development expenses.
On February 13, 2019, the Company announced that it had received notice from the purchaser of Medicure’s interests in Apicore of potential claims against funds held back in respect of representations and warranties under the Apicore sale agreement. The notice did not contain sufficiently detailed information to enable Medicure to assess the merits of the Company’s intangibles assets, however thereclaims with the maximum exposure of the claims being the total holdback receivable. The Company continued to proceed diligently to investigate the potential claims and attempt to satisfactorily resolve them with a view to having the holdback funds released. In conjunction with the sale of Medicure’s interests in Apicore, representation and warranty insurance was obtained by the purchaser that could result in mitigation of the potential claims.
On December 5, 2019, the Company reached a settlement agreement with the Buyer in the Apicore Sales Transaction with respect to the amounts heldback under the Apicore Sales Transaction. A settlement agreement was reached under which the Company received US$5.1 million (CDN$6.7 million) in relation to the holdback receivable. In connection with this settlement the amounts owing to former President and Chief Executive Officer of Apicore which were no impairments recorded in either period. within other long-term liabilities were settled by the Buyer. Immediately prior to the settlement, the Company reduced the carrying value on the statement of financial position of the holdback receivable by $3.6 million to the net recoverable value from the negotiated settlement during the year ended December 31, 2019.
Intangible assets are reviewed for impairment on an ongoing basis whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Based on this review certain patents were deemed not significant to the Company’s commercial and research operations and a decision was made to no longer pursue these patents and as a result the carrying value of these patents was written off.
It is important to note that historical patterns of impairment charges cannot be taken as an indication of future impairments. The amount and timing of impairments and write-downs may vary substantially from period to period depending on the business and research activities being undertaken at any one time and changes in the Company'sCompany’s commercial strategy.
The Company has considered indicators of impairment as at December 31, 2020 and 2019.
The Company did not record any write-down of intangible assets during the year ended December 31, 2020.
During the year ended December 31, 2015,2019, the Company recorded a reversalwrite-down of an impairment loss relating to AGGRASTAT intangible assets originally written downrelated to the ReDSTM license totaling $6.3 million as a result of uncertainties with ReDSTM being experienced in regards to the length of the sales cycle and uptake of the product with customers, resulting in the Company’s sales being below the committed amounts required by the exclusive marketing and distribution agreement regarding ReDSTM.
With respect to the intangible asset related to ZYPITAMAG®, management calculated its fair value less costs to sell using a discounted cash flow model (Level 3 in the fair value hierarchy) based upon financial forecasts prepared by management using a discount rate of 14.09%, a cumulative aggregate growth rate of 103% over three years following the acquisition of Marley Drug with a declining growth rate going forward and a nominal terminal value. The Company has concluded that there was no impairment as a result of the analysis for the year ended December 31, 2020 as the recoverable amount exceeded the carrying amount by approximately $301,000 at the high end of the reasonable range. However, the assessment identified that a reasonably possible change in the key assumption of the sales growth rate forecast results in the recoverable amount being less than the carrying value. A five percent reduction in the forecast or a one percent increase in the discount rate applied would result in the carrying value of the intangible asset exceeding the reasonable range of the recoverable amount.
The finance income for the year ended December 31, 2020 of $765,000 is a result of a recovery accretion on the Company’s AGGRASTAT® and interest on cash and investments held by the Company during the year ended MayDecember 31, 2008, totalling $788,305 as a result of sustained improvements in2020. This was partially offset by accretion on the AGGRASTAT business
DuringZYPITAMAG® acquisition payable, finance expense related to the twelve monthsCompany’s lease obligations and bank charges. This compares to finance income for the year ended December 31, 2014, the Company recognized $1,385,000 of income pertaining2019 relates to investment structuring services resulting from its acquisition of a minority interest in a pharmaceutical manufacturing business known as Apicore. The Company’s equity intereston cash and certain other rights, including the option rights, were obtainedinvestments held by the Company for services provided in its lead role in structuringand a US$22.5 million majority purchase and financing of Apicore. There was no cash outflow in connection withrecovery from accretion on the acquisitionCompany’s royalty obligation, partially offset by bank changes, accretion of the minorityCompany’s acquisition payable and other interest incurred during the year ended December 31, 2019.
The foreign exchange gain of $497,000 for the year ended December 31, 2020 compares to a foreign exchange loss of $2.6 million for the year ended December 31, 2019. The changes to foreign exchange gains and losses results from changes in Apicore, with the exception of costs incurredUS dollar exchange rate during the respective periods, which led to the foreign exchange gains and losses as it applies to the significant US dollar cash balances held by the Company in relation toas at the transaction which totalled $167,672.end of both periods.
FinanceThe Company did not record any income tax expense for the year ended December 31, 2015 was $4,123,000, compared to $2,145,000 in the comparable period in the prior year.2020. The increase in financeincome tax expense for the year ended December 31, 2015 as compared to the prior fiscal year is due to higher accretion on the Company’s royalty obligation resulting from higher revenue estimates as a result of the October 2013 label change and the Company’s continued sales growth. The royalty obligation arose out of the previous debt settlement.
The net foreign exchange loss for the year ended December 31, 2015 was $69,000, compared to a net foreign exchange loss of $18,000 for the comparable period in the prior year. The change is due to higher fluctuations in the Canadian dollar versus the US dollar experienced$145,000 during the year ended December 31, 2015 compared2019 is primarily related to changes to the twelve months ended December 31, 2014.
The Company recognized an incomeCompany’s tax recovery of $379,000 for the year ended December 31, 2015 to the extent it is probable that future taxable profits will be available against which the accumulated tax losses and temporary differences can be utilized.
loss carryforwards in Barbados.
For the year ended December 31, 2015,2020, the Company recorded consolidateda net incomeloss of $1,668,000$6.8 million or $0.12$0.64 per share ($0.64 per share diluted) compared to $463,000$19.8 million or $0.04$1.32 per share ($1.32 per share diluted) for the twelve monthsyear ended December 31, 2014. 2019.
As discussed above, the main factors contributing to the increasereduction in the net incomeloss were the income resulting from investment structuring services relating toimpairment loss recorded on the acquisitionReDSTM license and a loss recorded upon the settlement of a minority interest in Apicore in the comparable period offset by the significant increase revenuesholdback receivable experienced during the year ended December 31, 20152019. Additionally, lower revenues and higher general and administration expenses, partially offset by lower selling costs contributed to the decrease in the net loss for the year ended December 31, 2020 when compared to the comparable period innet loss for the prior year. Revenue increase were partially offset by increases in selling, general and administration, research and development and finance expenses.
year ended December 31, 2019.
For the year ended December 31, 2015,2020, the Company recorded a total comprehensive incomeloss of $2,474,000$7.6 million compared to $620,000$26.8 million for the twelve monthsyear ended December 31, 2014.2019. The change in comprehensive incomeloss results from the factors described above.above as well as a loss from the revaluation of the investment in Sensible Medical made during the year ended December 31, 2019 in addition to fluctuations in the US dollar exchange rate during the periods.
The weighted average number of common shares outstanding used to calculate basic incomeand diluted loss per share was 13,461,608 for the year ended December 31, 2015 and 12,209,907 for the twelve months ended December 31, 2014.
2020 was 10,686,041. The weighted average number of common shares outstanding used to calculate basic and diluted incomeloss per share was 15,765,570 for the year ended December 31, 2015 and 13,843,126 for the twelve months ended2019 was 14,998,540.
As at December 31, 2014.2020, the Company had 10,251,313 common shares outstanding and 1,326,958 stock options, of which 1,110,958 were exercisable, to purchase common shares outstanding. As at March 29, 2021, the Company had 10,251,313 common shares outstanding and 1,325,658 stock options, of which 1,129,658 were exercisable, to purchase common shares outstanding.
As at December 31, 2020, the Company had 10,251,313 common shares outstanding and 1,326,958 stock options, of which 1,110,958 were exercisable, to purchase common shares outstanding.
SevenAs at April 20, 2021, the Company had 10,251,313 common shares outstanding and 1,272,633 stock options, of which 1,096,633 were exercisable, to purchase common shares outstanding.
Twelve Months Ended December 31, 20142019 Compared to the SevenTwelve Months Ended December 31, 20132018
On December 18, 2014, the Company announcedthat the Board of Directors had approved a change in the Company's fiscalNet AGGRASTAT® product sales for year end to December 31. The change resulted in a stub period from June 1, 2014, to December 31, 2014, and as a result of the change, the first full fiscal year ended on December 31, 2015. This change in year end from May 31 to December 31 was being made by the Company to better align the Company’s financial reporting calendar with its industry peers and with most other companies trading on the TSX.V. As a result of this change in year end, it is important to note that the comparable period, being the seven months ended December 31, 2013 is unaudited.
Net product sales for seven months2019 were $19.4 million compared to $28.5 million during the year ended December 31, 2014 were $5,264,000, compared to $2,165,000 in the comparable period in 2013. 2018.
The Company currently sells finished AGGRASTAT®AGGRASTAT® to drug wholesalers. These wholesalers subsequently sell AGGRASTAT®AGGRASTAT®to the hospitals where health care providers administer the drug to patients. Wholesaler management decisions to increase or decrease their inventory of AGGRASTAT® AGGRASTAT®may result in sales of AGGRASTAT®AGGRASTAT®to wholesalers that do not track directly with demand for the product at hospitals. All
Hospital demand for AGGRASTAT® was lower during 2019 than the prior year however the number of new hospital customers using AGGRASTAT® continued to increase leading to patient market share held by the product increasing to approximately 67% as at December 31, 2019. The Company’s commercial team continues to work on expanding its customer base, however this continued increase in the customer base for AGGRASTAT® has not directly resulted in corresponding revenue increases as the Company continues to face increased competition resulting from further genericizing of the Integrilin market which has created pricing pressures on AGGRASTAT® combined with lower hospital demand for the product. The Company continues to expect strong performance from the AGGRASTAT® brand, due primarily to its patient market share, however diversifying revenues away from a single product has become increasingly important to the Company.
As all of the Company’s sales are denominated in US dollars.U.S. dollars and the U.S. dollar improved in value against the Canadian dollar when comparing the year ended December 31, 2019 with the year ended December 31, 2018, which led to increased AGGRASTAT®revenues, however this was offset by the increasing price pressures facing AGGRASTAT® when comparing the two periods and decreased demand.
NetDuring the year ended December 31, 2019, ReDSTM contributed revenue of $618,000 from the sale of finished AGGRASTAT® productsthe product in the United States.
Net ZYPITAMAG® product sales for the seven monthsyear ended December 31, 2014 increased by 143% over2019 were $183,000 compared to $652,000 during the net revenue for the seven monthsyear ended December 31, 2013. Hospital demand2018.
The Company currently sells ZYPITAMAG® to drug wholesalers. These wholesalers subsequently sell ZYPITAMAG® to pharmacies who in turn sell the product to patients. The decrease in ZYPITAMAG® product sales for AGGRASTAT® increased significantly compared to the comparable period in the prior year. The increase in revenueyear ended December 31, 2019 is primarily attributable to an increase in the number of new hospital customers using AGGRASTAT®. The number of new customers reviewing and implementing AGGRASTAT® has increased sharply as a result of FDA approval ofinitial stocking at the new dosing regimen for AGGRASTAT® as announced on October 11, 2013. Additionally, favourable fluctuations inwholesale level during the U.S. dollar exchange rate contributedyear ended December 31, 2018. The Company expects ZYPITAMAG® revenues to the increase in revenue.
grow throughout 2020 and beyond.
Cost of goods sold represents direct product costs associated with AGGRASTAT®AGGRASTAT®, ZYPITAMAG®, ReDSTM and SNP including and write-downs for obsolete inventory, and amortization of the related acquired AGGRASTAT®intangible assets.assets and royalties paid on ZYPITAMAG®.
CostAGGRASTAT® cost of goods sold excluding amortization, for the seven monthsyear ended December 31, 2014 were $269,0002019 was $3.6 million compared to $148,000$3.7 million for the comparable period in the prior year. For the seven monthsyear ended December 31, 2014, increases2018. The decrease to cost of goods sold areis the result of increases in net saleslower volume of AGGRASTAT® duringAGGRASTAT product sold, as well as a higher percentage of 250 ml bags sold versus the period when compared to the same period in 2013.other AGGRASTAT®formats.
AmortizationReDSTM cost of AGGRASTAT® intangible assets increasedgoods sold for the seven monthsyear ended December 31, 20142019 totaled $904,000 and consisted of $263,000 paid to $332,000, when comparedSensible in relation to $299,000ReDSTM from the revenue sharing arrangement relating to product sold by the Company during 2019 and $641,000 related to the amortization of the ReDSTM license, which was recorded on the statement of financial position within intangible assets, prior to the impairment recorded over the ReDSTM intangible assets.
ZYPITAMAG® cost of goods sold for the comparable periodyear ended December 31, 2019 totaled $1.9 million and includes $34,000 relating to product sold to the Company’s wholesale customers, $1.0 million relating to a write-down of ZYPITAMAG® product inventory, $797,000 from amortization of the ZYPITAMAG® license and $2,000 relating to royalties on the sale of ZYPITAMAG® resulting from the acquisition of the product in September of 2019.
The cost of goods sold related to SNP relates to an impairment loss on the priorwrite-down of inventory of $940,000 recorded during the year.The increase is ended December 31, 2019 as a result of fluctuations in foreign exchange rates causing the amortization expense to be higher during the seven months ended December 31, 2014 as the asset is owned by a subsidiary whose functional currency is the US dollar.
Totalreduced selling general, and administrative expendituresprices for the seven months ended December 31, 2014 were $3,231,000, compared to $1,807,000 for the comparable periodproduct experienced in the prior year. Selling, general, and administrative expenditures relatedmarket pertaining to AGGRASTAT®were $1,711,000 for the seven months ended December 31, 2014, compared to $1,031,000 for the comparable period in the prior year. SNP.
Selling general, and administrative expenditures – Other were $1520,000 for the seven months ended December 31, 2014, compared to $776,000 the comparable period in the prior year. Selling, general and administrative expenses include salaries and related costs for those employees not directly involved in researchthe commercial operations of the Company, as well as costs associated with marketing, promotion, distribution of the Company’s products as well as market access activities and development.other commercial activities. The expenditures are required to support sales and marketing efforts of AGGRASTAT®AGGRASTAT®, ZYPITAMAG®, ReDSTM and SNP.
Selling expenses for the year ended December 31, 2019 were $13.4 million compared to $15.6 million for the year ended December 31, 2018.
Commercial sales expenses decreasedduring the year ended December 31, 2019 as compared to the prior year due to commercial launch costs relating to ZYPITAMAG® being incurred during the year ended December 31, 2018 as well as cost reductions implemented by the Company during 2019.
General and administrative expenses include the cost of administrative salaries, ongoing business development and corporate stewardship activities. The balance also includesactivities and professional fees such as legal, audit, investor and public relations.
Selling,General and administrative expenses for the year ended December 31, 2019 were $3.4 million compared to $3.9 million for the year ended December 31, 2018. The decrease in general and administrative expenditures – AGGRASTAT®increasedexpenses is primarily related to lower share-based compensation expenses during the seven monthsyear ended December 31, 20142019 as compared to same period in the prior year mainly due to:
Selling, general and administrative expenditures – Other increased during the seven months ended December 31, 2014 as compared to same period in the prior year mainly due to:2018.
Net research and development expenditures for the seven months ended December 2014 were $783,000, compared to $473,000 for the comparable period in the prior year. Research and development expenditures include costs associated with the Company’s clinical development and preclinical programs including salaries, research centred costsmonitoring and monitoringother research costs. The Company expenses all research costs and has not had any development costs that meet the criteria for capitalization under IFRS. The increase inPrepaid research and development costs represent advance payments under contractual arrangements for clinical activity outsourced to research centers.
Net research and development expenditures for the seven monthsyear ended December 31, 20142019 were $4.3 million compared to $6.7 million for the year ended December 31, 2018. Research and development expenditures include costs associated with the Company’s on-going AGGRASTAT® development, clinical development and preclinical programs including salaries, research centered costs and monitoring costs, as well as research and development costs associated with the development projects being undertaken to develop additional cardiovascular products. The decrease experienced during the year ended December 31, 2019 when compared to the same periodyear ended December 31, 2018 is a result of the timing of expenses pertaining to the Company’s development projects, particularly the Company’s additional ANDA development projects.
On February 13, 2019, the Company announced that it had received notice from the purchaser of Medicure’s interests in Apicore of potential claims against funds held back in respect of representations and warranties under the Apicore sale agreement. The notice did not contain sufficiently detailed information to enable Medicure to assess the merits of the claims with the maximum exposure of the claims being the total holdback receivable. The Company continued to proceed diligently to investigate the potential claims and attempt to satisfactorily resolve them with a view to having the holdback funds released. In conjunction with the sale of Medicure’s interests in Apicore, representation and warranty insurance was obtained by the purchaser that could result in mitigation of the potential claims.
In consideration of the uncertainty associated with the potential claims asserted by the Buyer, the Company reduced the carrying value of the holdback receivable by $1.5 million on the statement of financial position as at December 31, 2018.
On December 5, 2019, the Company reached a settlement agreement with the Buyer in the Apicore Sales Transaction with respect to the amounts heldback under the Apicore Sales Transaction. A settlement agreement was reached under which the Company received U.S. $5.1 million (CDN$6.7 million) in relation to the holdback receivable. In connection with this settlement the amounts owing to former President and Chief Executive Officer of Apicore which were recorded within other long-term liabilities were settled by the Buyer. Immediately prior year is due to increased coststhe settlement, the Company reduced the carrying value on the statement of financial position of the holdback receivable by $3.6 million to the net recoverable value from the Company’s clinical trial of AGGRASTAT® (tirofiban HCl) entitled “Shortened AGGRASTAT® Versus Integrilin in Percutaneous Coronary Intervention” (SAVI-PCI), in addition to an increase in the Company’s transdermal research program.negotiated settlement.
Generally charges related to impairment of the Company’s intangibles assets are included in research and development expenses. However there were no impairments recorded in either period. Intangible assets are reviewed for impairment on an ongoing basis whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Based on this review certain patents were deemed not significant to the Company’s commercial and research operations and a decision was made to no longer pursue these patents and as a result the carrying value of these patents was written off.
It is important to note that historical patterns of impairment charges cannot be taken as an indication of future impairments. The amount and timing of impairments and write-downs may vary substantially from period to period depending on the business and research activities being undertaken at any one time and changes in the Company'sCompany’s commercial strategy.
DuringThe Company has considered indicators of impairment as at December 31, 2019 and 2018. The Company recorded a write-down of intangible assets related to the seven monthsReDSTM license during the year ended December 31, 2014,2019 totaling $6.3 million as a result of uncertainties with ReDSTM being experienced in regards to the length of the sales cycle and uptake of the product with customers, resulting in the Company’s sales being below the committed amounts required by the exclusive marketing and distribution agreement regarding ReDSTM. The Company recognized $1,385,000did not record any write-down of intangible assets during the year ended December 31, 2018.
With respect to the intangible asset related to ZYPITAMAG®, management calculated its fair value less costs to sell using a discounted cash flow model (Level 3 in the fair value hierarchy) based upon financial forecasts prepared by management using a discount rate of 13.25%, a cumulative aggregate growth rate of 300% over four years and a nominal terminal value. The Company has concluded that there was no impairment as a result of the analysis for the year ended December 31, 2019 as the recoverable amount exceeded the carrying amount by approximately $1.6 million at the high end of the reasonable range. However, the assessment identified that a reasonably possible change in the key assumption of the sales growth rate forecast results in the recoverable amount being less than the carrying value. A seven percent reduction in the sales growth forecast per year would result in the carrying value of the intangible asset exceeding the reasonable range of the recoverable amount.
The finance income pertainingfor the year ended December 31, 2019 relates to investment structuring services resulting from its acquisition of a minority interest in a pharmaceutical manufacturing business known as Apicore. The Company’s equity intereston cash and certain other rights, including the option rights, were obtainedinvestments held by the Company for services provided in its lead role in structuringand a US$22.5 million majority purchase and financing of Apicore. There was no cash outflow in connection with the acquisition of the minority interest in Apicore, with the exception of costs incurred by the Company in relation to the transaction which totalled $167,672.
Finance expense for the seven months ended December 31, 2014 was $730,000, compared to $394,000 in the comparable period in the prior year. The increase in finance expense for the seven ended December 31, 2014 as compared to the prior fiscal year is due to higherrecovery from accretion on the Company’s royalty obligation, resulting from higher revenue estimates as a resultpartially offset by bank changes, accretion of the October 2013 label change. TheCompany’s acquisition payable and other interest incurred during the year ended December 31, 2019. This compares to finance income for the year ended December 31, 2018, which relates to interest on cash and investments held by the Company, offset primarily by accretion on the Company’s royalty obligation arose out of the previous debt settlement.
obligation.
The net foreign exchange loss for the seven monthsyear ended December 31, 2014 was $28,000,2019 compared to a netgain for year ended December 31, 2018 relates to decrease in the US dollar exchange rate between December 31, 2018 and December 31, 2019, which led to the foreign exchange loss of $5,000 foras it applies to the comparable period in the prior year. The change is due to higher fluctuations in the Canadian dollar versus thesignificant US dollar experiencedcash held by the Company as at the end of both periods.
The income tax expense of $145,000 during the seven monthsyear ended December 30, 2019 is primarily related to changes to the Company’s tax loss carryforwards in Barbados during the period compared to income tax expense of $897,000 during the year ended December 31, 2014 compared to2018, which resulted from taxable income in the seven monthsUnited States from the Company’s commercial business during the period.
For the year ended December 31, 2013.
For2019, the seven monthsCompany recorded a net loss of $19.8 million or $1.32 per share ($1.32 per share diluted) compared to net income of $3.9 million or $0.25 per share ($0.24 per share diluted) for the year ended December 31, 2014, the Company recorded consolidated net income of $1,196,000 or $0.10 per share compared to a loss of $960,000 or $0.08 per share for the seven months ended December 31, 2013.2018. As discussed above, the main factors contributing to the increase in the net incomeloss were the income resulting from investment structuring services relatingimpairment loss recorded on the ReDSTM license, impairment losses recorded in regards to inventories of ZYPITAMAG® and SNP, a loss recorded upon the acquisitionsettlement of a minority interest in Apicorethe holdback receivable, lower revenues and the increased revenuesforeign exchange losses experienced during the seven monthsyear ended December 31, 2014 when compared to the comparable period in the prior year. These were partially offset by increases in selling, general and administration expenses and finance expense.
2019.
For the seven monthsyear ended December 31, 2014,2019, the Company recorded total comprehensive income of $1,339,000 compared to a total comprehensive loss of $887,000$26.8 million compared to total comprehensive income of $4.5 million for the seven monthsyear ended December 31, 2013.2018. The change in comprehensive incomeloss results from the factors described above.
above resulting in the net loss for the year ended December 31, 2019 as well as a loss of $6.3 million from the revaluation of the investment in Sensible Medical made during the year ended December 31, 2019. During the year ended December 31, 2019, the Company recorded other comprehensive loss of $6.3 million associated with the change in fair value of the investment in Sensible Medical. This resulted in a carrying value as at December 31, 2019 of one dollar. The change in the fair value of the investment in Sensible Medical is as a result of uncertainties with ReDSTM being experienced in regards to the length of the sales cycle and uptake of the product with customers resulting in lower than expected amounts being paid to Sensible Medical under the exclusive marketing and distribution agreement.
The weighted average number of common shares outstanding used to calculate basic loss(loss) income per share was 12,204,827 for the seven monthsyear ended December 31, 20142019 and 12,196,508 for the seven months ended December 31, 2013.2018 was 14,998,540 and 15,791,396, respectively.
The weighted average number of common shares outstanding used to calculate diluted loss per share was 13,843,126 for the seven months ended December 31, 2014 and 12,196,508 for the seven months ended December 31, 2013.
Year Ended May 31, 2014 Compared to the Year Ended May 31, 2013
During the preparation of the Company’s consolidated financial statements for the seven months ended December 31, 2014, the Company determined that the accounting for stock-based compensation pertaining to a consulting agreement signed during the year ended May 31, 2014 was interpreted incorrectly in accordance with IFRS 2 Share-Based Payments for the year ended May 31, 2014. As a result the May 31, 2014 information provided has been restated to include stock-based compensation expense relating to this consulting agreement.
Net product sales for fiscal 2014 were $5,051,000, compared to $2,603,000 in fiscal 2013. The Company currently sells finished AGGRASTAT® to drug wholesalers. These wholesalers subsequently sell AGGRASTAT®to the hospitals where health care providers administer the drug to patients. Wholesaler management decisions to increase or decrease their inventory of AGGRASTAT®may result in sales of AGGRASTAT® to wholesalers that do not track directly with demand for the product at hospitals. All of the Company’s sales are denominated in US dollars.
Net revenue from the sale of finished AGGRASTAT® products for the year ended May 31, 2014 increased by 94% over the net revenue for the year ended May 31, 2013. Hospital demand for AGGRASTAT® increased significantly compared to the previous fiscal year. The increase in revenue is primarily attributable to an increase in the number of new hospital customers using AGGRASTAT®. The number of new customers reviewing and implementing AGGRASTAT® has increased sharply as a result of FDA approval of the new dosing regimen for AGGRASTAT® as announced on October 11, 2013. Additionally, favourable fluctuations in the U.S. dollar exchange rate contributed to the increase in revenue as all sales are denominated in U.S. dollars.
Cost of goods sold represents direct product costs associated with AGGRASTAT®including and write-downs for obsolete inventory and amortization of the related acquired AGGRASTAT®intangible assets.
Cost of goods sold, excluding amortization, for fiscal 2014 were $323,000 compared to $131,000 in fiscal 2013. For the year ended May 31, 2014, increases to cost of goods sold are the result of increases in net sales of AGGRASTAT® during fiscal 2014 when compared to fiscal 2013.
Amortization of AGGRASTAT® intangible assets increased for the year ended May 31, 2014 to $546,000, when compared to $515,000 in fiscal 2013.The increase is as a result of fluctuations in foreign exchange rates causing the amortization expense to be higher during fiscal 2014 as the asset is owned by a subsidiary whose functional currency is the US dollar.
Total selling, general, and administrative expenditures for fiscal 2014 were $3,625,000, compared to $2,323,000 in fiscal 2013. Selling, general, and administrative expenditures related to AGGRASTAT®were $1,626,000 in fiscal 2014, compared to $1,331,000 in fiscal 2013. Selling, general, and administrative expenditures – Other were $1,999,000 in fiscal 2014, compared to $992,000 in fiscal 2013. Selling, general and administrative expenses include salaries and related costs for those employees not directly involved in research and development. The expenditures are required to support sales and marketing efforts of AGGRASTAT®and ongoing business development and corporate stewardship activities. The balance also includes professional fees such as legal, audit, investor and public relations.
Selling, general and administrative expenditures – AGGRASTAT®increased during the year ended May 31, 2014 as compared to same period in the prior year mainly due to:
Selling, general and administrative expenditures – Other increased during the year ended May 31, 2014 as compared to same period in the prior year mainly due to:
Net research and development expenditures for fiscal 2014 were $689,000, compared to $1,700,000 in fiscal 2013. Research and development expenditures include costs associated with the Company’s clinical development and preclinical programs including salaries, research centred costs and monitoring costs. The Company expenses research costs and has not had any development costs that meet the criteria for capitalization under IFRS. The decrease in research and development expenditures, for the year ended May 31, 2014 as compared to the same period in fiscal 2013 is due to reduced costs from the Company’s clinical trial of AGGRASTAT® (tirofiban HCl) entitled “Shortened AGGRASTAT® Versus Integrilin in Percutaneous Coronary Intervention” (SAVI-PCI) as well as a renal dosing study that was completed as a part of the Company’s sNDA filing during fiscal 2013.
Included in research and development expenses are charges related to impairment of the Company’s intangibles assets. Impairments of intangible assets for fiscal 2014 were nil, compared to $62,000 in fiscal 2013. Intangible assets are reviewed for impairment on an ongoing basis whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Based on this review certain patents were deemed not significant to the Company’s commercial and research operations and a decision was made to no longer pursue these patents and as a result the carrying value of these patents was written off.
It is important to note that historical patterns of impairment charges cannot be taken as an indication of future impairments. The amount and timing of impairments and write-downs may vary substantially from period to period depending on the business and research activities being undertaken at any one time and changes in the Company's commercial strategy.
Finance expense for fiscal 2014 was $1,809,000, compared to $466,000 in fiscal 2013. The increase in finance expense for the year ended May 31, 2014 as compared to the prior fiscal year is due to higher accretion on the Company’s royalty obligation resulting from higher revenue estimates as a result of the October 2013 label change. The royalty obligation arose out of the previous debt settlement.
The net foreign exchange gain for the year ended May 31, 2014 was $6,000, compared to a net foreign exchange loss of $22,000 in fiscal 2013. The change is due to higher fluctuations in the Canadian dollar versus the US dollar experienced during the year-ended May 31, 2014 compared to the year ended May 31, 2013.
For the year ended May 31, 2014, the Company recorded a consolidated net loss of $1,934,000 or $0.16 per share compared to $2,574,000 or $0.21(loss) income per share for the year ended MayDecember 31, 2013. 2019 and 2018 was 14,998,540 and 16,563,663, respectively.
As discussed above the main factors contributing to the decrease in net loss were the increased revenues and decreased research and development expenses experienced during the year ended Mayat December 31, 2014 when compared to the previous year. These were partially offset by increases in selling, general and administration expenses and finance expense.
For the year ended May 31, 2014,2019, the Company recorded a total comprehensive loss of $1,847,000 compared to $2,609,000 for the year ended May 31, 2013. The change in comprehensive loss results from the factors described above.
The weighted average number ofhad 10,804,013 common shares outstanding, used900,000 warrants to calculate basic loss per share was 12,196,745 forpurchase common shares and 1,428,408 stock options, of which 1,059,308 were exercisable, to purchase common shares outstanding.
As at April 15, 2020, the year ended May 31, 2014 and 12,196,508 for the year ended May 31, 2013.
The weighted average number ofCompany had 10,804,013 common shares outstanding, used900,000 warrants to calculate diluted loss per share was 12,196,745 for the year ended May 31, 2014purchase common shares and 12,196,508 for the year ended May 31, 2013.1,394,208 stock options, of which 1,074,708 were exercisable, to purchase common shares outstanding.
B. Liquidity and Capital Resources
Since the Company’s inception, it has financed operations primarily fromthrough the net revenue received from the sale of AGGRASTAT®,its commercial products, the sale of its equity securities, the issueissuance and exercisesubsequent exercises of warrants and stock options, interest on excess funds held and the issuance of debt as well as a build up in accounts payable associated with a reliance on trade debt.
On July 18, 2011,October 3, 2017, the Company borrowed $5,000,000 fromannounced the Governmentcompletion of Manitoba, under the Manitoba Industrial Opportunities Program,Apicore Sale Transaction to assist with settling the Company’s debt to Birmingham. Effective August 1, 2013,Buyer. Under the Apicore Sale Transaction, the Company renegotiated this debtreceived net proceeds of approximately US$105,000 of which approximately US$55.0 million was received on October 3, 2017, with the remainder received in early 2018. There is also a holdback receivable of US$10.0 million that was due in 2019. These funds received and received an additional two year deferral of principal repayments. Under the renegotiated terms, the loan continuedyet to be interest only until August 1, 2015 when blended paymentsreceived by the Company were after payment of principalall transaction costs, the compensation paid to holders of Apicore’s employee stock options, the redemption of the remaining shares of Apicore not owned by Medicure and interest commenced, and the loan maturity date was extended to July 1, 2018.
other adjustments.
On December 18, 2014,February 1, 2018, the Company announced that it had received the Boarddeferred purchase price proceeds of Directors had approved a change inapproximately US$50.0 million from the Company's fiscal year end to December 31. The change resulted in a stub period from June 1, 2014, to December 31, 2014, andBuyer as a result of the change,Apicore Sale Transaction. The US$50.0 million was included in the first full fiscal year endedtotal net proceeds of US$105,000 described earlier. The Company did not receive any contingent payments based on an earn out formula as certain financial results within the Apicore business were not met following the Apicore Sale Transaction.
On December 31, 2015. This change5, 2019, the Company announced that it had reached a settlement agreement with the purchaser of the Company’s interests in year endApicore with respect to the amounts heldback under the Apicore sale agreement. A settlement agreement was reached under which Medicure received a net payment of US$5.1 million in relation to the holdback receivable.
The funds received from May 31the Apicore sales transaction were invested and used for business and product development purposes and to December 31 was madefund operations as needed as well as funding the purchase of common shares under the SIB completed by the Company to better align the Company’s financial reporting calendar with its industry peers and with most other companies trading on the TSX.V. As a resultin December of this change in year end, it is important to note that the comparable period, being the twelve months ended December 31, 2014 is unaudited.
2019.
Cash fromused in operating activities for the year ended December 31, 2015 decreased $331,000 to $143,0002020 was $2.2 million compared to cash from operating activities of $474,000$14.6 million for the comparable period in the prior yearyear. The decrease in cash used in operating activities is primarily due to higher accounts receivable balances as atdifference in changes in working capital between the two periods and the decreased net loss incurred during the year ended December 31, 2015 when compared to December 31, 2014.2020.
InvestingCash used in or from investing activities for the year ended December 31, 2015 were2020 was $7.2 million and $7.2 million related to cash used totaling $227,000 relating toin the acquisition of Marley Drug, which was acquired on December 17, 2020. Additionally, the Company used $2,000 in the acquisition of property and equipment including leasehold improvements, compared to $41,000 relating toduring the acquisition of property and equipment for the twelve monthsyear ended December 31, 2014.
Financing2020. This compares to cash from investing activities for the year ended December 31, 2015 included $3.62019 which totaled $34.3 million primarily from the conversion of short-term investments into cash which totaled $47.7 million and $6.7 million was received in relation to the proceeds from a private placement financing completedthe holdback receivable. Offsetting this where payments made by the Company during the year ended December 31, 2019 in Juneregards to the acquisition of 2015, $33,000ZYPITAMAG® which totaled $6.6 million and $150,000 received upon the exerciseacquisition of stock optionsReDSTM intangible assets for $7.0 million and warrants, respectively,the investment in Sensible Medical Innovations Ltd. of $6.3 million. Additionally, $186,000 was spent regarding the acquisition of property, plant and equipment during fiscal this period and $694,000the year ended December 31, 2019.
Cash used in repayments on long-term debt. Cash from financing activities for the twelve monthsyear ended December 31, 2014 included $6,000 received upon2020 totaled $766,000 and related to cash paid to acquire the exerciseCompany’s common shares under its normal course issuer bid compared to $522,000 and $244,000 paid on the Company’s lease liability. This compares to cash used in financing activities for the year ended December 31, 2019 totaled $30.0 million and related to cash paid to acquire the Company’s common shares under the SIB which totaled $26.0 million, cash paid to acquire the Company’s common shares under the NCIB which totaled $4.1 million, offset by the receipt of $20,000 from employees exercising stock options.
options during the year.
As at December 31, 2015,2020, the Company had unrestricted cash totaling $3.6$2.7 million compared to $493,000$13.0 million as of December 31, 2014.2019. As at December 31, 2015,2020, the Company had a working capital of $7.0$3.2 million compared to a working capital deficit of $506,000$19.7 million as at December 31, 2014.2019.
On June 29, 2020, the Company announced that the TSX-V accepted the Company’s notice of its intention to make a normal course issuer bid (the “2020 NCIB”). Under the terms of the 2020 NCIB, the Company may acquire up to an aggregate of 533,116 common shares, representing five percent of the common shares outstanding at the time of the application, over the twelve-month period that the 2020 NCIB was in place. The increase in working capital between2020 NCIB commenced on June 30, 2020 and will end on June 29, 2021, or on such earlier date as the two periods isCompany may complete its maximum purchases allowed under the 2020 NCIB.
During the year ended December 31, 2020, the Company repurchased and cancelled 552,700 (2019 – 751,800), common shares as a result of higher net income, when factoring out non-cash items, resulting from increased revenues resultingthe 2019 NCIB and 2020 NCIB. The aggregate price paid for these common shares totaled $522,000 (2019 - $4.1 million). During the year ended December 31, 2020 the Company recorded $3.9 million (2019 - $1.8 million) directly in higher accounts receivableits deficit representing the difference between the aggregate price paid for these common shares and casha reduction of the Company’s share capital totaling $4.4 million (2019 - $6.0 million).
On December 20, 2019, the Company completed a SIB pursuant to which the Company purchased 4,000,000 of its common shares for cancellation at a set purchase price of $6.50 per common share for a total purchase price of $26.0 million in cash. The Company incurred an additional $139,000 on transaction costs related to the SIB for a total aggregate purchase price paid of $26.1 million. During the year ended December 31, 2019, the Company recorded $5.5 million directly in its deficit representing the difference between the aggregate price paid for these common shares and a reduction of the Company’s share capital totaling $31.6 million.
