united statesUNITED STATES

Securities and Exchange Commission

Washington, D.C. 20549

 

FORM 20-F

 

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

or

xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 20162019 

or

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

or

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

 

Commission file number: 001-31995

 

MEDICURE INC.

(Exact name of registrant as specified in its charter)

 

Canada

(Jurisdiction of incorporation or organization)

 

2 - 1250 Waverley Street, Winnipeg, Manitoba, Canada R3T 6C6

(Address of principal executive offices)

 

Dr. Albert D. Friesen, Tel: (204) 487-7412, Fax: (204) 488-9823

2 - 1250 Waverley Street, Winnipeg, Manitoba, Canada R3T 6C6

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:None

 

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

 

Common Shares, without par value

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:None

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

 

At December 31, 20162019 the registrant had 15,532,40810,804,013 common shares issued and outstanding

 

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

 

Yes ______¨Noþ     ✓     

 

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

 

Yes ______¨Noþ     ✓     

 

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

Yes     ✓     þNo ______No¨

 

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

 

Yes     ✓     ¨No¨ ______

 

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

 

Large Accelerated Filer ______Accelerated Filer ______Non-Accelerated Filer     ✓     
Emerging Growth Company _______

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards1provided pursuant to Section 13(a) of the Exchange act.Large Accelerated Filer ___

¨1The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.    Accelerated Filer  ¨     Non-Accelerated Filer  þ

 

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

 

US GAAP¨ ______International Financial ReportingOther¨ ______
 Standards as issued by the International 
 Accounting Standards Boardþ     ✓      

 

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

 

ii

Item 17 _______¨Item 18¨ _______

 

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

 

Yes ______¨Noþ     ✓     

iii

 

 

TABLE OF CONTENTS

 

GENERAL41
GLOSSARY OF TERMS4
1
FORWARD LOOKING STATEMENTS2
PART I5
PART I7
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS75
A. Directors and Senior Management75
B. Advisers75
C. Auditors7
5
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE7
5
ITEM 3. KEY INFORMATION75
A. Selected Financial Data75
B. Capitalization and Indebtedness109
C. Reasons for the Offer and Use of Proceeds119
D. Risk Factors11
9
ITEM 4. INFORMATION ON THE COMPANY2932
A. History and Development of the Company2932
B. Business Overview3136
C. Organizational Structure4255
D. Property, Plant and Equipment43
56
ITEM 4A. UNRESOLVED STAFF COMMENTS43
56
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS4356
A. Operating Results4962
B. Liquidity and Capital Resources5570
C. Research and Development, Patents and Licenses, Etc.5771
D. Trend Information6176
E. Off-balance Sheet Arrangements6177
F. Contractual Obligations6278
G. Safe Harbor66
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES6681
A. Directors and Senior Management6681
B. Compensation6984
C. Board Practices7086
D. Employees8198
E. Share Ownership81
99
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS83101
A. Major Shareholders83101
B. Related Party Transactions85102
C. Interests of Experts and Counsel88106
ITEM 8. FINANCIAL INFORMATION88106
A. Consolidated Statements or Other Financial Information88106
B. Significant Changes88108
ITEM 9. THE OFFERING AND LISTING89108
A. Listing Details89108
B. Plan of Distribution109
90C. Markets109
D. Selling Shareholders109
E. Dilution109

 

iv

 2

C. Markets90
D. Selling Shareholders90
E. Dilution90
F. Expenses of the Issue90110
ITEM 10. ADDITIONAL INFORMATION90110
A. Share Capital90110
B. Memorandum and Articles of Association90110
C. Material Contracts95114
D. Exchange Controls95115
E. Taxation95115
F. Dividends and Paying Agents103124
G. Statement by Experts103125
H. Documents on Display103125
I. Subsidiary Information103
125
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK103
125
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES104
125
PART II126
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES104
126
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS104
126
ITEM 15. CONTROLS AND PROCEDURES104
126
ITEM 16. RESERVED106
127
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT106
128
ITEM 16B. CODE OF ETHICS106
128
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES106
128
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES107
129
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS107
129
ITEM 16F. CHANGE IN REGISTRANT'SREGISTRANT’S CERTIFYING ACCOUNTANT107
131
ITEM 16G. CORPORATE GOVERNANCE107
132
ITEM 16H.MINE16H. MINE SAFETY DISCLOSURE107
132
PART III107
132
ITEM 17. FINANCIAL STATEMENTS107
132
ITEM 18. FINANCIAL STATEMENTS107
132
ITEM 19. EXHIBITS162179

 

3

v

 

GENERAL

 

As used in this Annual Report, the “Corporation” or “Company” refers to “Medicure Inc.”, the company resulting from the amalgamation of Medicure Inc. and Lariat Capital Inc., and “Medicure” refers to “Medicure Inc.” prior to its amalgamation with Lariat Capital Inc. on December 22, 1999 pursuant toa Canadian public company existing under theCanada Business Corporations Act (Alberta).

 

The Company uses the Canadian dollar as its reporting currency. Unless otherwise indicated, all references to dollar amounts in this Annual Report are to Canadian dollars.As of December 31, 2016,2019, the rate for Canadian dollars was US $1.00 for CND $1.3427.$1.2988. See also Item 3 –Key Information for more detailed currency and conversion information.

 

Except as noted, the information set forth in this Annual Report is as of April 25, 201715, 2020 and all information included in this document should only be considered correct as of such date.

 

GLOSSARY OF TERMS

 

The following words and phrases shall have the meanings set forth below:

 

2014 Apicore Transaction” means the transaction occurring on July 3, 2014, whereby the Company acquired a minority interest in Apicore.

 

2016 Apicore Transaction” means the transaction occurring on December 1, 2016, whereby the Company acquired a majority interest in Apicore.

 

2017 Apicore Transaction” means the transaction occurring on July 12, 2017 whereby the Company acquired additional interests in Apicore.

“angioplasty”means a surgical procedure to repair a damaged blood vessel or unblock an artery;

 

aNDAANDA” means abbreviated new drug application, which is submitted to the FDA;

 

“Apicore”means any one or more ofApicore LLC, Apicore US LLC, Apicore Inc., Apigen Investments Limited, and Apicore Pharmaceuticals PVT Ltd., including any of their affiliates and subsidiaries, and if the context requires, the pharmaceutical manufacturing business carried on by this group of companies;

 

Apicore Sale Transaction” means the transaction occurring on October 2, 2017, whereby the Company sold its interests in the Apicore business.

DEA” means the United States Drug Enforcement Administration;

DMF” means drug master file, which is submitted to the FDA;

 

“FDA”means the United States Food and Drug Administration;

 

GPIs” means glycoprotein GP IIb/IIIa inhibitors, which are injectable platelet inhibitors used to treat

acute coronary syndromes and related conditions and procedures;

 

“myocardial infarction” means destruction of heart tissue resulting from obstruction of the blood supply to the heart muscle;

 

NDA” means new drug application, which is submitted to the FDA;

1  

ReDS“meansthe ReDS™ point of care system;

sNDA” means supplemental new drug application, which is submitted to the FDA;

 

SNP” meansSodium Nitroprusside Injection;

STEMI” means ST Segment Elevation Myocardial Infarction, a type of heart attack

 

TSX-V”TSXV”means the TSX Venture Exchange.

 

4

FORWARD LOOKING STATEMENTS

 

Medicure Inc. cautions readers that certain important factors (including without limitation those set forth in this Form 20-F) may affect the Company’s actual results in the future and could cause such results to differ materially from any forward-looking statements that may be deemed to have been made in this Form 20-F annual report, or that are otherwise made by or on behalf of the Company. This Annual Report contains forward-looking statements and information which may not be based on historical fact, which may be identified by the words “believes,” “may,” “plan,” “will,” “estimate,” “continue,” “anticipates,” “intends,” “expects,” and similar expressions and the negative of such expressions. Such forward-looking statements include, without limitation, statements regarding:

 

The Company’s expectations in regards to the extent and impact of COVID 19 including the timing surrounding these impacts;

(a)the Company’s intention to sell and market its acute care cardiovascular drug, AGGRASTAT® (tirofiban hydrochloride)AGGRASTAT®, in the United States and its territories through the Company'sits U.S. subsidiary, Medicure Pharma Inc.;

 

(b)the Company’s intention to sell and market its cardiovascular drug, ZYPITAMAGTM, in the United States and its territories through its U.S. subsidiary, Medicure Pharma Inc.;

the Company’s intention to sell and market the ReDSPRO system in the United States and its territories through its U.S. subsidiary, Medicure Pharma Inc.;

the Company’s intention to sell and market its cardiovascular drug, SNP, in the United States and its territories through its U.S. subsidiary, Medicure Pharma Inc.;

the Company’s intention to develop and implement clinical, regulatory and other plans to generate an increase in the value of AGGRASTAT®AGGRASTAT®;

 

(c)the Company’s intention to expand or otherwise improve the approved indications and/or dosing information contained within AGGRASTAT®AGGRASTAT®’s approved prescribing information;

 

(d)the Company’s intention to increase sales of AGGRASTAT®AGGRASTAT®;

 

(e)the Company’s intention to increase sales of ZYPITAMAGTM;

the Company’s intention to increase sales of theReDS™;

the Company’s intention to increase sales of the Company’s generic version of SNP;

the Company’s intention to launch PREXXARTAN®(valsartan) oral solution (“PREXXARTAN®”), which is currently on hold pending resolution of the dispute between Carmel Biosciences Inc. (“Carmel”) and the third-party manufacturer of PREXXARTAN®;

2  

the Company’s intention to develop pyridoxal 5 phosphate (“P5P”) or TARDOXALTM(pyridoxal 5 phosphate), formerly MC-1, for neurological disorders;disorders or other applications;

 

(f)intention to investigate and advance certain other product opportunities;
the Company’s intention to investigate and advance certain other product opportunities;

 

(g)intention to develop and commercialize additional cardiovascular generic drug products;
the Company’s intention to develop and commercialize additional cardiovascular generic drug products;

 

(h)intention to obtain regulatory approval for the Company's products;
the Company’s intention and ability to obtain regulatory approval for its products and potential products;

 

(i)expectations with respect to the cost of the testing and commercialization of the Company's products;
the Company’s expectations with respect to the cost of the testing and commercialization of its products and potential products;

 

(j)sales and marketing strategy;
the Company’s sales and marketing strategy;

 

(k)anticipated sources of revenue;
the Company’s anticipated sources of revenue;

 

(l)intentions regarding the protection of the Company's intellectual property;
the Company’s intentions regarding the protection of its intellectual property;

 

(m)intention to identify, negotiate and complete business development transactions (eg. the sale, purchase, or license of pharmaceutical products or services);
the Company’s intention to identify, negotiate and complete business development transactions (e.g. the sale, purchase, or license of pharmaceutical products or services);

 

(n)intentions with respect to the growth of Apicore, and/or deriving any material benefits from the Company’s ownership of Apicore;
the Company’s business strategy; and

 

(o)expectations with respect to acquiring additional ownership of Apicore;

(p)business strategy; and

(q)intention with respect to dividends.
the Company’s expectation that it will not pay dividends in the foreseeable future.