The Company acquired long-term debt of $353,000, with a fair value of nil, as at acquisition, as part of its acquisition of Marley Drug which was expected to be forgiven in 2021. The Company heldback funds to settle this debt as part of the purchase in the event it was not forgiven. The debt was forgiven in January of 2021 and the offsetting holdback was released. The Company did not have any long-term debt recorded in its consolidated financial statements as at December 31, 2015. Additionally, the $3.6 million, net, private placement financing completed during June of 2015 contributed to the increase in working capital.2020.
The Company has long-term debt at December 31, 2015 of $4.3 million recorded in its financial statements relating to the Government of Manitoba loan. Interest is accrued based on an annual effective interest rate of seven percent. The minimum annual debt obligations are disclosed under Contractual Obligations.
C. Research and Development, Patents and Licenses, Etc.
Research and Development
The Company’s research and development activities are predominantly conducted by its wholly-owned Barbadian subsidiary, Medicure International Inc.
AGGRASTAT®
TheOne of the primary ongoing research and development activityactivities is the continued development and further implementation of a new regulatory, brand and life cycle management strategy for AGGRASTAT®. The extent to which the Company is able to invest in this plan is dependent upon the availability of sufficient finances.
finances and the expected returns from those investments.
An important aspect of the AGGRASTAT®strategy iswas the revision of its approved prescribing information. On October 11, 2013, the Company announced that the FDA has approved the AGGRASTAT® HDB regimen, as requested under Medicure'sMedicure’s sNDA. The AGGRASTAT® HDB regimen (25 mcg/kg over 3within 5 minutes, followed by 0.15 mcg/kg/min) now becomeshas become the recommended dosing for the reduction of thrombotic cardiovascular events in patients with NSTE ACS.
The Company believes that further expanded indications and dosing regimens may put the Company in a better positioncould provide added value to further maximize the revenue potential for AGGRASTAT®. The Company is currently exploring the potential to make such changes, and the Company may need to conduct appropriate clinical trials, obtain positive results from those trials, or otherwise provide support in order to obtain regulatory approval for such proposed indications and dosing regimens.
On April 23, 2015, the Company announced that the FDA has approved a revision to the duration of the bolus delivery for the AGGRASTAT® HDB regimen. The dosing change and label modification was requested by the Company to help health care professionals more efficiently meet patient-specific administration needs and to optimize the implementation of AGGRASTAT® at new hospitals. The newly approved labeling supplement now allows the delivery duration of the AGGRASTAT® high-dose bolusHDB (25 mcg/kg) to occur anytime within 5 minutes, instead of the previously specified duration of 3 minutes. This change iswas part of Medicure’sthe Company’s ongoing regulatory strategy to expand the applications for AGGRASTAT®.
On September 10, 2015, the Company announced that it submitted a sNDA to the FDA to expand the label for AGGRASTAT® to include the treatment of patients presenting with STEMI. AGGRASTAT® is currently approved by the FDA for treatment of patients presenting with NSTE ACS. If approved for STEMI, AGGRASTAT® would be the first in its class of GPIs to receive such a label in the United States.
In previous communication with the Company, the FDA’s Division of Cardiovascular and Renal Drug Products indicated its willingness to review and evaluate this label change request based substantially on data from the On-TIME 2 study, with additional support from published studies and other data pertinent to the use of the AGGRASTAT® HDB regimen in the treatment of STEMI. The efficacy and safety of the HDB regimen in STEMI has been evaluated in more than 20 clinical studies involving over 11,000 patients and is currently recommended by the ACCF/AHA Guideline for the Management of STEMI.
On July 7, 2016, the Company received a Complete Response Letter (“CRL”) from the FDA for its sNDA requesting an expanded indication for patients presenting with STEMI. The FDA issued the CRL to communicate that its initial review of the application was completed; however, it could not approve the application in its present form and requested additional information. The Company has a PDUFA action date for the STEMI sNDA on July 10, 2016. Under PDUFA,continues to work directly with the FDA aims to complete its review within ten months from the receipt of a sNDA submission. address these comments and explore other options available.
The sNDA filing was accompanied by a mandatory US $1.167 millionUS$1,200 user fee paid by Medicure International Inc. to the FDA. In December 2016, the Company received a waiver and full refund of the user fee which had been paid and expensed during fiscal 2015.
On September 1, 2016, the Company announced that it had received approval from the FDA for its bolus vial product format for AGGRASTAT®.
This product format is a concentrated, 15 ml vial containing sufficient drug to administer the FDA approved, HDB of 25 mcg/kg given at the beginning of treatment. AGGRASTAT® is also sold in two other sizes, a 100 ml vial and a 250 ml bag. The existing, pre-mixed products continue to be available, providing a convenient concentration for administering the post-HDB maintenance infusion of 0.15 mcg/kg/min. (Approved Dosing: Administer intravenously 25 mcg/kg within 5 minutes and then 0.15 mcg/kg/min for up to 18 hours). Commercial launch of the bolus vial occurred during the fourth quarter of 2016 and the Company continues to believe this product format will have a positive impact on hospital utilization of AGGRASTAT®.
Another aspect of the AGGRASTAT®strategy is to advance studies related to the contemporary use and future regulatory positioning of the product. On May 10, 2012, the Company announced the commencement of enrolment in a new clinical trial of AGGRASTAT® entitled “Shortened AGGRASTAT® Versus Integrilin in Percutaneous Coronary Intervention” (SAVI-PCI). SAVI PCISAVI-PCI. SAVI-PCI is a randomized, open-label study enrolling patients undergoing percutaneous coronary intervention (PCI)PCI at sites across the United States. In June 2013, the target number of patients to be enrolled in theThe study was increased from 600 to 675. The study is designed to evaluate whether patients receiving the investigational, HDB regimen of AGGRASTAT®AGGRASTAT® (25 mcg/kg bolus over 3 minutes) followed by an infusion of 0.15 mcg/kg/min for either a shortened duration of 1 to 2 hours or a lengthened infusion of 12 to 18 hours will have outcomes that are similar, or “non-inferior,“non-inferior,” to patients receiving a 12 to 18 hour18-hour infusion of Integrilin®Integrilin® (eptifibatide) (Merck & Co., Inc.) at its FDA approved dosing regimen. The study arm investigating AGGRASTAT® HDB followed by a 12 to 18 hour infusion was added subsequent to enrolment commencing.
The primary objective of SAVI-PCI is to demonstrate AGGRASTAT® is non-inferior to Integrilin with respect to the composite endpoint of death, PCI-related myocardial infarction, urgent target vessel revascularization, or major bleeding within 48 hours following PCI or hospital discharge. The secondary objectives of this study include the assessment of safety as measured by the incidence of major bleeding.
The first patient was enrolled in June 2012. AsEnrolment was completed during the fourth quarter of March 29, 2016 the study was approximately 75% through to completion of enrolment.
Yet another aspect of the AGGRASTAT®strategy is to explore2018 and develop new uses and dosing approaches related to the product. On September 26, 2012,on December 17, 2019, the Company announced the developmentcompletion of a transdermal delivery formulation ofthe Shortened AGGRASTAT®. The ability to administer a drug transdermally (i.e. through the skin) provides a convenient way to deliver a stable, therapeutic level of medication to the patient. AGGRASTAT (tirofiban hydrochloride) injection versus Integrilin® and other antiplatelet drugs of its class (known as glycoprotein IIb/IIIa inhibitors or GPIs) are currently only administered by intravenous infusion. In vivo proof of principle for the transdermal delivery of therapeutic levels of AGGRASTAT®'s active ingredient, tirofiban, has been established(eptifibatide) in animal studies conducted in collaboration with 4P Therapeutics, Inc. (Alpharetta, GA). 4P Therapeutics, a world leader in the research and development of novel transdermal products, has entered into an agreement with the Company's subsidiary, Medicure International, Inc., to further develop transdermal tirofiban. The delivery of tirofiban by a novel, transdermal method has potential to provide significant advantages over the current treatments used in this setting, including the potential for increased use prior to hospitalization.
Medicure International, Inc. holds worldwide rights to transdermal tirofiban. The Company is managing the advancementPercutaneous Coronary Intervention (SAVI-PCI) Clinical Trial. Topline results of the transdermal tirofiban development program in an effort to conserve resources and focus on other areasSAVI-PCI trial will be communicated during the second quarter of investment.
2021.
The Company is also continuing to explore other experimental uses and product formats related toproviding funding for a number of investigator sponsored research projects targeting contemporary utilization of AGGRASTAT®. relative to its competitors. On December 12, 2019, the Company announced the completion of the FABOLUS-FASTER Phase 4 trial, a randomized, open-label, multi-center trial assessing different regimens of intravenous platelet inhibitors, notably tirofiban and cangrelor (an IV P2Y12 inhibitor) in the early phase of primary PCI.
FABOLUS-FASTER was funded by a grant from the Company. This study does not imply comparable efficacy, safety, or product interchangeability. Please note that the use of AGGRASTAT® in STEMI patients has not been approved by the FDA. As of this time, neither AGGRASTAT® nor any of the GP IIb/IIIa inhibitors are indicated for the use in STEMI patients. AGGRASTAT® is approved for use in NSTE-ACS patients.
On June 29, 2020, the Company announced that results from the investigator sponsored FABOLUS-FASTER Phase 4 clinical trial, using AGGRASTAT®, have been published in Circulation, a peer-reviewed journal of the American Heart Association.
FABOLUS-FASTER studied different regimens of intravenous platelet inhibitors, notably AGGRASTAT® (tirofiban hydrochloride) injection (an IV GP IIb/IIIa inhibitor) and cangrelor (an IV P2Y12 inhibitor) in the early phase of primary PCI. The FABOLUS-FASTER study randomized 122 P2Y12-naive STEMI patients to receive tirofiban (n=40), cangrelor (n=40), or a 60 mg loading dose of prasugrel (n=42). Those randomized to prasugrel were sub-randomized to chewed (n=21) or integral (n=21) tablet administration. The study was powered to test the noninferiority of cangrelor compared with tirofiban, the superiority of both tirofiban and cangrelor compared with chewed prasugrel, and superiority of chewed prasugrel compared with integral prasugrel for the primary endpoint of 30-minute inhibition of platelet aggregation (IPA) after stimulation with (20 µmol/L) ADP.
The results from the FABOLUS-FASTER trial showed cangrelor did not reach non-inferiority with tirofiban; in fact, tirofiban achieved superior IPA over cangrelor at 30 minutes (95.0%±9.0% vs 34.1%±22.5%; P <0.001). Cangrelor and tirofiban were both superior to chewed prasugrel (10.5%±11.0%, P<0.001 for both comparisons), which did not provide higher IPA over integral prasugrel (6.3%±11.4%; P=0.47).1
Results from FABOLUS-FASTER were recently presented virtually at the PCR e-Course Scientific Sessions, due to the cancellation of EuroPCR 2020. Complete results from this study were published on June 27, 2020 in Circulation, a peer-reviewed journal of the American Heart Association.
On August 24, 2020, the Company reported that early investigator sponsored clinical reports evaluating the efficacy of AGGRASTAT® showed promise for preventing and treating thrombotic complications due to COVID-19. AGGRASTAT® is not currently indicated for use in patients with COVID-19.
Notably, a non-randomized, case-controlled, investigator sponsored proof of concept study (n=10) evaluating AGGRASTAT® in combination with standard of care in patients with severe COVID-19 and hypercoagulability found that enhanced platelet inhibition improves hypoxemia (https://clinicaltrials.gov/ct2/show/NCT04368377). Treated patients experienced a mean reduction in alveolar-arterial oxygen gradient and an increase in PaO2/FiO2 (ratio of partial arterial pressure of oxygen to fraction of inspired oxygen) at 24h, 48h and 7 days after treatment. Seven other small clinical reports have recently been published exploring the clinical efficacy of AGGRASTAT® in patients with COVID-19.
The Company is evaluating sponsorship of further US-based randomized clinical studies to rapidly assess the efficacy and safety of using AGGRASTAT® for preventing thrombotic complications due to COVID-19.
The Company is not making any express or implied claims that its product has the ability to eliminate, cure or contain COVID-19 (or SARS-2 Coronavirus) at this time. A list of the reports referred to can be provided upon request.
Subsequent to December 31, 2020 the Company announced the early completion of iSPASM, a randomized, double-blind, single-center, Phase 1/2a trial aimed at assessing the safety of long-term (7-day) use of AGGRASTAT® injection vs. placebo in patients with aneurysmal subarachnoid hemorrhage (aSAH) (NCT03691727). The primary endpoint in the 30 patient study was hemorrhagic changes evident on head CT and/or MRI assessed by the rates of symptomatic and asymptomatic bleeding. iSPASM was funded by an unrestricted educational grant from Medicure. This study does not imply efficacy of AGGRASTAT® in patients with aSAH. Please note that the use of AGGRASTAT® in neurointerventions has not been approved by the FDA. As of this time, neither AGGRASTAT® nor any of the GP IIb/IIIa inhibitors are indicated for the use in stroke patients. AGGRASTAT® is approved for use in NSTE-ACS patients.
Cardiovascular Generic and Reformulation Products
Through an ongoing research and development investment, the Company is also exploring other new product opportunities in the interest of developing future sources of revenue and growth.
On August 13, 2018, the Company announced that the FDA has approved its ANDA for SNP. SNP is indicated for the immediate reduction of blood pressure for adult and pediatric patients in hypertensive crisis. The product is also indicated for producing controlled hypotension in order to reduce bleeding during surgery and for the treatment of acute congestive heart failure. The filing of the ANDA was previously announced by the Company on December 13, 2016. Medicure’s SNP become available in the United States during 2020 with sales of $116 being recorded during 2020 from SNP.
SubsequentThe Company is focused on the development of two additional cardiovascular generic drugs and expects to December 31, 2015, on January 6, 2016grow its commercial suite of products to at least four approved products in 2021.
On October 5, 2020, the Company announced that it has initiatedentered into a License, Manufacture and Supply Agreement RLS for a cardiovascular biosimilar product. Medicure is responsible for the development of a high-value cardiovascular generic drug. The projectregulatory approval process for the product. A biosimilar is a collaboration between Medicure International, Inc.biological product that is highly similar to and Apicore US LLC (together with its affiliates “Apicore”), a leading-edge manufacturer of generic active pharmaceutical ingredients ("API’s”).has no clinically meaningful differences from an approved reference product. The collaborative project is focused on the development of an intravenous abbreviated New Drug Application (“ANDA”) drug product for an acute cardiovascular indication. Medicure and Apicore have entered intoAgreement grants an exclusive right to the Company to market and sell the product supplyin the United States of America, Canada and development agreement under which Medicure holds all commercial rights. The companies anticipate filing the ANDA with the U.S. Food and Drug Administration by the end of 2016.
European Union.
The Company is actively working andhad been devoting a modest amount of resources to this program,its research and development programs, including, but not limited to the development of TARDOXALTM,(formerly known as MC-1)P5P or MC-1 for neurological conditions such as Tardive Dyskinesia. This work includes,included, but iswas not limited to, working with the FDA to better understand and refine the next steps in development of the product.
The advancement of TARDOXALTM is currently on hold. The Company changed its focus from TARDOXALTM to other uses of P5P and continues to devote time and resources to the advancement of P5P development.
On August 13, 2014January 7, 2021, the Company announced that it intends to file an IND application with the preliminary results ofFDA pertaining to its Phase IIa Clinical Trial, TARDOXALTMlegacy product P5P, also referred to as MC-1 for the Treatmenttreatment of Tardive Dyskinesia (TEND-TD) showed a non-statistically significant improvementseizures associated with PNPO deficiency. The majority of patients with PNPO deficiency have mutations in the primary efficacy endpoint in patients treatedPNPO gene, which is required for the production of normal levels of P5P. In connection with TARDOXALTM. Medicure views these preliminary results as supportive of continuing the program and developing a modified formulation as a prelude to a larger, confirmatory Phase II study.
It isIND, the Company’s intention to develop TARDOXALTM independently and/or in conjunctionCompany will proceed with a larger pharmaceutical companyPhase 3 clinical trial to treat PNPO deficient patients with a daily dose of MC-1.
The FDA and the EMA have both granted a Rare Pediatric Disease Designation to MC-1 for commercializationthe treatment of seizures associated with PNPO deficiency. Additionally, the product. Similar partnerships may be requiredFDA has granted Orphan Drug Status and a Rare Pediatric Disease Designation to MC-1 for other productsthe treatment of PNPO deficiency. Under the Creating Hope Act passed into federal law in 2012, the FDA grants a Rare Pediatric Disease Designation for serious and life-threatening diseases that primarily affect children ages 18 years or younger and fewer than 200,000 people in the United States. If an NDA for MC-1 for patients with PNPO deficiency is approved, the Company may be eligible to receive a PRV from timethe FDA, which can be redeemed to time seek to develop. Such a partnership would provide fundingobtain priority review for clinical development, add experience toany subsequent marketing application.
The following table summarizes the product development process and provide market positioning expertise. No formal agreement for such a commercial partnership has been entered into by the Company as of the date hereof.
Company-sponsoredCompany’s research and development net expendituresprograms, their therapeutic focus and their stage of development.
Product Candidate | Therapeutic focus | Stage of Development | ||
AGGRASTAT® | Acute Cardiology | Approved/Marketed – Additional studies underway | ||
ZYPITAMAG® | Primary Hyperlipidemia or Mixed Dyslipidemia | Approved/Marketed | ||
SNP | Acute Cardiology | ANDA approved/Marketed | ||
PREXXARTAN® | Hypertension | Approved – Commercial launch on hold | ||
Cardiovascular Biosimilar | Acute Cardiology | Development underway | ||
Generic ANDA 2 | Acute Cardiology | ANDA filed | ||
Generic ANDA 3 | Acute Cardiology | Formulation development underway | ||
TARDOXALTM/P5P | TD/Neurological indications | TARDOXALTM – On hold P5P – IND filed |
Other Products
The Company is investing in the year endedresearch and development of other new product development opportunities. The Company is also exploring opportunities to grow the business through acquisition. The Company has evaluated and continues to evaluate the acquisition or license of other approved commercial products with the objective of further broadening its product portfolio and generating additional revenue.
As at December 31, 2015 were $4,865,000 (seven months ended December 31, 2014 - $783,000, year ended May 31, 2014 - $689,0002020, the Company had numerous issued United States patents (see Item 5 – Operating and year ended May 31, 2013 - $1,700,000)Financial Review and Prospects – C. Research and Development, Patents and Licenses, Etc. below).
Patents and Licenses
In addition to a number of pending patent applications, the Company has17 7 2 issued patentspatent from the United States Patent Office providing protection for AGGRASTAT®AGGRASTAT®and related its current and historic development compounds.compounds and ZYPITAMAG®. The Company will continue to file patents related to its research and development activities. The United States patents currently issued to the Company are as follows:
Patent Number | Issue Date | Title | ||||
6,770,660 | ||||||
| August 3, 2004 | Method for Inhibiting Platelet Aggregation | |||||
8,829,186 | July 14, 2017 | Method for preparation of pitavastatin and | ||||
Patents 5,733,919, 5,965,581, 5,972,967, 5,978,698, 6,136,794, 6,538,112 and 6,770,660 were purchased by the Company from MGI GP, INC. (a Delaware corporation doing business as MGI PHARMA and its Affiliate, Artery, LLC). Pursuant to an Asset Purchase Agreement dated August 8, 2006, MGI GP, INC. sold the exclusive use of the patents to the Company in the specified territory (the United States of America including the Commonwealth of Puerto Rico; Guam; and the United States Virgin Islands). Pursuant to the Asset Purchase Agreement the Company agreed to pay MGI GP, INC. a one-time fee for the procurement of the acquired assets. The Asset Purchase Agreement was executed August 8, 2006.
Much of the work, including some of the research methods, that is important to the success of the Company’s business is germane to the industry and may not be patentable. For this reason, all employees, contracted researchers and consultants are bound by non-disclosure agreements.
Given that the patent applications for these technologies involve complex legal, scientific and factual questions, there can be no assurance that patent applications relating to the technology used by the Company will result in patents being issued, or that, if issued, the patents will provide a competitive advantage or will afford protection against competitors with similar technology, or will not be challenged successfully or circumvented by competitors.
The Company has filed patents in accordance with the Patent Cooperation Treaty (the ‘‘PCT’PCT’’). The PCT is a multilateral treaty that was concluded in Washington in 1970 and entered into force in 1978. It is administered by the International Bureau of the World Intellectual Property Organization (the ‘‘WIPO’WIPO’’), headquartered in Geneva, Switzerland. The PCT facilitates the obtaining of protection for inventions where such protection is sought in any or all of the PCT contracting states (total of 104 at July 1999). It provides for the filing of one patent application (the ‘‘international application’application’’), with effect in several contracting states, instead of filing several separate national and/or regional patent applications. At the present time, an international application may include designation for regional patents in respect of contracting states party to any of the following regional patent treaties: The Protocol on Patents and Industrial Designs within the framework of the African Regional Industrial Property Organization, the Eurasian Patent Convention, the European Patent Convention, and the Agreement Establishing the African Intellectual Property Organization. The PCT does not eliminate the necessity of prosecuting the international application in the national phase of processing before the national or regional offices, but it does facilitate such prosecution in several important respects by virtue of the procedures carried out first on all international applications during the international phase of processing under the PCT. The formalities check, the international search and (optionally) the international preliminary examination carried out during the international phase, as well as the automatic deferral of national processing which is entailed; give the applicant more time and a better basis for deciding whether and in what countries to further pursue the application. Further information may be obtained from the official WIPO internet website (http:(http://www.wipo.int).
Although the Company is no longer developing MC-1 for cardiovascular indications, the Company does have a royalty bearing agreement with its subsidiary in regards to this discontinued development program. On June 1, 2000, the Company entered into the Medicure International Licensing Agreement whereby it licensed the world-wide development and marketing rights for MC-1, except for Canada, to its wholly owned subsidiary, Medicure International, Inc. As consideration for the grant of the license, Medicure International, Inc. agreed to pay the Company a fee of $1.00 upon the completion of specified milestones in the development process, together with a variable royalty of 7% to 9% of net sales of MC-1 (if any sales are ever in fact made). The term of the Medicure International Licensing Agreement will expire on the date of expiration of the last to expire patent on MC-1, or in the absence of any such patent, on the 10th anniversary of the date of the first commercial sale of MC-1 in the country where it was last introduced (if it is ever so introduced). The Medicure International Licensing Agreement may be terminated under a number of circumstances and, in any event, by either party at any time by providing the other with at least 90 days prior written notice of its intention to terminate the Medicure International Licensing Agreement.
Medicure International, Inc. subsequently entered into a development agreement with CanAm on June 1, 2000 to perform research and development of MC-1 and other compounds at cost, plus a reasonable mark-up not to exceed ten percent of any amount invoiced. The parties to the development agreements have agreed that the aggregate amount of all invoiced expenditures shall not exceed $30,000,000 over the term of each agreement. The term of the CanAm development agreement is to expire on the completion of all research and development activities by CanAm and the written acknowledgment by CanAm and Medicure International, Inc. that no further research projects will be undertaken. CanAm continues to perform work on AGGRASTAT®AGGRASTAT®, TARDOXALTM and other projects under this agreement, however there is no ongoing research activity related to MC-1.
The development agreements may be terminated under a number of circumstances and, in any event, by Medicure International, Inc. at any time by providing CanAm with at least 30 days prior written notice of its intention to terminate, or by CanAm at any time by providing Medicure International, Inc., with at least 90 days prior written notice of its intention to terminate the development agreement.
The agreements provide that all confidential information developed or made known during the course of the relationship with the Company is to be kept confidential except in specific circumstances.
Net AGGRASTAT® product sales for the year ended December 31, 20152020 were $22,083,000,$10.6 million compared to $8,426,000 for$19.4 million during the twelve monthsyear ended December 31, 2014. 2019.
The Company currentlyprimarily sells finished AGGRASTAT®AGGRASTAT® to drug wholesalers. These wholesalers subsequently sell AGGRASTAT®AGGRASTAT®to the hospitals where health care providers administer the drug to patients. Wholesaler management decisions to increase or decrease their inventory of AGGRASTAT® AGGRASTAT®may result in sales of AGGRASTAT®AGGRASTAT®to wholesalers that do not track directly with demand for the product at hospitals. All ofThe Company has set up a portal called Medicure Direct to market the Company’s branded and generic products directly to hospitals and pharmacies with initial sales are denominated in US dollars.occurring during the fourth quarter of 2020 through this initiative.
Net revenue from the sale of finishedHospital demand for AGGRASTAT® products forhas been lower during the year ended December 31, 20152020 when compared to the prior year, however the number of hospital customers using AGGRASTAT® continued to remain strong leading to patient market share held by the product of approximately 65% as of December 31, 2020. The Company’s commercial team continues to work on expanding its customer base, however this continued focus has not directly resulted in corresponding revenue increases as the Company continues to face increased by 162% overcompetition resulting from further genericizing of the net revenueIntegrilin market which has created pricing pressures on AGGRASTAT® combined with lower hospital demand for the twelve months ended December 31, 2014. product including a reduction in procedures being performed as a result of COVID-19. The Company continues to expect strong patient market share despite reduced revenue from the AGGRASTAT® brand and diversifying revenues away from a single product became increasingly important to the Company.
All of the Company’s sales are denominated in U.S. dollars. Hospital demand for AGGRASTAT®increased significantlydollars and the U.S. dollar improved in value against the Canadian dollar during the year ended December 31, 2020 when compared to the comparable periodyear ended December 30, 2019, however this improvement was mainly experienced in the prior year.first half of 2020 with US dollar exchange rates declining in the second half of 2020 compared to 2019, particularly in the fourth quarter. This led to increased AGGRASTAT®revenues, offset by the increasing price pressures facing AGGRASTAT® when comparing the two periods as well as decreases in demand.
Net ZYPITAMAG® product sales for year ended December 31, 2020 were $453,000 compared to $183,000 for the year ended December 31, 2019.
The Company primarily sells ZYPITAMAG® to drug wholesalers. These wholesalers subsequently sell ZYPITAMAG®to pharmacies who in turn sell the product to patients. The Company expects ZYPITAMAG® revenues to grow throughout 2020 and beyond. Beginning in the second quarter, the Company launched a direct to patient online pharmacy program which resulted in sales of ZYPITAMAG®being made directly to pharmacy customers. The increase in revenue is primarily attributable to an increase in the number of new hospital customers using AGGRASTAT®. The number of new customers reviewing and implementing AGGRASTATfrom ZYPITAMAG® hasresulted from increased sharplydemand and usage of the product experienced during 2020 as a result of FDA approvalthe Company’s sales and marketing initiatives implemented since acquiring control of the new dosing regimen for AGGRASTAT®as announced on October 11, 2013. Additionally, favourable fluctuationsproduct.
The Company recorded initial sales during the year ended December 31, 2020 totaling $116,000 from SNP which became available in the U.S. dollar exchange rate contributedUS market in late 2019. The Company primarily sells finished SNP to drug wholesalers. These wholesalers subsequently sell SNPto hospitals where health care providers administer the drug to patients. Wholesaler management decisions to increase or decrease their inventory of SNP may result in sales of SNPto wholesalers that do not track directly with demand for the product at hospitals. The Company has set up a portal called Medicure Direct to market the Company’s branded and generic products directly to hospitals and pharmacies with initial sales expected to occur in the fourth quarter of 2020 through this initiative.
As a result of the acquisition of Marley Drug, which was completed on December 17, 2020, the Company recorded revenue of $340,000 during the year ended December 31, 2020 pertaining to the increaseMarley Drug in revenue.store and mail order pharmaceutical business. Marley Drug sells pharmaceutical and over the counter products directly to patients in a retail setting and has a strong mail order business throughout the United States.
During the year ended December 31, 2020, ReDSTM contributed revenue of $95,000 from the sale of the product in the United States compared to $618,000 for the year ended December 30, 2020. On August 20, 2020, the Company announced the termination of the marketing and distribution agreement with Sensible for the marketing of the ReDS Pro device in the United States. In connection with the termination, Sensible and the Company have entered into a transition agreement which provides additional compensation to the Company for sales to customer leads provided by the Company. The Company is not aware of any other trends, uncertainties, demands, commitments or events which are reasonably likely to have a material effect uponexpects minimal sales under the Company’s net sales or revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial condition.transition agreement in 2021 before its expiry.
E. Off-balance Sheet Arrangements
As of December 31, 20152020, the Company does not have any off-balance sheet arrangements, other than those disclosed below.
The following tables set forth the Company’s contractual obligations as of December 31, 2015:2020:
| Contractual Obligations Payment Due By Period | Contractual Obligations Payment Due by Period | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands of CDN$) | Total | 2016 | 2017 | 2018 | 2019 | 2020 | Thereafter | Total | 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | ||||||||||||||||||||||||||||||||||||||||||
| Accounts Payable and Accrued Liabilities | $ | 7,079 | $ | 7,079 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 6,979 | $ | 6,979 | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||
| Long-term debt obligations1 | 4,607 | 1,853 | 1,765 | 989 | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||
| Purchase Agreement commitments2 | 5,839 | 3,047 | 1,338 | 208 | 208 | 208 | 830 | |||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes Payable | 164 | 164 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Lease Obligation | 1,748 | 351 | 354 | 356 | 358 | 162 | 167 | |||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition Payable | 1,911 | 637 | 637 | 637 | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Holdback Payable | 1,876 | 1,876 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Contingent consideration | 1,976 | 1,925 | 51 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
Purchase Agreement Commitments | 3,319 | 1,649 | 1,288 | 191 | 191 | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 17,525 | $ | 11,979 | $ | 3,103 | $ | 1,197 | $ | 208 | $ | 208 | $ | 830 | $ | 17,973 | $ | 13,581 | $ | 2,330 | $ | 1,184 | $ | 549 | $ | 162 | $ | 167 | ||||||||||||||||||||||||||||
The Company is required to maintain certain non-financial covenants under the terms of the MIOP loan. As at December 31, 2015, management believes it isPayments in complianceconnection with the terms ofCompany’s royalty obligation, as described below, are excluded from the loan.table above.
Commitments
Additionally, theThe Company has entered into a manufacturing and supply agreement to purchase a minimum quantity of AGGRASTAT®unfinished product inventory totaling US $150,000US$150,000 annually (based on current pricing) until 2024.2024 and a minimum quantity of AGGRASTAT®finished product inventory totaling US$218,000 annually (based on current pricing) until 2022 and €525,000 annually (based on current pricing) until 2022.
On NovemberSubsequent to December 31, 2020 and effective January 1, 2014,2021, the Company amendedrenewed its business and administration services agreement with Genesys Venture Inc. ("GVI"), a company controlled by the Chief Executive Officer, under which the Company is now committed to pay $17,917 per month, or $215,000 per year effective November 1, 2014 for a fourteen month term. The services provided under the business and administration agreement areGVI, as described in note 16(b)17(b) to the consolidated financial statements. Either party may terminate this agreement at any time upon 90 days written notice. Additionally, effective November 1, 2014, the Company has entered into a sub-lease with GVI to lease office space at a rate of $170,000 per annum for three years ending October 31, 2017.
Subsequent to December 31, 2015 and effective January 1, 2016, the Company entered into a new business and administration services agreement with GVI,statements, under which the Company is committed to pay $7,083$7,000 per month or $85,000 per year for a one yearone-year term.
During 2015, the Company began a development project of a high value cardiovascular generic drug in collaboration with Apicore. The Company has entered into a supply and development agreement under which the Company holds all commercial rights to the drug and is required to pay an additional US$200,000 in milestone payments and US$507,500 in costs relating to the project.
Debt obligations reflect the minimum annual payments under the debt financing agreement. In addition to the contractual obligations disclosed above, the Company and its wholly-owned subsidiaries, have ongoing research and development agreements with third parties in the ordinary course of business. These agreements include research and development related to AGGRASTAT® and TARDOXALTM as well as other product opportunities.
On July 18, 2011, the Company renewed its consulting agreement with its Chief Executive Officer for a term of five years, at a rate of $180,000 annually. The Company may terminate this agreement at any time upon 120 days written notice.
The Company received $200,000 of funding from the Province of Manitoba’s Commercialization Support for Business program to assist the Company with the completion of a study evaluating AGGRASTAT® in patients with impaired kidney function. The study was completed and the funds received during the year ended May 31, 2013. The funding is repayable when certain sales targets are met and the repayable requirement will remain in effect for a period not less than eight fiscal years.
Contracts with contract research organizations (CROs) are payable over the terms of the associated agreements and clinical trials and timing of payments is largely dependent on various milestones being met, such as the number of patients recruited, number of monitoring visits conducted, the completion of certain data management activities, trial completion, and other trial-relatedtrial related activities.
On October 31, 2017, the Company acquired an exclusive license to sell and market PREXXARTAN® (valsartan) oral solution in the United States and its territories with a seven-year term, with extensions to the term available, which had been granted tentative approval by the FDA, and which was converted to final approval during 2017. The Company acquired the exclusive license rights for an upfront payment of US$100, with an additional US$400 payable on final FDA approval and will be obligated to pay royalties and milestone payments from the net revenues of PREXXARTAN®. The US$400,000 payment is on hold pending resolution of the dispute between the licensor and the third-party manufacturer of PREXXARTAN®is recorded within accounts payable and accrued liabilities on the consolidated statements of financial position.
On December 14, 2017 the Company acquired an exclusive license to sell and market a branded cardiovascular drug, ZYPITAMAG® (pitavastatin magnesium) in the United States and its territories for a term of seven years with extensions to the term available. The Company had entered into a profit-sharing arrangement resulting in a portion of the net profits from ZYPITAMAG® being paid to the licensor. No amounts are due and/or payable pertaining to profit sharing on this product and the profit-sharing arrangement was eliminated with the Company’s acquisition of ZYPITAMAG® on September 30, 2019.
The Company periodically enters into research agreements with third parties that include indemnification provisions customary in the industry. These guarantees generally require the Company to compensate the other party for certain damages and costs incurred as a result of claims arising from research and development activities undertaken on behalf of the Company. In some cases, the maximum potential amount of future payments that could be required under these indemnification provisions could be unlimited. These indemnification provisions generally survive termination of the underlying agreement. The nature of the indemnification obligations prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay. Historically, the Company has not made any indemnification payments under such agreements and no amount has been accrued in the accompanyingconsolidated financial statements with respect to these indemnification obligations.
As a part of the Birmingham debt settlement described in note 9 to the Company’s consolidated financial statements, for the year ended December 31, 2015,12, beginning on July 18, 2011, the Company is obligated to pay a royalty to the previous lenderBirmingham based on future commercial AGGRASTAT® sales until 2023. The royalty is based on 4% of the first $2,000,000$2.0 million of quarterly AGGRASTAT®sales, 6% on the portion of quarterly sales between $2,000,000$2.0 million and $4,000,000$4.0 million and 8% on the portion of quarterly sales exceeding $4,000,000$4.0 million payable within 60 days of the end of the preceding quarter. The previous lenderthree-month periods ended February 28, May 31, August 31 and November 30. Birmingham has a one-time option to switch the royalty payment from AGGRASTAT® to a royalty on MC-1 sales.the sale of MC-1. Management has determined there is no value to the option to switch the royalty to MC-1 as the product is not commercially available for sale and the extended long-term development timeline associated with commercialization of the product is on hold.product. Royalties for the year ended December 31, 2015 total $1,207,772, in regards to the royalty obligation (seven months ended December 31, 2014 - $210,576, year ended May 31, 2014 - $201,131 and year ended May 31, 2013 - $104,979)2020 totaled $441,000 (2019 – $1.0 million; 2018 – $1.7 million) with payments made during the year ended December 31, 20152020 of $642,768 (seven months$326,000 (2019 – $1.4 million; 2018 – $1.5 million).
Beginning with the acquisition of ZYPITAMAG® (note 8), completed on September 30, 2019, the Company is obligated to pay royalties on any commercial net sales of ZYPITAMAG® to Zydus subsequent to the acquisition date. During the year ended December 31, 2014 - $156,722, year ended May2020, the Company accrued $15,000 (2019 – $2,000, 2018 – nil) in royalties in regards to ZYPITAMAG® which is recorded within cost of goods sold on the statement of net (loss) income and comprehensive (loss) income and had $10,000 (2019 – $2,000) recorded within accounts payable and accrued liabilities on the statement of financial position as at December 31, 2014 - $165,291 and year ended May 31, 2013 - $88,105).
2020.
The Company is obligated to pay royalties to the University of Manitoba based on any future commercial net sales of MC-1, aggregating upPREXXARTAN® to 3.9% on net sales.the licensor of PREXXARTAN®. To date, no royalties are due and/or payable and, given the fact that these development programs have been placed on hold, the Company does not anticipate any such royalties to be paid.
The Company received $200,000 of funding from the Province of Manitoba’s Commercialization Support for Business program to assist the Company with the completion of a study evaluating AGGRASTAT® in patients with impaired kidney function. The study was completed and the funds received during the year ended May 31, 2013. The funding is repayable when certain sales targets are met and the repayable requirement will remain in effect for a period not less than eight fiscal years.
payable.