 

Such forward-looking statements and information involve a number of assumptions as well as known and unknown risks, uncertainties and other factors that may cause the actual results, events or developments to be materially different from any future results, events or developments expressed or implied by such forward-looking statements and information including, without limitation:

 

(a)general business and economic conditions;
general business and economic conditions;

 

5
the extent and impact of the COVID 19 outbreak on our business including any impact on our customers, contract manufacturers and other third-party service providers;

the impact of changes in Canadian-U.S. dollar and other foreign exchange rates on the Company’s revenues, costs and results;

the timing of the receipt of regulatory and governmental approvals for the Company’s research and development projects;

the availability of financing for the Company’s commercial operations and/or research and development projects, or the availability of financing on reasonable terms;

results of current and future clinical trials;

the uncertainties associated with the acceptance and demand for new products;

clinical trials not being unreasonably delayed and expenses not increasing substantially;

government regulation not imposing requirements that significantly increase expenses or that delay or impede the Company’s ability to bring new products to market;

the Company’s ability to attract and retain skilled management and staff;

3  

 

the Company’s ability, amid circumstances and decisions that are out of the Company’s control, to maintain adequate supply of product for commercial sale;

 

(b)the impact of changes in Canadian-US dollar and other foreign exchange rates on the Company's revenues, costs and results;

inaccuracies and deficiencies in the scientific understanding of the interaction and effects of pharmaceutical treatments when administered to humans;

 

(c)the timing of the receipt of regulatory and governmental approvals for the Company's research and development projects;
market competition;

 

(d)the ability of the Company to continue as a going concern;
tax benefits and tax rates; and

 

(e)the availability of financing for the Company's commercial operations and/or research and development projects, or the availability of financing on reasonable terms;

(f)results of current and future clinical trials;

(g)the uncertainties associated with the acceptance and demand for new products;

(h)clinical trials not being unreasonably delayed and expenses not increasing substantially;

(i)government regulation not imposing requirements that significantly increase expenses or that delay or impede the Company's ability to bring new products to market;

(j)the Company's ability to attract and retain skilled management and staff;

(k)the Company’s ability, amid circumstances and decisions that are out of the Company’s control, to maintain adequate supply of product for commercial sale;

(l)inaccuracies and deficiencies in the scientific understanding of the interaction and effects of pharmaceutical treatments when administered to humans;

(m)market competition;

(n)the ability of Apicore to successfully operate its business plan;

(o)the ability of the Company and Apicore to increase the value of Apicore;

(p)tax benefits and tax rates; and

(q)the Company's ongoing relations with its employees and with its business partners.
the Company’s ongoing relations with its employees and with its business partners.

 

These factors should be considered carefully and readers are cautioned not to place undue reliance on such forward-looking statements and information. The Company disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements and information contained herein to reflect future results, events or developments, except as otherwise required by applicable law. Additional risks and uncertainties relating to the Company and its business can be found in the “Risk Factors” section of this Annual Report.

 

6

4  

 

PART I

 

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

A. Directors and Senior Management

 

Not applicable

 

B. Advisers

 

Not applicable

 

C. Auditors

 

Not applicable

 

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

 

Not applicable

 

ITEM 3. KEY INFORMATION

 

A. Selected Financial Data

 

The selected financial data of the Company as at December 31, 2016, 20152019 and 2014, and May 31, 20142018, and for the fiscal years ended December 31, 2016, 2015, seven months ended December 31, 2014,2019, 2018 and year ended May 31, 20142017, was extracted from the audited consolidated financial statements of the Company included in this Annual Report on Form 20-F. The information contained in the selected financial data is qualified in its entirety by reference to the more detailed consolidated financial statements and related notes included in Item 18 -Financial Statements, and should be read in conjunction with such financial statements and with the information appearing in Item 5 -Operating and Financial Review and Prospects. The selected financial data of the Company as at MayDecember 31, 20132017 and 2016 and 2015 and for the fiscal year ended MayDecember 31, 20132016 and 2015 was extracted from the audited financial statements of the Company not included in this Annual Report.

 

The information provided in the audited consolidated financial statements included in this Annual Report on Form 20-F is prepared in accordance with International Financial Reporting Standards (IFRS)issued by the International Accounting Standards Board (IASB).5  

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.

On November 1, 2012, the Company completed a consolidation of its outstanding share capital on the basis of one post-consolidation share for every fifteen pre-consolidation shares. All comparative figures have been adjusted retrospectively.

7

 

Under International Financial Reporting Standards (in Canadian dollars):

           
Statement of Financial Position Data December 31,
2019

 

 

December 31,

2018

 

 

December 31,

2017

 

 

December 31,

2016

 

 

December 31,

2015

 

(as at period end) 

 $  $  $  $  $ 
Current Assets  31,364,000   89,587,000   114,558,882   55,211,748   17,448,554 
Property and Equipment  1,282,000   316,000   221,622   10,300,639   230,162 
Intangible Assets  9,599,000   1,705,000   1,756,300   100,864,817   1,411,992 
Goodwill  -   -   -   47,485,572   - 
Other Assets  39,000   12,153,000   12,394,881   862,891   2,166,170 
Total Assets  42,284,000   103,761,000   128,931,685   214,725,667   21,256,878 
Current Liabilities  11,662,000   16,931,000   43,673,908   61,560,600   10,352,462 
Non-current Liabilities  3,680,000   3,236,000   4,548,617   114,881,163   6,442,865 
Total Liabilities  15,342,000   20,167,868   48,222,525   176,441,763   16,795,327 
Net Assets / (Deficiency)  26,942,000   83,594,000   80,709,160   36,193,904   4,461,551 
Capital Stock, Warrants and Contributed Surplus  95,341,000   132,464,000   134,579,798   133,476,698   128,304,590 
Accumulated Other Comprehensive Income  (5,751,000)  1,268,000   673,264   681,992   1,071,735 
Deficit  (62,648,000)  (50,138,000)  (54,543,902)  (97,964,786)  (124,947,427)
Non-controlling Interest  -   -   - �� 2,090,000   - 

Statement of Net (Loss) Income 

(for the fiscal year ended on) 

                    
Product Sales  20,173,000   29,109,000   27,133,000   29,304,800   22,083,128 
Loss on Settlement of Debt  -   -   -   -   (60,595)
Net (Loss) Income for the Period from continuing operations  (19,786,000)  3,926,000   11,497,000   3,624,323   1,668,429 
Net income for the Period from discontinued operations  -   -   31,924,000   23,358,318   - 
Comprehensive (Loss) Income for the Period  (26,805,000)  4,521,000   43,412,000   26,560,245   2,474,488 
(Loss) Income Per Share from continuing operations                    
Basic  (1.32)  0.25   0.74   0.24   0.12 
Diluted  (1.32)  0.24   0.63   0.21   0.11 
Income                    
Per Share from discontinued operations                    

 

Statement of
Financial Position
Data
 December 31,
2016
  December 31,
2015
  December 31,
2014
  May 31,
2014
Restated
  May 31,
2013
 
                

(as at period end)

  $   $   $   $   $ 
Current Assets  55,211,748   17,448,554   3,874,097   2,153,740   1,491,485 
Property and Equipment  10,300,639   230,162   33,161   20,681   22,235 
Intangible Assets  100,864,817   1,411,992   1,096,946   1,433,158   1,910,069 
Goodwill  47,485,572   -   -   -   - 
Other Assets  862,891   2,166,170   1,556,315   -   - 
Total Assets  214,725,667   21,256,878   6,560,519   3,607,579   3,423,789 
Current Liabilities  60,885,767   10,352,462   4,377,498   3,022,904   3,557,024 
Non-current Liabilities  113,125,633   6,442,865   6,094,037   6,461,629   4,193,446 
Total Liabilities  175,766,930   16,795,327   10,471,535   9,484,533   7,750,470 
Net Assets / (Deficiency)  39,192,127   4,461,551   (3,911,016)  (5,876,954)  (4,326,681)
Capital Stock, Warrants and Contributed Surplus  133,176,698   128,304,590   122,406,511   121,779,707   121,482,563 
Accumulated Other Comprehensive Income (Loss)  681,992   1,071,735   298,329   154,791   68,112 
Deficit  (97,289,953)  (124,947,427)  (126,615,856)  (127,811,452)  (125,877,356)
Non-controlling Interest  2,090,000   -   -   -   - 
Statement of Net Income (Loss) (for the fiscal year ended on)                    
Product Sales  37,778,471   22,083,128   5,264,395   5,050,761   2,602,700 
(Loss) Gain on Settlement of Debt  -   (60,595)  -   -   - 
Revaluation of long-term derivative  (20,560,440)  -   -   -   - 
Gain on step acquisition  (4,895,573)  -   -   -   - 
Net Income (Loss) for the Period  27,657,474   1,668,429   1,195,596   (1,934,096)  (2,574,304)
Comprehensive Income (Loss) for the Period  27,235,078   2,474,488   1,339,134   (1,647,417)  (2,609,001)
Income (Loss) Per Share                    
Basic  1.84   0.12   0.10   (0.16)  (0.21)
Diluted  1.60   0.11   0.09   (0.16)  (0.21)
Weighted-Average Number of Common Shares Outstanding                    
Basic  15,002,005   13,461,609   12,204,827   12,196,745   12,196,508 
Diluted  17,316,401   15,765,570   13,843,126   12,196,745   12,196,508 