In the normal course of business, the Company may from time to time be subject to various claims or possible claims. Although management currently believes there are no claims or possible claims that if resolved would either individually or collectively result in a material adverse impact on the Company’s financial position, results of operations, or cash flows, these matters are inherently uncertain and management’s view of these matters may change in the future.
During 2018, the Company was named in a civil claim in Florida from the third-party manufacturer of PREXXARTAN® against the licensor. The claim disputed the rights granted by the licensor to the Company with respect to PREXXARTAN®. The claim against the Company has since been withdrawn, however the dispute between the licensor and the third-party manufacturer continues.
On September 10, 2015, the Company submitted a sNDAsupplemental New Drug Application (“sNDA”) to the FDA to expand the label for AGGRASTAT®. The label change is being reviewed and evaluated based substantially on data from published studies. If the label change submission iswere to be successful, the Company will be obligated to pay 300,000 euros€300 over the course of a three yearthree-year period in equal quarterly instalments following approval. A decision fromOn July 7, 2016, the FDA is expectedCompany announced it received a Complete Response Letter stating the sNDA cannot be approved in July 2016.its present form and requested additional information. The payments are contingent upon the success of the filing and as such the Company has not recorded any amount in the consolidated financial statements of net (loss) income and comprehensive (loss) income pertaining to this contingent liability.
In connection withDuring 2015, the Company'sCompany began a development project of a high value cardiovascular generic drug as described in note 15(a) to the consolidated financial statements, in collaboration with Apicore,Apicore. The Company has entered into a supply and development agreement under which the Company holds all commercial rights to the drug. In connection with this project, the Company is obligated to pay Apicore 50% of net profit from the sale of this drug. On August 13, 2018, the Company announced that the FDA has approved its ANDA for SNP, a generic intravenous cardiovascular product and the product became available commercially during the third quarter of 2019. To date, no amounts are due and/or payable pertaining to profit sharing on this product.
Claims and Possible Claims
In the normal course of business, the Company may from time to time be subject to various claims or possible claims. Although management currently believes that aside from the information noted below, there are no claims or possible claims that if resolved would either individually or collectively result in a material adverse impact on the Company’s financial position, results of operations, or cash flows, these matters are inherently uncertain and management’s view of these matters may change in the future.
There are currently no claims outstanding against the Company.
G. Safe Harbor
Statements in Item 5.E and Item 5.F of this Annual Report on Form 20-F that are not statements of historical fact, constitute “forward-looking statements.” See “Forward-Looking Statements” on page 1 of this Annual Report. Our Company is relying on the safe harbor provided in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, in making such forward-looking statements.
| ITEM6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
Directors and Senior Management
The members of the board of directors and senior officers of the Company including a brief biography of each are as follows:
Dr. Albert D. Friesen, Winnipeg, Manitoba, Canada - Director, Chairman and Chief Executive Officer
The founder, andPresident, CEO and Chair of the Board of Medicure Inc., Dr. Friesen holds a Ph.D. in protein chemistry from the University of Manitoba. Dr. Friesen played a key role in founding several health industry companies including the first employee and President of the Winnipeg Rh Institute for over 20 years, where he oversaw the development of WinRho (then acquired by Cangene Inc. and more recently by Emergent BioSolutions), ABI Biotechnology (acquired by Apotex Inc.), Viventia Biotech Inc., Genesys Pharma Inc., Waverley Pharma Inc. DiaMedica Inc, Miraculins Inc., Kane Biotech Inc. and KAM Scientific Inc. Dr. Friesen has experience in the establishment of pharmaceutical production facilities and has also managed and initiated the research and clinical development of several pharmaceutical candidates. Dr. Friesen is a founder of the Industrial Biotechnology Association of Canada (IBAC) and past Chairman of its board of directors and former member of the Industrial Advisory Committee to the Biotechnology Research Institute in Montreal. In addition to his role with the Company, Dr. Friesen is currently the President and Chairman of Genesys Venture Inc., a biotech incubator, based in Winnipeg.Winnipeg and a member of the Board of Directors of Waverley Pharma Inc, a TSX-V listed company. Dr. Friesen provides his services to the Company through A.D. Friesen Enterprises Ltd., his private consulting corporation. Dr. Friesen served as both CEO and President of Medicure Inc. until July 25, 2011 at which point the position of President was filled by Mr. Dawson Reimer. Dr. Friesen’s date of birth is May 19, 1947.
Dr. Arnold Naimark, Winnipeg, Manitoba, Canada - Director
Dr. Arnold Naimark, O.C., O.M., M.D., L.L.D., F.R.C.P.(C), F.R.S.C, FCAHS, FAAAS,. has had a distinguished career in biomedical research, medicine and higher education. He is President Emeritus and Dean of Medicine Emeritus and Professor of Medicine and Physiology at the University of Manitoba. He is currently Director of the Centre for the Advancement of Medicine, Chair of Genome Prairie Immediate Past-Chair of CancerCare Manitoba. Dr. Naimark serves on the National Statistics Council of Canada and is Vice-Chair of the Statistics Canada Audit Committee. He was formerly:formerly on the Research Council of the Canadian Institute for Advanced Research, Chair of Health Canada’s Ministerial Science Advisory Board, Member of the International Advisory Committee on Research of the Alberta Cancer Board, Research Institute, Vice-Chair of the Manitoba Health Research Council and Director of the Robarts Research Institute. He is the founding Chairman of the North Portage Development Corporation, the Canadian Health Services Research Foundation and the Canadian Biotechnology Advisory Committee. He has served as President of several academic bodies including, the Canadian Physiological Society, the Canadian Society for Clinical Investigation, the Association of Canadian Medical Colleges, the Association of Universities and Colleges of Canada and as Chairman of the Association of Commonwealth Universities. Dr. Naimark is an Officer of the Order of Canada, a Member of the Order of Manitoba and a Fellow of the Royal College of Physicians and Surgeons of Canada, the Royal Society of Canada, and the Canadian Academy of Health Sciences. He is recipient of the G. Malcolm Brown Award of the Royal College of Physicians and Surgeons and Medical Research Council of Canada, the Osler Award, the Distinguished Service Award of Ben Gurion University, the Symons Award of the Association of Commonwealth Universities; and of honorary doctorates from Mount Allison University and the University of Toronto, and of several other awards and distinctions related to his professional, academic and civic activities. Date of birth is August 24, 1933.
Gerald P. McDole, Mississauga, Ontario, Canada, MBA – Director
Mr. McDole is currently a director of twoone Canadian healthcare companies.company. Mr. McDole is Past President of AstraZeneca Canada Inc. He was named President and CEO of AstraZeneca Canada Inc.'s’s pharmaceutical operations in 1999 and immediately led the merger of Astra Pharma and Zeneca Pharma Inc. Prior to this, Mr. McDole was president and CEO of Astra Pharma Inc., a position he assumed in 1985 after having served as Executive Vice-President. Mr. McDole is a member of the Canadian Healthcare Marketing Hall of Fame, and has been recognized by Canadian Healthcare Manager Magazine with the Who'sWho’s Who in Healthcare Award in the pharmaceutical category. In recognition of Mr. McDole'sMcDole’s outstanding contributions to the biotech and pharmaceutical industries, the University of Manitoba established The Gerry McDole Fellowship in Health Policy and Economic Growth. Mr. McDole holds a Bachelor of Science and a Certificate of Business Management from the University of Manitoba, an MBA from Simon Fraser University, and a Business Administration diploma from the University of Toronto. Date of birth is January 25, 1940.
Peter Quick, Mill Neck, New York, USA - Director
Peter Quick has over 30 years experience in the securities and financial services industries. He is a recognized leader in the securities industry with experience in the domestic and international equities market, equities market making, market structure reform, trading technology and clearing operations. Mr. Quick is a Partner of Burke and Quick Partners Holdings LLP, the parent company of Burke & Quick Partners LLC a broker dealer. Mr. Quick was President at the American Stock Exchange from 2000 to 2005. Prior to joining the American Stock Exchange, he served as President of Quick & Reilly Inc., a Quick & Reilly subsidiary and a national discount brokerage firm. He also served as President of Quick & Reilly/Fleet Securities. Mr. Quick is a graduate from the University of Virginia with a B.S. in Engineering and attended Stanford University’s Graduate School of Petroleum Engineering. He served four years active duty from 1978 to 1982 as an Officer in the United States Navy. He is the former Chairman and a current member of the Board of Directors of Gain Capital (GCAP: NYSE) and a member of the Boards of Trustees of First of Long Island Corporation (FLIC: NASDAQ) and First National Bank of Long Island. He is a member of the Board of Directors of Fund for the Poor. Mr. Quick serves as the Mayor of the Incorporated Village of Mill Neck, NY. He is a former member of the Board of Alliance Capital Money Market Fund, Chicago Stock Exchange Inc (CHX), The Depository Trust & Clearing Corporation (DTCC), The Midwest Trust Company, Securities Industry Automation Corporation (SIAC), National Security Clearing Corporation, The American Stock Exchange and the National Association of Security Dealers Inc), Quick & Reilly, Inc., (NYSE: BQR), Reckson Associates Realty Corp (NYSE: RX) and The Bear Stearns Current Yield Fund (AMEX:YYY). He is a former Chairman of the Board of Governors of St. Francis Hospital, Roslyn, NY and Mercy Medical Center, Rockville Centre, NY. Date of birth is February 11, 1956.
Brent Fawkes, Winnipeg, Manitoba, Canada - Director
Mr. Fawkes is a Chartered Professional Accountant with over 20 years of experience in accounting and finance. Mr. Fawkes is currently the Vice President of Finance with Standard Aero Limited, one of the world’s largest independent providers of a variety of aerospace services serving a diverse array of customers in business and general aviation, airline, military, helicopter, components energy and VIP completionsenergy markets. In his current role, Mr. Fawkes is responsible for the oversight of the finance department including external reporting, budgeting and planning and treasury management. Date of birth isDecemberis December 21, 1969.
Manon Harvey, Kelowna, British Columbia, Canada - Director
Dawson Reimer, MAESMs. Manon Harvey joined the UBC Okanagan Campus as Director, Integrated Planning and Chief Budget Officer in January 2019 where she is responsible for supporting the University’s mission through long range financial planning, financial advice and effective resource allocation strategies. For the prior 21 years as Vice-President, Finance and Corporate Services for the Canada Foundation for Innovation, Manon was responsible for the finance function, human resources, information technology, and administrative services. She was an Officer of the CFI Board of Directors, and served as the Secretary and Treasurer. Ms Harvey is a CPA, CA, with membership in British Columbia. She has her ICD.D designation from the Institute of Corporate Directors. Manon holds a Bachelor of Commerce (summa cum laude) from the University of Ottawa. For over 10 years, until June 2014, she was both a member of the Board of Directors, as well as the Chair of the Audit Committee, for Hydro Ottawa. She is an external member of the Departmental Audit Committee (DAC) of the RCMP.
Neil Owens – President and Chief Operating Officer
Dawson Reimer proceededDr. Neil Owens is responsible for implementing Medicure’s strategic plans and overseeing day-to-day operations including the advancement and management of new and existing pharmaceutical products. Dr. Owens has worked with Medicure since 2014, serving in various positions of escalating responsibility within Medical Affairs, and most recently as Director, Scientific Affairs. His responsibilities have included providing scientific input and expertise to support manufacturing, product development and clinical studies, as well as KOL engagement and team management. Dr. Owens holds a Bachelor of Science and a Ph.D. in Chemistry from a Master's Degree in Economic Development,the University of Waterloo to be employed as a full-time consultant to the Federal Department of Western Diversification. Beginning in 1996, he served as Business Development/Investor Relations with Genesys Pharma Inc. In 1997, he transitioned to Genesys Venture Inc., a biotech business incubator, where he assisted numerous biotechnology ventures in developing business plans, obtaining financing, and developing intellectual property protection. In this capacity, Mr. Reimer became actively involved in the Company at its inceptionManitoba and has been directly employed byPostdoctoral experience with the Company since 2001. In July 2011 he transitioned from Vice President, Operations to his current position as PresidentEuropean Institute of Chemistry and Chief Operating OfficerBiology (Bordeaux, France). His research background has focused on organic & medicinal chemistry, and the overall application of the Company. Mr. Reimer is a son-in-law of Dr. Albert D. Friesen, Director, Chairman and Chief Executive Officer. Date of birth is May 7, 1971.
science towards solving health-related issues.
James Kinley CA – Chief Financial Officer
Effective September 21, 2011 Mr. James Kinley was appointed as CFO of the Company, replacing Dawson Reimer, who has served as Chief Financial Officer in an interim capacity since July 15, 2011 until Mr. Kinley’s appointment. Mr. Kinley’s services are provided to the Company through a Management Services Agreement with Genesys Venture Inc. (“GVI”).Consulting Agreement. Previous to his time at GVIGenesys Venture Inc. and the Company, he was Manager, Financial Reporting at Manitoba Telecom Services Inc. and was involved in all aspects of financial reporting, including publicly filed documents such as their financial statements. James is a Chartered AccountantCPA, CA and holds a Bachelor of Commerce (Hons.) degree from the University of Manitoba. Date of birth is July 9, 1978.
Graeme Merchant, B.B.A. – Vice President, Commercial Operations
Graeme Merchant joined the Company as an analyst in business development and commercial operations in 2007. He was soon promoted to Manager of Commercial Operations for AGGRASTAT, and eventually named Director. Since 2013, Mr. Merchant has been Vice President of Commercial Operations. He is responsible for all sales, marketing, and medical activities for AGGRASTAT within the United States. Graeme was instrumental in helping guide the Company through its corporate restructuring and the relaunch of AGGRASTAT under the FDA approved High-Dose Bolus regimen. He has a B.B.A. from the University of New Brunswick with a specialization in finance.
Management
Dr. Albert D. Friesen - Chairman, Chief Executive Officer and Director: Dr. Friesen directs the overall business management of the Company (see “Directors and Senior Management” under this item).
Dawson ReimerDr. Neil Owens - President and Chief Operating Officer:Officer Subject to: Dr. Owens is responsible for the direction of the Chief Executive Officer, Mr. Reimer has general charge of the Corporation’s day to day business activities with a primary focus on its commercial direction, includingoperations of the advancement and management of new and existing pharmaceutical products. (SeeCompany (see “Directors and Senior Management” under this item)
.
James Kinley CA - Chief Financial Officer: Mr. Kinley is responsible for the Company’s financial management and accounting practices (see “Directors and Senior Management” under this item).
Graeme Merchant, B.B.A. – Vice President, Commercial Operations:Mr. Merchant is responsible for the Company’s Commercial Operations pertaining to AGGRASTAT (see “Directors and Senior Management” under this item).
Compensation paid to the directors, and executive officers of the Company during the year ended December 31, 2015,2020, is described below and stock-based compensation described in Item 6(E) below:
The Company recorded $57,701$57,000 in fees paid or payable to Board members for attendance at meetings between January 1, 20152020 and December 31, 20152020 and the chairs of the Audit and Finance Committee and executive compensation, nominating and corporate governance committee were paid an additional $5,000 each for services areas committee chairs.
On October 1, 2001, a compensation agreement was entered into between the Company and A.D. Friesen Enterprises Ltd., a corporation owned by Dr. Friesen and subsequently amended on October 1, 2003, October 1, 2005, October 1, 2006, October 1, 2007, and July 18, 2011.2011, July 18, 2016, January 1, 2017 and January 1, 2019. For the yearyears ended December 31, 2015,2020 and 2019, the Company recorded payable to A.D. Friesen Enterprises Ltd., $186,000$331,000 and 331,000, respectively, in consulting compensation, including taxable benefits. Dr. Friesen is eligible for an annual bonus, if certain objectives of the Company are met, as determined by the Board of Directors. During the year ended December 31, 2015,2018, a bonus of $100,000$31,500 was accrued to Dr. Friesen.
Friesen, which was paid to him during the year ended December 31, 2019. No bonus was been accrued as at December 31, 2020 or 2019.
Dawson Reimer servesserved as the CompanyCompany’s as President and Chief Operating Officer and received a salary of $190,000$205,000 payable in equal semi-monthly instalmentsinstallments and a bonus at the discretion of $38,000the Board of Directors of the Company. On May 9, 2016, the Company announced that the employment agreement with the Company’s President and Chief Operating Officer had been terminated, effective immediately. Mr. Reimer was paid as a lump-sum for$73,000 up to the date of his termination and $222,000 pertaining to severance during the year ended December 31, 2015.2016. All amounts pertaining to this severance were paid during 2016 and there is no additional liability in this regard.
Neil Owens serves the Company as President and Chief Operating Officer beginning on July 1, 2019 and received a salary of $68,000 for during the year ended December 31, 2019 in relation to the portion of the year he was the President and Chief Operating Officer. For the year ended December 31, 2020, the President and Chief Operating Officer received a salary of $155,000 and a bonus of $15,000.
Effective January 1, 2016, the business and administration services agreement with GVI no longer included the Chief Financial Officer’s services and the Company signed a consulting agreement with its Chief Financial Officer, through JFK Enterprises Ltd., a company owned by the Chief Financial Officer, for a one-year term, at a rate of $135,000 annually. During the year ended December 31, 2016, the Company recorded a bonus of $10,000 to its Chief Financial Officer. Effective January 1, 2017, consulting agreement with the Chief Financial Officer, through JFK Enterprises Ltd., a company owned by the Chief Financial Officer, was renewed for a one-year term, at a rate of $155,000 annually. During the year ended December 31, 2017, the Company recorded a bonus of $200,000 to its Chief Financial Officer. Effective January 1, 2018, the Company renewed its consulting agreement with its Chief Financial Officer, through JFK Enterprises Ltd., for a one-year term, at a rate of $155,000 annually. Effective June 1, 2018, this consulting agreement was converted into an employment agreement with the Chief Financial Officer. For the year ended December 31, 2019, the Chief Financial Officer received a salary of $185,000. For the year ended December 31, 2020, the Chief Financial Officer received a salary of $175,000 and a bonus of $10,000.
Graeme Merchant servesserved the Company as Vice President, Commercial Operations until the conclusion of his employment in September 2017 and received a salary of $155,000 payable in equal semi-monthly instalments and bonuses of $49,676 paid quarterly for$161,000 during the year ended December 31, 2015.
2016.
During the year ended December 31, 2015,2020, the Company paid directors a total of Nil (seven months ended(December 31, 2019: Nil; December 31, 2014:2018: Nil, Year ended MayDecember 31, 2014: Nil; Year ended May2017: Nil and December 31, 2013: Nil; Year ended May 31, 2012: Nil; and Year ended May 31, 2012:2016: Nil) for consulting fees.
The Company has agreed to provide its independent directors $2,000 for each quarterly board meeting they personally attend ($1,000 via telephone), and $1,500 for each quarterly executive compensation, nominating and corporate governance committee meeting or audit and finance committee meeting they attend that is not held in conjunction with a regular Board meeting.
For fiscal 2011 and prior, due to the Company’s financial position, the board had offered and committed not to request, and has therefore not received, any compensation for their services as independent directors. Subsequent to the debt settlement that occurred on July 18, 2011, the Company began paying the Board members this amount owing and had paid $54,000 during fiscal 2013 relating to these accrued amounts. During fiscal 2013, the members of the Board of Directors agreed to further defer payments on amounts owing. Beginning on February 22, 2013 and until June 30, 2015, these amounts bore interest at a rate of 5.5% per annum. For the year ended December 31, 2015, $4,517$5,000 (seven months ended December 31, 2014 - $10,127–$10,000 and year ended May 31, 2014 - $14,918)– $15,000) was recorded within finance expense in relation to these amounts payable to the members of the Company’s Board of Directors. No interest was paid or recorded pertaining to amounts owing to the Board of Directors for the years ended December 31, 2020 or 2019. As at December 31, 2015,2020, the Company has $5,675had $14,000 (2019 – nil, 2018 - $5,000) of accrued compensation owing to the independent members of the Board of Directors relating to Directors fees.
On July 11, 2014, the Company announced that, subject to all necessary regulatory approvals, it entered into shares for debt agreements with certain members of the Board of Directors, pursuant to which the Company issued 106,490 of its common shares at a deemed price of $1.98 per common share to satisfy $211,000 of outstanding amounts owing to the Company’s Board of Directors. The shares were issued on January 9, 2015.
On January 27, 2015, the Company announced that, subject to all necessary regulatory approvals, it has entered into shares for debt agreements with certain members of the Board of Directors, pursuant to which the Company will issue 106,490 of its common shares at a deemed price of $1.98 per common share to satisfy $210,850 of outstanding amounts owing to the Company’s Board of Directors. The shares were issued on January 9, 2015.
On January 27, 2015,the Company announced that, subject to all necessary regulatory approvals, it has entered into shares for debt agreements with certain members of the Board of Directors, pursuant to which the Company will issue 75,472 of its common shares at a deemed price of $1.44 per common share to satisfy $108,680$109,000 of outstanding amounts owing to these individuals. The shares were issued on March 20, 2015.
The Company does not provide any cash compensation for its directors who are also officers of the Company for their services as directors.
No pension, retirement fund and other similar benefits have been set aside for the officers and directors of the Company.
The Board of Directors presently consists of fivesix directors, four of whomwho were all elected at the Company’s annual general meeting of the shareholders held on June 26, 2015.22, 2020. Each director holds office until the next annual general meeting of the Company or until his successor is elected or appointed, unless his office is earlier vacated in accordance with the By-Laws of the Company, or pursuant to the provisions of theCanada Business Corporations Act.
Dr. Albert D. Friesen has served as a director of the Company since September 1997. Dr. Arnold Naimark has served as a director of the Company since March 2000. Gerald McDole has served as a director of the Company since January 2004. Peter Quick has served as a director of the Company since November 2005. Brent Fawkes has served as a director of the Company since January 2013.
Manon Harvey has served as a director of the Company since May 2019.
As discussed in more detail below, the Board of Directors maintains an Audit and Finance Committee and an Executive Compensation, Nominating and Corporate Governance Committee.
Corporate Governance
The Canadian Securities Administrators (the "CSA"“CSA”) have adopted National Policy 58-201Corporate Governance Guidelines, which provides non-prescriptive guidelines on corporate governance practices for reporting issuers such as the Company. In addition, the CSA have implemented National Instrument NI 58-101Disclosure of Corporate Governance Practices, which prescribes certain disclosure by the Company of its corporate governance practices. The Company'sCompany’s approach to corporate governance is set forth below.
The Board believes that a clearly defined system of corporate governance is essential to the effective and efficient operation of the Company. The system of corporate governance should reflect the Company’s particular circumstances, having always as its ultimate objective, the best long-term interests of the Company and the enhancement of value for all shareholders.
Directors are considered to be independent if they have no direct or indirect material relationship with the Company. A "material relationship"“material relationship” is a relationship which could, in the view of the Company'sCompany’s board of directors, be reasonably expected to interfere with the exercise of a director'sdirector’s independent judgment.
The Executive Compensation, Nominating and Corporate Governance Committee has reviewed the independence of each director on the basis of the definition in section 1.4 of National Instrument 52-110 –Audit Committees ("(“NI 52-110"52-110”). The Board has determined, after reviewing the roles and relationships of each of the directors, that Dr. Arnold Naimark, Brent Fawkes, Gerald McDole, Manon Harvey and Peter Quick are independent from the Company. Only Dr. Albert Friesen is deemed to not be independent from the Company. As part of every regularly scheduled Board and committee meeting, the independent directors are given the opportunity to meet separately from management and the non-independent director. Board committees are entirely composed of independent directors who meet without management when required.
Gerald McDole is presently a director of Cipher Pharmaceuticals Inc. No other director of the Company is currently a director of any other “reporting issuers” (as such term is defined in Canadian provincial securities legislation).
The Board has an orientation program in place for new directors which the Board feels is appropriate having regard to the current makeup of the Board. Each director receives relevant corporate and business information on the Company, the Board, and its committees. The directors regularly meet with Management and are given periodic presentations on relevant business issues and developments.
Presentations are made to the Board from time to time to educate and keep it informed of changes within the Company and of regulatory and industry requirements and standards.
The Company’s Board has adopted a Code of Ethics applicable to directors, officers and employees, copies of which are available on the Company’s website (www.medicure.com). A copy may also be obtained upon request to the Secretary of the Company at its head office, 2-1250 Waverley Street, Winnipeg, Manitoba, R3T 6C6. The ECNCG Committee regularly monitors compliance with the Code of Ethics and also ensures that Management encourages and promotes a culture of ethical business conduct.
Audit and Finance Committee
Pursuant to Section 171 of theCanada Business Corporations Act (the “Act”), the Company is required to have an Audit Committee. Section 171(1) of the Act requires the directors of a reporting corporation to elect from among their number a committee composed of not fewer than three directors, of whom a majority must not be officers or employees of the corporation or an affiliate of the corporation. Section 171(3) of the Act provides that, before financial statements are approved by the directors, they must be submitted to the audit committee for review. Section 171(4) of the Act provides that the auditor must be given notice of, and has the right to appear before and to be heard at, every meeting of the audit committee, and must appear before the audit committee when requested to do so by the committee. Finally, section 171(5) of the Act provides that on the request of the auditor, the audit committee must convene a meeting of the audit committee to consider any matters the auditor believes should be brought to the attention of the directors or members.
Pursuant to section 6.1 of NI 52-110, the Company is exempt from the requirements of Parts 3 and 5 of NI 52-110 for the year ended December 31, 2015,2018, by virtue of the Company being a "venture issuer"“venture issuer” (as defined in NI 52-110).
Part 3 of NI 52-110 prescribes certain requirements for the composition of audit committees of non-exempt companies that are reporting issuers under Canadian provincial securities legislation. Part 3 of NI 52-110 requires, among other things that an audit committee be comprised of at three directors, each of whom, is, subject to certain exceptions, independent and financially literate in accordance with the standards set forth in NI 52-110.
Part 5 of NI 52-110 requires an annual information form that is filed by a non-exempt reporting issuer under National Instrument 51-102 –Continuous Disclosure Obligations, as adopted the CSA, to include certain disclosure about the issuer'sissuer’s audit committee, including, among other things: the text of the audit committee'scommittee’s charter; the name of each audit committee member and whether or not the member is independent and financially literate; whether a recommendation of the audit committee to nominate or compensate an external auditor was not adopted by the issuer'sissuer’s board of directors, and the reasons for the board'sboard’s decision; a description of any policies and procedures adopted by the audit committee for the engagement of non-audit services; and disclosure of the fees billed by the issuer'sissuer’s external auditor in each of the last two fiscal years for audit, tax and other services.
Notwithstanding the exemption available under section 6.1 of NI 52-110, as at the date hereof, the Audit and Finance Committee is comprised of four independent directors: Brent Fawkes (Chair), Gerald McDole, Dr. Arnold Naimark, Manon Harvey and Peter Quick. The relevant experience of each member is described above. (See “Item 6 -Directors, Senior Management and Employees”.)
As a result of their education and experience, each member of the audit committee has familiarity with, an understanding of, or experience in:
the accounting principles used by the Company to prepare its financial statements, and the ability to assess the general application of those principles in connection with estimates, accruals and reserves;
reviewing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the Company’s financial statements, and
an understanding of internal controls and procedures for financial reporting.
Under the Sarbanes-Oxley Act of 2002, the independent auditor of a public Company is prohibited from performing certain non-audit services. The Audit and Finance Committee has adopted procedures and policies for the pre-approval of non-audit services, as described in the Audit and Finance Committee Charter reproduced below.
AUDIT AND FINANCE COMMITTEE CHARTER
GENERAL FUNCTIONS, AUTHORITY, AND ROLE
The purpose of the Audit and Finance Committee (the “Committee”) is to oversee the accounting, financial reporting and disclosure processes of the Company and the audits of its financial statements, and thereby assist the Board of Directors of the Company (the “Board”) in monitoring the following:
(1) the integrity of the financial statements of the Company;
(2) compliance by the Company with ethical policies and legal and regulatory requirements related to financial reporting and disclosure;
(3) the appointment, compensation, qualifications, independence and performance of the Company’s internal and external auditors;
(4) the performance of the Company'sCompany’s independent auditors;
(5) performance of the Company'sCompany’s internal controls and financial reporting and disclosure processes; and
(6) that management of the Company has assessed areas of potential significant financial risk to the Company and taken appropriate measures.
The Committee has the power to conduct or authorize investigations into any matters within its scope of responsibilities, with full access to all books, records, facilities and personnel of the Company, its auditors and its legal advisors. In connection with such investigations or otherwise in the course of fulfilling its responsibilities under this charter, the Committee has the authority to independently retain, and set and pay compensation to, special legal, accounting, or other consultants to advise it, and may request any officer or employee of the Company, its independent legal counsel or independent auditor to attend a meeting of the Committee or to meet with any members of, or consultants to, the Committee. The Committee has the power to create specific sub-committees with all of the power to conduct or authorize investigations into any matters within the scope of the mandate of the sub-committee, with full access to all books, records, facilities and personnel of the Company, its auditors and its legal advisors.
In the course of fulfilling its specific responsibilities hereunder, the Committee has authority to, and must, maintain free and open communication between the Company'sCompany’s independent auditor, Board and Company management. The responsibilities of a member of the Committee are in addition to such member'smember’s duties as a member of the Board.
While the Committee has the responsibilities and powers set forth in this charter, it is not the duty of the Committee to plan or conduct audits or to determine that the Company'sCompany’s financial statements are complete, accurate, and in accordance with International Financial Reporting Standards (“IFRS”). This is the responsibility of management and the independent auditor. Nor is it the duty of the Committee to conduct investigations, to resolve disagreements, if any, between management and the independent auditor or to assure compliance with laws and regulations and the Company’s Code of Ethics. Any responsibilities that the Committee has the power to act upon, may be recommended to the Board to act upon.
MEMBERSHIP
The membership of the Committee will be as follows:
The Committee shall consist of a minimum of three members of the Board, appointed from time to time, each of whom is affirmatively confirmed as independent by the Board in accordance with the definition of independence for audit committee members set out in Appendix I hereto, with such affirmation disclosed in the Company'sCompany’s Management Information Circular for its annual meeting of shareholders. All members of the Committee should be “financially literate”, as defined in Appendix I, and at least one of the members shall be an “audit committee financial expert” as defined in as defined in Appendix I.
The Board will elect, by a majority vote, one member as chairperson. In the absence of the Chair of the Committee, the members shall appoint an acting Chair.
The members of the Committee shall meet all independence and financial literacy requirements of The TSX Venture Exchange, and the requirements of such other securities exchange or quotations system or regulatory agency as may from time to time apply to the Company.
Any member of the Committee may be removed and replaced at any time by the Board and will automatically cease to be a member of the Committee as soon as such member ceases to be a Director. The Board may fill vacancies in the Committee by election from among the members of the Board. If and whenever a vacancy exists on the Committee, the remaining members may exercise all its powers so long as a quorum remains in office.
A quorum shall be a majority of the members provided that if the number of members is an even number, one half of the number plus one shall constitute a quorum.
A member of the Committee may not, other than in his or her capacity as a member of the Committee, the Board, or any other Board committee, accept any consulting, advisory, or other compensatory fee from the Company, and may not be an affiliated person of the Company or any subsidiary thereof.
RESPONSIBILITIES
The responsibilities of the Committee shall be as follows:
Frequency of Meetings
Meet quarterly or more often as may be deemed necessary or appropriate in its judgment, either in person or telephonically.
The Committee will meet with the independent auditor at least annually, either in person or telephonically.
Reporting Responsibilities
Provide to the Board proper Committee minutes.
Report Committee actions to the Board with such recommendations as the Committee may deem appropriate.
Committee and Charter Evaluation
The Committee shall annually review, discuss and assess its own performance. In addition, the Committee shall periodically review its role and responsibilities.
Annually review and reassess the adequacy of this Charter and recommend any proposed changes to the Board for approval.
Whistleblower Mechanism
Adopt and review annually a procedure through which employees and others can confidentially and anonymously inform the Committee regarding any concerns about the Company'sCompany’s accounting, internal accounting controls or auditing matters. The procedure shall include responding to and the retention of, any such complaints.
Legal Responsibilities
Perform such functions as may be assigned by law, by the Company'sCompany’s certificate of incorporation, memorandum, articles or similar documents, or by the Board.
INDEPENDENT AUDITOR
Nomination, Compensation and Evaluation
The Company’s independent auditor is ultimately accountable to the Committee and the Board and shall report directly to the Committee. The Committee shall review the independence and performance of the auditor and annually recommend to the Board the appointment and compensation of the independent auditor or approve any discharge of auditor when circumstances warrant.
Review of Work
The Committee is directly responsibility for overseeing the work of the independent auditor engaged to prepare or issue an audit report or perform other audit, review or attest services for the Company, including the resolution of disagreements between management and the independent auditor regarding financial reporting.
Approval in Advance of Related Party Transactions
Pre-approval of all “related party transactions,” which are transactions or loans between the Company and a related party involving goods, services, or tangible or intangible assets that are:
(1) material to the Company or the related party; or
(2) unusual in their nature or conditions.
A related party includes an affiliate, major shareholder, officer, other key management personnel or director of the Company, a company controlled by any of those parties or a family member of any of those parties.
Engagement Procedures for Audit and Non-Audit Services
Approve in advance all audit services to be provided by the independent auditor. Establish policies and procedures that establish a requirement for approval in advance of the engagement of the independent auditor to provide permitted non-audit services provided to the Company or its subsidiary entities and to prohibit the engagement of the independent auditor for any activities or services not permitted by any of the Canadian provincial securities commissions, the Securities Exchange Commission (“SEC”) or any securities exchange on which the Company'sCompany’s shares are traded including any of the following non-audit services:
Bookkeeping or other services related to accounting records or financial statements of the Company;
Financial information systems design and implementation consulting services;
Appraisal or valuation services, fairness opinions, or contributions-in-kind reports;
Actuarial services;
Internal audit outsourcing services;
Any management or human resources function;
Broker, dealer, investment advisor, or investment banking services;
Legal services;
Expert services related to the auditing service; and
Any other service the Board determines is not permitted.
Hiring Practices
Review and approve the Company’s hiring policy regarding the partners, employees and former partners and employees of the present and former independent auditor of the Company. Ensure that no individual who is, or in the past three years has been, affiliated with or employed by a present or former auditor of the Company or an affiliate, is hired by the Company as a senior officer until at least three years after the end of either the affiliation or the auditing relationship.
Independence Test
Take reasonable steps to confirm the independence of the independent auditor, which shall annually include:
Ensuring receipt from the independent auditor of a formal written statement delineating all relationships between the independent auditor and the Company, consistent with the Independence Standards Board Standard No. 1 and related Canadian regulatory body standards; |
Considering and discussing with the independent auditor any relationships or services |
provided to the Company, including non-audit services, that may impact the objectivity and independence of the independent auditor; and
As necessary, taking, or recommending that the Board take, appropriate action to oversee the independence of the independent auditor and evaluate whether it is appropriate to rotate the independent auditor on a regular basis. |
Audit and Finance Committee Meetings
Notify the independent auditor of every Committee meeting and permit the independent auditor to appear and speak at those meetings.
At the request of the independent auditor, convene a meeting of the Committee to consider matters the auditor believes should be brought to the attention of the directors or shareholders.
Keep minutes of its meetings and report to the Board for approval of any actions taken or recommendations made.
Restrictions
Confirm with management and the independent auditor that no restrictions are placed on the scope of the auditors'auditors’ review and examination of the Company'sCompany’s accounts.
OTHER PROFESSIONAL CONSULTING SERVICES
Engagement Review
As necessary, consider with management the rationale and selection criteria for engaging professional consulting services firms.
Ultimate authority and responsibility to select, evaluate and approve professional consulting services engagements.
AUDIT AND REVIEW PROCESS AND RESULTS
Scope
Consider, in consultation with the independent auditor, the audit scope, staffing and planning of the independent auditor.
Review Process and Results
Consider and review with the independent auditor the matters required to be discussed by such auditing standards as may be applicable.
Review and discuss with management and the independent auditor at the completion of annual and quarterly examinations, if any:
The Company’s audited and unaudited financial statements and related notes;
The Company’s Management Discussion & Analysis (“MD&A”) and news releases related to financial results;
The Company’s management certifications of the financial statements and accompanying MD&A as required under applicable securities laws; |
The Company’s annual information form (“AIF”), if one is prepared and filed.
The independent auditor’s audit of the financial statements and its report thereon;
Any significant changes required in the independent auditor’s audit plan;
The appropriateness of the presentation of any non-IFRS related financial information;
Any serious difficulties or disputes with management encountered during the course of the audit; and
| Other matters related to the conduct of the audit, which are to be communicated to the Committee under generally accepted auditing standards. |
Review the management letter, if any, delivered by the independent auditor in connection with the audit.
Following such review and discussion, if so determined by the Committee, recommend to the Board that the annual financial statements be included in the Company'sCompany’s annual report.
Review and discuss with management and the independent auditor the adequacy of the Company'sCompany’s internal accounting and financial controls that management and the Board have established and the effectiveness of those systems, and inquire of management and the independent auditor about significant financial risks or exposures and the steps management has taken to minimize such risks to the Company.
Meet separately with the independent auditor and management, as necessary or appropriate, to discuss any matters that the Committee or any of these groups believe should be discussed privately with the Committee.
Review and discuss with management and the independent auditor the accounting policies which may be viewed as critical, including all alternative treatments for financial information within IFRS that have been discussed with management, and review and discuss any significant changes in the accounting policies of the Company and industry accounting and regulatory financial reporting proposals that may have a significant impact on the Company'sCompany’s financial reportsreports.
.
Review with management and the independent auditor the effect of regulatory and accounting initiatives as well as off-balance sheet structures, if any, on the Company'sCompany’s financial statements.
Review with management and the independent auditor any correspondence with regulators or governmental agencies and any employee complaints or published reports which raise material issues regarding the Company'sCompany’s financial statements or accounting policies.
Review with the Company'sCompany’s legal counsel legal matters that may have a material impact on the financial statements, the Company'sCompany’s financial compliance policies and any material reports or inquiries received from regulators or governmental agencies related to financial matters.
SECURITIES REGULATORY FILINGS
Review filings with the Canadian provincial securities commissions and the SEC and other published documents containing the Company'sCompany’s financial statements.
Review, with management, prior to public disclosure, the Company’s financial statements and MD&A and related press releases. The chairperson of the Committee may represent the entire Committee for purposes of this review.
Ensure that adequate procedures are in place for the review of the Company’s public disclosure of financial information extracted or derived from the Company’s financial statements, other than the disclosure stated above, and periodically assess the adequacy of those procedures.
RISK ASSESSMENT
Meet periodically with management to review the Company'sCompany’s major financial risk exposures and the steps management has taken to monitor and control such exposures.
Assess risk areas and policies to manage risk including, without limitation, environmental risk, insurance coverage and other areas as determined by the Board from time to time.
Review and discuss with management, and approve changes to, the Company'sCompany’s Corporate Investment Policy.
LIMITATION ON DUTIES OF AUDIT AND FINANCE COMMITTEE
In contributing to the Committee’s discharging of its duties under this charter, each member of the Committee shall be obliged only to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. Nothing in this charter is intended, or may be construed, to impose on any member of the Committee a standard of care or diligence that is in any way more onerous or extensive than the standard to which all Board members are subject.
ADOPTION OF CHARTER
This charter was originally adopted by the Board on August 23, 2004 and revised on January 17, 2012.
APPENDIX I
GLOSSARY OF TERMS
“Independent”means a director who has no direct or indirect material relationship with the Company or its subsidiaries.
A “material relationship”is a relationship which could, in the view of the Board of the Company, be reasonably expected to interfere with the exercise of the person’s independent judgment.
For greater certainty, certain individuals will be deemed not to be independent:
| a) | an individual who is, or has been within the last three years, an employee or executive officer of the Company; |
| b) | an individual whose immediate family member is, or has been within the last three years, an executive officer of the Company; |
| c) | an individual who is a partner of, or employed by the Company’s internal or external auditor or who was, within the last three years, a partner or employee of that audit firm and personally worked on the Company’s audit within that time. For this purpose, “partner” does not include a fixed income partner; |
| d) | an individual whose child or stepchild shares a home with the individual or whose spouse, is a partner of the Company’s internal or external auditor, or is an employee of the audit firm and participates in its audit, assurance or tax compliance practice or who was within the last three years a partner or employee of the audit firm and personally worked on the Company’s audit within that time. For this purpose, “partner” does not include a fixed income partner; |
| e) | an individual who, or whose immediate family member, is or has been within the last three years, an executive officer of an entity if any of the Company’s current executive officers serve or served at the same time on the entity’s compensation committee; and |
| f) | an individual who received, or whose immediate family member who is employed as an executive officer of the Company received, more than $75,000 in direct compensation from the Company during any 12 month period within the last three years. For purposes hereof, direct compensation does not include remuneration for acting as a member of the Board or of any Board committee or remuneration consisting of fixed amounts of compensation under a retirement plan for prior service provided that such compensation is not contingent on any way on continued service. |
For purposes hereof, “Company”includes Medicure Inc. and any subsidiaries thereof.
Notwithstanding the foregoing, a person will not be considered to have a material relationship with the Company solely because he or she:
| a) | has previously acted as an interim chief executive officer of the issuer, or |
| b) | acts, or has previously acted, as a chair or vice-chair of the Board or any Board committee, on a part-time basis. |
Meaning Of “Independence” For Audit Committees
In addition to the requirement of being an Independent Director as described above, members of the Audit Committee will not be considered “independent” for that purpose where the individual:
| a) | accepts, directly or indirectly, any consulting, advisory or other compensatory fee from the Company or subsidiary of the Company, other than as remuneration for acting in his or her capacity as a member of the Board or any Board committee, or as a part-time or vice-chair of the Board or any Board Committee; or |
| b) | is an affiliated entity (as defined in National Instrument 52-110 Audit Committees) of the Company or any of its subsidiaries. |
For purposes hereof, indirect acceptance by an individual of any consulting, advisory or other compensatory fee includes acceptance of a fee by (i) an individual’s spouse, minor child or stepchild, or child or stepchild who shares the individual’s home, or (ii) an entity in which such individual is a partner, member, executive officer or managing director (or comparable position) and which provides accounting, consulting, legal, investment banking or financial advisory services to the Company or any subsidiary of the Company. Notwithstanding the foregoing, compensatory fees do not include receipt of fixed amounts of compensation under a retirement plan (including deferred compensation) for prior service with the issuer if the compensation is not contingent in any way on continued service.
Meaning of “financially literate”
For purposes hereof, an individual is financially literate if he or she has the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Company’s financial statements.
Meaning of “audit committee financial expert”
An “audit committee financial expert” means a person who has the following attributes:
(1) An understanding of generally accepted accounting principles and financial statements;
(2) The ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves;
(3) Experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the Company’s financial statements, or experience actively supervising one or more persons engaged in such activities;
(4) An understanding of internal controls over financial reporting;
(5) An understanding of audit committee functions.
A person shall have acquired such attributes through:
(1) Education and experience as a principal financial officer, principal accounting officer, controller, public accountant or auditor or experience in one or more positions that involve the performance of similar functions;
(2) Experience actively supervising a principal financial officer, principal accounting officer, controller, public accountant, auditor or person performing similar functions;
(3) Experience overseeing or assessing the performance of companies or public accountants with respect to the preparation, auditing or evaluation of financial statements; or
(4) Other relevant experience.
The Audit and Finance Committee Charter was approved for the year ended December 31, 2020 on December 11, 2019.
Executive Compensation, Nominating and Corporate Governance Committee
The Executive Compensation, Nominating and Corporate Governance Committee is responsible for determining the compensation of executive officers of the Company. The current members of the Committee are Dr. Arnold Naimark (Chair), Gerald McDole, Manon Harvey, Peter Quick and Brent Fawkes, none of whom is a current or former executive officer of the Company. The Committee meets at least once a year.
The Committee has developed a policy to govern the Company'sCompany’s approach to corporate governance issues and provides a forum for concerns of individual directors about matters not easily or readily discussed in a full board meeting, e.g., the performance of management. The Committee ensures there is a clear definition and separation of the responsibilities of the Board, the Committees of the Board, the Chief Executive Officer and other management employees. It also ensures there is a process in place for the orientation and education of new directors and for continuing education of the Board. The Committee also assesses the effectiveness of the Board and its committees on an ongoing ad hoc basis. It also reviews at least annually the Company'sCompany’s responsiveness to environmental impact, health and safety and other regulatory standards.
The Committee reviews the objectives, performance and compensation of the Chief Executive Officer at least annually and makes recommendations to the Board for change. The Committee makes recommendations based upon the Chief Executive Officer’s suggestions regarding the salaries and incentive compensation for senior officers of the Company. The Committee also reviews significant changes to compensation, benefits and human resources policies and compliance with current human resource management practices, such as pay equity, performance review and staff development. The Committee is responsible for reviewing and recommending changes to the compensation of directors as necessary.
The charter of the Executive Compensation, Nominating and Corporate Governance Committee can be found on the Company’s website at www.medicure.com.www.medicure.com.
In addition to the individuals disclosed in Section A. Directors and Senior Management of this item, the Company has 3929 employees through Medicure as at December 31, 2015.2020. During the year ended December 31, 2015,2020, the Company has increased itsCompany’s total employment and plans to continue to increase total employment during 2016.decreased from the previous year as part of the Company’s cost curtailment activities.
The following table discloses the number of shares (each share possessing identical voting rights), stock options and percent of the shares outstanding held by the directors and officers of the Company, and their respective affiliates, directly and indirectly, at December 31, 2015.2020.
| Title of Class | Identity of Person or Group | Amount Owned | Percentage of Class | Identity of Person or Group | Amount Owned | Percentage of Class | ||||||||||||||
| Common shares | Dr. Albert D. Friesen(1) (2) | 2,448,455 | (1) | 16.95 | % | Dr. Albert D. Friesen(1) | 2,420,827 | (1) | 23.61 | % | ||||||||||
| Common shares | Dr. Arnold Naimark(3) | 35,194 | 0.16 | % | Dr. Arnold Naimark | 39,194 | 0.38 | % | ||||||||||||
| Common shares | Gerald P. McDole(2) | 44,950 | 0.24 | % | Gerald P. McDole | 48,950 | 0.48 | % | ||||||||||||
| Common shares | Peter Quick(3) | 40,278 | 0.28 | % | Peter Quick | 28,150 | 0.27 | % | ||||||||||||
| Common shares | Brent Fawkes(2) | 12,376 | 0.09 | % | Brent Fawkes | 12,376 | 0.12 | % | ||||||||||||
| Common shares | James Kinley | 2,100 | 0.01 | % | Manon Harvey | — | — | |||||||||||||
| Common shares | Dawson Reimer | 23,315 | 0.16 | % | Dr. Neil Owens | 2,000 | 0.02 | % | ||||||||||||
| Common shares | Graeme Merchant | 17,217 | 0.12 | % | James Kinley | 47,100 | 0.46 | % | ||||||||||||
| (1) | Dr. Albert D. Friesen holds |
Incentive Stock Options
The Company has established an Incentive Stock Option Plan (the ‘‘Plan’Plan’’) for its directors, key officers, employees and consultants. Options granted pursuant to the Plan will not exceed a term of ten years and are granted at an option price and on other terms which the directors determine is necessary to achieve the goal of the Plan and in accordance with regulatory requirements, including those of the TSX Venture Exchange. Each option entitles the holder thereof to purchase one (1) Common Share of the Company on the terms set forth in the Plan and in such purchaser’s specific stock option agreement. The option price may be at a discount to market price, which discount will not, in any event, exceed that permitted by any stock exchange on which the Company’s Common Shares are listed for trading.
The number of Common Shares allocated to the Plan, the exercise period for the options, and the vesting provisions for the options will be determined by the board of directors of the Company from time to time. The aggregate numberCompany’s stock option plan allowed for the issuance of shares reserved for issuance under the Plan, together with any stock options outstanding, will not exceedto purchase up to a maximum of 20% of the issued and outstanding Common Sharescommon shares at the datetime of adoptionapproval of the Plan.stock option plan, which resulted in a fixed number of stock options allowed to be granted totaling 2,934,403. The Plan was adopted by the shareholders of the Company on November 4, 2014.June 22, 2016.
The Common Shares issued pursuant to the exercise of options, when fully paid for by a participant, are not included in the calculation of Common Shares allocated to or within the Plan. Should a participant cease to be eligible due to the loss of corporate office (being that of an officer or director) or employment, the option shall cease for varying periods not exceeding 90 days. Loss of eligibility for consultants is regulated by specific rules imposed by the directors when the option is granted to the appropriate consultant. The Plan also provides that estates of deceased participants can exercise their options for a period not exceeding one year following death.
The following table discloses the stock options beneficially held by the directors and officers of the Company, and their respective affiliates, directly and indirectly, as of December 31, 2015.2020. The stock options are subject to the Plan and are for shares of Common Stock of the Company.
Name of Person | Number of Shares Subject to Issuance | Exercise Price per Share | Expiry Date | |||||||
Dr. Albert D. Friesen | | 5,000 414,000 15,000 100,000 15,000 7,500 9,000 |
| $ $ $ $ $ $ $ | 6.16 1.50 7.20 7.30 4.95 1.90 1.90 |
| April 7, 2021 July 18, 2021 December 19, 2022 January 31, 2023 June 26, 2024 July 7, 2024 March 27, 2025 | |||
Dr. Arnold Naimark | | 4,000 5,000 45,000 5,000 4,500 7,200 |
| $ $ $ $ $ $ | 6.16 7.20 0.30 4.95 1.90 1.90 |
| April 7, 2021 December 19, 2022 May 10, 2023 June 26, 2024 July 7, 2024 March 27, 2025 | |||
Gerald P. McDole | | 4,000 5,000 45,000 5,000 4,500 7,200 |
| $ $ $ $ $ $ | 6.16 7.20 0.30 4.95 1.90 1.90 |
| April 7, 2021 December 19, 2022 May 10, 2023 June 26, 2024 July 7, 2024 March 27, 2025 | |||
Peter Quick | | 4,000 5,000 45,000 5,000 4,500 7,200 |
| $ $ $ $ $ $ | 6.16 7.20 0.30 4.95 1.90 1.90 |
| April 7, 2021 December 19, 2022 May 10, 2023 June 26, 2024 July 7, 2024 March 27, 2025 | |||
Brent Fawkes | | 4,000 5,000 45,000 5,000 4,500 7,200 |
| $ $ $ $ $ $ | 6.16 7.20 0.30 4.95 1.90 1.90 |
| April 7, 2021 December 19, 2022 May 10, 2023 June 26, 2024 July 7, 2024 March 27, 2025 | |||
Manon Harvey | 15,000 | $ | 4.95 | June 26, 2024 | ||||||
Dr. Neil Owens | | 3,000 1,050 4,000 100,000 3,500 1,350 |
| $ $ $ $ $ $ | 3.90 6.16 7.20 4.95 1.90 1.90 |
| November 25, 2020 April 7, 2021 December 19, 2022 June 26, 2024 July 7, 2024 March 27, 2025 | |||
James Kinley | | 4,000 100,000 15,000 7,500 7,200 |
| $ $ $ $ $ | 6.16 7.20 4.95 1.90 1.90 |
| April 7, 2021 December 19, 2022 June 26, 2024 July 7, 2024 March 27, 2025 | |||
| Name of Person | Number of Shares Subject to Issuance | Exercise Price per Share | Expiry Date | |||||||
| Dr. Albert D. Friesen | 10,000 | $ | 24.45 | October 14, 2016 | ||||||
| 414,000 | $ | 1.50 | July 18, 2021 | |||||||
| 75,000 | $ | 0.30 | May 10, 2023 | |||||||
| 7,500 | $ | 1.90 | July 7, 2024 | |||||||
| 9,000 | $ | 1.90 | March 27, 2025 | |||||||
| Dr. Arnold Naimark | 7,333 | $ | 14.70 | December 11, 2017 | ||||||
| 3,333 | $ | 0.60 | September 3, 2018 | |||||||
| 667 | $ | 0.60 | April 16, 2019 | |||||||
| 45,000 | $ | 0.30 | May 10, 2023 | |||||||
| 4,500 | $ | 1.90 | July 7, 2024 | |||||||
| 7,200 | $ | 1.90 | March 27, 2025 | |||||||
| Gerald P. McDole | 667 | $ | 14.70 | December 11, 2017 | ||||||
| 3,333 | $ | 0.60 | September 3, 2018 | |||||||
| 667 | $ | 0.60 | April 16, 2019 | |||||||
| 45,000 | $ | 0.30 | May 10, 2023 | |||||||
| 4,500 | $ | 1.90 | July 7, 2024 | |||||||
| 7,200 | $ | 1.90 | March 27, 2025 | |||||||
| Peter Quick | 3,333 | $ | 23.10 | January 16, 2017 | ||||||
| 667 | $ | 14.70 | December 11, 2017 | |||||||
| 3,333 | $ | 0.60 | September 3, 2018 | |||||||
| 667 | $ | 0.60 | April 16, 2019 | |||||||
| 45,000 | $ | 0.30 | May 10, 2023 | |||||||
| 4,500 | $ | 1.90 | July 7, 2024 | |||||||
| 7,200 | $ | 1.90 | March 27, 2025 | |||||||
| Brent Fawkes | 45,000 | $ | 0.30 | May 10, 2023 | ||||||
| 4,500 | $ | 1.90 | July 7, 2024 | |||||||
| 7,200 | $ | 1.90 | March 27, 2025 | |||||||
| James Kinley | 45,000 | $ | 0.30 | May 10, 2023 | ||||||
| 7,500 | $ | 1.90 | July 7, 2024 | |||||||
| 7,200 | $ | 1.90 | March 27, 2025 | |||||||
| Dawson Reimer | 6,667 | $ | 24.45 | October 14, 2016 | ||||||
| 6,667 | $ | 0.45 | November 10, 2018 | |||||||
| 266,667 | $ | 1.50 | July 18, 2021 | |||||||
| 56,000 | $ | 0.30 | May 10, 2023 | |||||||
| 5,600 | $ | 1.90 | July 7, 2024 | |||||||
| 7,200 | $ | 1.90 | March 27, 2025 | |||||||
| Graeme Merchant | 430 | $ | 14.70 | December 11, 2017 | ||||||
| 3,333 | $ | 0.60 | September 3, 2018 | |||||||
| 6,667 | $ | 0.60 | April 16, 2019 | |||||||
| 100,000 | $ | 1.50 | July 18, 2021 | |||||||
| 45,000 | $ | 0.30 | May 10, 2023 | |||||||
| 8,500 | $ | 1.90 | July 7, 2024 | |||||||
| 7,200 | $ | 1.90 | March 27, 2025 | |||||||
On March 27, 2015,June 26, 2019, the Company grantedannounced that the Board of Directors had approved the grant of an aggregate of 236,070262,000 stock options to certain directors, officers, employees and management company employees and consultants of the Company pursuant to its stock option plan. These options, which were subject to the Company’s Stock Option Plan. Of these options, 181,070 are set to expire on the tenth anniversaryapproval of the date of grant, 5,000 are set to expire on the third anniversary of the date of grant and 50,000 are set to expire on the first anniversary of the date of grant. All of the options were issued at an exercise price of $1.90 per share. Of the 236,070 options granted on March 27, 2015, 183,570 vested immediately, 25,000 vested on July 1, 2015 and 27,500 vested on October 1, 2015.
On July 7, 2015, the Company granted an aggregate of 240,000 options to a consultant of the Company. These optionsTSX Venture Exchange, are set to expire on the fifth anniversary of the date of grant and were issued at an exercise price of $2.50$4.95 per shareshare. Of the stock options granted 180,000 were granted to officers and vested immediately.
directors of the Company.
On November 25, 2015,February 1, 2018, the Company granted an aggregateannounced that its Board of 168,000Directors had approved the grant of 100,000 stock options to certain employees and consultantsan officer of the Company pursuant to the Company’s Stock Option Plan.its stock option plan. These options, which were subject to the approval of the TSX-V, are set to expire on the fifth anniversary of the date of grant and were issued at an exercise price of $3.90$7.30 per share and vested immediately.share.
Subsequent toDuring the year ended December 31, 2015, 226,8502019, Gerald McDole, Arnold Naimark and Peter Quick each exercised 667 stock options were exercised, 132,000to acquire 667 common shares of the Company each at an exercise price of $0.30 per$0.60.
During the year ended December 31, 2018, James Kinley exercised 45,000 stock options to acquire 45,000 common share, 81,350shares of the Company at an exercise price of $1.90 per common share and 13,500 at an exercise price of $3.90 per common share. The 132,000 stock options exercised at $0.30 pertained to the officers of the Company.
$0.30.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
As of December 31, 2015,2020, the following table sets forth the beneficial ownership of the Company'sCompany’s common shares by each person known by the Company to own beneficially more than 5% of the issued and outstanding common shares of the Company. Information as to shares beneficially owned, directly or indirectly, by each nominee or over which each nominee exercises control or direction, not being within the knowledge of the Company, has been furnished by the respective nominees individually. The Company does not know the majority of the ultimate beneficial owners of these common shares.
| Title of Class | Identity of Person or Group | Amount Owned | Percentage of Class | Identity of Person or Group | Amount Owned (3) | Percentage of Class | ||||||||||||||
| Common shares | Dr. Albert D. Friesen Winnipeg, Manitoba | 2,448,455 | (1) | 16.95 | % | Dr. Albert D. Friesen Winnipeg, Manitoba | 2,420,827 | (1) | 23.61 | % | ||||||||||
| Common shares | MM Asset Management Inc. Toronto, Ontario | 2,524,445 | 17.48 | % | MM Asset Management Inc. Toronto, Ontario | 2,410,567 | 23.51 | % | ||||||||||||
Notes:
Notes:
| (1) | Dr. Albert Friesen holds |
As of December 31, 2014 there were approximately 6,500 shareholders of record worldwide. As of this date there were approximately 1,600 shareholders of record in the United States holding a total of 3,450,000 common shares of the Company.
To the best of the Company'sCompany’s knowledge, it is not owned or controlled, directly or indirectly, by another Company, by any foreign government or by any other natural or legal person severally or jointly.
As of December 31, 2015,2019, the total number of issued and outstanding common shares of the Company beneficially owned by the directors and executive officers of the Company as a group was 2,606,6682,598,597 (or 18.05%25.35% of common shares).
To the best of the Company'sCompany’s knowledge, there are no arrangements, the operation of which at a subsequent date will result in a change in control of the Company.
The major shareholders do not have any special voting rights.
Insider Reports under Canadian Securities Legislation
Since the Company a reporting issuer under the Securities Acts of each of the provinces of Canada, certain "insiders"“insiders” of the Company (including its directors, certain executive officers, and persons who directly or indirectly beneficially own, control or direct more than 10% of its common shares) are generally required to file insider reports of changes in their ownership of the Company'sCompany’s common shares five days following the trade under National Instrument 55-104 –Insider Reporting Requirements and Exemptions, as adopted by the Canadian Securities Administrators. Insider reports must be filed electronically five days following the date of the trade atwww.sedi.ca. The public is able to access these reports atwww.sedi.ca.
The U.S. rules governing the ownership threshold above which shareholder ownership must be disclosed are more stringent than those discussed above. Section 13 of the Exchange Act imposes reporting requirements on persons who acquire beneficial ownership (as such term is defined in the Rule 13d-3 under the Exchange Act) of more than 5 per cent of a class of an equity security registered under Section 12 of the Exchange Act. In general, such persons must file, within 10 days after such acquisition, a report of beneficial ownership with the Securities and Exchange Commission containing the information prescribed by the regulations under Section 13 of the Exchange Act. This information is also required to be sent to the issuer of the securities and to each exchange where the securities are traded.
Except as disclosed below, the Company has not, since JuneJanuary 1, 2013,2015, and does not at this time propose to:
| (1) | enter into any transactions which are material to the Company or a related party or any transactions unusual in their nature or conditions involving goods, services or tangible or intangible assets to which the Company or any of its former subsidiaries was a party; |
| (2) | make any loans or guarantees directly or through any of its former subsidiaries to or for the benefit of any of the following persons: |
| (a) | enterprises directly or indirectly through one or more intermediaries, controlling or controlled by or under common control with the Company; |
| (b) | associates of the Company (unconsolidated enterprises in which the Company has significant influence or which has significant influence over the Company) including shareholders beneficially owning 10% or more of the outstanding shares of the Company; |
| (c) | individuals owning, directly or indirectly, shares of the Company that gives them significant influence over the Company and close members of such individuals families; |
| (d) | key management personnel (persons having authority in responsibility for planning, directing and controlling the activities of the Company including directors and senior management and close members of such directors and senior management); or |
| (e) | enterprises in which a substantial voting interest is owned, directly or indirectly, by any person described in (c) or (d) or over which such a person is able to exercise significant influence. |
On July 18, 2011, the Company entered into a consulting agreement with A.D. Friesen Enterprises Ltd. pursuant to which Dr. Albert Friesen serves the Company as its Chief Executive Officer. The agreement is for a term of five years, at a rate of $180,000 annually. Dr. Friesen is also eligible for a yearly merit/performance bonus, if any, that the Company’s board of directors, in its sole discretion, may authorize. Effective July 18, 2016, the Company renewed its consulting agreement with its Chief Executive Officer, through A.D. Friesen Enterprises Ltd., a company owned by the Chief Executive Officer. for a term of five years, at a rate of $300,000 annually, increasing to $315,000 annually, effective January 1, 2017 and increasing to $331,000 annually, effective January 1, 2019. The Company may terminate this agreement at any time upon 120 days’ written notice. As at December 31, 2020 and 2019, there were no amounts included in accounts payable and accrued liabilities payable to A. D. Friesen Enterprises Ltd. as a result of this consulting agreement. Any amounts payable to A. D. Friesen Enterprises Ltd. are unsecured, payable on demand and non-interest bearing.
During the year ended December 31, 2018, the Company recorded a bonus of $32,000 to its Chief Executive Officer which was recorded within general and administrative expenses. During the year ended December 31, 2017, the Company recorded a bonus of $125,000 to its Chief Executive Officer which is recorded within the gain on the sale of Apicore, which was paid during fiscal 2018. During the year ended December 31, 2016, the Company recorded a bonus of $54,000 to its Chief Executive Officer which is recorded within selling, general and administrative expenses. During the year ended December 31, 2015, the Company recorded a bonus of $100,000 to its Chief Executive Officer which is recorded within selling, general and administrative expenses. During the seven months ended December 31, 2014, the Company recorded a bonus of $58,904 to its Chief Executive Officer which is recorded within selling, general and administrative expenses. During the year ended May 31, 2014, the Company recorded a bonus of $286,849 to its Chief Executive Officer which is recorded within selling, general and administrative expenses.
On July 11, 2014,the Company announced that, subject to all necessary regulatory approvals, it has entered into shares for debt agreements with its Chief Executive Officer, Dr. Albert Friesen and certain members of the Board of Directors, pursuant to which the Company will issue 205,867 of its common shares at a deemed price of $1.98 per common share to satisfy $407,617$408,000 of outstanding amounts owing to CEO and members of the Company’s Board of Directors. The shares were issued on January 9, 2015.
The Company may terminate the consulting agreement with the CEO for any reason and at any time upon 120 daysdays’ written notice. In relation to the consulting agreement with A.D. Friesen Enterprises Ltd. the Company recorded consulting fees payable to A.D. Friesen Enterprises Ltd. During the year ended December 31, 2020, the Company recorded a total of $331,000 to A.D. Friesen Enterprises Ltd. December 31, 2019, the Company recorded a total of $331,000 to A.D. Friesen Enterprises Ltd. During the year ended December 31, 2018 and 2017, the Company recorded a total of $315,000, respectively, to A.D. Friesen Enterprises Ltd. During the year ended December 31, 2016, the Company recorded a total of $300,000 to A.D. Friesen Enterprises Ltd. During the year ended December 31, 2015, the Company recorded a total of $186,000 to A.D. Friesen Enterprises Ltd. During the seven months ended December 31, 2014 the Company recorded a total $108,500 to A.D. Friesen Enterprises Ltd. During the year ended May 31, 2013, the Company recorded a total of $186,000 to A.D. Friesen Enterprises Ltd. During the year ended May 31, 2012, the Company recorded a total of $186,000 to A.D. Friesen Enterprises Ltd.
Dr. Friesen, a director, the Chairman and the Chief Executive Officer of the Company is also the majority shareholder in a management services company, Genesys Venture Inc. (“GVI”GVI”) which entered into a management services agreement with the Company as of October 1, 2010. Effective January 1, 2012, the Company entered into a new business and administration services agreement with GVI under which the Company is committed to pay $15,833.33 per month or $190,000 per annum along with an additional $500 per month for each office space it requests and is given access to by GVI. The agreement was for an initial term of one year and shall be automatically renewed for succeeding terms of one year. Either party may terminate the agreement at any time after June 30, 2012, upon 90 days written notice to the other party. The Chief Financial Officer'sOfficer’s services, accounting, payroll, human resources, and information technology are provided pursuant to this agreement. The agreement was renewed for the 2013 and 2014 calendar years. Effective November 1, 2014, the business and administration services agreement was renegotiated for a further 14 month term ending December 31, 2015 at a rate of $17,917 per month, or $215,000 per year. Subsequent to December 31, 2015 and effectiveEffective January 1, 2016, the Company entered into a new business and administration services agreement with GVI, under which the Company is committed to paying $7,083$7,000 per month or $85,000 per year for a one year term and the agreement no longer includes the services of the Chief Financial Officer. Effective January 1, 2017, the Company renewed its business and administration services agreement with GVI, under which the Company is committed to pay $7,000 per month or $85,000 per year for a one-year term and effective January 1, 2018, this agreement was renewed for an additional one-year term. Effective January 1, 2019, this agreement was renewed for an additional one-year term. Effective January 1, 2020, this agreement was renewed for an additional one-year term.
Effective November 1, 2014, the Company entered into a sub-lease with GVI to lease office space at a rate of $170,000 per annum for three years ending October 31, 2017. The lease was amended on May 1, 2016 and increased the leased area covered under the lease agreement at a rate of $212,000 per annum until October 31, 2019. The leased area covered under the lease was again increased, effective November 1, 2018 at a rate of $306,000 per annum until the end of the term of the lease. Effective November 1, 2019, the Company modified and extended its sub-lease with GVI to lease a reduced amount of office space at a rate of $238,000 per annum for three years ending October 31, 2022 with an 18-month renewal period available.
During the year ended December 31, 2015,2020 the Company paid GVI, a company controlled by the Chief Executive Officer, a total of $215,000 (seven months ended December 31, 2014$85,000 (2019 – $85,000; 2018 – $85,000; 2017 – $85,000, 2016 - $115,000, year ended May 31, 2014 - $190,000 and year ended May 31, 2013 - $190,000)$85,000) for business administration services, $176,051 (seven months ended December 31, 2014$238,000 (2019 - $36,500, year ended May 31, 2014$295,000, 2018 - $30,500 and year ended May 31, 2013 - $32,500)$228,000, 2017 – $212,000; 2016 – $223,000) in rental costs and $33,575 (seven months ended December 31, 2014$37,000 (2019 - $25,115, year ended May 31, 2014$47,000, 2018 - $33,735 and year ended May 31, 2013 - $26,125)$47,000, 2017 – $44,000; 2016 – $42,000) for commercial and information technology support services. As described in note 1617(a) to the Company’s audited consolidated financial statements included in this annual report, the Chief Financial Officer'sbusiness administration services summarized above are provided to the Company through a consulting agreement with GVI. In addition, accounting, payroll, human resources and information technologyThe business administration services summarized above are provided to the Company through a consulting agreement with GVI. Until December 31, 2015, the GVI agreement included the Chief Financial Officer’s services to the Company, as well as accounting, payroll, human resources and some information technology services. The business and administration services agreement entered into effective January 1, 2016 and subsequently no longer includes the Chief Financial Officer’s services, which effective January 1, 2016, have been paid directly by the Company through a consulting or employment agreement.
Dr. Friesen, a director, the Chairman and the Chief Executive Officer of the Company also owns a clinical research organization, GVI Clinical Development Solutions Inc. (“GVI CDS”CDS”) which entered into the following clinical research contracts with the Company;
Nature of Agreement | Effective Date | Terms | ||||
| Regulatory affairs support | June 22, 2009 | Services provided as needed on an hourly | ||||
| Pharmacovigilance and medical affairs support | January 1, 2014 | Monthly retainer of $2,000, plus hourly charges for pharmacovigilance services outside base services. | ||||
| Pharmacovigilance and medical affairs support | January 1, 2014 | Monthly retainer of $1,250, plus hourly charges for pharmacovigilance services outside base services. | ||||
| Quality assurance support | June 1, 2010 | Services provided as needed on an hourly basis. | ||||
| May 1, 2010 | Services provided as needed on an hourly basis. | |||||
During the seven monthsyear ended December 31, 2014,2020, the Company paid GVI CDS $330,764 (seven months ended December 31, 2014$202,000 (2019 - $56,904, year ended May 31, 2014$406,000, 2018 - $125,583 and year ended May 31, 2013 - $134,696)$858,000, 2017 – $716,000; 2016 – $592,000) for clinical research services.
The Company also has a consulting agreement with CanAm Bioresearch Inc. (CanAm)(“CanAm”), a company controlled by a close family member of Dr. Friesen’s to provide contract research services. During the year ended December 31, 2020, the Company paid CanAm $399,580 (seven months ended December 31, 2014$7,000 (2019 - $233,938, year ended May 31, 2014$133,000, 2018 - $229,732 and year ended May 31, 2013 - $467,763)$393,000, 2017 – $458,000; 2016 – $560,000) for research and development services.
These transactions were in the normal course of business and have been measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
Beginning on February 22, 2013 and until June 30, 2015, thesethe amounts owing to GVI, GVI CDS and CanAm bore interest at a rate of 5.5% per annum. For the year ended December 31, 2015, $12,409 (seven months2017 and 2016, there was no interest charged on these amounts payable to related parties. For the year ended December 31, 2014, $18,082, year ended May 31, 2014 - $36,904 and year ended May 31, 2013 - $7,366)2015 $5,000 was recorded within finance expense in relation to these amounts payable to related parties.
As at December 31, 2015,2020, included in accounts payable and accrued liabilities is $23,494 (December 31, 2014$56,000 (2019 - $120,962 and May 31, 2014 - $90,262)$95,000) payable to GVI, $64,539 (December 31, 2014 - $145,100 and May 31, 2014 - $148,461)$99,000 (2019 – $56,000) payable to GVI CDS, and $60,611 (December 31, 2014 - $247,752 and May 31, 2014 - $373,956)$7,000 (2019 – nil) payable to CanAm, whichCanAm. These amounts are unsecured, payable on demand and bear interest as described above.non-interest bearing.
As at December 31, 2020, the Company had $14,000 (2019 – nil) recorded within accounts payable and accrued liabilities relating to amounts payable to the members of the Company’s Board of Directors for services provided.
On July 18, 2011,Effective January 1, 2018, the Company renewed its consulting agreement with its Chief ExecutiveFinancial Officer, through JFK Enterprises Ltd., a company owned by the Chief Financial Officer of the Company, for a one-yearterm, of five years, at a rate of $180,000$155,000 annually. The Company may terminate this agreement could have been terminated by either party, at any time, upon 12030 days written notice. During the seven months ended December 31, 2015, the Company recorded a bonus of $100,000 (seven months ended December 31, 2014 - $58,904, year ended May 31, 2014 - $286,849 and year ended May 31, 2013 - nil) to its Chief Executive Officer which is recorded within selling, general and administrative expenses. As at December 31, 2015, included in accounts payable and accrued liabilities is $45,753 (December 31, 2014 - $345,753 and May 31, 2014 - $286,849)Any amounts payable to the Chief Executive Officer as a result of this consulting agreement, which isJFK Enterprises Ltd. were unsecured, payable on demand and non-interest bearing.
On July 11, 2014, the Company announced that, subject to all necessary regulatory approvals, it had entered Effective June 1, 2018, this consulting agreement was converted into a shares for debtan employment agreement with its Chief Executive Officer, pursuant to which the Company will issue common shares at a deemed price of $1.98 per common share to satisfy outstanding amounts owing to the Chief ExecutiveFinancial Officer. Of the amount payable to the Chief Executive Officer as at December 31, 2014, $297,808 was included in this shares for debt agreement. The shares were issued on January 9, 2015.
C. Interests of Experts and Counsel
Not applicable
| ITEM 8. | FINANCIAL INFORMATION |
A. Consolidated Statements or Other Financial Information
financialFinancial Statements
The consolidated financial statements of the Company as at December 31, 2020 and 2019 and for the yearyears ended December 31, 2015, the seven months ended December 31, 20142020, 2019 and years ended May 31, 2014 and 20132018 have been prepared in accordance with IFRS, as issued by the IASB, and are included under Item 18 of this Annual Report. The consolidated financial statements including related notes are accompanied by the report of the Company’s independent registered public accounting firm, Ernst & Young LLP.
LLP as at and for the year ended December 2020 and PricewaterhouseCoopers LLP as at December 31, 2019 and for the years ended December 31, 2019 and 2018.
Legal Proceedings
There are currently no claims outstanding against the Company.
On February 13, 2019, the Company announced that it had received notice from the purchaser of Medicure’s interests in Apicore of potential claims against funds held back in respect of representations and warranties under the Apicore sale agreement. The notice did not contain sufficiently detailed information to enable Medicure to assess the merits of the claims with the maximum exposure of the claims being the total holdback receivable. The Company continued to proceed diligently to investigate the potential claims and attempt to satisfactorily resolve them with a view to having the holdback funds released. In conjunction with the sale of Medicure’s interests in Apicore, representation and warranty insurance was obtained by the purchaser that could result in mitigation of the potential claims.