8

6  

 

Basic  -   -   2.04   1.56   - 
Diluted  -   -   1.76   1.35   - 
(Loss) Income                    
Per Share                    
Basic  (1.32)  0.25   2.78   1.80   0.12 
Diluted  (1.32)  0.24   2.39   1.56   0.11 
Weighted-Average Number of Common Shares Outstanding – Continuing Operations                    
 Basic  14,998,540   15,791,396   15,636,853   15,002,005   13,461,609 
 Diluted  14,998,540   16,563,663   18,138,080   17,316,401   15,765,570 
Weighted-Average Number of Common Shares Outstanding – Discontinued Operations                    
 Basic  14,998,540   15,791,396   15,636,853   15,002,005   13,461,609 
 Diluted  14,998,540   16,563,663   18,138,080   17,316,401   15,765,570 
Weighted-Average Number of Common Shares Outstanding                    
 Basic  14,998,540   15,791,396   15,636,853   15,002,005   13,461,609 
 Diluted  14,998,540   16,563,663   18,138,080   17,316,401   15,765,570 

7  

 

Dividends

 

No cash dividends have been declared nor are any intended to be declared.declared in the foreseeable future. The Company is not subject to legal restrictions respecting the payment of dividends except that they may not be paid if the Company is, or would after the payment be, insolvent. Dividend policy will be based on the Company'sCompany’s cash resources and needs and it is anticipated that all available cash will be required to further the Company’s research and development activities for the foreseeable future.

Exchange Rates

 

Unless otherwise indicated, all reference to dollar amounts are to Canadian dollars. On April 25, 2017,14, 2020, the rate of exchange of the Canadian dollar, based on the daily noonexchange rate in Canada as published by the Bank of Canada, was US$1.00 = Canadian $1.3615$1.3904. The exchange rates published by the Bank of Canada and made available on its website,www.bankofcanada.ca, are nominal quotations — not buying or selling rates — and are intended for statistical or analytical purposes.

 

The following tables set out the exchange rates, based on the daily noon rates in Canada as published by the Bank of Canada for the conversion of Canadian Dollars into U.S. Dollars.Dollars, for the periods indicated:

 

 December 31,
2016
 December 31,
2015
 December 31,
2014
 May 31,
2014
 May 31,
2013
  

December 31,

2019

 

 

December 31,

2018

 

December 31,

2017

 

 

December 31,

2016

 

 

December 31,

2015

 

                     
Period End  1.3427   1.3840   1.1601   1.0842   1.0368   1.2988   1.3642   1.2545   1.3427   1.3840 
Average for the Period*  1.3248   1.2787   1.1083   1.0638   1.0043   1.3269   1.2957   1.2986   1.3248   1.2787 
High for the Period  1.4590   1.4004   1.1536   1.1279   1.0275   1.3600   1.3642   1.3743   1.4590   1.4004 
Low for the Period  1.2544   1.1680   1.0740   1.0137   0.9785   1.2988   1.2288   1.2128   1.2544   1.1680 

 

*The average rate for each period is the average of the daily closing rates on the last day of each month during the period.

 

Month High Low
March 2020   1.4496   1.3421 
February 2020   1.3429   1.3224 
January 2020   1.3233   1.2970 
December 2019   1.3302   1.2988 
November 2019   1.3307   1.3148 
October 2019   1.3330   1.3056 
September 2019   1.3343   1.3153 
August 2019   1.3325   1.3217 
July 2019   1.3182   1.3038 
June 2019   1.3527   1.3087 
May 2019   1.3527   1.3410 
April 2019   1.3493   1.3316 
March 2019   1.3438   1.3260 
February 2019   1.3298   1.3095 
January 2019   1.3600   1.3144 

9

8  

 

Monthly High and Low Exchange Rate (Canadian
Dollar per U.S. Dollar)
  High  Low 
April 2017  1.3425   1.3275 
March 2017  1.3513   1.3304 
February 2017  1.3249   1.3016 
January 2017  1.3434   1.3030 
December 2016  1.3556   1.3120 
November 2016  1.3581   1.3337 
October 2016  1.3403   1.3104 
September 2016  1.3249   1.2844 
August 2016  1.3180   1.2775 
July 2016  1.3226   1.2844 
June 2016  1.3091   1.2695 
May 2016  1.3135   1.2549 
April 2016  1.3170   1.2544 
March 2016  1.3468   1.2962 
February 2016  1.4039   1.3523 
January 2016  1.4590   1.3969 

B. Capitalization and Indebtedness

 

Not applicable

 

10

C. Reasons for the Offer and Use of Proceeds

 

Not applicable

 

D. Risk Factors

 

An investment in the Company'sCompany’s common shares is highly speculative and subject to a number of risks. Only those persons who can bear the risk of the entire loss of their investment should participate. An investor should carefully consider the risks described below and the other information that the Company furnishes to, or files with, the Securities and Exchange Commission and with Canadian securities regulators before investing in the Company'sCompany’s common shares. The risks described below are not the only ones faced by the Company. Additional risks that management is unaware of or that the Company currently believes are immaterial may indeed become important factors that affect the Company's business. If any of the following risks occur, or if others occur, the Company's business, operating results and financial condition could be seriously harmed and the investor may lose all of his or her investment. The trading price of the Company’s common shares could decline due to, or independent of, any of the negative results discussed herein.

 

Uncertainties and risks include, but are not limited to, the risk that the Company may face with respect to importing raw materials, increased competition, acquisitions, contract manufacturing arrangements, delays or failure in obtaining product approvals from the U.S. Food and Drug Administration ("FDA"),FDA, general business and economic conditions, market trends, product development, regulatory, and other approvals and marketing.

 

The following are significant factors known to us that could materially harm our business, financial position, or operating results or could cause our actual results to differ materially from our anticipated results or other expectations, including those expressed in any forward-looking statement made in this report. The risks described are not the only risks facing us. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, also may adversely affect our business, financial position, and operating results. If any of these risks actually occur, our business, financial position, and operating results could suffer significantly. As a result, the market price of our common stock could decline and investors could lose all or part of their investment.

 

Disease outbreaks may negatively impact the performance of the Company

A local, regional, national or international outbreak of a contagious disease, including the COVID 19 coronavirus, Middle East Respiratory Syndrome, Severe Acute Respiratory Syndrome, H1N1 influenza virus, avian flu or any other similar illness, could interrupt supplies and other services from third parties upon which the Company relies (including contract manufacturers, marketing and transportation and logistics providers), decrease demand for our products, decrease the general willingness of the general population to travel, cause staff shortages, reduced customer demand, and increased government regulation, all of which may materially and negatively impact the business, financial condition and results of operations of the Company. In particular, if the current outbreak of the COVID 19 coronavirus continues or increases in severity, the Company could experience difficulty in executing it strategic plans and the marketing, sales, production, logistics and distribution of its products could be severely disrupted. These events could materially and adversely affect the Company’s business and could have a material adverse effect on the Company’s liquidity and its financial results.

The fact that the Company onlycurrently derives a significant portionnearly all of its revenue from a single product, creates additionalAGGRASTAT®, exposes the Company to the risks inherent in the establishment and uncertaintiesmaintenance of a developing business enterprise, such as those related to shareholders.product acceptance, competition and viable operations management, and the long-term profitability of the Company remains uncertain.

 

Prior to the acquisition of AGGRASTAT®, during fiscal 2007,

9  

At December 31, 2019, the Company had no products in commercial production or use. As such, the Company was considered to be a development-stage enterpriseAGGRASTAT®, ZYPITAMAGTM, ReDSTM, and SNP available for accounting purposes prior to the acquisition. Althoughsale commercially, but 96% of the Company’s commercial operation has improved including the acquisitions completed through the 2016 Apicore Transaction, and the Company is working to further improve, profitability, the Company may incur losses and may never achieve sustained profitability, which in turn may harm its future operating performance and may cause the market pricerevenues were derived from AGGRASTAT®. The remainder of its stock to decline.

With the exception of AGGRASTAT®, the Company’s commercial products are in the development stage and accordingly, its business operations are subject to all of the risks inherent in the establishment and maintenance of a developing business enterprise, such as those related to product acceptance, competition and viable operations management.

 

The long-term profitability of the Company’s operations is uncertain, and any profitability may not be sustained. The Company’s long-term profitability will be directly related todepend in significant part on its ability to maintain or expand sales of AGGRASTAT®AGGRASTAT®, increase sales of ZYPITAMAGTM, ReDSTM, and SNP and to acquire and/or develop other commercially viable drug products. This in turn depends on numerous factors which remain uncertain, including the following:

 

(a)the success of the Company’s research and development activities;

(b)obtaining regulatory approvals to market any of its development products;

11

(c)the ability to contract for the manufacture of the Company’s products according to schedule and within budget, given the Company’s limited experience and lack of internal capabilities for manufacturing;

(d)the ability to develop, implement and maintain appropriate systems and structures to market and operate within applicable regulatory, industry and legal guidelines;

(e)the ability to identify, negotiate and complete business development transactions (eg.(e.g. the sale, purchase, or license of pharmaceutical products or services) with third parties;

(f)the ability to maintain current or higher pricing and margins for the Company’s products;

(g)deriving material value from the Company’s majority interest in Apicore;
(h)the ability to successfully prosecute and defend its patents and other intellectual property; and

(i)(h)the ability to successfully market the Company’s products, including AGGRASTAT®AGGRASTAT®, given that it has limited resources.

 

IfFurther, if the Company does achieve sustained profitability, it may not be able to increase profitability in the future.

 

The Company may be exposed to short-term liquidity risk.