On December 5, 2019, the Company announced that it had reached a settlement agreement with the purchaser of the Company’s interests in Apicore with respect to the amounts heldback under the Apicore sale agreement. A settlement agreement was reached under which Medicure received a net payment of US$5.1 million in relation to the holdback receivable.
On December 5, 2019, the Company announced it had filed a patent infringement action against Nexus in the U.S. District Court for the Northern District of Illinois, alleging infringement of the ‘660 patent. On November 18, 2020, the Company announced the settlement of its ongoing patent infringement action against Nexus in the U.S. District Court for the Northern District of Illinois, which alleged infringement of the ’660 patent. As part of the settlement, Nexus has acknowledged that the ‘660 patent is valid, enforceable and infringed. The settlement results in the Company entering into a license agreement with Nexus with anticipated launch dates for Nexus’ generic products of November 1, 2022 for the 5 mg strength and January 1, 2023 for the 12.5 mg strength. The remaining terms of the settlement are confidential.
The patent infringement action is in response to Nexus’ filing of an ANDA seeking approval from the FDA to market a generic version of AGGRASTAT® before the expiration of the ’660 patent.
The ‘660 patent is listed in the FDA’s orange book with an expiry date of May 1, 2023. Medicure defended the ’660 patent and pursued the patent infringement action against Nexus and will continue all other legal options available to protect its product.
Previously, on November 16, 2018, the Company filed a patent infringement action against Gland Pharma Ltd. (“Gland”) in the U.S. District Court for the District of New Jersey, alleging infringement of the ‘660 patent. The patent infringement actions were in response to Gland’s filing of an ANDA seeking approval from the FDA to market a generic version of AGGRASTAT® before the expiration of the ’660 patent.
During 2018, the Company was named in a civil claim in Florida from the third-party manufacturer of PREXXARTAN® against Carmel. The claim disputed the rights granted by Carmel to the Company with respect to PREXXARTAN®. The Company believed the claim against it was without merit and intended to defend itself against the claim. The claim against the Company has been subsequently withdrawn, however the dispute between the third-party manufacturer and Carmel continues.
Aside from the above, there are no additional legal or arbitration proceedings, including those relating to bankruptcy, receivership or similar proceedings and those involving any third party, which may have, or have had in the recent past, significant effects on the Company’s financial position or profitability. There are no additional significant legal proceedings to which the Company is a party, nor to the best of the knowledge of the Company’s management are any legal proceedings contemplated.
Dividend Policy
The Company has not paid dividends in the past and it has no present intention of paying dividends on its shares as it anticipates that all available funds will be invested to finance the growth of its business. The directors of the Company will determine if and when dividends should be declared and paid in the future based upon the Company’s financial position at the relevant time. All of the Company’s Shares are entitled to an equal share of any dividends declared and paid.
There have been no significant changes to the accompanying financial statements since December 31, 2014,2019, except as disclosed in this Annual Report on Form 20-F.
| ITEM 9. | THE OFFERING AND LISTING |
ITEM 9. THE OFFERING AND LISTING
From March 26, 2010 until October 21, 2011, shares of the Company traded on the NEX board of the TSX-V under the symbol “MPH.H”. On October 24, 2011, shares of the CompanyCompany’s common shares commenced trading on the TSX-V under the symbol “MPH”.
By Articles of Amendment filed by the Company under the Canada Business Corporations Act on November 1, 2012, the Company’s issued and outstanding common shares were consolidated on the basis of one post-consolidation common share for every fifteen pre-consolidation common shares. The Company’s name and trading symbol did not change as a result of the consolidation. The Company’s common shares were reduced from 182,947,595 to 12,196,508 issued and outstanding as a result of the consolidation. The trading prices presented here have not been adjusted to reflect the consolidation.
The following tables ettable sets forth for the periods indicated the price history of the Company’s common shares on the TSX-V and the NEX.TSX-V.
TSX/NEX/ TSX-V High ($) | TSX/NEX/ TSX-V Low ($) | |||||||
| Fiscal Quarter Ended | ||||||||
| December 31, 2015 | 4.35 | 3.00 | ||||||
| September 30, 2015 | 3.94 | 2.35 | ||||||
| June 30, 2015 | 2.74 | 1.91 | ||||||
| March 31, 2015 | 2.39 | 1.20 | ||||||
| Period from December 1, 2014 to December 31, 2014 | 2.51 | 1.95 | (1) | |||||
| November 30, 2014 | 2.91 | 1.58 | ||||||
| August 31, 2014 | 2.97 | 1.62 | ||||||
| May 31, 2014 | 3.15 | 0.35 | ||||||
| February 28, 2014 | 0.70 | 0.20 | ||||||
| November 1, 2013 | 0.53 | 0.14 | ||||||
| August 31, 2013 | 0.28 | 0.10 | ||||||
| May 31, 2013 | 0.45 | 0.20 | ||||||
| February 29, 2013 | 0.67 | 0.23 | ||||||
| Period from November 2, 2012 to November 30, 2012 | 0.64 | 0.38 | (2) | |||||
| Period from September 1, 2012 to November 1, 2012 | 0.045 | 0.03 | (2) | |||||
| August 31, 2012 | 0.04 | 0.025 | ||||||
| May 31, 2012 | 0.045 | 0.025 | ||||||
| February 29, 2012 | 0.045 | 0.015 | ||||||
| November 30, 2011 | 0.035 | 0.02 | ||||||
| August 31, 2011 | 0.06 | 0.015 | ||||||
| �� | TSX-V | TSX-V | ||||||
| High ($) | Low ($) | |||||||
Fiscal Quarter Ended | ||||||||
December 31, 2020 | 1.25 | 0.70 | ||||||
September 30, 2020 | 1.39 | 0.83 | ||||||
June 30, 2020 | 2.80 | 0.93 | ||||||
March 31, 2020 | 4.40 | 1.50 | ||||||
December 31, 2019 | 5.24 | 3.00 | ||||||
September 30, 2019 | 5.02 | 4.15 | ||||||
June 30, 2019 | 6.35 | 4.68 | ||||||
March 31, 2019 | 6.90 | 5.95 | ||||||
December 31, 2018 | 7.15 | 5.71 | ||||||
September 30, 2018 | 7.38 | 6.60 | ||||||
June 30, 2018 | 7.55 | 5.90 | ||||||
March 31, 2018 | 7.40 | 6.70 | ||||||
December 31, 2017 | 8.71 | 6.90 | ||||||
September 30, 2017 | 8.45 | 7.50 | ||||||
June 30, 2017 | 9.82 | 6.50 | ||||||
March 31, 2017 | 10.55 | 8.52 | ||||||
Not applicable.
The Company'sCompany’s common shares are listed for trading on the TSX-V under the symbol “MPH”. Certain market makers also trade the Company’s common shares on the OTC Pink Market, under the symbol MCUJF.“MCUJF”.
Not applicable.
Not applicable.
Not applicable.
Not applicable.
| ITEM 10. | ADDITIONAL INFORMATION |
ITEM 10. ADDITIONAL INFORMATION
Not applicable
B. Memorandum and Articles of Association
1. Objects and Purposes of the Company
The Articles of Continuance (as amended, the “Articles”“Articles”) and the By-Laws of the Company place no restrictions upon the Company’s objects and purposes.
2. Directors
Under applicable Canadian law, the directors and officers of the Company, in exercising their powers and discharging their duties, must act honestly and in good faith with a view to the best interests of the Company. The directors and officers must also exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
Section 4.18 of By-Law No.1A of the Company (the “By-Law”“By-Law”) provides that a director shall not be disqualified by reason of his office from contracting with the Company or a subsidiary thereof. Subject to the provisions of theCanada Business Corporations Act(the “Act”“Act”), a director shall not by reason only of his office be accountable to the Company or its shareholders for any profit or gain realized from a contract or transaction in which he has an interest. Such contract or transaction shall not be voidable by reason only of such interest, or by reason only of the presence of a director so interested at a meeting, or by reason only of his presence being counted in determining a quorum at a meeting of the directors at which such a contract or transaction is approved, provided that a declaration and disclosure of such interest shall have been made at the time and in the manner prescribed by section 120 of the Act, and the director so interested shall have refrained from voting as a director on the resolution approving the contract or transaction (except as permitted by the Act) and such contract shall have been reasonable and fair to the Company and shall have been approved by the directors or shareholders of the Company as required by section 120 of the Act.
The Company’s Articles provide that the Company’s board shall consist of a minimum of one and a maximum of 15 directors. The exact number of directors to form the board, between the minimum and maximum number of directors prescribed by the Articles, is determined from time to time by the board. Section 4.01 of the By-Law states that the quorum of the board shall be a majority of the board, or such other number of directors as the board may from time to time determine. No business shall be transacted at a meeting unless a quorum is present.
Section 3.01 of the By-Law states that the board may, without the authorization of the shareholders:
| i) | borrow money upon the credit of the Company; |
| ii) | issue, reissue, sell or pledge debt obligations of the Company, including bonds, debentures, notes or other evidences of indebtedness or guarantees, whether secured or unsecured; |
| iii) | subject to section 44 of the Act, give a guarantee on behalf of the Company to secure performance of any present or future indebtedness, liability or obligation of any person; and |
| iv) | mortgage, hypothecate, pledge or otherwise create a security interest in all or any property of the Company, owned or subsequently acquired, to secure any obligation of the Company. |
The borrowing powers of the directors can be varied by amending the By-Law of the Company.
There is no provision in the By-Law imposing a requirement for retirement or non-retirement of directors under an age limit requirement.
Section 4.02 of the By-law states that a director need not be a shareholder to be qualified as a director. However, section 4.02 also provides that at least 25% of the directors shall be resident Canadians unless the Company has less than four directors, in which case at least one director must be a resident Canadian.
Under section 4.03 of the By-law, directors are to be elected yearly by ordinary resolution to hold office until the close of the next annual meeting of shareholder. If directors fail to be elected at any such meeting of shareholders, then the incumbent directors continue in office until their successors are elected.
3. Shares
The Articles of the Company provide that the Company is authorized to issue an unlimited number of shares designated as Common Shares, Class A Common Shares and Preferred Shares. Except for meetings at which only holders of another specified class or series of shares of the Company are entitled to vote separately as a class or series, each holder of the Common and Class A shares is entitled to receive notice of, to attend and to vote at all meetings of the shareholders of the Company. Subject to the rights, privileges, restrictions and conditions attached to any other class of shares of the Company, the holders of the Common and Class A shares are also entitled to receive dividends if, as and when declared by the directors of the Company and are entitled to share equally in the remaining property of the Company upon liquidation, dissolution or winding-up of the Company.
The Preferred Shares may from time to time be issued in one or more series and, subject to the following provisions, and subject to the sending of articles of amendment in respect thereof, the directors may fix from time to time and before issue a series of Preferred Shares, the number of shares which are to comprise that series and the designation, rights, privileges, restrictions and conditions to be attached to that series of Preferred Shares including, without limiting the generality of the foregoing, the rate or amount of dividends or the method of calculating dividends, the dates of payment of dividends, the redemption, purchase and/or conversion, and any sinking fund or other provisions.
The Preferred Shares of each series shall, with respect to the payment of dividends and the distribution of assets or return of capital in the event of liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, or any other return of capital or distribution of the assets of the Company among its shareholders for the purpose of winding-up its affairs, rank on a parity with the Preferred Shares of every other series and be entitled to preference over the Common and Class A Common Shares and over any other shares of the Company ranking junior to the Preferred Shares. The Preferred Shares of any series may also be given other preferences, not inconsistent with these articles, over the Common Shares and Class A Common Shares and any other shares of the Company ranking junior to the Preferred Shares of a series as may be fixed in accordance with terms outlined above.
If any cumulative dividends or amounts payable on the return of capital in respect of a series of Preferred Shares are not paid in full, all series of Preferred Shares shall participate rateably in respect of accumulated dividends and return of capital.
Unless the directors otherwise determine in the articles of amendment designating a series of Preferred Shares, the holder of each share or a series of Preferred Shares shall not, as such, be entitled to receive notice of or vote at any meeting of shareholders, except as otherwise specifically provided in the Act.
4. Rights of Shareholders
Under the Act, shareholders of the Company are entitled to examine, during its usual business hours, the Company’s articles and by-laws, notices of directors and change of directors, any unanimous shareholder agreements, the minutes of meetings and resolutions of shareholders and the list of shareholders.
Shareholders of the Company may obtain a list of shareholders upon payment of a reasonable fee and sending an affidavit to the Company or its transfer agent stating, among other things, that the list of shareholders will not be used by any person except in connection with an effort to influence the voting of shareholders of the Company, an offer to acquire shares of the Company or any other matter relating to the affairs of the Company.
Under the Act, shareholders of the Company may apply to a court having jurisdiction directing an investigation to be made of the Company. If it appears to the court that the formation, business or affairs of the Company were conducted for fraudulent or unlawful purposes, or that the powers of the directors were exercised in a manner that is oppressive or unfairly disregards the interests of the shareholders, the court may order an investigation to be made of the Company.
To change the rights of holders of stock, where such rights are attached to an issued class or series of shares, requires the consent by a separate resolution of the holders of the class or series of shares, as the case may be, requiring a majority of two-thirds of the votes cast.
The Company is organized under the laws of Canada. The majority of the Company’s directors, officers, and affiliates of the Company, as well as the experts named in this registration statement, are residents of Canada and, to the best of the Company’s knowledge, all or a substantial portion of their assets and all of the Company’s assets are located outside of the United States. As a result, it may be difficult for shareholders of the Company in the United States to effect service of process on the Company or these persons above within the United States, or to realize in the United States upon judgments rendered against the Company or such persons. Additionally, a shareholder of the Company should not assume that the courts of Canada (i) would enforce judgments of U.S. courts obtained in actions against the Company or such persons predicated upon the civil liability provisions of the U.S. federal securities laws or other laws of the United States, or (ii) would enforce, in original actions, liabilities against the Company or such persons predicated upon the U.S. federal securities laws or other laws of the United States.
Laws in the United States and judgments of U.S. courts would generally be enforced by a court of Canada unless such laws or judgments are contrary to public policy in Canada, are or arise from foreign penal laws or laws that deal with taxation or the taking of property by a foreign government and are not in compliance with applicable laws in Canada regarding the limitation of actions. Further, a judgment obtained in a U.S. court would generally be recognized by a court of Canada, except under the following examples:
| i) | the judgment was rendered in a U.S. court that had no jurisdiction according to applicable laws in Canada; |
| ii) | the judgment was subject to ordinary remedy (appeal, judicial review and any other judicial proceeding which renders the judgment not final, conclusive or enforceable under the laws of the applicable state) or not final, conclusive or enforceable under the laws of the applicable state; |
| iii) | the judgment was obtained by fraud or in any manner contrary to natural justice or rendered in contravention of fundamental principles of procedure; and |
| iv) | a dispute between the same parties, based on the same subject matter has given rise to a judgment rendered in a court of Canada or has been decided in a third country and the judgment meets the necessary conditions for recognition in a court of Canada. |
5. Meetings
Subject to the provisions of the Act, the annual general meeting of the shareholders shall be on such date in each year as the board of directors may determine, and a special meeting of the shareholders may be convened at any time by order of the President or by the board on their own motion or on the requisition of shareholders as provided for in the Act. Notice of the time and place of each meeting of shareholders shall be given not less than 21 days nor more than 60 days before the date of the meeting to each director and shareholder. A meeting of shareholders may be held without notice at any time and at any place provided a waiver of notice is obtained in accordance with section 136 of the Act. The quorum for the transaction of business at meetings of the shareholders shall consist of not less than two shareholders present or represented by proxy and holding in all not less than 10% percent of the outstanding shares entitled to vote at the meeting. At any meeting of shareholders, every person shall be entitled to vote who, at the time of the taking of a vote (or, if there is a record date for voting, at the close of business on such record date) is entered in the register of shareholders as the holder of one or more shares carrying the right to vote at such meeting, subject to the provisions of the Act.
6. Ownership of Securities
There are no limitations imposed by the Act, or by the Articles or By-Law or any other constituent document of the Company.,Company on the right of non-resident or foreign shareholders to own or vote securities of the Company. However, the Investment Canada Act (Canada) will prohibit implementation, or if necessary, require divestiture of an investment deemed “reviewable” under the Investment Canada Act (Canada) by an investor that is not a “Canadian” as defined in the Investment Canada Act (Canada), unless after review the Minister responsible for the Investment Canada Act (Canada) is satisfied that the “reviewable” investment is likely to be of net benefit to Canada.
The following discussion summarizes the principal features of the Investment Canada Act for a non-Canadian who proposes to acquire common shares of the Company. The discussion is general only; it is not a substitute for independent legal advice from an investor'sinvestor’s own adviser; and, except where expressly noted, it does not anticipate statutory or regulatory amendments.
The Investment Canada Act is a federal statute of broad application regulating the establishment and acquisition of Canadian businesses by non-Canadians, including individuals, governments or agencies thereof, corporations, partnerships, trusts or joint ventures, Investments by non-Canadians to acquire control over existing Canadian businesses or to establish new ones are either reviewable or notifiable under the Investment Canada Act. If an investment by a non-Canadian to acquire control over an existing Canadian business is reviewable under the Investment Canada Act, the Investment Canada Act generally prohibits implementation of the investment unless, after review, the Minister of Industry is satisfied that the investment is likely to be of net benefit to Canada.
An investment in the Company’s common shares by a non-Canadian, who is not a resident of a World Trade Organization (“WTO”WTO”) member, would be reviewable under the Investment Canada Act (Canada) if it was an investment to acquire control of the Company and the value of the assets of the Company was CAN$5CAN $5 million or more. An investment in common shares of the Company by residentsa resident of a WTO membersmember would be reviewable only if it was an investment to acquire control of the Company and the enterprise value of the assets of the Company was equal to or greater than a specified amount, which is published by the Minister after its determination for any particular year. This amount is currently CAN $600 million for$1 billion (unless the year 2016; itWTO member is party to one of a list of certain free trade agreements, in which case the amount is currently CAN $1.5 billion); beginning January 1, 2019, both thresholds will increase to CAN $800 million starting April 24, 2017.be adjusted annually by a GDP (Gross Domestic Product) based index.
A non-Canadian would be deemed to acquire control of the Company for the purposes of the Investment Canada Act if the non-Canadian acquired a majority of the outstanding common shares (or less than a majority but controlled the Company in fact through the ownership of one-third or more of the outstanding common shares) unless it could be established that, on the acquisition, the Company is not controlled in fact by the acquirer through the ownership of such common shares. Certain transactions in relation to the Company’s common shares would be exempt from review under the Investment Canada Act, including, among others, the following:
the acquisition of voting shares or other voting interests by any person in the ordinary course of that person’s business as a trader or dealer in securities; |
| ii) | the acquisition of control of the Company in connection with the realization of security granted for a loan or other financial assistance and not for any purpose related to the provisions of the Investment Canada Act (Canada), if the acquisition is subject to approval under the Bank Act (Canada), the Cooperative Credit Associations Act (Canada), the Insurance Companies Act (Canada) or the Trust and Loan Companies Act (Canada); and |
| iii) | the acquisition of control of the Company by reason of an amalgamation, merger, consolidation or corporate reorganization following which the ultimate direct or indirect control of the Company, through the ownership of voting interests, remains unchanged. |
7. Change in Control of Company
No provision of the Company’s Articles or By-Law would have the effect of delaying, deferring, or preventing a change in control of the Company, and operate only with respect to a merger, acquisition or corporate restructuring of the Company or any of its subsidiaries. The Company no longer has a shareholder rights plan.
The following are the material contracts of the Company, other than those mentioned elsewhere in this Form, to which the Company or any member of the group is a party, for the two years immediately preceding publication of this registration statement.
N/A
None
There is no law or governmental decree or regulation in Canada that restricts the export or import of capital, or affects the remittance of dividends, interest or other payments to a non-resident holder of Common Shares, other than withholding tax requirements. Any such remittances to United States residents are generally subject to withholding tax, however no such remittances are likely in the foreseeable future. (See "Item“Item 10E - Taxation"Taxation”, below.)
Except as provided in the Investment Canada Act (Canada), which has rules regarding certain acquisitions of shares by non-residents, there is no limitation imposed by Canadian law, or by the Company’s Articles or By-Law, or by any other constituent documents of the Company, on the right of a non-resident to hold or vote the Company’s common shares. Investment Canada Act is a Canadian federal statute of broad application regulating the establishment and acquisition of Canadian businesses by non-Canadians, including individuals, governments or agencies thereof, corporations, partnerships, trusts or joint ventures, .ventures. Investments by non-Canadians to acquire control over existing Canadian businesses or to establish new ones are either reviewable or notifiable under the Investment Canada Act. If an investment by a non-Canadian to acquire control over an existing Canadian business is reviewable under the Investment Canada Act, the Investment Canada Act generally prohibits implementation of the investment unless, after review, the Minister of Industry is satisfied that the investment is likely to be of net benefit to Canada.
Material U.S. Federal Income Tax Consequences
Considerations
The following is a summary of the anticipated material U.S. federal income tax consequencesconsiderations applicable to a U.S. Holder (as defined below) arising from and relating to the acquisition, ownership, and disposition of the Company’s common shares of (“Common Shares”Shares”).
This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax consequencesconsiderations that may apply to a U.S. Holder as a result of the acquisition, ownership, and disposition of Common Shares. In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares.Shares for such U.S. Holder. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any particular U.S. Holder. Except as specifically set forth below, this summary does not discuss applicable tax reporting requirements. Each U.S. Holder should consult its own financialtax advisor legal counsel, or accountant regarding the U.S. federal, income, U.S. state and local, and foreignnon-U.S. tax consequences of the acquisition, ownership, and disposition of Common Shares.
No opinion from U.S. legal counsel or ruling from the Internal Revenue Service (the “IRS”) has been requested, or will be obtained, regarding the U.S. federal income tax consequences of the acquisition, ownership and disposition of Common Shares. This summary is not binding on the IRS, and the IRS is not precluded from taking a position that is different from, or contrary to, any position taken in this summary. In addition, because the authorities upon which this summary is based are subject to various interpretations, the IRS and the U.S. courts could disagree with one or more of the positions taken in this summary.
Scope of this Summary
Authorities
This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”“Code”), Treasury Regulations (whether final, temporary, or proposed), published rulings of the Internal Revenue Service (the “IRS”),IRS, published administrative positions of the IRS, the Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended (the “Canada-U.S.“Canada-U.S. Tax Convention”), and U.S. court decisions that are applicable and, in each case, as in effect and available, as of the date of this Annual Report. Any of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such change could be applied on a retroactive basis.basis, which could affect the U.S. federal income tax consequences described in this summary. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted, could be applied on a retroactive basis.
U.S. Holders
For purposes of this summary, a “U.S. Holder”“U.S. Holder” is a beneficial owner of Common Shares that, for U.S. federal income tax purposes, is (a) an individual who is a citizen or resident of the U.S., (b) a corporation, or any other entity classified as a corporation for U.S. federal income tax purposes, that is created or organized in or under the laws of the U.S. or, any state in the U.S., includingor the District of Columbia, (c) an estate if the income of such estate is subject to U.S. federal income tax regardless of the source of such income, or (d) a trust if (i) such trust has validly elected to be treated as a U.S. person for U.S. federal income tax purposes or (ii) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of such trust.
Non-U.S. Holders
For purposes of this summary, a “non-U.S. Holder”“non-U.S. Holder” is a beneficial owner of Common Shares other than a U.S. Holder. This summary does not address the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares to non-U.S. Holders. Accordingly, a non-U.S. Holder should consult its own financialtax advisor legal counsel, or accountant regarding the U.S. federal, income, U.S. state and local, and foreignnon-U.S. tax consequences (including the potential application of and operation of any tax treaties) of the acquisition, ownership, and disposition of Common Shares.
U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed
This summary does not address the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares to U.S. Holders that are subject to special provisions under the Code, including the following U.S. Holders: (a) U.S. Holders that are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; (b) U.S. Holders that are financial institutions, underwriters, insurance companies, real estate investment trusts, or regulated investment companies; (c) U.S. Holders that are dealers in securities or currencies or U.S. Holders that are traders in securities or currencies that elect to apply a mark-to-market accounting method; (d) U.S. Holders that have a “functional currency” other than the U.S. dollar; (e) U.S. Holders that are liable for the alternative minimum tax under the Code; (f) U.S. Holders that own Common Shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other arrangement involving more than one position; (g) U.S. Holders that are subject to Section 451(b) of the Code;(h) U.S. Holders that acquired Common Shares in connection with the exercise of employee stock options or otherwise as compensation for services; (h)(i) U.S. Holders that hold Common Shares other than as a capital assetassets within the meaning of Section 1221 of the Code; (i)Code (generally, property held for investment purposes); (j) U.S. Holders who are U.S. expatriates or former long-term residents of the United States.; or (j)States; (k) U.S. Holders that own (directly, indirectly, or by attribution) 10% or more of the total combined voting power or value of the outstanding shares of the Company.Company; or (l) corporations that accumulate earnings to avoid U.S. federal income tax. U.S. Holders that are subject to special provisions under the Code, including U.S. Holders described immediately above, should consult their own financial advisor, legal counsel or accountanttax advisors regarding the U.S. federal, income, U.S. state and local, and foreignnon-U.S. tax consequences of the acquisition, ownership, and disposition of Common Shares.
If an entity that is classified as a partnership (or other “pass-through” entity) for U.S. federal income tax purposes holds Common Shares, the U.S. federal income tax consequences to such partnership (or other “pass-through” entity) and the partners of such partnership (or owners of such other “pass-through” entity) generally will depend on the activities of the partnership (or other “pass-through” entity) and the status of such partners (or owners). This summary does not address the U.S. federal income tax consequences for any such partner or partnership (or other “pass-through” entity or owner). Partners of entities that are classified as partnerships (or owners of other “pass-through” entities) for U.S. federal income tax purposes should consult their own financial advisor, legal counsel or accountanttax advisors regarding the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares.
Tax Consequences Other than U.S. Federal Income Tax Consequences Not Addressed
This summary does not address the U.S. state and local, U.S. federal estate and gift, U.S. Medicare contribution, or foreignnon-U.S. tax consequences to U.S. Holders of the acquisition, ownership, and disposition of Common Shares. Each U.S. Holder should consult its own financialtax advisor legal counsel, or accountant regarding the U.S. state and local, U.S. federal estate and gift, U.S. Medicare contribution, and foreignnon-U.S. tax consequences of the acquisition, ownership, and disposition of Common Shares. (See “Taxation—Canadian Federal Income Tax Consequences” above)Considerations for U.S. Residents” below).
U.S. Federal Income Tax Consequences of the Acquisition, Ownership, and Disposition of Common Shares
Distributions on Common Shares
General Taxation of Distributions
ASubject to the “passive foreign investment company” rules discussed below, a U.S. Holder that receives a distribution, including a constructive distribution, with respect to the Common Shares will be required to include the amount of such distribution in gross income as a dividend (without reduction for any Canadian income tax withheld from such distribution) to the extent of the current or accumulated “earnings and profits” of the Company.Company, as computed for U.S. federal income tax purposes. To the extent that a distribution exceeds the current and accumulated “earnings and profits” of the Company, such distribution will be treated (a) first, as a tax-free return of capital to the extent of a U.S. Holder’s tax basis in the Common Shares, and (b) thereafter, as gain from the sale or exchange of such Common Shares. (See more detailed discussion at “Disposition of Common Shares” below).
The Company may not maintain calculations of earnings and profits in accordance with U.S. federal income tax principles, and each U.S. Holder should therefore assume that any distribution by the Company with respect to Common Shares will constitute a dividend.
Reduced Tax Rates for Certain Dividends
For taxable years beginning before January 1, 2011, aA dividend paid by the Company generally will be taxed at the preferential tax rates applicable to long-term capital gains if (a) the Company is a “qualified foreign corporation” (as defined below), (b) the U.S. Holder receiving such dividend is an individual, estate, or trust, and (c) such dividend is paid on Common Shares that have been held by such U.S. Holder for at least 61 days during the 121-day period beginning 60 days before the “ex-dividend“ex-dividend date.” The Company generally will be a “qualified foreign corporation” under Section 1(h)(11) of the Code (a “QFC”“QFC”) if (a) the Company is eligible for the benefits of the Canada-U.S. Tax Convention, or (b) the Common Shares are readily tradable on an established securities market in the U.S.
However, even if the Company satisfies one or more of such requirements, the Company will not be treated as a QFC if the Company is a “passive foreign investment Company”company,” or “PFIC” (as defined below) for the taxable year during which the Company pays a dividend or for the preceding taxable year.
As discussed below, the Company does not believe that it was a “passive foreign investment Company”PFIC for the taxable year ended December 31, 2015,2019, and does not expect that it will be a “passive foreign investment Company”PFIC for the taxable year ending December 31, 2016.2020. (See more detailed discussion at “Additional Rules that May Apply to U.S. Holders” below). However, there can be no assurance that the IRS will not challenge the determination made by the Company concerning its “passive foreign investment Company”PFIC status or that the Company will not be a “passive foreign investment Company”PFIC for the current taxable year or any subsequent taxable year.
Accordingly, although the Company expects that it may be a QFC for the taxable year ending December 31, 2015,2020, there can be no assurancesassurance that the IRS will not challenge the determination made by the Company concerning its QFC status, or that the Company will be a QFC for the taxable year ending December 31, 20152020, or any subsequent taxable year, or that the Company will be able to certify that it is a QFC in accordance with the certification procedures issued by the Treasury and the IRS.year.
If the Company is not a QFC, subject to the PFIC rules discussed below, a dividend paid by the Company to a U.S. Holder, including a U.S. Holder that is an individual, estate, or trust, generally will be taxed at ordinary income tax rates (and not at the preferential tax rates applicable to long-term capital gains). The dividend rules are complex, and each U.S. Holder should consult its own financialtax advisor legal counsel, or accountant regarding the dividend rules.
Distributions Paid in Foreign Currency
The amount of a distribution paid to a U.S. Holder in foreign currency generally will be equal to the U.S. dollar value of such distribution based on the exchange rate applicable on the date of receipt. A U.S. Holder that does not convert foreign currency received as a distribution into U.S. dollars on the date of receipt generally will have a tax basis in such foreign currency equal to the U.S. dollar value of such foreign currency on the date of receipt. Such a U.S. Holder generally will recognize ordinary income or loss on the subsequent sale or other taxable disposition of such foreign currency (including an exchange for U.S. dollars).
Dividends Received Deduction
Dividends paid on the Common Shares generally will not be eligible for the “dividends received deduction.” The availability of the dividends received deduction is subject to complex limitations that are beyond the scope of this discussion, and a U.S. Holder that is a corporation should consult its own financialtax advisor legal counsel, or accountant regarding the dividends received deduction.
Disposition of Common Shares
ASubject to the PFIC rules discussed below, a U.S. Holder will recognize capital gain or loss on the sale or other taxable disposition of Common Shares in an amount equal to the difference, if any, between (a) the amount of cash plus the fair market value of any property received and (b) such U.S. Holder’s tax basis in the Common Shares sold or otherwise disposed of. AnyA U.S. Holder’s tax basis in Common Shares generally will be such U.S. Holder’s U.S. dollar cost for such Common Shares. Such gain or loss generally will be capital gain or loss, which will be long-term capital gain or loss if the Common Shares arehave been held for more than one year.year at the time of sale or other taxable disposition. Gain or loss recognized by a U.S. Holder on the sale or other taxable disposition of Common Shares generally will be treated as “U.S. source” for purposes of applying the U.S. foreign tax credit rules unless the gain is subject to tax in Canada and resourced as “foreign source” under the U.S.-Canada Tax Convention and the U.S. Holder elects to treat such gain as “foreign source”.
rules.
Preferential tax rates apply to long-term capital gains of a U.S. Holder that is an individual, estate, or trust. There are currently no preferential tax rates for long-term capital gains of a U.S. Holder that is a corporation. Deductions for capital losses are subject to significant limitations under the Code.
The amount realized on a sale or other taxable disposition of Common Shares for an amount in foreign currency will generally be the U.S. dollar value of this amount on the date of sale or disposition. On the settlement date, the U.S. Holder will recognize U.S. source foreign currency gain or loss (taxable as ordinary income or loss) equal to the difference (if any) between the U.S. dollar value of the amount received based on the exchange rates in effect on the date of sale or other disposition and the settlement date.
Foreign Tax Credit
A U.S. Holder that pays (whether directly or through withholding) Canadian income tax with respect to dividends paid on Common Shares or gain from the sale or other taxable disposition of Common Shares generally will be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such Canadian income tax paid. Generally, a credit will reduce a U.S. Holder’s U.S. federal income tax liability on a dollar-for-dollar basis, whereas a deduction will reduce a U.S. Holder’s income subject to U.S. federal income tax. This election is made on a year-by-year basis and applies to all foreign taxes paid (whether directly or through withholding) by a U.S. Holder during a year.
Complex limitations apply to the foreign tax credit, including the general limitation that the credit cannot exceed the proportionate share of a U.S. Holder’s U.S. federal income tax liability that such U.S. Holder’s “foreign source” taxable income bears to such U.S. Holder’s worldwide taxable income. In applying this limitation, a U.S. Holder’s various items of income and deduction must be classified, under complex rules, as either “foreign source” or “U.S. source.” In addition, this limitation is calculated separately with respect to specific categories of income. Dividends paid by the Company generally will constitute “foreign source” income and generally will be categorized as “passive income.” The foreign tax credit rules are complex, and each U.S. Holder should consult its own financialtax advisor legal counsel, or accountant regarding the foreign tax credit rules.
Information Reporting; Backup Withholding Tax
Payments made within the U.S., or by a U.S. payor or U.S. middleman, of dividends on,distributions with respect to, or proceeds arising from the sale or other taxable disposition of, Common Shares generally will be subject to information reporting and backup withholding tax, at the rate of 28%24%, if a U.S. Holder (a) fails to furnish such U.S. Holder’s correct U.S. taxpayer identification number (generally on IRS Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding tax, or (d) fails to certify, under penalty of perjury, that such U.S. Holder has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it is subject to backup withholding tax. However, U.S. Holders that are corporations generally are excluded from these information reporting and backup withholding tax rules. Backup withholding is not an additional tax. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a credit against a U.S. Holder’s U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS.IRS in a timely manner. Each U.S. Holder should consult its own financialtax advisor legal counsel, or accountant regarding the information reporting and backup withholding tax rules.
Additional Rules that May Apply to U.S. Holders
The Company believes it was a PFIC in one or more previous taxable years. If the Company is or becomes a “passive foreign investment Company” (as defined below),PFIC, or U.S. Holders held Common Shares while the Company was a PFIC, the preceding sections of this summary may not describe the U.S. federal income tax consequences to U.S. Holders of the acquisition, ownership, and disposition of Common Shares.
Passive Foreign Investment Company
The Company generally will be a “passive foreign investment Company” under Section 1297 of the Code (a “PFIC”)PFIC if, for a taxable year, (a) 75% or more of the gross income of the Company for such taxable year is passive income (“income test”) or (b) on average for such taxable year, 50% or more of the assets held by the Company either produce passive income or are held for the production of passive income (“asset test”), based on the fair market value of such assets (or on the adjusted tax basis of such assets, if the Company is not publicly traded and either is a “controlled foreign corporation” or makes an election). “Passive income”assets. Passive income includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions.
For purposes of the PFIC Passive income test and asset test described above, if the Company owns, directly or indirectly, 25% or more of the total value of the outstanding shares of another foreign corporation, the Company will be treated as if it (a) held a proportionate share of the assets of such other foreign corporation and (b) received directly a proportionate share of the income of such other foreign corporation. In addition, for purposes of the PFIC income test and asset test described above, “passive income” does not include any interest, dividends, rents, or royalties that are received or accrued by the Company from a “related person” (as defined in Section 954(d)(3) of the Code), to the extent such items are properly allocable to the income of such related person that is not passive income. Assets that produce or are held for the production of passive income generally include cash, even if held as working capital or raised in a public offering, marketable securities and other assets that may produce passive income.
For purposes of the income test and asset test, if the Company owns, directly or indirectly, 25% or more of the total value of the outstanding shares of another corporation, the Company will be treated as if it (a) held a proportionate share of the assets of such other corporation and (b) received directly a proportionate share of the income of such other corporation. , In addition, if the Company is a PFIC and owns shares of another foreign corporation that also is a PFIC under certain indirect ownership rules,(“subsidiary PFIC”), a disposition of the shares of such other foreign corporation or a distribution received from such other foreign corporation generally will be treated as an indirect disposition by a U.S. Holder or an indirect distribution received by a U.S. Holder, subject to the rules of Section 1291 of the Code discussed below. Accordingly, U.S. Holders should be aware that they could be subject to tax even if no distributions are received and no redemptions or other dispositions of Common Shares are made. To the extent that gain recognized on the actual disposition by a U.S. Holder of Common sharesShares or income recognized by a U.S. Holder on an actual distribution received on Common Shares was previously subject to U.S. federal income tax under these indirect ownership rules, such amount generally should not be subject to U.S. federal income tax.