To a certain extentThere is no assurance that the Company relies on trade credit, as well as cash from operations, term debt and equity issues to providewill be successful in growing the necessary short-term financing to conduct the Company’s research and development activities, to complete business development transactions as desired, and to maintain or expand its commercial operations as desired. Should suppliers and other creditors decline to extend short-term credit to the Companysales of ZYPITAMAGTM in the future, it mayUnited States and its territories, and its failure to do so could have a material adverse effect on the Company’s business prospects, financial results and financial condition.long-term profitability.

 

Under current indebtedness levelsOn September 30, 2019 the Company must meetannounced that through its debt repayment obligations. Additionally,subsidiary, Medicure International Inc., it has acquired the ownership of ZYPITAMAGTM from Zydus for U.S. and Canadian markets. Under terms of the agreement, Zydus will receive an upfront payment of U.S. $5.0 million and U.S. $2.0 million in deferred payments to be made over the next four years, as well as contingent payments on achievement of milestones and royalties related to net sales. With this acquisition Medicure obtained full control of marketing and pricing negotiations for the product.

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Previously, on December 14, 2017, the Company may still be ableacquired from Zydus, an exclusive license to incur substantially more debt. This could further exacerbatesell and market ZYPITAMAGTM (pitavastatin magnesium), a branded cardiovascular drug, in the risks associatedUnited States and its territories for a term of seven years with extensions to the term available. ZYPITAMAGTM is used for the treatment of patients with primary hyperlipidemia or mixed dyslipidemia and was approved in July 2017 by the FDA for sale and marketing in the United States. On May 1, 2018 ZYPITAMAGTM became commercially available in retail pharmacies throughout the United States. The Company’s product launch utilized its existing commercial infrastructure and while not an in-hospital product like AGGRASTAT®, ZYPITAMAGTM added to the Company’s substantial leverage.cardiovascular portfolio and expanded the Company’s reach to new patients. ZYPITAMAGTM contributed revenue of $183,000 to Company for the year ended December 31, 2019 and $652,000 of revenue to the Company during the year ended December 31, 2018. ZYPITAMAGTM is still in the early stages of its commercialization and the Company continues to work towards growing the ZYPITAMAGTM brand, usage of the product and revenues from ZYPITAMAGTM. The 2018 revenues were higher than those earned in 2019 due to the initial ordering by wholesaler customers of the product.

 

On July 18, 2011,ZYPITAMAG competes in a highly competitive class of products and to date, the rate of uptake of ZYPITAMAGTM has been slow resulting in low sales of ZYPITAMAGTM recorded for the year ended December 31, 2019. There is no assurance that the Company borrowed $5,000,000 fromwill be successful in growing the Governmentsales of Manitoba, underZYPITAMAGTM in 2020 and beyond as there is no assurance that a viable market for ZYPITAMAGTM will develop. The failure of the Manitoba Industrial Opportunities Program,Company to assist with settlinggrow sales of ZYPITAMAGTM, or to establish a viable market for the product, could have a material adverse effect on the Company’s long-term debt atprofitability.

There is no assurance that time. The loan bears interest annually at the crown corporation borrowing rate plus two percent. The loan was renegotiated effective August 1, 2013 to remain subject to interest-only monthly payments until August 1, 2015, at which time the monthly payments became blended as to principal and interest, and the maturity date of the loan was extended from July 1, 2016 to July 1, 2018. The loan is secured by the Company’s assets and guaranteed by the Chief Executive Officer of the Company will be successful in launching SNP and entities controlled bygrowing its revenues in the Chief Executive Officer. The Company must meetUnited States and its debt repayment obligationsterritories, and its failure to do so could causehave a material adverse effect on the lenderCompany’s long-term profitability.

On August 13, 2018, the Company announced that the FDA 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 realize upon its security interestreduce 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 has recently become available in the Company’s assets,United States with the initial sales from SNP being recorded subsequent to December 31, 2019 in January of 2020.

SNP was launched into a genericized market with several competitors already selling generic versions of the product and to call on the guarantee provided by the Chief Executive Officer and entities controlled by him. The Company has made all payments to date in relation to this indebtedness, however,as such there is no certaintyassurance that the Company will be ablesuccessful in growing its sales of SNP in 2020 and beyond. The failure of the Company to continue servicingsuccessfully launch and grow sales of SNP, or to establish a viable market for the debt.Company’s version of the product, could have a material adverse effect on the Company’s long-term profitability.

 

On November 17, 2016,There is no assurance that the Company will be successful in connection withmarketing ReDSTM and growing sales from the exercise ofproduct in the United States and its territories, and its failure to do so could have a material adverse effect on the Company’s acquisition of the controlling ownership in Apicore,long-term profitability.

On January 28, 2019, the Company receivedentered into an agreement with Sensible Medical Innovations Inc. (“Sensible”) to become the exclusive marketing partner for ReDS™ in the United States. ReDS™ is a term loan (the “Term Loan”) from Crown Capital Fund IV LP,non-invasive, FDA-cleared medical device that provides an investment fund managedaccurate, actionable and absolute measurement of lung fluid which is important in the management of congestive heart failure. ReDS™ was already being marketed to United States hospitals by Crown Capital Partners Inc. (“Crown”) (TSX: CRN), in which Crown holds a 40% interest for $60,000,000 of which $30,000,000 was syndicated toSensible and the Ontario Pension Board (“OPB”) a limited partner in Crown’s funds.Company has begun marketing ReDS™ immediately using its existing commercial organization. Under the terms of the loan agreement, with Crown,Medicure will receive a percentage of total U.S. sales revenue of the loan bears interest at a fixed rate of 9.5% per annum, compounded monthlydevice and payable on an interest only basis, maturing in 48 months, and is repayable in full upon maturity.The loan is secured by the Company’s assets including its ownership interests in Apicore. The Company must meet its debt repayment obligations and on-going financial covenants and failure to do so could causeminimum annual sales quotas.

11  

At the lender to realize upon its security interesttime of the signing of the marketing agreement, ReDSTMwas available commercially in the Company’s assets. The Company has made all payments to date in relation to this indebtedness,United States, however, there is no certaintyassurance that the Company will be ablesuccessful in its marketing efforts regarding ReDSTM and achieve significant sales growth in 2020 and beyond as planned, or at all. Further, there is no assurance that a viable market for ReDSTM will develop in 2020 and beyond. The failure of the Company to continue servicingsuccessfully market and grow sales of ReDSTM, or to establish a viable market for the debt.product, could have a material adverse effect on the Company’s long-term profitability.

 

12

Additionally, through the acquisition completed in the 2016 Apicore Transaction, theThe Company through Apicore, has an additional debt agreement withKnight Therapeutics Inc. The Knight Loan bears interestconsidered indicators of impairment as at 12% per annum, with interest paid quarterly at the end of each quarter with unpaid interest and principal due June 30, 2018. The Knight Loan is secured by a security interest in substantially all of the Apicore Inc’s, as well as the assets of another subsidiary acquired. The subsidiary is required to maintain certain financial covenants, based on results of the subsidiary, under the terms of the Knight Loan. Subsequent to December 31, 2016, on January 6, 2017,2019 and recorded a write-down of intangible assets related to the interest and principal remaining were paid in fullReDSTMlicense during the year ended December 31, 2019 totaling $6.3 million as a result of uncertainties with ReDSTM being experienced in regards to the Knight Loan.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. Additionally, a loss of $6.3 million was recorded within other comprehensive loss from the revaluation of the investment in Sensible made during the year ended December 31, 2019. Despite recording this impairment on the license over ReDSTM and the investment in Sensible Medical, the Company continues to marketReDS™ PRO and continues to work to safeguard or monetize the Company’s investment.

 

Finally, through the acquisition completed in the 2016 Apicore Transaction,The commercial launch and marketing of PREXXARTAN® (valsartan) oral solution has been placed on hold by the Company through Apicore, has an additional debt agreement with Dena Bank. The loan bears interest at LIBOR plus 4%, with equal monthly payments of principal and interest, maturing June 30, 2020. The loan is secured by land, building, and machinery of the Company, a pledge of 778,440 equity shares of Apicore LLC with a value each of $0.15 USD, and a guarantee by directors of Apicore.

Despite current indebtedness levels, the Company may still incur substantial additional indebtednessnot commercially launch the product.

On October 31, 2017, the Company announced that it had acquired an exclusive license to sell and market PREXXARTAN®, which treats hypertension, in the future.U.S. and its territories from Carmel for a seven-year term with extensions to the term available. Medicure acquired the license rights for an upfront payment of U.S.$100,000, with an additional U.S.$400,000 payable on final FDA approval. Carmel would also be entitled to receive royalties and milestone payments from the net revenues of PREXXARTAN®. PREXXARTAN® had been granted tentative approval by the FDA and the tentative approval was converted to final approval on December 19, 2017.

 

As announced on March 19, 2018 and up-dated on March 28, 2018, all PREXXARTAN®related activities were placed on hold by the Company pending the resolution of a dispute that Medicure became aware of between the owner of the New Drug Application (“NDA”), Carmel and the third-party manufacturer of the product. The Company was also named in a civil claim in Florida between the third-party manufacturer and Carmel. The claim disputed the rights granted to Medicure by Carmel in regards to PREXXARTAN®. More recently the claim against the Company has been withdrawn, however the dispute between Carmel and the third-party manufacturer continues.

Medicure had intended to launch PREXXARTAN® during the first half of 2018 and to date, only an up-front payment of U.S.$100,000, has been made to Carmel in regards to PREXXARTAN®and the Company has reserved all of its rights under the license agreement with Carmel for PREXXARTAN®.

As a result of the uncertainty surrounding the marketing rights for PREXXARTAN®, marketing activities remain on hold in regards to the product. There can be no assurances that the Company launches the product commercially in 2020 or future years. Further, there is no assurance that the Company will be successful in its launching PREXXARTAN® and achieve sales results as planned, or at all. Further, there is no assurance that a viable market for PREXXARTAN® will develop if the marketing efforts begin.