If the Company is a PFIC, or a U.S. Holder held Common Shares while the Company was a PFIC, the U.S. federal income tax consequences to a U.S. Holder of the acquisition, ownership, and disposition of Common Shares will depend on whether such U.S. Holder makes an election to treat the Company and any subsidiary PFIC as a “qualified electing fund” or “QEF” under Section 1295 of the Code (a “QEF Election”“QEF Election”) or a mark-to-market election for the Company under Section 1296 of the Code (a “Mark-to-Market Election”“Mark-to-Market Election”). A U.S. Holder that does not make either a QEF Election or a Mark-to-Market Election will beis referred to in this summary as a “Non-Electing“Non-Electing U.S. Holder.”
Under Section 1291 of the Code, any gain recognized on the sale or other taxable disposition of Common Shares, and any “excess distribution” (as defined in Section 1291(b) of the Code) paid on the Common Shares, must be ratably allocated to each day in a Non-Electing U.S. Holder’s holding period for the Common Shares. The amount of any such gain or excess distribution allocated to the current year and any year prior years of such Non-Electing U.S. Holder’s holding period forto the Common Sharesfirst year in which the Company was a PFIC generally will be subject to U.S. federal income tax as ordinary income in the current year. The amount of any such gain or excess distribution allocated to other years generally will be subject to U.S. federal income tax in the current year at the highest tax rate applicable to ordinary income in each such prior year. A year, and a Non-Electing U.S. Holder will be required to pay interest on the resulting tax liability for each such prior year, calculated as if such tax liability had been due in each such prior year.
A U.S. Holder that makes a QEF Election generally will not be subject to the rules of Section 1291 of the Code discussed above. However,Instead, a U.S. Holder that makes a QEF Election generally will be subject to U.S. federal income tax on such U.S. Holder’s pro rata share of (a) the “net capital gain” of the Company, which will be taxed as long-term capital gain to such U.S. Holder, and (b) and the “ordinary earnings” of the Company, which will be taxed as ordinary income to such U.S. Holder. A U.S. Holder that makes a QEF Election will be subject to U.S. federal income tax on such amounts for each taxable year in which the Company is a PFIC, regardless of whether such amounts are actually distributed to such U.S. Holder by the Company.
Taxable gains on the disposition of Common Shares by a U.S. Holder that has made a timely and effective QEF Election are generally capital gains. Each U.S. Holder should consult its own tax advisor regarding the availability and desirability of, and procedure for, making a timely and effective QEF Election for the Company and any subsidiary PFIC.
A U.S. Holder that makes a Mark-to-Market Election generally will not be subject to the rules of Section 1291 of the Code discussed above. A U.S. Holder may make a Mark-to-Market Election only if the Common Shares are “marketable stock” (as defined in Section 1296(e) of the Code). A U.S. Holder that makes a Mark-to-Market Election will include in gross income, as ordinary income, for each taxable year in which the Company is a PFIC, an amount equal to the excess, if any, of (a) the fair market value of the Common Shares as of the close of such taxable year over (b) such U.S. Holder’s tax basis in such Common Shares. A U.S. Holder that makes a Mark-to-Market Election will, subject to certain limitations, be allowed a deduction in an amount equal to the excess, if any, of (a) such U.S. Holder’s adjusted tax basis in the Common Shares over (b) the fair market value of such Common Shares as of the close of such taxable year.
Any gain recognized upon a disposition of Common Shares by a U.S. Holder who has made a Mark-to-Market Election generally will be treated as ordinary income, and any loss recognized upon a disposition generally will be treated as an ordinary loss to the extent of net mark-to-market income recognized for all prior taxable years. Any loss recognized in excess thereof will be taxed as a capital loss. Capital losses are subject to significant limitations under the Code. A Mark-to-Market election may not be made with respect to the stock of any subsidiary PFIC because such stock is not “marketable stock.” Hence, a Mark-to-Market Election will not be effective to eliminate the application of the default rules of Section 1291 of the Code, described above, with respect to deemed dispositions of subsidiary PFIC stock or excess distributions with respect to a subsidiary PFIC. Each U.S. Holder should consult its own tax advisor regarding the availability and desirability of, and procedure for, making a timely and effective Mark-to-Market Election with respect to Common Shares.
The Company believes it was a PFIC in one or more prior taxable years but does not believe that it was a PFIC for the taxable yearyears ended MayDecember 31, 2014,2019 and December 31, 2018, and, based on current operations and financial projections, does not expect that it will be a PFIC for the taxable year ending December 31, 2016.2020. The determination of whether the Company was, or will be, a PFIC for a taxable year depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations. In addition, whether the Company will be a PFIC for the taxable year ending December 31, 20152020, and each subsequent taxable year depends on the assets and income of the Company over the course of each such taxable year and, as a result, cannot be predicted with certainty as of the date of this Annual Report. Accordingly, there can be no assurance that the IRS will not challenge the determination made by the Company concerning its PFIC status or that the Company was not, or will not be, a PFIC for any taxable year.
If the Company meets the income test or asset test for any taxable year during which a U.S. Holder owns Common Shares, the Company will be treated as a PFIC with respect to such U.S. Holder for that taxable year and for all subsequent taxable years, regardless of whether the Company meets the PFIC income test or asset test for such subsequent taxable years, unless the U.S. Holder elects to recognize any unrealized gain in the Common Shares or makes a timely and effective QEF Election or Mark-to-Market Election.
The PFIC rules are complex, and each U.S. Holder should consult its own financialtax advisor legal counsel, or accountant regarding the PFIC rules and how the PFIC rules may affect the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares.
THE ABOVE SUMMARY IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL U.S. FEDERAL INCOME TAX CONSIDERATIONS APPLICABLE TO U.S. HOLDERS WITH RESPECT TO THE ACQUISITION, OWNERSHIP, AND DISPOSITION OF COMMON SHARES. U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX CONSIDERATIONS APPLICABLE TO THEM IN THEIR PARTICULAR CIRCUMSTANCES.
Canadian Federal Income Tax Considerations for United States Residents
The following, as of the date hereof, is a summary of the principal Canadian federal income tax considerations generally applicable to the holding and disposition of Common Sharescommon shares by a holder (a) who, for the purposes of the Income Tax Act (Canada) (the “Tax Act”“Tax Act”) and at all relevant times, is not resident or deemed to be resident in Canada, deals at arm’s length and is not affiliated with the Company, for the purpose of the Tax Act, holds the Common Sharescommon shares as capital property and does not use or hold, and is not deemed to use or hold, the Common Sharescommon shares in the course of carrying on, or otherwise in connection with, a business in Canada, and (b) who, for the purposes of theCanada - United States Income Tax Convention(the “Convention”) and at all relevant times, is a resident solely of the United States, has never been a resident of Canada, has not held or used (and does not hold or use) Common Sharescommon shares in connection with a permanent establishment or fixed base in Canada, and who otherwise qualifies for the full benefits of the Convention. The Canada Revenue Agency has introduced special forms to be used in order to substantiate eligibility for benefits under the Convention, and affected holders should consult with their own advisers with respect to these forms and all relevant compliance matters.
Holders who meet all such criteria in clauses (a) and (b) above are referred to hereinin this summary as a “U.S. Holder” or “U.S. Holders”, and this summary only addresses such U.S. Holders. The summary does not deal with special situations, such as particular circumstances of traders or dealers, limited liability companies, tax -exempttax-exempt entities, insurers, financial institutions (including those to which the mark-to-market provisions of the Tax Act apply), or entities considered fiscally transparent under applicable law, or otherwise.
This summary is based on the current provisions of the Tax Act, and the regulations thereunder, all proposed amendments to the Tax Act and regulations publicly announced by the Minister of Finance (Canada) to the date hereof, the current provisions of the Convention and our understanding of the current administrative practices of the Canada Revenue Agency. It has been assumed that all currently proposed amendments to the Tax Act and regulations will be enacted as proposed and that there will be no other relevant change in any governing law, the Convention or administrative policy, although no assurance can be given in these respects. This summary does not take into account provincial, U.S. or other foreign income tax considerations, which may differ significantly from those discussed herein.
This summary is not exhaustive of all possible Canadian income tax consequences. It is not intended as legal or tax advice to any particular U.S. Holder and should not be so construed. The tax consequences to a U.S. Holder will depend on that U.S. Holder'sHolder’s particular circumstances. Accordingly, allAll holders, including U.S. Holders or prospective U.S. Holders as defined above, should consult their own tax advisersadvisors with respect to the tax consequences applicable to them having regard to their own particular circumstances. The discussion below is qualified accordingly.
For the purposes of the Tax Act, all amounts relating to the acquisition, holding or disposition of the Common Sharescommon shares must be converted into Canadian dollars based on the relevant exchange rate applicable thereto.
Dividends
Dividends paid or deemed to be paid or credited by the Company to a U.S. Holder are subject to Canadian withholding tax. UnderIn general terms, the Convention,Tax Act provides for withholding at the rate of 25% unless the holder is able to substantiate a reduced rate under an applicable tax treaty or convention.
The rate of withholding tax on dividends paid to a U.S. Holder who can substantiate eligibility for benefits under the Convention is generally not subjectlimited to tax under15% of the Tax Act in respectgross amount of the dividends (or 5%, if the beneficial owner of the dividends is a capital gain realized oncompany that owns at least 10% of the dispositionvoting stock of a common share in the open market, unless the share is "taxable Canadian property" to the holder thereof and the U.S. Holder is not entitled to relief under the Convention.
Company).
Dispositions
A U.S. Holder is generally not subject to tax under the Tax Act in respect of a capital gain realized on the disposition of a common share in the open market, unless the share is "taxable“taxable Canadian property"property” to the holder thereof and the U.S. Holder is not entitled to relief under the Convention.
Provided that the Company'sCompany’s common shares are listed on a "designated“designated stock exchange"exchange” for purposes of the Tax Act (which currently includes the TSX Venture) at the time of disposition, a common share will generally not constitute taxable Canadian property to a U.S. Holder unless, at any time during the 60 month period ending at the time of disposition, (i) the U.S. Holder, or persons with whom the U.S. Holder did not deal at arm'sarm’s length, (orpartnerships in which the U.S. Holder or such non-arm’s length persons holds a membership interest directly or indirectly, or the U.S. Holder together with such persons)any of the foregoing, owned 25% or more of the issued shares of any class or series of the Company AND (ii) more than 50% of the fair market value of the share was derived directly or indirectly from certain types of assets, including real or immoveable property situated in Canada, Canadian resource properties or timber resource properties, and options, interests or rights in respect of any of the foregoing. Common shares may also be deemed to be taxable Canadian property under the Tax Act in certain specificother circumstances. A U.S. Holder holding Commonwho may hold common shares as taxable Canadian property should consult with the U.S. Holder'sHolder’s own tax advisersadvisors in advance of any disposition of Common shares or deemed disposition of common shares under the Tax Act in order to determine whether any relief from tax under the Tax Act may be available by virtue of the Convention, and any related compliance procedures.
While intended to address all material Canadian Federal Income Taxfederal income tax considerations relevant to the holding or disposition of common shares by U.S. Holders, this summary is for general information purposes only, and is not intended to be, nor should it be construed to be, legal or tax advice to any holder or prospective holder of common shares. No opinion was requested by the Company, or is provided by its legal counsel and/or auditors. Accordingly, holders and prospective holders of common shares (including U.S. Holders as defined above) should consult their own tax advisors aboutregarding the consequences of purchasing, owning, and disposing of common shares of the Company.
F. Dividends and Paying Agents
Not applicable
Not applicable
Exhibits attached to this Annual Report are available for viewing on EDGAR, or may be inspected at the head office of Company at 2 – 1250 Waverley Street, Winnipeg, Manitoba, Canada R3T 6C6, during normal business hours. Copies of the Company’s financial statements and other continuous disclosure documents required under Canadian securities legislation are available for viewing on the internet atwww.sedar.com.
Not applicable
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
The primary objective of the Company’s investment activities is to preserve principal by maximizing the income the Company receives from such activities without significantly increasing risk. Securities that the Company invests in are generally highly liquid short-term investments such as term deposits with terms to maturity of less than one year.
Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is not exposed to any significant interest rate risk arising primarily from fluctuations in interest rates on its cash and cash equivalents, long-term debt and other long-term liability.
An increase or decrease in interest rates of one percent during the year ended December 31, 2015, with all other variables held constant, would result in a corresponding increase or decrease on the Company's net income (loss) of approximately $20,000 (seven months ended December 31, 2014 - $4,000 and year ended May 31, 2014 - $2,000). An increase in the crown company borrowingas it does not have any variable rate of one percent during the year ended December 31, 2015, with all other variables held constant, would result in a corresponding increase or decrease on the Company's net income (loss) of approximately $49,000 (seven months ended December 31, 2014 - $52,000 and year ended May 31, 2014 - $52,000).borrowings.
FOREIGN EXCHANGE RISK
The Company’s primary currency of operations is the Canadian dollar. Its wholly-owned operating subsidiaries primary currency of operations is the US dollar. The Company has expenditures and holds investments denominated in US dollars. During the year ended December 31, 2015,2020, it is estimated that approximately 65%80% of the Company’s consolidated expenditures were denominated in a foreign currency, primarily being the US dollar and 100% of the Company’s consolidated product revenues were denominated in the US dollar. To date the Company has not entered into any future or forward contracts, or other derivative instruments, for either hedging or speculative purposes, to mitigate the impact of foreign exchange fluctuations on these costs revenues or revenues. Based on the above net exposures as at December 31, 2020, assuming that all other variables remain constant, a 5% appreciation or deterioration of the Canadian dollar against the U.S. dollar denominated debt. A 10% changewould result in foreign exchange rates fora corresponding increase or decrease, respectively on the year ended December 31, 2015 would have impacted loss for the year by 10%.Company’s net (loss) income of approximately $205,000.
| ITEM12. |
|
Not applicable
| ITEM13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
Not applicable
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDSITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESITEM14.
Not applicable
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Not applicable
ITEM 15. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company’s disclosure controls and procedures, as such term is defined in Rules 13(a)-13(e) and 15(d)-15(e) of the Exchange Act are designed to provide reasonable assurance that all relevant information is communicated to senior management, including the Chief Executive Officer (“CEO”CEO”) and the Chief Financial Officer (“CFO”CFO”), to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including our CEO and CFO. Based on this evaluation these officers concluded that as of the end of the period covered by this Annual Report on Form 20-F, our disclosure controls and procedures were not effective to ensure that the information required to be disclosed by our company in reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. These disclosure controls and procedures include controls and procedures designed to ensure that such information is accumulated and communicated to the Company’s management, including our company’s principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. The conclusion that the disclosure controls and procedures were not effective was due to the presence of a material weakness in internal control over financial reporting as identified below under the heading “Internal Controls over Financial Reporting Procedures”. Management anticipates that such disclosure controls and procedures will not be effective until the material weakness is remediated.
Management’s Annual Report on Internal Control over Financial Reporting
The management of the Company, including the CEO and CFO, is responsible for establishing and maintaining adequate internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). The Company’s internal control system was designed to provide reasonable assurance to the Company’s management and the board of directors regarding the reliability of financial reporting and preparation and fair presentation of published financial statements for external purposes in accordance with IFRS. Internal control over financial reporting includes those policies and procedures that:
| 1. | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
| 2. | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and |
| 3. | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the design and operation of internal control over financial reporting as of December 31, 2014,2020, based on the framework set forth in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management concluded that the Company’s ICFR was not effective as at December 31, 20152020 due to the following material weaknesses:
Due to the limited number of staff with an appropriate level of technical accounting knowledge, experience and training and the inability to attract outside expert advice on a cost effectivecost-effective basis, there is a risk of material misstatements related to the accounting and reporting for complex and non-routine accounting and income tax transactions. This control deficiency creates a reasonable possibility that a material misstatement of the annual financial statements would not have been prevented or detected in a timely manner.
Attestation Report of the Registered Public Accounting Firm
This Annual Report does not include an attestation report of the Company'sCompany’s registered public accounting firm regarding internal control over financial reporting. Management'sManagement’s report is not subject to attestation by the Company'sCompany’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management'smanagement’s report in this Annual Report.
Changes in Internal Control over Financial Reporting and Planned Remediation Activities
There have been no changes inThe Company has taken various steps during and prior to fiscal 2020 to address the Company'smaterial weaknesses within the Company’s internal controls identifiedcontrol environment in connection with the evaluation described in the preceding paragraph that occurred during the period covered by this Annual Report on Form 20-F which have materially affected, or are reasonably likely to materially affect, the Company'sCompany’s internal controls over financial reporting.
No remediation activities have been undertakenThe Company has made changes and improvements to datethe accounting software system used to record transactions in order to facilitate additional system-based controls over its financial transactions, results and processes. During fiscal 2015.2020, the Company hired a controller, with a CPA designation and public practice experience, reporting to the chief financial officer of the Company, in order to facilitate additional segregation of duties in preparation and review in regards to accounting for complex transactions. Due to resource constraints and the present stage of the Company’s development the Company does not have sufficient size and scale to warrant the hiring of additional staff to continue to correct this material weakness at this time.time, however the Company will use its improved accounting software and the increased capacity of its staff in the accounting and finance department to further develop, document, implement and test internal controls within the organization.
| ITEM16. |
|
Not applicable
| ITEM16A. |
|
As of December 31, 2015,2020, Mr. Brent Fawkes CPA, CA, a non-employee director, was a member of the audit committee of the Company. The board of directors of the Company has determined that Mr. Fawkes (i) qualifies as an audit committee financial expert pursuant to Items 16A(b) and (c) of Form 20-F and (ii) is independent as defined in section 803 of the NYSE MKTAmerican Company Guide and Rule 10A-3 of the Exchange Act. In addition, all members of the audit committee are considered financially literate under applicable Canadian laws.
| ITEM16B. |
|
On August 23, 2004, the Company adopted a written Code of Business Conduct and Ethics (“Code of Ethics”Ethics”) that applies to the Company’s principal executive officer, principal financial officer and to all its other employees. These standards are a guide to help ensure that all of the Company’s employees live up to high ethical standards. A copy of the Code of Ethics is maintained on the Company’s website at www.medicure.com.
www.medicure.com.
During the most recently completed fiscal year, the Company has neither: (a) amended its Code of Ethics; nor (b) granted any waiver (including any implicit waiver) form any provision of its Code of Ethics.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
On October 16, 2020, the Company changed its auditors from PricewaterhouseCoopers LLP to Ernst & Young LLP.
In accordance with the requirements of the Sarbanes-Oxley Act of 2002 and the Audit Committee’s charter, all audit and audit-related work and all non-audit work performed by the chartered accountants, Ernst & Young LLP and PricewaterhouseCoopers LLP, is approved in advance by the Audit Committee, including the proposed fees for such work. The Audit Committee is informed of each service actually rendered that was approved through its pre-approval process.
The Company incurred the following(a) Audit fees to Ernst & Young LLP for the previous two fiscal years. As at December 31, 2015, the Company had accrued $86,400 relating to Ernst & Young LLP audit fees.
| (a) Audit fees | 2015 | 2014 | ||||||
| $ | 86,400 | $ | 86,400 | |||||
| 2020 | 2019 | |||||||
| $ | 194,000 | $ | 146,000 | |||||
Audit fees consist of fees billed for the audit of the Company’s annual financial statements.
(b) Audit-related fees
| (b) Audit-related fees | 2015 | 2014 | ||||||
| $ | - | $ | - | |||||
| 2020 | 2019 | |||||||
| $ | — | $ | — | |||||
Audit-related fees consist of fees billed for accounting consultations.
(c) Tax fees
| (c) Tax fees | 2015 | 2014 | ||||||
| $ | - | $ | - | |||||
| (d) All other fees | 2015 | 2014 | ||||||
| $ | - | $ | - | |||||
| 2020 | 2019 | |||||||
| $ | — | $ | — | |||||
(d) All other fees
| 2020 | 2019 | |||||||
| $ | — | $ | — | |||||
(e) Audit Committee’s Pre-approval Policies
All Ernst & Young LLP services and fees are approved by the Audit Committee.
| ITEM 16D. |
|
Not applicable
| ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSOn May 16, 2018, the Company announced that the TSXV accepted the Company’s notice of intention to make a NCIB. In the opinion of the Company, its common shares were trading at prices that did not reflect its underlying value. Accordingly, the Company believed that purchasing its common shares for cancellation, at the then present pricing, represented an opportunity to enhance value for its shareholders.
Under the terms of the NCIB, the Company could have acquired up to an aggregate of 794,088 common shares. The NCIB commenced on May 28, 2018 and ended on May 27, 2019. The actual number of common shares that could have been purchased, if any, and the timing of such purchases was determined by the Company. All common shares purchased by the Company were purchased on the open market through the facilities of TSXV by PI Financial Corp. (“PI”) acting on behalf of the Company in accordance with the policies of the TSXV and were surrendered by the Company to its transfer agent for cancellation. The prices that the Company paid for common shares purchased was the market price of the shares at the time of purchase.
InThe Company also announced that it had entered into an automatic share purchase plan with PI (the “Plan”) in order to facilitate repurchases of its common shares under the NCIB. Under the Plan, PI could purchase common shares under the NCIB at times when the Company would ordinarily not be permitted to do so, due to regulatory restrictions or self-imposed blackout periods.
Purchases under the Plan were made by PI based upon parameters prescribed by the TSXV, applicable Canadian securities laws and terms of the Plan.
During the year ended December 31, 2015,2018 the Company repurchased and cancelled 441,400 common shares. The aggregate price paid for these common shares totaled $3.0 million. As a result of the NCIB, during the year ended December 31, 2018 the Company recorded $480,000 directly in its retained deficit representing the difference between the aggregate price paid for these common shares and a reduction of the Company’s share capital totaling $3.5 million.
On May 30, 2019, the Company announced that the TSXV has accepted the Company’s notice of intention to make a NCIB (the “2019 NCIB”).
Under the terms of the 2019 NCIB, Medicure may acquire up to an aggregate of 761,141 common shares. In the opinion of the Company, its common shares had been trading at prices that did not reflect its underlying value. Accordingly, Medicure believed that purchasing its common shares for cancellation, at the then present pricing, represented an opportunity to enhance value for its shareholders.
As of May 29, 2019, the Company had 15,222,813 common shares outstanding, of which 6,758,666 common shares represented the public float of Medicure. Under TSXV policies, Medicure is entitled to purchase up to the maximum of 761,141 common shares, representing 5% of the common shares outstanding, over the 12-month period that the 2019 NCIB is in place.
The 2019 NCIB commenced on May 30, 2019 and will end on May 29, 2020, or on such earlier date as Medicure may complete its maximum purchases under the 2019 NCIB. The actual number of common shares which will be purchased, if any, and the timing of such purchases will be determined by the Company. All common shares purchased by the Company will be purchased on the open market through the facilities of TSXV by PI acting on behalf of the Company in accordance with the policies of the TSXV and will be surrendered by the Company to its transfer agent for cancellation. The prices that the Company will pay for common shares purchased will be the market price of the shares at the time of purchase.
The Company also announced that it had entered into an automatic share purchase plan with PI (the “Plan”) in order to facilitate repurchases of its issuedcommon shares under the 2019 NCIB. Under the Plan, PI may purchase common shares under the 2019 NCIB at times when the Company would ordinarily not be permitted to do so, due to regulatory restrictions or self-imposed blackout periods.
Purchases under the Plan will be made by PI based upon parameters prescribed by the TSXV, applicable Canadian securities laws and terms of the Plan.
During the year ended December 31, 2019, the Company purchased and cancelled 421,300 of its common shares between May 30, 2019 and December 31, 2019 for a total cost to the Company of $2.1 million under the 2019 NCIB.
The Company suspended the 2019 NCIB in connection with its commencement of a SIB and no subsequent purchases were completed under the 2019 NCIB for the remainder of 2019.
On November 4, 2019 the Company announced its intention to commence a SIB (the “Offer”) pursuant to which the Company offered to purchase up to 4.0 million of its common shares (the “Common Shares”) for cancellation at a set purchase price of $6.50 per Common Share for a total purchase price of up to $26.0 million in cash. The Offer commenced on November 13, 2019 and expired at 5:00 p.m. (Eastern Standard Time) on December 19, 2019.
A total of 10,154,952 Common Shares were properly deposited under the Offer and not withdrawn. As the Offer was oversubscribed, the Company purchased Common Shares deposited on a pro rata basis following the determination of the final results of the Offer. Tendering shareholders had approximately 39.4% of their tendered Common Shares purchased by the Company under the Offer. The Common Shares that were purchased under the Offer represented approximately 27.0% of the outstanding Common Shares as at the time that the Offer was commenced. After giving effect to the Offer, the Company had 10,804,013 Common Shares outstanding.
The Offer was funded from the Company’s existing cash on hand. The Company believed Medicure’s underlying value and its long-term growth prospects were not reflected in the trading price of its Common Shares prior to the announcement of the SIB. As such, Medicure believes that the purchase of Common Shares under the Offer represented a reasonable use of a portion of its significant cash resources resulting from the Company’s successful purchase and subsequent sale of the Apicore business.
During the ten months ended October 31, 2019, the closing prices of the Common Shares on the TSX Venture Exchange (“TSXV”) ranged from a low of $3.00 to a high of $6.85. The closing price of the Common Shares on the TSXV on November 1, 2019 (the last full trading day before the announcement of the SIB) was $3.22. The purchase price of $6.50 per Common Share represents a 101.9% premium over the closing price of the Common Shares on the TSXV on November 1, 2019.
The Offer was optional for all shareholders, who were free to choose whether to participate and how many Common Shares to tender. Shareholders who did not deposit their Common Shares (or whose Common Shares were not purchased under the Offer) realized a proportionate increase in their equity interest in the Company.
As more than 4.0 million Common Shares were properly tendered to the Offer, Medicure took-up and paid for the tendered Common Shares on a pro-rata basis according to the number of Common Shares tendered (with adjustments to avoid the purchase of fractional Common Shares). The Offer was not conditional upon any minimum number of Common Shares being tendered but was subject to various other conditions disclosed in the Offer Documents.
Neither the Company nor its board of directors made any recommendation to any shareholder whether to tender or refrain from tendering Common Shares. Shareholders were strongly urged to read and carefully evaluate all information in the Offer Documents and to consult their own broker or other financial and tax advisors prior to making any decision with respect to the Offer.
The Company had engaged Computershare Trust Company of Canada to act as the depositary (the “Depository”) for the Offer. Any Common Shares deposited under the Offer but not purchased, including any Common Shares invalidly deposited, were returned to the depositing shareholders by the Depositary.
The full details of the Offer were described in the Company’s offer to purchase and issuer bid circular dated November 1, 2019, as well as the related letter of transmittal and notice of guaranteed delivery, copies of which are available on SEDAR under the Company’s profile at www.sedar.com and on EDGAR at www.sec.com.
On December 20, 2019, the Company completed the SIB pursuant to which the Company purchased 4.0 million of its common shares for cancellation at a set purchase price of $6.50 per common share for a total purchase price of $26 million in cash. The Company incurred an additional $139,000 on transaction costs related to the SIB for a total aggregate purchase price paid of $26.1 million. During the year ended December 31, 2019, the Company recorded $5.5 million directly in its deficit representing the difference between the aggregate price paid for these common shares and a reduction of the Company’s share capital totaling $31.6 million.
On June 29, 2020, the Company announced that the TSX Venture Exchange (“TSXV”) has accepted the Company’s notice of intention to make a normal course issuer bid (“NCIB”).
Under the terms of the NCIB, Medicure may acquire up to an aggregate of 533,116 common shares. In the opinion of the Company, its common shares have been trading at prices that do not reflect its underlying value. Accordingly, the Company believes that purchasing its common shares for cancellation, at present pricing, represents an opportunity to enhance value for its shareholders.
As of June 29, 2020, the Company had 10,662,313 common shares outstanding, of which 4,655,353 common shares represent the public float of the Company. Under TSXV policies, the Company is entitled to purchase up to the maximum of 533,116 common shares, representing 5% of the common shares outstanding, over the 12-month period that the NCIB is in place.
The NCIB commenced on June 30, 2020 and will end on June 29, 2021, or on such earlier date as the Company may complete its maximum purchases under the NCIB. The actual number of common shares which will be purchased, if any, repurchase programand the timing of such purchases will be determined by the Company. All common shares purchased by the Company will be purchased on the open market through the facilities of TSXV by PI Financial Corp. (“PI”) acting on behalf of the Company in accordance with the policies of the TSXV and will be surrendered by the Company to its transfer agent for cancellation. The prices that the Company will pay for common shares purchased will be the market price of the shares at the time of purchase.
The Company also announces that it has entered into an automatic share purchase plan (the “Plan”) with PI in order to facilitate repurchases of its common shares under the NCIB. Under the Plan, PI may purchase common shares at times when the Company would ordinarily not be permitted to do so, due to regulatory restrictions or otherwise.self-imposed blackout periods.
Purchases under the Plan will be made by PI based upon parameters prescribed by the TSXV, applicable Canadian securities laws and terms of the Plan.
During period from June 30 2020 to December 31, 2020, that the 2020 NCIB was in place, the Company purchased and cancelled 411,000 common shares for a total cost of $364,000. The prices that the Company paid for the common shares purchased was the market price of the shares at the time of purchase.
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT PricewaterhouseCoopers LLP (“PwC”) were appointed the auditors of Medicure Inc., (the “Corporation”) on November 21, 2018. The Corporations’ shareholders approved at the last annual and special meeting of the shareholders of the Corporation held June 22, 2020 that PwC be re-appointed auditors of the Corporation until the next annual meeting. The Board of Directors, upon the recommendation of the Audit and Finance Committee, decided not to renew PwC’s appointment as auditor. The Audit and Finance committee reviewed the situation and determined that the appointment of Ernst & Young LLP (“EY”) as auditors of the Corporation would be in the best interests of the Corporation. As such, the Company’s Audit and Finance committee recommended that EY be appointed as the successor auditor and the Board of Directors approved the same on October 6, 2020. There have been no reservations in the auditor’s reports for the audits of the three most recently completed fiscal years. There have been, in the opinion of the Corporation, no reportable events, as that term is defined in NI 51-102.ITEM 16F. CHANGE IN REGISTRANT'SITEM 16F.
| ITEM 16G. | CORPORATE GOVERNANCE |
Not applicable.
MINE SAFETY DISCLOSURE Not applicable. Not applicable. See “Item 18 –Financial Statements”. The consolidated financial statements were prepared in accordance with IFRS, as issued by the IASB, and are presented in thousands of Canadian dollars. The consolidated financial statements are in the following order: Reports of Independent Registered Public Accounting Consolidated Statements of Financial Position; Consolidated Statements of Net (Loss) Income Consolidated Statements of Changes in Consolidated Statements of Cash Flows; and Notes to Consolidated Financial Statements.ITEM 16G. CORPORATE GOVERNANCEITEM 16H. ITEM 16H.MINE SAFETY DISCLOSURENot applicable.97ITEM17. ITEM18. ITEM 18. FINANCIAL STATEMENTS1. ReportFirm;Firms;2. 3. (Loss) and Comprehensive Income (Loss); Income;4. DeficiencyEquity5. 6.
Consolidated Financial Statements
(Expressed in thousands of Canadian Dollars)
Dollars, except per share amounts)
MEDICURE INC.
Year ended December 31, 20152020
MANAGEMENT REPORT
The accompanying consolidated financial statements have been prepared by management and approved by the Board of Directors of Medicure Inc. (the “Company”). Management is responsible for the information and representations contained in these consolidated financial statements.
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards.Standards as issued by the International Accounting Standards Board. The significant accounting policies, which management believes are appropriate for the Company, are described in note 3 to these consolidated financial statements. The Company maintains a system of internal control and processes intended to provide reasonable assurance that assets are safeguarded and to ensure that relevant and reliable financial information is produced.
The Board of Directors is responsible for reviewing and approving these consolidated financial statements and overseeing management’s performance of its financial reporting responsibilities. An Audit Committee of non-management Directors is appointed by the Board. The Audit Committee reviews the consolidated financial statements, audit process and financial reporting with management and with the external auditors and reports to the Board of Directors prior to the approval of the audited consolidated financial statements for publication.
Ernst & Young LLP, the Company’s external auditors for the year ended December 31, 2020, who are appointed by the shareholders, audited the consolidated financial statements in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States) to enable them to express to the shareholders their opinion on these consolidated financial statements. Their report follows.statements as at and for the year ended December 31, 2020. PricewaterhouseCoopers LLP, the Company’s external auditors for the years ended December 31, 2019 and 2018, who were appointed by the shareholders, audited the consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) to enable them to express to the shareholders their opinion on these consolidated financial statements for the years ended December 31, 2019 and 2018. The reports of Ernst & Young LLP and PricewaterhouseCoopers LLP follow.
/s/ Albert Friesen | /s/ James Kinley | |||
| Dr. Albert D. Friesen | Mr. James F. Kinley CPA CA | |||
Chief Executive Officer | Chief Financial Officer |
March 28, 2016April 20, 2021
Independent auditors’ reportReport of independent registered public accounting firm
To the Shareholders and the Board of Directors of
Medicure Inc.
Opinion on the financial statements
We have audited the accompanying consolidated financial statements ofMedicure Inc., which comprise the consolidated statementsstatement of financial position of Medicure Inc. [the “Company”] as atof December 31, 2015, December 31, 2014 and May 31, 2014, and2020, the related consolidated statements of net income (loss) and comprehensive income (loss), changes in equity (deficiency) and cash flows for the year ended December 31, 2015,2020, and the seven-month periodrelated 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 at December 31, 2020, and the results of its operations and its cash flows for the year ended December 31, 2014 and each of the years2020, in the two-year period ended May 31, 2014, and a summary of significant accounting policies and other explanatory information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordanceconformity with International Financial Reporting Standards as issued by the International Accounting Standards Board, andBoard.
Basis for such internal control as management determines is necessary to enable the preparation ofopinion
These consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’the responsibility
of the Company’s management. Our responsibility is to express an opinion on these consolidatedthe Company’s financial statements based on our audits.audit. We conducted our audits in accordanceare a public accounting firm registered with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). [the “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 in accordance with the standards of the PCAOB. Those standards require that we comply with ethical requirements and plan and perform the auditsaudit to obtain reasonable assurance about whether the consolidated financial statements are free fromof material misstatement. Wemisstatement, whether due to error or fraud. The Company is not required to have, nor were notwe engaged to perform, an audit of the Company’sits internal control over financial reporting. Our audits included considerationAs part of our audit we are required to obtain an understanding 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.
AnOur audit involvesincluded performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment ofassess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, or error. An audit also includesand performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements,statements. Our audit also included evaluating the appropriateness of accounting policiesprinciples used and the reasonableness of accountingsignificant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that theour audit evidence we have obtained in our audits is sufficient and appropriate to provideprovides a reasonable basis for our opinion.
Critical audit opinion.matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: [1] relate to accounts or disclosures that are material to the financial statements and [2] involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
 | A member firm of Ernst & Young Global Limited |
Opinion142
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| Assessment of accrual for chargebacks | ||
Description of the matter | As described in note 3[e] to the consolidated financial statements, revenues from product sales are recorded net of estimated chargebacks. Chargebacks result from wholesalers selling the Company’s products to end hospitals at prices lower than the wholesaler acquisition cost, which results in variable consideration for the Company. The provision is calculated using historical chargeback experience, timing of actual chargebacks processed during the year, expected chargeback levels based on the remaining products in the wholesaler distribution channel and pricing differences. Estimated chargebacks are presented within accounts payable and accrued liabilities on the consolidated statement of financial position as of December 31, 2020.