The Company may never receive regulatory approval in Canada, the United States, Canada or abroad for any of its products in development. Therefore, the Company may not be able to sell any therapeutic products currently under development.

 

12  

The Company’s failure to maintain or obtain necessary regulatory approvals to fully market its current and future development stage products in one or more significant markets may adversely affect its business, financial condition and results of operations. The process involved in obtaining regulatory approval from the competent authorities to market therapeutic products is long and costly and may delay product development. The approval to market a product may be applicable to a limited extent only or it may be refused entirely.

 

Excluding Apicore’s product suite, with the exception of AGGRASTAT®, all ofWhile the Company’s approved product portfolio has grown during 2019 to AGGRASTAT®, ZYPITAMAGTM, PREXXARTAN®, which is currently on hold, ReDSTMand SNP, the Company still has products that are currently in the research and development stages. The Company may never havedevelop another commercially viable drug product approved for marketing. To obtain regulatory approvals for its products and to achieve commercial success, human clinical trials must demonstrate that the productsnew chemical entities are safe for human use and that they show efficacy.efficacy, and generic drug products under development need to show analytical equivalence and /or bioequivalence to the referenced product on the market. Unsatisfactory results obtained from a particular study or clinical trial relating to one or more of the Company’s products may cause the Company to reduce or abandon its commitment to that program.

 

If the Company fails to successfully complete its clinical trials,development projects, it will not obtain approval from the U.S. Food and Drug Administration (“FDA”)FDA and other international regulatory agencies, to market its leadingthese products. Regulatory approvals also may be subject to conditions that could limit the market its products can be sold in or make either products more difficult or expensive to sell than anticipated. Also, regulatory approvals may be revoked at any time for various reasons, including for failure to comply with regulatory requirements or poor performance of its products in terms of safety and effectiveness.

The Company’s business, financial condition and results of operations are likely to be adversely affected if it fails to maintain or obtain regulatory approvals in Canada, the United States, Canada and abroad to market and sell its current or future drug products, including any limitations imposed on the marketing of such products.

 

13

If the Company fails to acquire and develop additional product candidates or approved products, it will impair the Company’s ability to grow its business and to increase value for shareholders.

 

TheFor the year ended December 31, 2019, the Company generatesgenerated its commercial product revenue only from AGGRASTAT®.AGGRASTAT®, ZYPITAMAGTMand ReDSTM with initial revenue from SNP being earned beginning in 2020. A component of the Company’s plan to generate additional revenue is its intention to develop and/or to acquire or license, and then develop and/or market, additional product candidates or approved products. The success of this growth strategy depends upon the Company’s ability to identify, select and then to develop, acquire or license pharmaceutical products that meet the criteria it has established. Due to the fact the Company has limited financial capacity, significant indebtedness, and limited value in its equity, relative to other companies in the industry, it has a limited number of product opportunities to choose from. Moreover, the Company’s ability to research and develop its own, or other acquired/licensed products, is limited by the extent of its internal scientific research capabilities. In addition, proposing, negotiating and implementing an economically viable acquisition or license is a lengthy and complex process. Other companies, including those with substantially greater financial, marketing and sales resources, may compete with the Company for the acquisition or license of product candidates and approved products. The Company may not be able to acquire or license the rights to additional product candidates and approved products on terms that it finds acceptable, or at all. Moreover, the Company may not have the human, technical, financial, manufacturing and/or clinical resources to successfully develop additional products.

 

13  

The Company may not receive regulatory approval in the United States to further expand or otherwise improve the approved indications and/or dosing information contained within AGGRASTAT®AGGRASTAT®’s prescribing information. Therefore, the Company may not be able to continue to materially increase the sales of AGGRASTAT®AGGRASTAT®.

 

In fiscal 2014 the Company was able to obtain revisions to AGGRASTAT®AGGRASTAT®’s prescribing information and these revisions have had a positive, material impact on sales of AGGRASTAT®AGGRASTAT®. The Company believes that further revisions to AGGRASTAT®AGGRASTAT®’s prescribing information will put the Company in a better position to maximize the revenue potential for AGGRASTAT®AGGRASTAT®. To make such changes, 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 the proposed indications and dosing regimens. The Company’s failure to obtain additional regulatory approvals from the FDA to expand or otherwise improve the approved indications and/or dosing information contained within AGGRASTAT®AGGRASTAT®’s prescribing information may adversely affect the Company’s ability to materially increase sales. The process involved in obtaining such regulatory approval is long and costly and may require additional investments that may not be reasonably achievable by the Company. The regulatory authorities have substantial discretion in the approval process and may refuse to accept any application. Varying interpretations of the data obtained from pre-clinical and clinical testing could delay, limit or prevent regulatory approval of a new indication for a product. Furthermore, the approval to modify the prescribing information may be applicable to a limited extent only or it may be refused entirely.

 

The current approved prescribing information for AGGRASTAT®AGGRASTAT® does not include all of the dosing information and therapeutic indications for which a physician may wish to use the product. Although health care professionals may utilize a product at doses and for indications outside of the approved prescribing information, the Company is prohibited from promoting such uses.

 

To obtain regulatory approvals to modify the prescribing information, the Company must supply sufficient information supporting the safety and efficacy of such uses to the FDA, which in turn must review and deem this information to be sufficient to modify the label in the agreed upon fashion. Unsatisfactory or insufficient results obtained from any particular study or clinical trial relating to the Company’s products may cause the Company to reduce or abandon its efforts to expand or otherwise improve the approved indications and/or dosing information contained within AGGRASTAT®AGGRASTAT®’s prescribing information.

 

If the Company does not comply with federal, state and foreign laws and regulations relating to the health care business, it could face substantial penalties.

 

The Company and its customers are subject to extensive regulation by the United States federal government, and the governments of the states in which the business is conducted. In the United States, the laws that directly or indirectly affect the Company’s ability to operate its business include the following:

 

·the Federal Anti-Kickback Law, which prohibits persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce either the referral of an individual or furnishing or arranging for a good or service for which payment may be made under federal health care programs such as Medicare and Medicaid;
·other Medicare laws and regulations that prescribe the requirements for coverage and payment for services performed by the Company’s customers, including the amount of such payment;
the Federal Anti-Kickback Law, which prohibits persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce either the referral of an individual or furnishing or arranging for a good or service for which payment may be made under federal health care programs such as Medicare and Medicaid;

other Medicare laws and regulations that prescribe the requirements for coverage and payment for services performed by the Company’s customers, including the amount of such payment;

the Federal False Claims Act, which imposes civil and criminal liability on individuals and entities who submit, or cause to be submitted, false or fraudulent claims for payment to the government;

 

14

14  

 

the Federal False Statements Act, which prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with delivery of or payment for health care benefits, items or services; and

various state laws that impose similar requirements and liability with respect to state healthcare reimbursement and other programs.

 

·the Federal False Claims Act, which imposes civil and criminal liability on individuals and entities who submit, or cause to be submitted, false or fraudulent claims for payment to the government;
·the Federal False Statements Act, which prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with delivery of or payment for health care benefits, items or services; and
·various state laws that impose similar requirements and liability with respect to state healthcare reimbursement and other programs.

If the Company’s operations are found to be in violation of any of the laws and regulations described above or any other law or governmental regulation to which the Company or its customers are or will be subject, the Company may be subject to civil and criminal penalties, damages, fines, exclusion from the Medicare and Medicaid programs and the curtailment or restructuring of its operations. Similarly, if the Company’s customers are found to be non-compliant with applicable laws, they may be subject to sanctions, which could also have a negative impact on the Company. Any penalties, damages, fines, curtailment or restructuring of the Company’s operations would adversely affect its ability to operate its business and financial results. Any action against the Company for violation of these laws, even if the Company is able to successfully defend against it, could cause it to incur significant legal expenses, divert management’s attention from the operation of the business and damage the Company’s reputation.

 

Due to the fact that a material amount of the use of AGGRASTAT®AGGRASTAT® is outside of the FDA approved indications contained within AGGRASTAT®AGGRASTAT®’s prescribing information, the Company may be at a greater risk than would be the case if the product was almost exclusively used within the approved prescribing information.

 

AGGRASTAST® competesAGGRASTAT®must compete with a variety of existing drugs, including generic versions of those existing drugs, and may in the future have to compete against otherwith new drugs, which may limit the use of AGGRASTAT®AGGRASTAT® and adversely affect the Company’s revenue.

 

Due to the incidence and severity of cardiovascular diseases, the market for anticoagulant and antiplatelet therapies is large and competition is intense. There are a number of anticoagulant and antiplatelet drugs recently approved, currently on the market, awaiting regulatory approval or in development. AGGRASTAT® competesAGGRASTAT® must compete with orthese drugs, and may compete with in the future thesehave to compete with new drugs, to the extent AGGRASTAT®that AGGRASTAT® and any of thesesuch drugs are approved for the same or similar indications.

 

AGGRASTAT® AGGRASTAT®competes primarily with other platelet inhibitors, in particular the other GP IIb/IIIa inhibitors, ReoPro® (abciximab) (sold by Eli Lilly and Company) and Integrilin® (eptifibatide) (branded(a branded drug sold by Merck & Co., Inc.), in addition to generic eptifibatide sold by other companies).companies. It also competes with a number of oral platelet inhibitors, which can be used alone or in conjunction with anticoagulants, most notably with heparin (sold generically by a number of companies), and with a recently approved injectable platelet inhibitor, Kengreal® (cangrelor) (sold by Chiesi Farmaceutics S.p.A. Inc.). In addition, some alternative methods of treatment, such as the use of Angiomax® (bivalirudin) (sold by The Medicines Company, Inc.), also compete with AGGRASTAT®AGGRASTAT®. These competitorscompeting products are all marketed by large pharmaceutical companies with significantly more resources and experience than the Company.

 

There still remains a material amount ofmany hospitals in the United States where AGGRASTAT®AGGRASTAT® is not available on the hospital formulary, and it can be very difficult and time consuming to have AGGRASTAT®AGGRASTAT® added to formulary for use by health care professionals. In many cases, competing treatment approaches may have FDA approval for dosing regimens and/or therapeutic indications that are outside of AGGRASTAT®AGGRASTAT®’s approved prescribing information. The risk of bleeding associated with AGGRASTAT® AGGRASTAT®may cause physicians to choose an alternative therapy. In some circumstances, AGGRASTAT® competes with other drugs for the use of hospital financial resources. Although AGGRASTAT®AGGRASTAT® is positioned as a relatively low costlow-cost therapy, in certain circumstances other treatment approaches are lower cost and may for this reason be preferred by health care professionals - in particular where oral antiplatelet agents are deemed suitable.

 

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ZYPITAMAGTMcompetes with a variety of existing drugs and may compete against other new drugs, which may limit the use of ZYPITAMAGTMand potentially affect the Company’s revenue.

Due to the incidence and severity of cardiovascular diseases, the market for antihyperlipidemics is large and competition is intense. There are a number of approved antihyperlipidemic drugs approved, currently on the market, awaiting regulatory approval or in development. ZYPITAMAGTM will compete with these drugs to the extent ZYPITAMAGTM and any of these drugs are approved for the same or similar indications.

Although ZYPITAMAGTM is positioned as a relatively low-cost therapy, in certain circumstances, other treatment approaches are lower cost and may for this reason be preferred by health care professionals.

 

The availabilitydevelopment of generic treatment options may affectdecrease or eliminate the cost advantage of AGGRASTAT® relative tothat AGGRASTAT® currently enjoys, which could negatively impact the generic products.Company’s sales.

 

AGGRASTAT® AGGRASTAT®is a branded pharmaceutical product for which there is currently no generic alternative available in the Company’s market. AGGRASTAT®AGGRASTAT®’s reduced cost relative to other products iswas one of the advantages being used by the Company to promote and increase sales of AGGRASTAT®AGGRASTAT®. Distributors of generic products typically price products significantly below the branded alternative, and these distributors are always seeking to introduce these generic alternatives of pharmaceuticals. There is a risk that new generic products will be introduced that compete with AGGRASTAT®AGGRASTAT® and that their low pricing would reduce AGGRASTAT®AGGRASTAT®’s relative cost advantage, and therefore negatively impact the maintenance and growth of sales by the Company. As at December 31, 2016, three2019, there are generic versions of a competing product, eptifibatide, that are commercially available and are now competing directly against AGGRASTAT®AGGRASTAT®. Additional generic competitors are expected to enter the market in the months and years ahead, and it is anticipated that these will result in further reductions to the price of eptifibatide.

 

Moreover, due to the recentpreviously seen growth in sales of AGGRASTAT®AGGRASTAT®, there is increased probability that generic companies will attempt to enter the U.S. market before the last AGGRASTAT®AGGRASTAT® patent expires. If this occurs, the Company will have to defend its patent position and market exclusivity for AGGRASTAT®AGGRASTAT® against larger, better funded and more experienced generic companies. The entry of a generic version of AGGRASTAT®AGGRASTAT® into the market would have a major negative effect on both the volume and profitability of the Company’s AGGRASTAT®AGGRASTAT® sales.

 

Further to this, as announced 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 U.S. Patent No. 6,770,660 (“the‘660 patent”).

The patent infringement action was 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. The ‘660 patent is listed in FDA’s Orange Book for AGGRASTAT®. Medicure vigorously defend the ‘660 patent and pursued the patent infringement action against Gland and all other legal options available to protect its patent rights.

On August 21, 2019 the Company announced that its subsidiary, Medicure International Inc., settled its ongoing patent infringement action against Gland. As part of the settlement, Gland has acknowledged that the ‘660 patent is valid, enforceable and infringed. The settlement resulted in the Company entering into a license agreement with Gland with an anticipated launch date for Gland’s generic product of March 1, 2023. The remaining terms of the settlement are confidential.

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Additionally, the Company announced it had filed a patent infringement action against Nexus Pharmaceuticals, Inc. (“Nexus”) in the U.S. District Court for the Northern District of Illinois, alleging infringement of the ‘660 patent.

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® (tirofiban hydrochloride) injection before the expiration of the ‘660 patent. Medicure will vigorously defend the ‘660 patent and will pursue the patent infringement action against Nexus and all other legal options available to protect its product.

The Company may not be able to hire or retain the qualified scientific, technical and management personnel it requires.

 

The Company’s business prospects and operations depend on the continued contributions of certain of the Company’s executive officers and other key management and technical personnel, certain of whom would be difficult to replace.

 

The Company’s subsidiary, Medicure International, Inc., contracts with third parties to perform a significant amount of its research and development activities. Because of the specialized scientific nature of the Company’s business, the loss of services of any one or more of these parties may require the Company to attract and retain replacement qualified scientific, technical and management personnel. Competition in the biotechnology industry for such personnel is intense and the Company may not be able to hire or retain a sufficient number of qualified personnel, which may compromise the viability, pace and success of its research and development activities.

 

Also, certain of the Company’s management personnel are officers and/or directors of other companies and organizations, some publicly-traded, and will only devote part of their time to the Company. Although the Company has key person insurance for Dr. Albert Friesen, Chief Executive Officer, the Company does not have key person insurance in effect in the event of a loss of any other management, scientific or other key personnel. The loss of the services of one or more of the Company’s current executive officers or key personnel or the inability to continue to attract qualified personnel could have a material adverse effect on the Company’s business prospects, financial results and financial condition.

 

The Company faces substantial technological competition from many biotechnology and pharmaceutical companies with much greater resources, and it may not be able to effectively compete.

 

Technological and scientific competition in the pharmaceutical and biotechnology industry is intense. The Company competes with other companies in Canada, the United States and abroad to develop products designed to treat similar conditions. Most of these other companies have substantially greater financial, technical and scientific research and development resources, manufacturing and production and sales and marketing capabilities than the Company. Smaller companies may also prove to be significant competitors, whether acting independently or through collaborative arrangements with large pharmaceutical and biotechnology companies. Developments by other companies may adversely affect the competitiveness of the Company’s products or technologies or the commitment of its research and marketing collaborators to its programs or even render its products obsolete.

 

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The pharmaceutical and biotechnology industry is characterized by extensive drug discovery and drug research efforts and rapid technological and scientific change. Competition can be expected to increase as technological advances are made and commercial applications for biopharmaceutical products increase. The Company’s competitors may use different technologies or approaches to develop products similar to the products which it is developing, or may develop new or enhanced products or processes that may be more effective, less expensive, safer or more readily available before or after the Company obtains approval of its products. The Company may not be able to successfully compete with its competitors or their products and, if it is unable to do so, the Company’s business, financial condition and results of operations may suffer.

 

The Company may be unable to establish collaborative and commercial relationships with third parties.parties, in which case the Company’s business, financial position and operating results could be materially adversely affected.

 

The Company’s success may depend to some extent on its ability to enter into and to maintain various arrangements with corporate partners, licensors, licensees and others for the research, development, clinical trials, manufacturing, marketing, sales and commercialization of its products. These relationships are crucial to the Company’s intention to license to or contract with other pharmaceutical companies for the manufacturing, marketing, sales and/or distribution of any its current or future products. There can be no assurance that any licensing or other agreements will be established on favourable terms, if at all. The failure to establish successful collaborative arrangements may negatively impact the Company’s ability to develop and commercialize its products, and may adversely affect its business, financial condition and results of operations.

 

The Company is currently dependent on third party manufacturersparties for the commercial manufacturingproduction of AGGRASTAT®.AGGRASTAT®, and the loss of or other disruption to such third-party relationships could have a material adverse effect on the Company’s business, financial position and operating results.

 

During fiscal 2012, theThe Company’s subsidiary, Medicure International, Inc., acquiredhas a significant quantity of thesupply contract for raw materialmaterials (active pharmaceutical ingredient) used in the manufacture of AGGRASTAT®AGGRASTAT®and terminated its supply contract with its sole supplier of the raw material for AGGRASTAT®. In addition, Medicure International, Inc. sold drug substance from inventory on hand to a third party. Also during fiscal 2012, Medicure International engaged and initiated work with a contract manufacturing organization to establish a new source of the raw material for AGGRASTAT®. In 2016, this contract manufacturing organizationmanufacturer which was approved by the FDA as the new, approved source of the raw material for AGGRASTAT®AGGRASTAT®.

The Company’s subsidiary, Medicure Pharma, Inc., has both vial and bag manufacturers of final product that are approved by the FDA.

If either the supply of raw material or the final product manufacturing agreement for AGGRASTAT® is terminated or interrupted, or if, in the event of termination, the Company and its subsidiaries are unable to find a replacement raw material supplier or manufacturer, or obtain regulatory approval for commercial use of product made by a new raw material supplier or a new finished product manufacturer, the Company’s business, financial position and operating results could be materially adversely affected. It is also important to note that the establishment of new manufacturing sources of pharmaceutical raw materials or finished products takes a prolonged period of time.

The Company is currently dependent on a third-party manufacturer for the supply of ZYPITAMAGTM, and the loss or other disruption to the supply arrangement could have a material adverse effect on the Company’s business, financial position and operating results.

The Company’s subsidiary, Medicure Pharma, Inc., has entered into a supply arrangement with a third-party manufacturer of ZYPITAMAGTMwhich will expire on September 19, 2029.

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If the supply arrangement is interrupted, or if the Company and Medicure Pharma, Inc. are unable to renew or replace the supply arrangement, or if the Company and Medicure Pharma, Inc. are unable to obtain regulatory approval for commercial use of product made by a new supplier, the Company’s business, financial position and operating results could be materially adversely affected. It is also important to note that the establishment of new manufacturing sources of pharmaceutical raw materials or finished products takes a prolonged period of time.

The Company is currently dependent on third parties for the production of SNP, and the loss of or other disruption to such third-party relationships could have a material adverse effect on the Company’s business, financial position and operating results.

The Company’s subsidiary, Medicure International, Inc., has a supply contract for raw materials (active pharmaceutical ingredient) used in the manufacture of SNP with a contract manufacturer which was approved by the FDA as the approved source of the raw material for SNP.