Auditing the estimated chargeback accrual is complex and judgmental due to the level of uncertainty involved in management’s estimates for product that remains in the wholesaler distribution channel as at December 31, 2020, the extent of product sales that were expected to be subject to chargebacks and pricing differences. | |
How we addressed the matter in our audit | To test the Company’s estimated chargeback accrual, our audit procedures included, among others, testing the completeness, accuracy, and relevance of the underlying data used by management to estimate the accrual through reconciliation to third-party agreements and third-party reports indicating actual chargebacks. We evaluated the estimated wholesaler inventory levels by obtaining third-party distribution channel reports and assessing inventor turnover of each product at the wholesaler. We inspected wholesaler agreements and end hospital agreements and compared pricing differences to the chargeback rate used by management to estimate the accrual. We performed a retrospective review to determine the historical accuracy of management’s estimates of chargebacks against actual results. We evaluated the monthly trailing analysis of actual chargebacks processed during the year. We performed sensitivity analyses to determine the effect of changes in assumptions on the chargeback accrual. | |
| Valuation of ZYPITAMAG® intangible asset | ||
Description of the matter | As described in notes 3[i] and 8 to the consolidated financial statements, intangible assets with finite lives include ZYPITAMAG® intangible assets. These intangible assets are assessed for recoverability whenever events or changes in circumstances indicate that the carrying amount of the intangible assets may exceed its recoverable amount. Due to lower than expected sales levels during the year and competitive market conditions, management determined that these factors may indicate that the carrying value of the ZYPITAMAG® intangible asset exceeds the recoverable amount, and accordingly performed an impairment test at December 31, 2020. The recoverable amount was determined using the fair value less costs of disposal method. | |
We identified the valuation of intangible assets related to ZYPITAMAG® as a critical audit matter because auditing the impairment analysis was complex due to the significant estimation uncertainty and judgment applied by management in determining the recoverable amount. The significant estimation uncertainty was primarily due to the sensitivity of underlying key assumptions related to sales volumes, net selling prices and discount rate, and the significant effect that changes in these assumptions would have on the recoverable amount of the intangible asset. | ||
| A member firm of Ernst & Young Global Limited |
143
– 3 –
How we addressed the matter in our audit | To test the estimated recoverable amount of the intangible asset, we performed audit procedures that included, among others, assessing the methodology used by management in calculating the recoverable amount, and evaluating the significant assumptions and the underlying data used by management in the analysis. We evaluated the reasonableness of the Company’s estimated sales volume by comparing to historical results, approved business initiatives and budgets, market research, and industry data; and we tested the net selling prices used by comparing to actual realized prices and relevant industry factors. We also used an internal valuation specialist to assist in our evaluation of the methodology used and discount rate used to determine the recoverable amount of the intangible asset. Furthermore, we performed sensitivity analyses of the significant assumptions to evaluate the potential change in the recoverable amount of the intangible asset resulting from hypothetical changes in underlying assumptions. | |
| Valuation of intangible assets in acquisition of Marley Drug Inc. | ||
Description of the matter | On December 17, 2020, the Company completed its acquisition of Marley Drug Inc. and recognized $6.5 million in finite-lived intangible assets as disclosed in note 4 to the consolidated financial statements. The transaction was accounted for as a business combination. | |
Auditing the Company’s accounting for its acquisition of Marley Drug Inc. was complex due to the significant estimation required by management to determine the fair value of the intangible assets, which principally consisted of pharmacy licenses, customer lists, and brand name. The Company used a replacement cost method to measure the pharmacy licenses. The significant assumptions used to estimate the pharmacy licenses included estimated costs and estimated lost profit during the replacement period. The Company used a discounted cash flow model to measure the customer lists and the relief from royalty method to measure the brand name. The significant assumptions used to estimate the value of these intangible assets included discount rates, revenue growth rates, and attrition rates. These significant assumptions are forward looking and could be affected by future economic and market conditions. | ||
How we addressed the matter in our audit | To test the estimated fair value of the finite-lived intangible assets, we performed audit procedures that included, among others, evaluating the Company’s selection of the valuation methodology and testing the significant assumptions used in the model, including the completeness and accuracy of the underlying data. We compared the revenue growth rate assumptions to current industry, market and economic trends, to the historical results of the acquired business and to other guidelines used by companies within the same industry. We compared the estimated costs to obtain the licenses and estimated lost profit to historical information. We involved internal valuation specialists to assist in our evaluation of the discount rate, the attrition rates, and the royalty rate. In addition, we performed sensitivity analyses of significant assumptions to evaluate the change in the fair value of the finite-lived intangible assets. | |
We have served as the Company’s auditor since 2020.
 | ||||||
Winnipeg, Canada April 20, 2021 | Chartered Professional Accountants |
| A member firm of Ernst & Young Global Limited |
144
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Medicure Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated statement of financial position of Medicure Inc. and its subsidiaries (together, the Company) as of December 31, 2019 and the related consolidated statements of net (loss) income and comprehensive (loss) income, changes in equity and cash flows for the years ended December 31, 2019 and 2018, 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 ofMedicure Inc. the Company as atof December 31, 2015, December 31, 2014 and May 31, 2014,2019 and its financial performance and its cash flows for the yearyears ended December 31, 2015, the seven-month period ended December 31, 20142019 and each of the years2018 in the two-year period ended May 31, 2014 in accordanceconformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
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 audits. 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 audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
 | |
Our audits 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 audits 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 audits provide a reasonable basis for our opinion.
Chartered Professional Accountants
Winnipeg, Canada
April 15, 2020
We have served as the Company’s auditor from 2018 to 2020
MEDICURE INC.
PricewaterhouseCoopers LLP
One Lombard Place, Suite 2300, Winnipeg, Manitoba, Canada R3B 0X6
T: +1 204 926 2400, F: +1 204 944 1020
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
Consolidated Statements of Financial Position
(expressed in thousands of Canadian dollars)
As at December 31, 2015 and 2014 and May 31, 2014dollars, except per share amounts)
| December 31, | December 31, | May 31, | ||||||||||||||
| Note | 2015 | 2014 | 2014 | |||||||||||||
| Assets | ||||||||||||||||
| Current assets: | ||||||||||||||||
| Cash | $ | 3,568,592 | $ | 493,869 | $ | 234,297 | ||||||||||
| Accounts receivable | 4 | 9,823,616 | 1,637,676 | 947,602 | ||||||||||||
| Inventories | 5 | 2,289,275 | 1,099,576 | 765,653 | ||||||||||||
| Prepaid expenses | 15 | 1,767,071 | 642,976 | 206,188 | ||||||||||||
| Total current assets | 17,448,554 | 3,874,097 | 2,153,740 | |||||||||||||
| Non-current assets: | ||||||||||||||||
| Property and equipment | 6 | 230,162 | 33,161 | 20,681 | ||||||||||||
| Intangible assets | 7 | 1,411,992 | 1,096,946 | 1,433,158 | ||||||||||||
| Investment in Apicore | 8 | 1,559,599 | 1,361,824 | - | ||||||||||||
| Long-term derivative | 8 | 227,571 | 194,491 | - | ||||||||||||
| Deferred tax assets | 13 | 379,000 | - | - | ||||||||||||
| Total non-current assets | 3,808,324 | 2,686,422 | 1,453,839 | |||||||||||||
| Total assets | $ | 21,256,878 | $ | 6,560,519 | $ | 3,607,579 | ||||||||||
| Liabilities and Equity (Deficiency) | ||||||||||||||||
| Current liabilities: | ||||||||||||||||
| Accounts payable and accrued liabilities | 11, 12(d) & 16 | $ | 7,079,091 | $ | 3,248,877 | $ | 2,705,898 | |||||||||
| Current portion of long-term debt | 9 | 1,625,191 | 654,877 | - | ||||||||||||
| Current portion of royalty obligation | 10 | 1,648,180 | 473,744 | 317,006 | ||||||||||||
| Total current liabilities | 10,352,462 | 4,377,498 | 3,022,904 | |||||||||||||
| Non-current liabilities | ||||||||||||||||
| Long-term debt | 9 | 2,617,593 | 4,225,949 | 4,847,279 | ||||||||||||
| Royalty obligation | 10 | 3,725,272 | 1,715,310 | 1,461,572 | ||||||||||||
| Other long-term liability | 11 | 100,000 | 152,778 | 152,778 | ||||||||||||
| Total non-current liabilities | 6,442,865 | 6,094,037 | 6,461,629 | |||||||||||||
| Total liabilities | 16,795,327 | 10,471,535 | 9,484,533 | |||||||||||||
| Equity (deficiency): | ||||||||||||||||
| Share capital | 12 | (b) | 121,413,777 | 117,045,763 | 117,036,672 | |||||||||||
| Warrants | 12 | (d) | 101,618 | - | - | |||||||||||
| Contributed surplus | 6,789,195 | 5,360,748 | 4,743,035 | |||||||||||||
| Accumulated other comprehensive income | 1,104,388 | 298,329 | 154,791 | |||||||||||||
| Deficit | (124,947,427 | ) | (126,615,856 | ) | (127,811,452 | ) | ||||||||||
| Total equity (deficiency) | 4,461,551 | (3,911,016 | ) | (5,876,954 | ) | |||||||||||
| Commitments and contingencies | 15 | |||||||||||||||
| Subsequent events | 12(c) & 15 | |||||||||||||||
| Total liabilities and equity (deficiency) | $ | 21,256,878 | $ | 6,560,519 | $ | 3,607,579 | ||||||||||
As at December 31 | Note | 2020 | 2019 | |||||||||
Assets | ||||||||||||
Current assets: | ||||||||||||
Cash and cash equivalents | $ | 2,716 | $ | 12,965 | ||||||||
Restricted cash | 4 | 1,394 | — | |||||||||
Accounts receivable | 5 | 5,253 | 10,216 | |||||||||
Inventories | 6 | 5,139 | 6,328 | |||||||||
Prepaid expenses | 1,174 | 1,855 | ||||||||||
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Total current assets | 15,676 | 31,364 | ||||||||||
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Non-current assets: | ||||||||||||
Property and equipment | 4 & 7 | 1,640 | 1,282 | |||||||||
Intangible assets | 4 & 8 | 13,596 | 9,599 | |||||||||
Goodwill | 4 | 2,986 | — | |||||||||
Other assets | 4 | 156 | 39 | |||||||||
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Total non-current assets | 18,378 | 10,920 | ||||||||||
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Total assets | $ | 34,054 | $ | 42,284 | ||||||||
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Liabilities and Equity | ||||||||||||
Current liabilities: | ||||||||||||
Accounts payable and accrued liabilities | $ | 6,979 | $ | 9,384 | ||||||||
Current portion of royalty obligation | 10 | 362 | 872 | |||||||||
Current portion of acquisition payable | 4 & 8 | 637 | 649 | |||||||||
Holdback payable | 4 | 1,876 | — | |||||||||
Current portion of contingent consideration | 4 | 1,925 | — | |||||||||
Current income taxes payable | 15 | 164 | 517 | |||||||||
Current portion of lease obligation | 4 & 11 | 367 | 240 | |||||||||
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Total current liabilities | 12,310 | 11,662 | ||||||||||
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Non-current liabilities | ||||||||||||
Royalty obligation | 10 | 335 | 1,176 | |||||||||
Acquisition payable | 8 | 1,132 | 1,655 | |||||||||
Contingent consideration | 4 | 51 | — | |||||||||
Lease obligation | 4 & 11 | 1,080 | 849 | |||||||||
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Total non-current liabilities | 2,598 | 3,680 | ||||||||||
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Total liabilities | 14,908 | 15,342 | ||||||||||
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Equity: | ||||||||||||
Share capital | 14 | (b) | 80,917 | 85,364 | ||||||||
Warrants | 14 | (d) | — | 1,949 | ||||||||
Contributed surplus | 10,294 | 8,028 | ||||||||||
Accumulated other comprehensive income | (6,497 | ) | (5,751 | ) | ||||||||
Deficit | (65,568 | ) | (62,648 | ) | ||||||||
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Total Equity | 19,146 | 26,942 | ||||||||||
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Total liabilities and equity | $ | 34,054 | $ | 42,284 | ||||||||
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Commitments and contingencies | 17(a) & 17(d | ) | ||||||||||
On behalf of the Board:
board
Director | Director |
See accompanying notes to the consolidated financial statements
Consolidated Statements of Net (Loss) Income and Comprehensive (Loss) Income
(expressed in thousands of Canadian dollars, except per share amounts)
For the year ended December 31 | Note | 2020 | 2019 | 2018 | ||||||||||||
Revenue, net | ||||||||||||||||
Product sales, net | $ | 11,610 | $ | 20,173 | $ | 29,109 | ||||||||||
Cost of goods sold | 6 & 8 | 6,480 | 7,272 | 4,152 | ||||||||||||
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Gross profit | 5,130 | 12,901 | 24,957 | |||||||||||||
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Expenses | ||||||||||||||||
Selling | 12 | 5,359 | 13,399 | 15,580 | ||||||||||||
General and administrative | 12 | 4,579 | 3,395 | 3,922 | ||||||||||||
Research and development | 12 | 3,299 | 4,349 | 6,681 | ||||||||||||
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| 13,237 | 21,143 | 26,183 | ||||||||||||||
Other expense (income): | ||||||||||||||||
Revaluation of holdback receivable | 13 | — | 3,623 | 1,473 | ||||||||||||
Impairment loss on intangible assets | 8 | — | 6,321 | — | ||||||||||||
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| — | 9,944 | 1,473 | ||||||||||||||
Finance (income) costs: | ||||||||||||||||
Finance (income) expense, net | 10 & 16 | (765 | ) | (1,115 | ) | (1,061 | ) | |||||||||
Foreign exchange (gain) loss, net | (497 | ) | 2,570 | (6,461 | ) | |||||||||||
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| (1,262 | ) | 1,455 | (7,522 | ) | ||||||||||||
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Net (loss) income before income taxes | $ | (6,845 | ) | $ | (19,641 | ) | $ | 4,823 | ||||||||
Income tax (expense) recovery | ||||||||||||||||
Current | 15 | — | (22 | ) | (678 | ) | ||||||||||
Deferred | 15 | — | (123 | ) | (219 | ) | ||||||||||
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| — | (145 | ) | (897 | ) | ||||||||||||
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Net (loss) income | $ | (6,845 | ) | $ | (19,786 | ) | $ | 3,926 | ||||||||
Item that may be reclassified to profit or loss | ||||||||||||||||
Exchange differences on translation of foreign subsidiaries: | (746 | ) | (683 | ) | 595 | |||||||||||
Item that will not be reclassified to profit and loss | 9 | — | (6,336 | ) | — | |||||||||||
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Comprehensive (loss) income | $ | (7,591 | ) | $ | (26,805 | ) | $ | 4,521 | ||||||||
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(Loss) earnings per share | ||||||||||||||||
Basic | 14 | (e) | $ | (0.64 | ) | $ | (1.32 | ) | $ | 0.25 | ||||||
Diluted | 14 | (e) | $ | (0.64 | ) | $ | (1.32 | ) | $ | 0.24 | ||||||
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See accompanying notes to the consolidated financial statements.
Consolidated Statements of Changes in Equity
(expressed in thousands of Canadian dollars, except per share amounts)
| Attributable to shareholders of the Company | ||||||||||||||||||||||||||||
| Note | Share Capital | Warrants | Contributed Surplus | Accumulated other comprehensive income (loss) | Equity (Deficit) | Total | ||||||||||||||||||||||
Balance, December 31, 2019 | $ | 85,364 | $ | 1,949 | $ | 8,028 | $ | (5,751 | ) | $ | (62,648 | ) | $ | 26,942 | ||||||||||||||
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Net loss for the year ended December 31, 2020 | — | — | — | — | (6,845 | ) | (6,845 | ) | ||||||||||||||||||||
Other comprehensive income for the year ended December 31, 2020 | — | — | — | (746 | ) | — | (746 | ) | ||||||||||||||||||||
Transactions with owners, recorded directly in equity | ||||||||||||||||||||||||||||
Buy-back of common shares under normal course issuer bid | 14 | (b) | (4,447 | ) | — | — | — | 3,925 | (522 | ) | ||||||||||||||||||
Transfer on expiry of warrants | 14 | (d) | — | (1,949 | ) | 1,949 | — | — | — | |||||||||||||||||||
Share-based compensation | 14 | (c) | — | — | 317 | — | — | 317 | ||||||||||||||||||||
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Total transactions with owners | (4,447 | ) | (1,949 | ) | 2,266 | — | 3,925 | (205 | ) | |||||||||||||||||||
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Balance, December 31, 2020 | $ | 80,917 | — | 10,294 | (6,497 | ) | (65,568 | ) | 19,146 | |||||||||||||||||||
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(continued on next page)
See accompanying notes to the consolidated financial statements.
- 1 -
148
MEDICURE INC.
Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss)Changes in Equity (continued)
(expressed in thousands of Canadian dollars)
Year ended December 31, 2015, seven months ended December 31, 2014 and years ended May 31, 2014 and 2013dollars, except per share amounts)
| December 31, | December 31, | May 31, | May 31, | |||||||||||||||
| Note | 2015 | 2014 | 2014 | 2013 | |||||||||||||
| Revenue | ||||||||||||||||||
| Product sales, net | $ | 22,083,128 | $ | 5,264,395 | $ | 5,050,761 | $ | 2,602,700 | ||||||||||
| Cost of goods sold | 5 & 7 | 2,259,867 | 600,574 | 868,122 | 665,896 | |||||||||||||
| Gross Profit | 19,823,261 | 4,663,821 | 4,182,639 | 1,936,804 | ||||||||||||||
| Expenses | ||||||||||||||||||
| Selling, general and administrative | 10,237,116 | 3,231,392 | 3,624,695 | 2,322,840 | ||||||||||||||
| Research and development | 4,865,255 | 783,130 | 688,671 | 1,700,479 | ||||||||||||||
| 15,102,371 | 4,014,522 | 4,313,366 | 4,023,319 | |||||||||||||||
| Income (loss) before the undernoted | 4,720,890 | 649,299 | (130,727 | ) | (2,086,515 | ) | ||||||||||||
| Other expense (income): | ||||||||||||||||||
| Reversal of impairment loss7 | (788,305 | ) | - | - | - | |||||||||||||
| Investment structuring services | 8 | - | (1,385,099 | ) | - | - | ||||||||||||
| Revaluation of long-term derivative | 8 | (33,080 | ) | 81,431 | - | - | ||||||||||||
| Loss on settlements of debt | 12(b) | 60,595 | - | - | - | |||||||||||||
| (760,790 | ) | (1,303,668 | ) | - | - | |||||||||||||
| Finance expense (income): | ||||||||||||||||||
| Finance expense, net | 12(d) & 14 | 4,123,452 | 729,657 | 1,808,987 | 466,273 | |||||||||||||
| Foreign exchange loss (gain), net | 68,799 | 27,714 | (5,618 | ) | 21,516 | |||||||||||||
| 4,192,251 | 757,371 | 1,803,369 | 487,789 | |||||||||||||||
| Net income (loss) before income taxes | 1,289,429 | 1,195,596 | (1,934,096 | ) | (2,574,304 | ) | ||||||||||||
| Income tax recovery | 13 | 379,000 | - | - | - | |||||||||||||
| Net income (loss) | $ | 1,668,429 | $ | 1,195,596 | $ | (1,934,096 | ) | $ | (2,574,304 | ) | ||||||||
| Translation adjustment | 806,059 | 143,538 | 86,679 | (34,697 | ) | |||||||||||||
| Comprehensive income (loss) | $ | 2,474,488 | $ | 1,339,134 | $ | (1,847,417 | ) | $ | (2,609,001 | ) | ||||||||
| Basic earnings (loss) per share | $ | 0.12 | $ | 0.10 | $ | (0.16 | ) | $ | (0.21 | ) | ||||||||
| Diluted earnings (loss) per share | $ | 0.11 | $ | 0.09 | $ | (0.16 | ) | $ | (0.21 | ) | ||||||||
| Weighted average number of common shares used in | ||||||||||||||||||
| computing basic earnings (loss) per share | 13,461,609 | 12,204,827 | 12,196,745 | 12,196,508 | ||||||||||||||
| Weighted average number of common shares used in | ||||||||||||||||||
| computing fully diluted earnings (loss) per share | 15,765,570 | 13,843,126 | 12,196,745 | 12,196,508 | ||||||||||||||
| Attributable to shareholders of the Company | ||||||||||||||||||||||||||||
| Note | Share Capital | Warrants | Contributed Surplus | Accumulated other comprehensive income (loss) | Equity (Deficit) | Total | ||||||||||||||||||||||
Balance, December 31, 2018 | $ | 122,887 | $ | 1,949 | $ | 7,628 | $ | 1,268 | $ | (50,138 | ) | $ | 83,594 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net loss for the year ended December 31, 2019 | — | — | — | — | (19,786 | ) | (19,786 | ) | ||||||||||||||||||||
Other comprehensive income for the year ended December 31, 2019 | — | — | — | (7,019 | ) | — | (7,019 | ) | ||||||||||||||||||||
Transactions with owners, recorded directly in equity | ||||||||||||||||||||||||||||
Buy-back of common shares under normal course issuer bid | 14 | (b) | (5,955 | ) | — | — | — | 1,810 | (4,145 | ) | ||||||||||||||||||
Buy-back of common shares under substantial issuer bid | 14 | (b) | (31,605 | ) | — | �� | — | — | 5,466 | (26,139 | ) | |||||||||||||||||
Stock options exercised | 14 | (c) | 37 | — | (17 | ) | — | — | 20 | |||||||||||||||||||
Share-based compensation | 14 | (c) | — | — | 417 | — | — | 417 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total transactions with owners | (37,523 | ) | — | 400 | — | 7,276 | (29,847 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Balance, December 31, 2019 | $ | 85,364 | $ | 1,949 | $ | 8,028 | $ | (5,751 | ) | $ | (62,648 | ) | $ | 26,942 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
| Attributable to shareholders of the Company | ||||||||||||||||||||||||||||
| Note | Share Capital | Warrants | Contributed Surplus | Accumulated other comprehensive income | Equity (Deficit) | Total | ||||||||||||||||||||||
Balance, December 31, 2017 | $ | 125,734 | $ | 1,949 | $ | 6,897 | $ | 673 | $ | (54,544 | ) | $ | 80,709 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net income for the year ended December 31, 2018 | — | — | — | — | 3,926 | 3,926 | ||||||||||||||||||||||
Other comprehensive income for the year ended December 31, 2018 | — | — | — | 595 | — | 595 | ||||||||||||||||||||||
Transactions with owners, recorded directly in equity | ||||||||||||||||||||||||||||
Buy-back of common shares under normal course issuer bid | 14 | (b) | (3,501 | ) | — | — | — | 480 | (3,021 | ) | ||||||||||||||||||
Stock options exercised | 14 | (c) | 654 | — | (291 | ) | — | — | 363 | |||||||||||||||||||
Share-based compensation | 14 | (c) | — | — | 1,022 | — | — | 1,022 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total transactions with owners | (2,847 | ) | — | 731 | — | 480 | (1,636 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Balance, December 31, 2018 | $ | 122,887 | $ | 1,949 | $ | 7,628 | $ | 1,268 | $ | (50,138 | ) | $ | 83,594 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
See accompanying notes to the consolidated financial statements.
- 2 -
MEDICURE INC.
Consolidated Statements of Changes in Equity (Deficiency)Cash Flows
(expressed in thousands of Canadian dollars)
Year ended December 31, 2015, seven months ended December 31, 2014 and years ended May 31, 2014 and 2013dollars, except per share amounts)
| Cumulative | ||||||||||||||||||||||||||
| Share | Contributed | Translation | Equity | |||||||||||||||||||||||
| Note | Capital | Warrants | Surplus | Account | (Deficit) | Total | ||||||||||||||||||||
| Balance, May 31, 2012 | $ | 117,033,258 | $ | - | $ | 4,346,312 | $ | 102,809 | $ | (123,303,052 | ) | $ | (1,820,673 | ) | ||||||||||||
| Net loss for the year ended May 31, 2013 | - | - | - | - | (2,574,304 | ) | (2,574,304 | ) | ||||||||||||||||||
| Other comprehensive loss for the year ended May 31, 2013 | - | - | - | (34,697 | ) | - | (34,697 | ) | ||||||||||||||||||
| Transactions with owners, recorded directly in equity | ||||||||||||||||||||||||||
| Share-based payments | 12(c) | - | - | 102,993 | - | - | 102,993 | |||||||||||||||||||
| Total transactions with owners | - | - | 102,993 | - | - | 102,993 | ||||||||||||||||||||
| Balance, May 31, 2013 | $ | 117,033,258 | $ | - | $ | 4,449,305 | $ | 68,112 | $ | (125,877,356 | ) | $ | (4,326,681 | ) | ||||||||||||
| Net loss for the year ended May 31, 2014 | - | - | - | - | (1,934,096 | ) | (1,934,096 | ) | ||||||||||||||||||
| Other comprehensive income for the year ended May 31, 2014 | - | - | - | 86,679 | - | 86,679 | ||||||||||||||||||||
| Transactions with owners, recorded directly in equity | ||||||||||||||||||||||||||
| Stock options exercised | 12(c) | 3,414 | - | (1,414 | ) | - | - | 2,000 | ||||||||||||||||||
| Share-based payments | 12(c) | - | - | 295,144 | - | - | 295,144 | |||||||||||||||||||
| Total transactions with owners | 3,414 | - | 293,730 | - | - | 297,144 | ||||||||||||||||||||
| Balance, May 31, 2014 | $ | 117,036,672 | $ | - | $ | 4,743,035 | $ | 154,791 | $ | (127,811,452 | ) | $ | (5,876,954 | ) | ||||||||||||
| Net income for the seven months ended December 31, 2014 | - | - | - | - | 1,195,596 | 1,195,596 | ||||||||||||||||||||
| Other comprehensive income for the seven months ended December 31, 2014 | - | - | - | 143,538 | - | 143,538 | ||||||||||||||||||||
| Transactions with owners, recorded directly in equity | ||||||||||||||||||||||||||
| Stock options exercised | 12(c) | 9,091 | - | (2,992 | ) | - | - | 6,099 | ||||||||||||||||||
| Share-based payments | 12(c) | - | - | 620,705 | - | - | 620,705 | |||||||||||||||||||
| Total transactions with owners | 9,091 | - | 617,713 | - | - | 626,804 | ||||||||||||||||||||
| Balance, December 31, 2014 | $ | 117,045,763 | $ | - | $ | 5,360,748 | $ | 298,329 | $ | (126,615,856 | ) | $ | (3,911,016 | ) | ||||||||||||
| Net income for the yea ended December 31, 2015 | - | - | - | - | 1,668,429 | 1,668,429 | ||||||||||||||||||||
| Other comprehensive income for the year months ended December 31, 2015 | - | - | - | 806,059 | - | 806,059 | ||||||||||||||||||||
| Transactions with owners, recorded directly in equity | ||||||||||||||||||||||||||
| Issuance of common shares | 12(b) | 4,021,782 | - | - | - | - | 4,021,782 | |||||||||||||||||||
| Issuance of warrants | 12(b) | - | 232,571 | - | - | - | 232,571 | |||||||||||||||||||
| Stock options exercised | 12(c) | 65,034 | - | (31,869 | ) | - | - | 33,165 | ||||||||||||||||||
| Warrants exercised | 12(b) | 281,198 | (130,953 | ) | - | - | - | 150,245 | ||||||||||||||||||
| Share-based compensation | 12(c) | - | - | 1,460,316 | - | - | 1,460,316 | |||||||||||||||||||
| Total transactions with owners | 4,368,014 | 101,618 | 1,428,447 | - | - | 5,898,079 | ||||||||||||||||||||
| Balance, December 31, 2015 | $ | 121,413,777 | $ | 101,618 | $ | 6,789,195 | $ | 1,104,388 | $ | (124,947,427 | ) | $ | 4,461,551 | |||||||||||||
For the year ended December 31 | Note | 2020 | 2019 | 2018 | ||||||||||||
Cash (used in) provided by: | ||||||||||||||||
Operating activities: | ||||||||||||||||
Net (loss) income for the year | $ | (6,845 | ) | $ | (19,786 | ) | $ | 3,926 | ||||||||
Adjustments for: | ||||||||||||||||
Current income tax expense (recovery) | 15 | — | 22 | 678 | ||||||||||||
Deferred income tax expense (recovery) | 15 | — | 123 | 219 | ||||||||||||
Impairment of property and equipment | 7 | — | 95 | — | ||||||||||||
Impairment of intangible assets | 8 | — | 6,321 | — | ||||||||||||
Revaluation of holdback receivable | 13 | — | 3,623 | 1,473 | ||||||||||||
Amortization of property and equipment | 7 | 307 | 485 | 103 | ||||||||||||
Amortization of intangible assets | 8 | 2,466 | 1,438 | 196 | ||||||||||||
Share-based compensation | 14 | (c) | 317 | 417 | 1,022 | |||||||||||
Write-down of inventories | 6 | 682 | 1,983 | 95 | ||||||||||||
Finance (income) expense, net | 16 | (765 | ) | (1,115 | ) | (1,061 | ) | |||||||||
Unrealized foreign exchange (gain) loss | (497 | ) | 362 | (5,323 | ) | |||||||||||
Change in the following: | ||||||||||||||||
Accounts receivable | 5,081 | (318 | ) | (1,341 | ) | |||||||||||
Inventories | 723 | (4,072 | ) | (1,259 | ) | |||||||||||
Prepaid expenses | 703 | 842 | (1,793 | ) | ||||||||||||
Other assets | — | 78 | — | |||||||||||||
Accounts payable and accrued liabilities | (3,802 | ) | (4,992 | ) | 7,132 | |||||||||||
Interest received (paid), net | 16 | 22 | 1,685 | 255 | ||||||||||||
Income taxes paid | 15 | (306 | ) | (477 | ) | (2,041 | ) | |||||||||
Royalties paid | 10 | (326 | ) | (1,355 | ) | (1,539 | ) | |||||||||
|
|
|
|
|
| |||||||||||
Cash flows (used in) from operating activities | (2,240 | ) | (14,641 | ) | 742 | |||||||||||
|
|
|
|
|
| |||||||||||
Investing activities: | ||||||||||||||||
Acquisition of Marley Drug, Inc, net of cash acquired | 4 | (7,238 | ) | — | — | |||||||||||
Investment in Sensible Medical | 9 | — | (6,337 | ) | — | |||||||||||
Proceeds from Apicore Sale Transaction | — | — | 65,235 | |||||||||||||
Receipt of holdback receivable funds | 13 | — | 6,719 | — | ||||||||||||
Redemptions (purchase) of short-term investments | — | 47,747 | (44,100 | ) | ||||||||||||
Acquisition of property and equipment | 7 | (2 | ) | (186 | ) | (197 | ) | |||||||||
Acquisition of intangible assets | 8 | — | (13,660 | ) | (1,281 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Cash flows from investing activities | (7,240 | ) | 34,283 | 19,657 | ||||||||||||
|
|
|
|
|
| |||||||||||
Financing activities: | ||||||||||||||||
Repurchase of common shares under substantial issuer bid | 14 | (b) | — | (26,139 | ) | — | ||||||||||
Repurchase of common shares under normal course issuer bid | 14 | (b) | (522 | ) | (4,145 | ) | (3,021 | ) | ||||||||
Proceeds from exercise of stock options | 14 | (c) | — | 20 | 363 | |||||||||||
Repayment of lease liability | (244 | ) | — | — | ||||||||||||
|
|
|
|
|
| |||||||||||
Cash flows used in financing activities | (766 | ) | (30,264 | ) | (2,658 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Foreign exchange (loss) gain on cash held in foreign currency | (3 | ) | (552 | ) | 1,138 | |||||||||||
|
|
|
|
|
| |||||||||||
(Decrease) increase in cash | (10,249 | ) | (11,174 | ) | 18,879 | |||||||||||
Cash and cash equivalents, beginning of period | 12,965 | 24,139 | 5,260 | |||||||||||||
|
|
|
|
|
| |||||||||||
Cash and cash equivalents, end of period | $ | 2,716 | $ | 12,965 | $ | 24,139 | ||||||||||
|
|
|
|
|
| |||||||||||
See accompanying notes to the consolidated financial statements.
- 3 -
MEDICURE INC.
Consolidated Statement of Cash Flows
(expressed in Canadian dollars)
Year ended December 31, 2015, seven months ended December 31, 2014 and years ended May 31, 2014 and 2013
| December 31, | December 31, | May 31, | May 31, | |||||||||||||||
| Note | 2015 | 2014 | 2014 | 2013 | ||||||||||||||
| Cash provided by (used in): | ||||||||||||||||||
| Operating activities: | ||||||||||||||||||
| Net income (loss) | $ | 1,668,429 | $ | 1,195,596 | $ | (1,934,096 | ) | $ | (2,574,304 | ) | ||||||||
| Adjustments for: | ||||||||||||||||||
| Income tax recovery | 13 | (379,000 | ) | - | - | - | ||||||||||||
| Reversal of impairment loss | 7 | (788,305 | ) | - | - | - | ||||||||||||
| Investment structuring services | 8 | - | (1,552,771 | ) | - | - | ||||||||||||
| Revaluation of long-term derivative | 8 | (33,080 | ) | 81,431 | - | - | ||||||||||||
| Loss on settlements of debt | 12(b) | 60,595 | - | - | - | |||||||||||||
| Amortization of property and equipment | 6 | 31,544 | 5,033 | 7,727 | 11,500 | |||||||||||||
| Amortization of intangible assets | 7 | 659,390 | 428,116 | 553,542 | 525,482 | |||||||||||||
| Stock-based compensation | 12(c) | 1,460,316 | 620,705 | 295,144 | 102,993 | |||||||||||||
| Write-up (write-down) of inventory | 5 | 40,920 | (80,874 | ) | 22,209 | 19,639 | ||||||||||||
| Write-down of intangible assets | 7 | - | - | - | 62,133 | |||||||||||||
| Finance expense, net | 14 | 4,123,452 | 729,657 | 1,808,987 | 466,273 | |||||||||||||
| Difference between fair value of other long-term liability and funding received | 11 | 47,222 | - | (14,483 | ) | (32,739 | ) | |||||||||||
| Unrealized foreign exchange loss (gain) | 111,817 | (27,892 | ) | 5,303 | (3,011 | ) | ||||||||||||
| Change in the following: | ||||||||||||||||||
| Accounts receivable | (8,185,940 | ) | (690,074 | ) | (514,986 | ) | (12,419 | ) | ||||||||||
| Inventories | (1,230,619 | ) | (253,049 | ) | 114,937 | (380,113 | ) | |||||||||||
| Prepaid expenses | (1,124,095 | ) | (436,788 | ) | (176,733 | ) | 95,629 | |||||||||||
| Accounts payable and accrued liabilities | 4,637,217 | 639,573 | 407,966 | 889,981 | ||||||||||||||
| Other long-term liability | - | - | - | 200,000 | ||||||||||||||
| Interest paid | 14 | (314,300 | ) | (225,459 | ) | (299,346 | ) | (273,417 | ) | |||||||||
| Royalties paid | 10 | (642,768 | ) | (156,722 | ) | (165,291 | ) | (88,105 | ) | |||||||||
| Cash flows from (used in) operating activities | 142,795 | 276,482 | 110,880 | (990,478 | ) | |||||||||||||
| Investing activities: | ||||||||||||||||||
| Acquisition of property and equipment | 6 | (226,570 | ) | (16,713 | ) | (5,513 | ) | (3,108 | ) | |||||||||
| Acquisition of intangible assets | 7 | - | (7,206 | ) | - | (4,289 | ) | |||||||||||
| Cash flows used in investing activities | (226,570 | ) | (23,919 | ) | (5,513 | ) | (7,397 | ) | ||||||||||
| Financing activities: | ||||||||||||||||||
| Issuance of common shares, net of issue costs | 12(b) | 3,630,324 | - | - | - | |||||||||||||
| Exercise of stock options | 12(c) | 33,165 | 6,099 | 2,000 | - | |||||||||||||
| Exercise of warrants | 12(b) | 150,245 | - | - | - | |||||||||||||
| Repayment of long-term debt | 9 | (694,444 | ) | - | - | - | ||||||||||||
| Cash flows from financing activities | 3,119,290 | 6,099 | 2,000 | - | ||||||||||||||
| Foreign exchange gain on cash held in foreign currency | 39,208 | 910 | 315 | 145 | ||||||||||||||
| Increase (decrease) in cash | 3,074,723 | 259,572 | 107,682 | (997,730 | ) | |||||||||||||
| Cash, beginning of period | 493,869 | 234,297 | 126,615 | 1,124,345 | ||||||||||||||
| Cash, end of period | $ | 3,568,592 | $ | 493,869 | $ | 234,297 | $ | 126,615 | ||||||||||
| Supplementary information: | ||||||||||||||||||
| Non-cash investing activities: | ||||||||||||||||||
| Investment structuring services | 8 | $ | - | $ | 1,552,771 | $ | - | $ | - | |||||||||
| Non-cash financing activities: | ||||||||||||||||||
| Shares issued on debt settlements | 12(b) | $ | 624,029 | $ | - | $ | - | $ | - | |||||||||
| Warrants issued as share issue costs | 12(b) | $ | 232,571 | $ | - | $ | - | $ | - | |||||||||
See accompanying notes to the consolidated financial statements.
- 4 -
MEDICURE INC.
Notes to the Consolidated Financial Statements
(expressed in thousands of Canadian dollars)dollars, except per share amounts)
Year ended December 31, 2015, seven months ended December 31, 2014 and years ended May 31, 2014 and 2013
| 1. | Reporting |
Medicure Inc. (the "Company"“Company”) is a company domiciled and incorporated in Canada and as of October 24, 2011, its Common Shares are listed on the TSX Venture Exchange.Exchange (“TSX-V”). Prior to October 24, 2011 and beginning on March 29, 2010, the Company'sCompany’s Common Shares were listed on the NEX board of the TSX Venture Exchange.TSX-V. Prior to March 29, 2010, the Company'sCompany’s Common Shares were listed on the Toronto Stock Exchange. Additionally, the Company'sCompany’s shares were listed on the American Stock Exchange (later called NYSE Amex and now called NYSE MKT) on February 17, 2004 and the shares ceased trading on the NYSE Amex effective July 3, 2008. The Company remains a U.S. Securities and Exchange Commission registrant. The address of the Company'sCompany’s registered office is 2-1250 Waverley Street, Winnipeg, Manitoba, Canada. Canada, R3T 6C6.
The Company is a biopharmaceutical company engaged in the research, development and commercialization of human therapeutics. Through its subsidiary Medicure International, Inc., the Company has rights to the commercial product AGGRASTAT® Injection (tirofiban hydrochloride) in the United States and its territories (Puerto Rico, U.S. Virgin Islands, and Guam). AGGRASTAT®, a glycoprotein GP IIb/IIIa receptor antagonist, is used for the treatment of acute coronary syndrome including unstable angina, which is characterized by chest pain when one is at rest, and non-Q-wave myocardial infarction.
In September 2019 the Company acquired ownership of ZYPITAMAG® from Cadila Healthcare Ltd., India (“Zydus”) for the U.S. and Canadian markets. Under terms of the agreement, the Company previously had acquired U.S. marketing rights with a profit-sharing arrangement in December 2017. With this acquisition the Company obtained full control of the product including marketing and pricing negotiation for ZYPITAMAG®. ZYPITAMAG® is used for the treatment of patients with primary hyperlipidemia or mixed dyslipidemia and was approved in July 2017 by the U.S. Food and Drug Administration (“FDA”) for sale and marketing in the United States. On May 1, 2018 ZYPITAMAG® was made available in retail pharmacies throughout the United States.
On December 17, 2020, the Company, through its subsidiary, Medicure Pharma Inc. acquired and began operating Marley Drug, Inc. (“Marley Drug”), a leading specialty pharmacy serving customers across the United States.
The Company’s ongoing research and development activities include the continued development and further implementation of a new regulatory, brand and life cycle management strategy for AGGRASTAT®. and the development of additional cardiovascular products. The Company continues to seek to acquire or license additional cardiovascular products.
| 2. | Basis of preparation of financial |
| (a) | Statement of compliance |
These consolidated financial statements of the Company and its subsidiaries were prepared in accordance with International Financial Reporting Standards ("IFRS"(“IFRS”) as issued by the International Accounting Standards Board ("IASB"(“IASB”).
The consolidated financial statements were authorized for issue by the Board of Directors on March 28, 2016.April 20, 2021.
| (b) | Basis of presentation |
The consolidated financial statements have been prepared on the historical cost basis except for contingent consideration and the following items:
Notes to the Consolidated Financial Statements (expressed in thousands of Canadian dollars, except per share amounts)
The consolidated financial statements are presented in Canadian dollars, which is the
The preparation of these consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, revenue and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Areas where management has made critical judgments in the process of applying accounting policies and that have the most significant effect on the amounts recognized in the consolidated financial statements include the determination and allocation of the Company’s and its subsidiaries’ functional currencies. Information about key assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment to the carrying amount of assets and liabilities within the next financial year are included in the following Note 3(c)(iii): The valuation of the royalty obligation Note 3(e): The accruals for returns, chargebacks, rebates and discounts Note 3(i): The measurement and useful lives of intangible assets Note 3(o): The measurement of the amount and assessment of the recoverability of income tax assets and income tax provisions Note 3(q): The measurement and valuation of intangible assets and contingent consideration acquired and recorded as business combinations. Note 3(r): The incremental borrowing rate (“IBR”) used in the valuation of leases.
Notes to the Consolidated Financial Statements (expressed in thousands of Canadian dollars, except per share amounts)
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, unless otherwise indicated.
These consolidated financial statements include the accounts of the Company and its subsidiaries. Subsidiaries are entities controlled by the Company. Control exists when the Company has power over the investee and when the Company is exposed, or has the rights, to variable returns from the investee. Subsidiaries are included in the consolidated financial results of the Company from the effective date of acquisition up to the effective date of disposition or loss of control and include wholly owned subsidiaries, Medicure International Inc., Medicure Pharma Inc.,
Items included in the financial statements of each of the Foreign currency transactions are translated into the respective functional currencies of the Company and its subsidiaries using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in profit The results and financial position of the (i) assets and liabilities (ii) revenue and expenses of foreign operations for each year are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case revenue and expenses are translated at the dates of the transactions); and (iii) all resulting exchange differences for foreign operations are recognized in other comprehensive income When a foreign operation is disposed of,
Notes to the Consolidated Financial Statements (expressed in thousands of Canadian
Initial recognition and measurement Upon recognition of a financial asset, classification is made based on the business model for managing the asset and the asset’s contractual cash flow characteristics. The financial asset is initially recognized at its fair value and subsequently classified and measured as (i) amortized cost; (ii) FVOCI; or (iii) FVTPL. Financial Subsequent measurement The subsequent measurement of financial assets depends on their classification as follows: Financial assets measured at amortized cost A financial asset is subsequently measured at amortized cost, using the effective interest method and net of any impairment allowance, if the asset is held within a business whose objective is to hold assets in order to collect contractual cash flows; and the contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments of principal and interest. Cash and cash equivalents, restricted cash, accounts receivable and other assets are classified within this category. Financial assets at FVTPL Financial assets measured at FVTPL are carried in the statement of financial position at fair value with changes in fair value therein recognized in the statement of net (loss) income. There are presently no assets classified within this category. Financial assets at FVOCI Financial assets measured at FVOCI are carried in the statement of financial position at fair value with changes in fair value therein recognized in the statement of comprehensive (loss) income. The Investment in Sensible Medical was designated within this category.
A financial asset or, where applicable a part of a financial asset or part of a group of similar financial assets is derecognized when the contractual rights to receive cash flows from the asset have expired; or the Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
Initial recognition and measurement The Company
Notes to the (expressed in thousands of
The royalty obligation was recorded at its fair value at the date at which the liability was incurred and subsequently measured at amortized cost using the effective interest rate method at each reporting date. Estimating fair value for this liability The Contingent consideration resulting from a business combination are valued at fair value at the acquisition date as part of the business combination and
Fair value is determined based on the price
Transaction costs for all financial instruments measured at amortized cost, the transaction costs are
For financial liabilities measured at amortized cost, under certain conditions, an embedded derivative must be separated from its host contract and accounted for as a
An “expected credit loss” impairment model applies to financial assets which requires a loss allowance to be recorded on financial assets measured at amortized cost based on their expected credit losses. An estimate is made to determine the present value of future cash flows associated with the asset, and Impairment losses on financial assets carried at amortized cost are reversed in subsequent periods if the amount of the loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized.
Notes to the Consolidated Financial Statements (expressed in thousands of Canadian dollars, except per share amounts)
As of December 31, 2020, excluding Marley Drug, the Company has three commercially available products that generated revenue for the year ended December 31, 2020, AGGRASTAT®, ZYPITAMAG® and Sodium Nitroprusside(the “Products”) which it sells to United States customers. The Products are sold to wholesalers for resale as well as directly to hospitals and pharmacies; with AGGRASTAT® and Sodium Nitroprusside primarily being sold by the wholesalers to hospitals, while ZYPITAMAG® is primarily sold by wholesalers to pharmacies. Revenue from the sale of the Products is recognized upon the receipt of goods by the wholesaler, or the hospital or pharmacy in the case of a direct sale, the point in time in which title and control of the transferred goods pass from the Company to the customer. At this point in time, the customer has gained the sole ability to route the goods, and there are no unfulfilled obligations that could affect the customer’s acceptance of the goods. Delivery of the product occurs when the goods have been received at the customer in accordance with the terms of the sale. During 2019, the Company sold ReDSTM medical devices directly to end users. Revenue from the sale of ReDSTM was recognized upon the receipt of goods by the end user, the point in time in which title and control of the transferred goods pass from the Company to the customer. At this point in time, the customer has gained the sole ability to benefit from the product, and there are no unfulfilled obligations that could affect the customer’s acceptance of the goods. Delivery of the product occurs when the goods have been shipped to the customer and the customer has accepted the products in accordance with the terms of the sale. Sales are made subject to certain discounts available for prompt payment, volume discounts, rebates or chargebacks. Revenue from these sales is recognized based on the price specified per the pricing terms of the sales invoices, net of the estimated discounts, rebates or chargebacks. Variable consideration is based on historical information, using the expected value method. Revenue is only recognized to the extent that it is highly probable that a significant reversal will not occur. A liability is included within accounts payable and accrued liabilities and is measured for expected payments that will be made to the Through Marley Drug, the Company operates a
Inventories consist of unfinished product (raw material in the form of API and packaging materials) and The cost of inventories is based on the first-in first-out principle, and includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition.
obsolescence, damage, or declining selling prices. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. When the circumstances that previously caused inventories to be written down below cost no longer exist, or when there is clear evidence of an increase in selling prices, the amount of the write-down previously recorded is reversed.
Notes to the Consolidated Financial Statements (expressed in thousands of Canadian dollars, except per share amounts)
Items of property and equipment are measured at cost less accumulated amortization and accumulated impairment
Amortization is recognized in profit or loss over the estimated useful lives of each part of an item of property and equipment in a manner
Amortization methods, useful lives and residual values are reviewed at each period end and adjusted if appropriate.
Intangible assets that are acquired separately are measured at cost less accumulated amortization and accumulated impairment losses. Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which they relate. All other expenditures are recognized in profit or loss as incurred.
Amortization on product licenses commences when the intangible asset is available for use, which would typically be in connection with the commercial launch of the associated product under the license. Following initial recognition, intangible assets are carried at cost less accumulated amortization and accumulated impairment losses. The cost of servicing the Company’s patents and trademarks are expensed as incurred. The amortization method and amortization period of an intangible asset with a finite useful life are reviewed at least annually. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates in the consolidated statements of net (loss) income and comprehensive (loss) income.
Notes to the Consolidated Financial Statements (expressed in thousands of Canadian
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognized in profit or loss as incurred. Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditures are capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset. No development costs have been capitalized to date. Research and development expenses include all direct and indirect operating expenses supporting the products in development.
Clinical trial expenses are a component of the Company’s research and development costs. These expenses include fees paid to contract research organizations, clinical sites, and other organizations who conduct research and development activities on the Company’s behalf. The amount of clinical trial expenses recognized in a period related to clinical agreements are based on estimates of the work performed using an accrual basis of accounting. These estimates incorporate factors such as patient enrolment, services provided, contractual terms, and prior experience with similar contracts.
all attaching conditions will be complied with. Government assistance toward current expenses is recorded as a reduction of the related expenses in the period the expenses are incurred. Government assistance towards property and equipment is deducted from the cost of the related property and equipment. The benefits of investment tax credits for scientific research and experimental development expenditures
The Company assesses at each reporting period whether there is an indication that a non-financial asset may be impaired. An impairment loss is recognized when the carrying amount of an asset, or its CGU, exceeds its recoverable amount. Impairment losses are recognized in net income
Goodwill is tested for impairment annually and when circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each CGU to which the goodwill relates. When the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill are not reversed in future periods.
Notes to the Consolidated Financial Statements (expressed in thousands of Canadian
The grant date fair value of share-based payment awards granted to employees is recognized as a personnel expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes. Share-based payment arrangements in which the Company receives goods or services as consideration for its own equity instruments are accounted for as equity-settled share-based payment transactions. In situations where equity instruments are issued and some or all of the goods or services received by the entity as consideration cannot be specifically identified, they are measured at fair value of the share-based payment. For share-based payment arrangements with non-employees, the expense is recorded over the service period until the options vest. Once the options vest, services are deemed to have been received. Where the terms of an equity-settled transaction award are modified, the minimum expense recognized is the expense as if the terms had not been modified, if the original terms of the award are met. An additional expense is recognized for any modification that increases the total fair value of the share-based payment transaction or is otherwise beneficial to the employee as measured at the date of modification. Where an equity-settled award is cancelled, it is treated as if it vested on the date of the cancellation and any expense not yet recognized for the award (being the total expense as calculated at the grant date) is recognized immediately. This includes any awards where vesting conditions within the control of either the Company or the employee are not met. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled award and new awards are treated as if they were a modification of the original awards.
Finance costs comprise interest expense on borrowings which are recognized in Foreign currency gains and losses are reported on a net basis.
Notes to the Consolidated Financial Statements (expressed in thousands of Canadian dollars, except per share amounts)
The Company and its subsidiaries are generally taxable under the statutes of their country of incorporation. Income tax expense comprises current and deferred taxes. Current taxes and deferred taxes are recognized in profit or loss except to the extent that income. Current taxes are the expected tax receivable or payable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax receivable or payable in respect of previous years.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. The Company has provided for income taxes, including the impacts of tax legislation in various jurisdictions, in accordance with guidance issued by accounting regulatory bodies, the Canada Revenue Agency, the U.S. Internal Revenue Service, the Barbados Revenue Authority, the Mauritius Revenue Authority, as well as other state and local governments through the date of the issuance of these consolidated financial statements. Additional guidance and interpretations can be expected and such guidance, if any, could impact future results. While management continues to monitor these matters, the ultimate impact, if any, as a result of the application of any guidance issued in the future cannot be determined at this time. The Company and its subsidiaries file federal income tax returns in Canada, the United States, Barbados and other foreign jurisdictions, as well as various provinces and states in Canada and the United States, respectively. Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws and the amount and timing of future taxable income. Given the Company operates within a complex structure internationally, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to taxable income and expenses recorded. The Company establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities of the respective countries in which it operates. The amount of such provisions are based on various factors, such as interpretations of tax regulations by each taxable entity and the responsible tax authority. The Company and its subsidiaries have open tax years, primarily from 2011 to 2020, with significant taxing jurisdictions, including Canada, the United States and Barbados. These open years contain certain matters that could be subject to differing interpretations of applicable tax laws and regulations and tax treaties, as they relate to the amount, timing or inclusion of revenues and expenses, or the sustainability of income tax positions of the Company and its subsidiaries. Certain of these tax years may remain open indefinitely. Such differences of interpretation may arise on a wide variety of issues, depending on the conditions prevailing in the respective company’s domicile. As the Company assesses the probability for litigation and subsequent cash outflow with respect to taxes as remote, no contingent liability has been recognized. Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, would be recognized subsequently if information about facts and circumstances changed. The adjustment would either be treated as a reduction to goodwill if it occurred during the measurement period or in profit or loss, when it occurs subsequent to the measurement period.
Notes to the Consolidated Financial Statements (expressed in thousands of Canadian dollars, except per share amounts)
The Company presents basic earnings per share
The amendments are applied to transactions that are either business combinations or asset acquisitions for which the acquisition date is on or after the beginning of the first annual reporting period beginning on January 1, 2020. Consequently, transactions that occurred in prior periods do not The Company’s adoption of the Business combinations are
Goodwill is
Notes to the Consolidated Financial Statements (expressed in thousands of Canadian
The right-of-use asset is initially measured at cost, which is comprised of the initial amount of the lease liability adjusted for any lease payments made and any initial direct costs incurred at or before the commencement date, plus any decommissioning and restoration costs, less any lease incentives received. The right-of-use asset is subsequently depreciated from the commencement date to the earlier of the end of the lease term, or the end of the useful life of the asset. In addition, the right-of-use asset may be reduced due to impairment losses, if any, and adjusted for certain re-measurements of the lease liability.
A lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date discounted by the interest rate implicit in the lease or, if that rate cannot be readily determined, the incremental borrowing rate. The lease liability is subsequently measured at amortized cost using the effective interest method. Lease payments included in the measurement of the lease liability comprise: fixed payments; variable lease payments that depend on an index or a rate; amounts expected to be payable under any residual value guarantee; the exercise price under any purchase option that the Company would be reasonably certain to exercise; lease payments in any optional renewal period if the Company is reasonably certain to exercise an extension option; and penalties for any early termination of a lease unless the Company is reasonably certain not to terminate early. The Company has elected to not include non-lease components related to premises leases in the determination of the lease liability. The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of twelve months or less and leases of low-value assets. The lease payments associated with these leases are charged directly to income on a straight-line basis over the lease term.
The Company cannot readily determine the interest rate implicit in its lease, therefore, it uses its IBR to measure lease liabilities. The IBR is the rate of interest that the Company would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what the Company ‘would have to pay which requires estimation when no observable rates are available or when they need to be adjusted to reflect the terms and conditions of the lease. The Company estimates the IBR using observable inputs (such as market interest rates) when available and is required to make certain entity-specific estimates (such as the subsidiary’s stand-alone credit rating).
1 – presentation of financial statements: In January
On December 17, 2020, the Company acquired 100% of issued and outstanding shares of Marley Drug, a leading specialty pharmacy serving more than 30,000 customers across the United States for cash consideration of $7,781, of which $1,374 was held back and is recorded on the statement of financial position of the Company as restricted cash with an offsetting liability recorded as a holdback payable to be released in connection with the forgiveness of Marley Drug’s loan under the Paycheck Protection Program (“PPP”) from the United States Small Business Administration (“SBA”) and general representations and warranties one year after the acquisition date. An additional $504 was recorded as a holdback payable and will become payable once all state licenses have effectively been transferred to the Company, net of 90-day adjustments to true-up cash and working capital targets for the transaction.
Notes to the Consolidated Financial Statements (expressed in thousands of Canadian dollars, except per share amounts)
As well, the purchase agreement included contingent consideration of additional payments to the seller based on the achievement of certain future performance targets of Marley Drug. The first contingent consideration (“One Year Payment”) is based on a one-year revenue target up to USD$1.7 million based on Marley Drugs’ historical revenues. The second contingent consideration (“Earn Out Payments”) is based on certain revenue milestone targets over a two-year period within Marley Drug. The contingent consideration period commences on the successful transfer of all licenses, unless it is triggered early by the seller. The One-Year Payment has been recorded within current portion of contingent consideration on the statement of financial position with an estimated fair value of $1,922. The Earn Out Payments have been recorded within contingent consideration on the statement of financial position with an estimated fair value of $51. The fair value of the contingent consideration was estimated using probability weighted scenarios and a discount rate of 12%. Prior to the acquisition, Marley Drug had obtained a PPP loan from the United States SBA totaling $353 which remained a liability as of the acquisition date. The PPP loan has been fair valued at zero at the acquisition date as the amount was expected to be forgiven in full. Subsequent to December 31, 2020, the PPP loan was forgiven and the restricted cash and holdback payable of $353 was released to the seller in the transaction. The following table summarizes the finalized fair values of the identifiable assets and liabilities as at the date of the acquisition:
Notes to the Consolidated Financial Statements (expressed in thousands of Canadian dollars, except per share amounts)
Transaction costs relating to the Marley Drug acquisition were $421 and were included in general and administrative expenses for the year ended December 31, 2020. From the date of acquisition to December 31, 2020, Marley Drug contributed to the 2020 results $340 of revenue and $7 of net income before income taxes. If the acquisition had taken place as at January 1, 2020, revenue in 2020 would have increased by $9.8 million and net income before income taxes in 2020 would have increased by approximately $1.2 million after considering the amortization of the intangible assets acquired in the transaction.
As at December 31, 2020, there were three customers with amounts owing greater than 10% of the Company’s accounts receivable which totaled 95% in aggregate (Customer A – 38%, Customer B – 23%, Customer C – 34%). As at December 31,
Notes to the Consolidated Financial Statements (expressed in thousands of Canadian
7. Property and equipment
During the year ended December 31, During the year ended December 31,
Notes to the Consolidated Financial Statements (expressed in thousands of Canadian
8. Intangible assets
In September 2019 the Company acquired ownership of ZYPITAMAG® for the U.S. and Canadian markets. Under terms of the agreement, Zydus received an upfront payment of U.S. $5,000 (CDN $6,622) and U.S. $2,000 (CDN $2,649) in deferred payments to be paid in equal instalments annually over the next four years, as well as contingent payments on the achievement of milestones and royalties related to net sales. The Company previously had acquired U.S. marketing rights with a profit-sharing arrangement. With this acquisition the Company obtained full control of marketing and pricing negotiation for ZYPITAMAG®. Upon completion of the acquisition $8,930 was recorded within patents and drug approvals relating to the upfront and deferred payments and $1,457 was transferred from licenses to patents and drug approvals pertaining to the cost of the previously acquired license over ZYPITAMAG®. The fair value of the remaining deferred payments of $637 and $1,132 is recorded on the statement of financial position within current portion of acquisition payable and acquisition payable, respectively. The initial amortization period pertaining to the ZYPITAMAG® intangible assets was 4.3 years with the remaining amortization period being 3.1 years as at December 31,
Notes to the Consolidated Financial Statements (expressed in thousands of Canadian
8. Intangible assets (continued)
The Company As at December 31, The Company recorded a write-down of intangible assets related to the ReDSTM license during the year ended December 31, 2019 totaling $6,321 as a result of The Company did not record As at December 31, AGGRASTAT® were fully amortized. For the year ended December 31,
9. Investment in Sensible Medical On On completion of
agreement. The Company
The
Notes to the Consolidated Financial Statements (expressed in thousands of Canadian
On The exclusive marketing and distribution agreement with United States using its own sales force. The Company is
10. Royalty obligation On July 18, 2011, the Company settled its then existing long-term debt with Birmingham Associates Ltd. product. In accordance with the terms of the agreement, if the Company were to dispose of its AGGRASTAT® rights, the acquirer would be required to assume the obligations under the royalty agreement.
11. Leases Effective November 1, 2014, the Company entered into a sub-lease with Genesys Venture Inc. (“GVI”), a related party as described in note 17(b), to lease office space at a rate of $170 per annum for three years ending October 31, 2017, with an 18-month renewal period available. The lease was amended on May 1, 2016 and increased the leased area covered under the lease agreement at a rate of $212 per annum until October 31, 2019 with an 18-month renewal period available. The leased area covered under the lease was again increased, effective November 1, 2018 at a rate of $306 per annum until the end of the term of the lease. Effective November 1, 2019, the Company modified and extended its sub-lease with GVI to lease a reduced amount of office space at a rate of $238 per annum for three years ending October 31, 2022 with a 28-month renewal period available. The discount rate used by the Company in calculating the lease obligation relating to the ROU asset is five percent. In connection with the acquisition of Marley Drug, the Company acquired a lease obligation and corresponding right of use asset. The lease is for Marley Drug’s 3,280 square foot retail space. The original lease was signed in May of 2006 for a period of ten years with two, five-year extension periods. An addendum to the lease allowed for the first extension which was used starting April 1, 2017 with the second five-year extension available for an additional five years to April 2027. The current rate in the lease is $87 per annum. The discount rate used by the Company in calculating the lease obligation relating to the ROU asset is three percent.
Notes to the Consolidated Financial Statements (expressed in thousands of Canadian dollars, except per share amounts) Minimum payments under the leases at December 31, 2020 are as follows:
12. Government assistance During the year ended December 31,
13. Holdback receivable The Company had a holdback receivable of US$10 million, which originated on October 2, 2017 as a On February 13, 2019, the Company received notice from the Buyer in the Apicore Sales Transaction of potential claims against the holdback receivable in respect of representations and warranties under the Apicore Sales Transaction, with the maximum exposure of the claims being the total holdback receivable. The Company proceeded diligently to investigate the potential claims and attempt to satisfactorily resolve them with a view to having the holdback receivable released. The Buyer did not make the required payments on the holdback receivable in February 2019 and April 2019. In consideration of the uncertainty associated with the potential claims asserted by the Buyer, the Company reduced the carrying value of the holdback receivable by $1,473 on the consolidated On December 5, 2019, the Company reached a settlement agreement with the Buyer in the Apicore Sales Transaction with respect to the amounts heldback under the Apicore Sales Transaction. A settlement agreement was reached under which the Company received US$5,100 (CDN$6,719) in relation to the holdback receivable. In connection with this settlement the amounts owing to former President and Chief Executive Officer of Apicore totaling US$880 (CDN$1,165) which were recorded within other long-term liabilities were settled by the Buyer. Immediately prior to the settlement, the Company reduced the carrying value on the statement of financial position of the holdback receivable by $3,623 to the net
Notes to the Consolidated Financial Statements (expressed in thousands of Canadian dollars, except per share amounts) 14. Capital Stock
The Company has authorized share capital of an unlimited number of common voting shares, an unlimited number of
Shares issued and outstanding are as follows:
During the year ended December 31, 2020, the Company repurchased and cancelled 552,700 (2019 – 751,800), common shares as a result of the 2019 NCIB and 2020 NCIB. The aggregate price paid for these common shares totaled $522 (2019—$4,145). During the year ended December 31, 2020 the Company recorded $3,925 (2019—$1,810) directly in its deficit representing the difference between the aggregate price paid for these common shares and a
Notes to the (expressed in 14. Capital Stock (continued)
The Company has a stock option plan which is administered by the Board of Directors of the Company with stock options granted to directors, management, employees and consultants as a form of compensation. The number of common shares reserved for issuance of stock options is limited to a maximum of
Changes in the number of options outstanding during the year ended December 31,
Changes in the
Notes to the Consolidated Financial Statements (expressed in thousands of Canadian dollars, except per share amounts) 14. Capital Stock (continued)
Options outstanding at December 31,
Compensation expense related to stock options granted during the year or from previous periods under the stock option plan for the year ended December 31, The expected life of stock options is based on historical data and current expectations and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options is indicative of future trends, which may not necessarily be the actual outcome. The compensation expense for the years ended December 31, 2020, 2019 and 2018 was determined based on the fair value of the options at the date of measurement using the Black-Scholes option pricing
Notes to the Consolidated Financial Statements (expressed in thousands of Canadian dollars, except per share amounts) 14. Capital Stock (continued)
Changes in the number of warrants
The following table reflects the calculation of basic and diluted (loss) earnings per share for the years ended December 31, 2020, 2019 and 2018:
The following table reflects the (loss) income used in the basic and diluted (loss) earnings per share computations for the years ended December 31, 2020, 2019 and 2018:
The following table reflects the share data used in the denominator of the basic and diluted (loss) earnings per share computations for the years ended December 31, 2020, 2019 and 2018:
Effects of dilution from 1,326,958 stock options (2019 – 1,428,408, 2018 – 622,375) were excluded in the calculation of weighted average
Notes to the Consolidated Financial Statements (expressed in thousands of Canadian dollars, except per share amounts) 15. Income taxes The Company did not recognize any current income tax expense for the year ended December 31, 2020 (2019 – $123, 2018 – $219). As at December 31,
The reconciliation of the Canadian statutory rate to the income tax rate applied to the net (loss) income
The foreign tax rate differential is the difference between the Canadian federal and provincial statutory income tax rate and the tax rates in Barbados
Notes to the Consolidated Financial Statements (expressed in thousands of Canadian dollars, except per share amounts)
15. Income taxes (continued)
At December 31,
At December 31,
16. Finance income (expense) During the
During the
Notes to the Consolidated Financial Statements (expressed in thousands of Canadian dollars, except per share amounts) 17. Commitments and contingencies
As at December 31,
The
Contracts with contract research organizations are payable over the terms of the associated agreements and clinical trials and timing of payments is largely dependent on various milestones being met, such as the number of patients recruited, number of monitoring visits conducted, the completion of certain data management activities, trial completion, and other trial related activities. On October 31, 2017, the Company acquired an exclusive license to sell and market PREXXARTAN® (valsartan) oral solution in the United States and its territories with a seven-year term, with extensions to the term available, which had been granted tentative approval by the U.S. Food and Drug Administration (“FDA”), and which was converted to final approval during 2017. The Company acquired the exclusive license rights for an upfront payment of US$100, with an additional US$400 payable on final FDA approval and will be obligated to pay royalties and milestone payments from the net revenues of PREXXARTAN®. The US$400 payment is on hold pending resolution of the dispute between the licensor and the third-party manufacturer of PREXXARTAN®described in note 17(d) and is recorded within accounts payable and accrued liabilities on the consolidated statements of financial position. In December 2017, the Company acquired an exclusive license to sell and market a branded cardiovascular drug, ZYPITAMAG® (pitavastatin magnesium) in the United States and its territories for a term of seven years with extensions to the term available. The Company had entered into a profit-sharing arrangement resulting in a portion of the net profits from ZYPITAMAG® being paid to the licensor. No amounts are due and/or payable pertaining to profit sharing on this product and the profit-sharing arrangement was eliminated with the Company’s acquisition of ZYPITAMAG® in September 2019 as described in note 8.
The Company periodically enters into research agreements with third parties that include indemnification provisions customary in the industry. These guarantees generally require the Company to compensate the other party for certain damages and costs incurred as a result of claims arising from research and development activities undertaken on behalf of the Company. In some cases, the maximum potential amount of future payments that could be required under these indemnification provisions could be unlimited. These indemnification provisions generally survive termination of the underlying agreement. The nature of the indemnification obligations prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay. Historically, the Company has not made any indemnification payments under such agreements and no amount has been accrued in the
Notes to the Consolidated Financial Statements (expressed in thousands of Canadian dollars, except per share amounts) 17. Commitments and contingencies (continued)
As a part of the Birmingham debt settlement described in note Beginning with the acquisition of ZYPITAMAG® (note 8), completed in September 2019, the Company is obligated to pay royalties on any commercial net sales of ZYPITAMAG® to Zydus subsequent to the acquisition date. During the year ended December 31, 2020. The Company is obligated to pay royalties
In the normal course of business, the Company may from time to time be subject to various claims or possible claims. Although management currently believes there are no claims or possible claims that if resolved would either individually or collectively result in a material adverse impact on the Company’s financial position, results of operations, or cash flows, these matters are inherently uncertain and management’s view of these matters may change in the future. During 2018, the Company was named in a civil claim in Florida from the third-party manufacturer of PREXXARTAN® against the licensor. The claim disputed the rights granted by the licensor to the Company with respect to PREXXARTAN®. The claim against the Company has since been withdrawn, however the dispute between the licensor and the third-party manufacturer continues. On September 10, 2015, the Company submitted a supplemental New Drug Application (“sNDA”) to the
Notes to the Consolidated Financial Statements (expressed in thousands of Canadian dollars, except per share amounts) 18. Related party transactions
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company. The Board of Directors, President and Chief Executive Officer and Chief Financial Officer are key management personnel for all periods. Beginning on July 1, 2019, the Company appointed a new President and Chief Operating Officer personnel beginning on January 8, 2018 until the dissolution of his employment on June 30, 2019. In addition to their salaries, the Company also provides non-cash benefits and participation in the Stock Option Plan. The following table details the compensation paid to key management personnel:
As at December 31,
Directors and key management personnel control During the year ended December 31,
Clinical research services are provided through a consulting agreement with GVI Clinical Development Solutions Inc. Research and development services are provided through a consulting agreement with CanAm Bioresearch Inc. These transactions As at December 31,
Notes to the Consolidated Financial Statements (expressed in thousands of Canadian dollars, except per share amounts)
Effective July 18, Effective January 1, 2018, the Company renewed its consulting agreement with its Chief Financial Officer, through JFK Enterprises Ltd., a company owned by the Chief Financial Officer of the Company, for a one-year term, at a rate of $155 annually. The agreement could have been terminated by either party, at any time, upon 30 days written notice. Any amounts payable to JFK Enterprises Ltd. were unsecured, payable on demand and non-interest bearing. Effective June 1, 2018, this consulting agreement was converted into an employment agreement with the Chief Financial Officer. 19. Expenses by nature Expenses incurred for the years ended December 31, 2020, 2019 and 2018 are as follows:
Notes to the Consolidated Financial Statements (expressed in thousands of Canadian
20. Financial instruments
Set out below is a comparison by class of the carrying amounts and fair value of the
The Company has determined the estimated fair values of its financial instruments based on appropriate valuation methodologies. The carrying values of current monetary assets and liabilities approximate their fair values due to their relatively short periods to maturity. The royalty obligation, and acquisition payable are carried at amortized cost. The investment in Sensible Medical is carried at FVOCI. During the year ended December 31, 2019, the Company recorded other comprehensive loss of $6,336 associated with the change in fair value of the one dollar. IFRS 13,Fair Value Measurement, establishes a fair value hierarchy that reflects the significance of the inputs used in measuring fair value. The fair value hierarchy has the following levels:
Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 – Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable;
Level 3
Notes to the Consolidated Financial Statements (expressed in thousands of Canadian dollars, except per share amounts) 20. Financial instruments (continued)
The fair value hierarchy of the following financial
The fair value hierarchy of the following financial
Royalty obligation: The royalty obligation requires determining expected revenue from Acquisition payable: The acquisition payable liability pertaining to the ZYPITAMAG® acquisition as described in note 9 requires determining an appropriate discount rate and making assumptions about it. If the discount rate used in calculating the fair value of this acquisition payable of 10% were to change by 1%, the acquisition payable recorded as at December 31, 2020 would change by approximately $15 (2019 - Contingent consideration: The contingent consideration pertaining to the Marley Drug acquisition as described in note 4 required determining expected revenue from Marley Drug and the probabilities surrounding those revenues as well as an appropriate discount rate. If the discount rate used in calculating the fair value of this contingent consideration of 12.00% were to change by 1%, the acquisition payable recorded as at December 31, 2020 would change by approximately $18 (2019 - nil).
Notes to the Consolidated Financial Statements (expressed in thousands of Canadian
20. Financial instruments (continued)
For assets and liabilities that are recognized in the consolidated financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by reassessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. During the
The
(a) Foreign exchange risk is the risk that the fair value of future cash flows for financial instruments will fluctuate because of changes in foreign exchange rates. The Company is exposed to currency risks primarily due to its U.S dollar denominated cash and cash equivalents, accounts receivable, other assets, accounts payable and accrued liabilities, income taxes payable, royalty obligation and The Company is exposed to U.S. dollar currency risk through the following U.S. denominated financial assets and liabilities:
Based on the above net exposures as at December 31,
The Company is also exposed to currency risk on the Euro, however management estimates such risk relating to an appreciation or deterioration of the Canadian dollar against the Euro would have limited impact on the operations of the Company.
Notes to the Consolidated Financial Statements (expressed in thousands of Canadian
20. Financial instruments (continued)
(b) Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates.
Credit risk is the risk of financial loss to the Company if a partner or counterparty to a financial instrument fails to meet its contractual obligation and arises principally from the Company’s cash and accounts receivable. The carrying amounts of the financial assets represents the maximum credit exposure. The Company limits its exposure to credit risk on cash by placing these financial instruments with high-credit quality financial institutions. The Company is subject to a concentration of credit risk related to its accounts receivable as 95% of the balance of amounts owing are
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. The Company manages its liquidity risk by continuously monitoring forecasted and actual cash flows, as well as anticipated investing and financing activities and to ensure The majority of the Company’s accounts payable and accrued liabilities are due within the current operating period.
The Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to continue the business of the Company. The Company, upon approval from its Board of Directors, will balance its overall capital structure through new share and warrant issuances, granting of stock options, the issuance of debt or by undertaking other activities as deemed appropriate under the specific circumstance. The Board of Directors does not establish a quantitative return on capital criteria for management, but rather relies on the expertise of the
The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern and to provide capital to pursue the development and commercialization of its products. In the management of capital, the Company includes cash, long-term debt, capital stock, stock options, warrants and contributed surplus. The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may attempt to issue new shares or new debt. At The Company’s overall strategy with respect to capital risk management remains unchanged for the year ended December 31,
Notes to the Consolidated Financial Statements (expressed in thousands of Canadian dollars, except per share amounts)
21. Determination of fair values A number of the
The fair value of intangible assets is based on the discounted cash flows expected to be derived from the use and eventual sale of the assets.
The
The fair value of the employee share options is measured using the Black-Scholes option pricing model. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility (based on weighted average
The royalty obligation is recorded at its fair value at the date at which the liability was incurred and subsequently measured at amortized cost using the effective interest rate method at each reporting date. Estimating fair value for this liability requires determining the most appropriate valuation model which is dependent on its underlying terms and conditions. This estimate also requires determining expected revenue from
The
Notes to the Consolidated Financial Statements (expressed in thousands of Canadian dollars, except per share amounts)
Contingent consideration is recorded at its fair value at the date at which the liability was incurred and subsequently measured at fair value at each reporting date. Estimating fair value for this liability requires determining the most appropriate valuation model which is dependent on its underlying terms and conditions. This estimate also requires determining expected revenue from Marley Drug and the probabilities surrounding those revenues as well as an appropriate discount rate. 22. Segmented information The Company Revenue generated from external customers for the years ended December 31, 2020, 2019 and 2018 was 100% from sales to customers in During the year ended December 31, During the year ended December 31, 2019, 100% of total revenue from the marketing and distribution of commercial products was generated from thirteen customers. Customer A accounted for 38%, Customer B accounted for 28%, Customer C accounted for 28% and the remaining ten customers accounted for approximately 6% of revenue. During the year ended December 31, 2018, 100% of total revenue from the marketing and distribution of commercial products was generated from eight customers. Customer A accounted for 33%,
Following the acquisition of Marley Drug, the financial measures reviewed by the Company’s chief operating decision maker are presented separately for the year ended December 31, 2020:
Notes:
SIGNATURE PAGE Pursuant to the requirements of Section 12 of theSecurities Exchange Act of 1934, the Company certifies 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.
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