 

The Company’s subsidiary, Medicure Pharma, Inc., has a third-party manufacturer of the final product AGGRASTAT®and that supply arrangement will expire on October 31, 2017. The Company has transitioned to a newcontracted manufacturer of final product and FDA approval for commercial sale was obtained during 2016.that is approved by the FDA.

 

If either the supply of raw material or the final product manufacturing agreement for AGGRASTAT®SNP is terminated or interrupted, or if, in the event of termination, the Company and its subsidiaries are unable to establish newfind a replacement raw material supplier or maintain existing third party manufacturers,manufacturer, or to obtain regulatory approval for commercial use of product made by thea new raw material manufacturersupplier or thea new finished product manufacturer, or if the inventories of AGGRASTAT® currently held are contaminated, exhausted due to stock-out, or otherwise lost, and the Company is unable to obtain a replacement supplier or manufacturer, it could have a material adverse effect on the Company’s business, prospects, financial position and operating results and financial condition.could be materially adversely affected. It is also important to note that the establishment of new manufacturing sources of pharmaceutical raw materialmaterials or finished productproducts takes a prolonged period of time.

 

The Company acquired a majority interestReDSTMwill be manufactured by Sensible, the Company’s partner in Apicore, under the 2016 Apicore Transaction closed on December 1, 2016, which may never bring material benefitregards to the Company.

The businesstechnology and as a result the Company is dependent on their manufacturing for the supply of Apicore is that of a manufacturer of pharmaceutical raw material (active pharmaceutical ingredients)ReDSTM devices and the development of aNDA’s. Although it is part of the same, overall pharmaceutical industry in which the Company, priorloss or other disruption to the 2016 Apicore Transaction was engaged in, Apicore’s specific sector and field of business faces its own unique set of risks and uncertainties, which include, but are not limited to, an intensely competitive environment, strict and changing government and FDA regulationsthis supply could have a material adverse effect on drug manufacturers, litigation risks associated with the manufacture of drugs for human use, high fixed costs of operations, and many of the other risks outlined in more detail herein.

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Pharmaceutical product quality standards are steadily increasing and all products, including those already approved, may need to meet current standards. If the Company’s products are not able to meet these standards, its aNDA partners may be required to discontinue marketing and/or recall such products from the market.

Steadily increasing quality standards are applicable to pharmaceutical products still under development and those already approved and on the market. These standards result from product quality initiatives implemented by the FDA, such as criteria for residual solvents, and updated U.S. Pharmacopeial Convention (“USP”) Reference Standards. The USP is a scientific nonprofit organization that sets standards for the identity, strength, quality, and purity of medicines, food ingredients, and dietary supplements manufactured, distributed, and consumed worldwide. Pharmaceutical products approved prior to the implementation of new quality standards, including those produced by the Company, may not meet these standards, which could require the Company or its aNDA partners to discontinue marketing and/or recall such products from the market, either of which could adversely affect the Company’s business, financial position and operating results.

 

The Company’s subsidiary, Medicure Pharma, Inc., has entered into a marketing agreement regarding the sale of ReDSTMin the United States.

If the supply of product is interrupted, or if the Company and Sensible, are unable to find replacement suppliers, the Company’s business, financial position and operating results could be materially adversely affected.

Loss of product inventory could have a material adverse effect on the Company’s financial results and financial condition.

If the Company’s existing inventories of AGGRASTAT® and/or ZYPITAMAGTM are contaminated, exhausted due to stock-out, or otherwise lost, the Company’s financial results and financial condition could be adversely affected, particularly if the third-party suppliers of raw materials or final product are unable to meet any additional demands that may be placed on them by the Company in its efforts to make up depleted inventory.

Consolidation and the formation of strategic partnerships among and between wholesale distributors, chain drug stores, and group purchasing organizations has resulted in a smaller number of companies, each controlling a larger share of pharmaceutical distribution channels.

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Drug wholesalers and retail pharmacy chains, which represent an essential part of the distribution chain for generic pharmaceutical products, have undergone, and are continuing to undergo, significant consolidation. This consolidation may result in declines in the Company’s sales volumes if a customer is consolidated into another company that purchases products from a competitor. In addition, the consolidation of drug wholesalers and retail pharmacy chains could result in these groups gaining additional purchasing leverage and consequently increasing the product pricing pressures facing the Company’s business and enabling those groups to charge the Company increased fees. Additionally, the emergence of large buying groups representing independent retail pharmacies and the prevalence and influence of managed care organizations and similar institutions potentially enable those groups to extract price discounts on the Company’s products. The result of these developments may have a material adverse effect on the Company’s business, financial position, and operating results.

 

The use of legal, regulatory, and legislative strategies by competitors, both branded and generic, including "authorized“authorized generics," citizen's” citizen’s petitions, and legislative proposals, may increase the costs to develop and market the Company’s generic products, could delay or prevent new product introductions, and could reduce significantly the Company’s profit potential. These factors could have a material adverse effect on the Company’s business, financial position, and operating results.

 

The Company’s competitors, both branded and generic, often pursue legal, regulatory, and/or legislative strategies to prevent or delay competition from generic alternatives to branded products. These strategies include, but are not limited to:

 

·entering into agreements whereby other generic companies will begin to market an authorized generic, a generic equivalent of a branded product, at the same time generic competition initially enters the market;
·launching a generic version of their own branded product at the same time generic competition initially enters the market;
·filing citizen petitions with the FDA or other regulatory bodies, including timing the filings so as to thwart generic competition by causing delays of generic product approvals;
entering into agreements whereby other generic companies will begin to market an authorized generic, a generic equivalent of a branded product, at the same time generic competition initially enters the market;

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launching a generic version of their own branded product at the same time generic competition initially enters the market;

·seeking to establish regulatory and legal obstacles that would make it more difficult to demonstrate bioequivalence or meet other approval requirements;
·initiating legislative and regulatory efforts to limit the substitution of generic versions of branded pharmaceuticals;
·filing suits for patent infringement that may delay regulatory approval of generic products;
·introducing "next-generation" products prior to the expiration of market exclusivity for the reference product, which often materially reduces the demand for the first generic product;
·obtaining extensions of market exclusivity by conducting clinical trials of branded drugs in pediatric populations or by other potential methods;
·persuading regulatory bodies to withdraw the approval of branded name drugs for which the patents are about to expire, thus allowing the branded company to obtain new patented products serving as substitutes for the products withdrawn; and
·seeking to obtain new patents on drugs for which patent protection is about to expire.
filing citizen petitions with the FDA or other regulatory bodies, including timing the filings so as to thwart generic competition by causing delays of generic product approvals;

seeking to establish regulatory and legal obstacles that would make it more difficult to demonstrate bioequivalence or meet other approval requirements;

initiating legislative and regulatory efforts to limit the substitution of generic versions of branded pharmaceuticals;

filing suits for patent infringement that may delay regulatory approval of generic products;

introducing “next-generation” products prior to the expiration of market exclusivity for the reference product, which often materially reduces the demand for the first generic product;

obtaining extensions of market exclusivity by conducting clinical trials of branded drugs in pediatric populations or by other potential methods;

persuading regulatory bodies to withdraw the approval of branded name drugs for which the patents are about to expire, thus allowing the branded company to obtain new patented products serving as substitutes for the products withdrawn; and

seeking to obtain new patents on drugs for which patent protection is about to expire.

 

If the Company cannot compete with such strategies, its business, financial position, and operating results could be adversely impacted.

 

The pharmaceutical industry is subject to regulation by various federal authorities, including the FDA and the DEA, and state governmental authorities. Failure to comply with applicable legal and regulatory requirements can lead to sanctions which could have a material adverse effect on the Company’s business, financial position and operating results.

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Federal and state statutes and regulations govern or influence the testing, manufacturing, packing, labeling, storing,storage, record keeping, safety, approval, advertising, promotion, sale, and distribution of the Company’s products. Noncompliance with applicable legal and regulatory requirements can havetrigger action by various federal authorities, including the FDA and the DEA, as well as state governmental authorities. This can lead to a broad range of consequences includingwhich could have a material adverse effect on the Company’s business, financial position and operating results. The potential sanctions include warning letters, fines, seizure of products, product recalls, total or partial suspension of production and distribution, refusal to approve NDAs/aNDAsANDAs or other applications or revocation of approvals previously granted, withdrawal of product from marketing, injunctions, withdrawal of licenses or registrations necessary to conduct business, disqualification from supply contracts with the government, civil penalties, debarment, and criminal prosecution.

 

Apicore relies on Contract Manufacturing Organizations for manufacture of the Drug Product.

All U.S. facilities where prescription drugs are manufactured, tested, packaged, stored, or distributed must comply with FDA current good manufacturing practices (“cGMPs”). All of the Company’s products are manufactured, tested, packaged, stored, and distributed in partnership with our aNDA marketing partners according to cGMP regulations. The FDA performs periodic audits to ensure that the facilities remain in compliance with all applicable regulations. If it finds violations of cGMP, the FDA could make its concerns public and could impose sanctions including, among others, fines, product recalls, total or partial suspension of production and/or distribution, suspension of the FDA's review of product applications, injunctions, and civil or criminal prosecution. If imposed, enforcement actions could have a material adverse effect on the Company’s business, financial position, and operating results. Under certain circumstances, the FDA also has the authority to revoke previously granted drug approvals. Although the Company has internal compliance programs in place that it believes are adequate, the FDA may conclude that these programs do not meet regulatory standards. If compliance is deemed deficient in any significant way, it could have a material adverse effect on the Company’s business.

The Company’s research, product development, and manufacturing activities involve the controlled use of hazardous materials, and it may incur significant costs in complying with numerous laws and regulations.

 

The Company is subject to laws and regulations enforced by the FDA and the DEA, and other regulatory statutes including the Occupational Safety and Health Act (“OSHA”OSHA), the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act, and other current and potential federal, state, local, and foreign laws and regulations governing the use, manufacture, storage, handling, and disposal of its products, materials used to develop and manufacture such products, and resulting waste products.

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The Company cannot completely eliminate the risk of contamination or injury, by accident or as the result of intentional acts, from these materials. In the event of an accident, the Company could be held liable for any damages that result, and any resulting liability could exceed its resources. The Company may also incur significant costs in complying with environmental laws and regulations in the future. The Company is also subject to laws generally applicable to businesses, including but not limited to, federal, state, and local regulations relating to wage and hour matters, employee classification, mandatory healthcare benefits, unlawful workplace discrimination, and whistle-blowing. Any actual or alleged failure to comply with any regulation applicable to our business or any whistle-blowing claim, even if without merit, could result in costly litigation, regulatory action or otherwise harm our business, financial position, and operating results.

 

Apicore own’s two manufacturing facilities (one in New Jersey,The Company relies on third parties to assist with its research and one in India) that manufactures itsdevelopment projects and clinical studies. If these third parties do not perform as required or expected, we may not be able to obtain regulatory approval for or commercialize the subject products. Production at either or both of these facilities could be interrupted, which could cause it to fail to deliver sufficient product to customers on a timely basis and have a material adverse effect on the Company’s business, financial position, and operating results.

Apicore’s manufacturing operations are based in two facilities. While these facilities are sufficient for its current needs, the facilities are highly specialized and any damage to or need for replacement of all or any significant function of its facilities could be very costly and time-consuming and could impair or prohibit production and shipping. A significant disruption at either of the facilities, even on a short-term basis, whether due to a labor strike, adverse quality or compliance observation, vandalism, natural disaster, storm or other environmental damage, or other events could impair Apicore’s ability to produce and ship products on a timely basis and, among other consequences, could subject us to “failure to supply” claims from its customers, as discussed below. Although the Company believe’s it carries commercially reasonable business interruption and liability insurance, it might suffer losses because of business interruptions that exceed the coverage available under its insurance policies or for which it does not have coverage. Any of these events could have a material adverse effect on the Company’s business, financial position, and operating results.

Virtually all Apicore’s contracts for the supply of products to its customers contain "failure to supply" clauses.

Under these clauses, if Apicore is unable to supply the requested quantity of product within a certain period after receipt of a customer's purchase order, the customer is entitled to procure a substitute product elsewhere and it must reimburse the customer for the difference between the contract price and the price the customer was forced to pay to procure the substitute product. This difference can be substantial because of the much higher spot price at which the customer must cover its requirements, and can be far in excess of the revenue that Apicore would otherwise have received on the sale of its own product. Therefore, Apicore’s ability to produce and ship a sufficient quantity of product on a consistent basis is critical. Failure to deliver products could have a material adverse effect on the Company’s business, financial position, and operating results.

 

The Company relies on third parties to assist with its clinical studies.

If these third parties do not perform as required or expected, or if they are not in compliance with FDA rules and regulations, our clinical studies may be extended, delayed or terminated, or may need to be repeated, and we may not be able to obtain regulatory approval for or commercialize the products being tested in such studies. Further, we may be required to audit or redo previously completed trials or recall already-approved commercial products.

 

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The Company may fail to obtain acceptable prices or appropriate reimbursement for its products and its ability to successfully commercialize its products may be impaired as a result.

 

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Government and insurance reimbursements for healthcare expenditures play an important role for all healthcare providers, including physicians, medical device companies, pharmaceutical companies, medical supply companies, and companies, such as the Company, that offer or plan to offer various products in the United States and other countries. The Company’s ability to earn sufficient returns on its products will depend in part on the extent to which reimbursement for the costs of such products, related therapies and related treatments will be available from government health administration authorities, private health coverage insurers, managed care organizations, and other organizations. In the United States, the Company’s ability to have its products and related treatments and therapies eligible for Medicare or private insurance reimbursement is and will remain an important factor in determining the ultimate success of its products. If, for any reason, Medicare or the insurance companies decline to provide reimbursement for the Company’s products and related treatments, the Company’s ability to commercialize its products would be adversely affected. There can be no assurance that the Company’s products and related treatments will be eligible for reimbursement.

 

There has been a trend toward declining government and private insurance expenditures for many healthcare items. Third-party payers are increasingly challenging the price of medical products and services.

 

If purchasers or users of the Company’s products and related treatments are not able to obtain appropriate reimbursement for the cost of using such products and related treatments, they may forgo or reduce such use. Even if the Company’s products and related treatments are approved for reimbursement by Medicare and private insurers, as is the case with AGGRASTAT®AGGRASTAT®, the amount of reimbursement may be reduced at times, or even eliminated. This would have a material adverse effect on the Company’s business, financial condition, and results of operations.

 

Significant uncertainty exists as to the reimbursement status of newly approved healthcare products, and there can be no assurance that adequate third-party coverage will be available for new products developed or acquired by the Company.

 

The Company does not have significant manufacturing experience and has limited marketing resources and may never be able to successfully manufacture or market certain of its products.

 

The Company has limited experience in commercial manufacturing and has limited resources for marketing or selling its products. The Company may never be able to successfully manufacture and market certain of its development products. If any other of its development products are approved for sale, the Company intends to contract with and rely on third parties to manufacture, and possibly also to market and sell its products. Accordingly, the quality, timing and commercial success of such products may be outside of the Company’s control. Failure of, or delays by, a third partythird-party manufacturer to comply with good manufacturing practices or similar quality control regulations or satisfy regulatory inspections may have a material adverse effect on the Company and its products. Failure of, or delays by, a third party in the marketing or selling of the Company’s products or failure of the Company to successfully market and sell such products likewise may have a material adverse effect on the Company and its products.

 

The Company has limited product liability insurance and may not be able to obtain adequate product liability insurance in the future.

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The sale and use of the Company’s commercial and development products, and the conduct of clinical studies involving human subjects, entails product and professional liability risks that are inherent in the testing, production, marketing and sale of pharmaceuticals to humans. While the Company has taken, and intends to continue to take, what it believes are appropriate precautions, there can be no assurance that it will avoid significant liability exposure. Although the Company currently carries product liability insurance, there can be no assurance that it has sufficient coverage, or can in the future obtain sufficient coverage at a reasonable cost. An inability to obtain insurance on economically feasible terms or to otherwise protect against potential product liability claims could inhibit or prevent the commercialization of products developed by the Company. The obligation to pay any product liability claim or recall for a product may have a material adverse effect on its business, financial condition and future prospects. In addition, even if a product liability claim is not successful, adverse publicity and the time and expense of defending such a claim may significantly impact the Company’s business.

 

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If the Company is unable to successfully protect its intellectual proprietary rights, its competitive position will be adversely affected.

 

The patent positions of pharmaceutical companies are generally uncertain and involve complex legal, scientific and factual issues. The Company’s success depends significantly on its ability to:

 

a)obtain and maintain U.S. and foreign patents, including defending those patents against adverse claims;

b)secure patent term extensions for the patents covering its approved products;

c)protect trade secrets;

d)operate without infringing the proprietary rights of others; and

e)prevent others from infringing its proprietary rights.

 

The Company’s success will depend to a significant degree on its ability to obtain and protect its patents and protect its proprietary rights in unpatented trade secrets.

 

The Company owns or jointly owns numerous patents from the United States Patent Office and other jurisdictions. The Company has additional pending United States patent applications along with applications pending in other jurisdictions. The Company’s pending and any future patent applications may not be accepted by the United States Patent and Trademark Office or any other jurisdiction in which applications may be filed. Also, processes or products that may be developed by the Company in the future may not be patentable. Errors or ill-advised decisions by Company staff and/or contracted patent agents may also affect the Company’s ability to obtain or maintain valid patent protection.

 

The patent protection afforded to biotechnology and pharmaceutical companies is uncertain and involves many complex legal, scientific and factual questions. There is no clear law or policy involving the degree of protection afforded under patents. As a result, the scope of patents issued to the Company may not successfully prevent third parties from developing similar or competitive products. Competitors may develop similar or competitive products that do not conflict with the Company’s patents. Litigation may be commenced by the Company to prevent infringement of its patents. Litigation may also commence against the Company to challenge its patents that, if successful, may result in the narrowing or invalidating of such patents. It is not possible to predict how any patent litigation will affect the Company’s efforts to develop, manufacture or market its products. However, the cost of litigation to prevent infringement or uphold the validity of any patents issued to the Company may be significant, in which case its business, financial condition and results of operations may suffer. Patents provide protection for only a limited period of time, and much of such time can occur well before commercialization commences.

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The U.S. Congress is considering patent reform legislation. In addition, the U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. This combination of events has created uncertainty with respect to the value of patents, once obtained, and the Company’s ability to obtain patents in the future. Depending on decisions by the U.S. Congress, the federal courts, and the United States Patent and Trademark Office, the laws and regulations governing patents could change in unpredictable ways that would weaken the Company’s ability to obtain new patents or to enforce its existing patents and patents that it might obtain in the future.

 

Disclosure and use of the Company’s proprietary rights in unpatented trade secrets not otherwise protected by patents are generally controlled by written agreements. However, such agreements will not provide the Company with adequate protection if they are not honoured, others independently develop an equivalent technology, disputes arise concerning the ownership of intellectual property, or its trade secrets are disclosed improperly. To the extent that consultants or other research collaborators use intellectual property owned by others in their work with the Company, disputes may also arise as to the rights to related or resulting know-how or inventions.

 

22

Others could claim that the Company infringes on their proprietary rights, which may result in costly, complex and time consumingtime-consuming litigation.

 

The Company’s success will depend partly on its ability to operate without infringing upon the patents and other proprietary rights of third parties. The Company is not currently aware that any of its products or processes infringes the proprietary rights of third parties. However, despite its best efforts, the Company may be sued for infringing on the patent or other proprietary rights of third parties at any time in the future.

 

Such litigation, with or without merit, is time-consuming and costly and may significantly impact the Company’s financial condition and results of operations, even if it prevails. If the Company does not prevail, it may be required to stop the infringing activity or enter into a royalty or licensing agreement, in addition to any damages it may have to pay. The Company may not be able to obtain such a license or the terms of the royalty or license may be burdensome for it, which may significantly impair the Company’s ability to market its products and adversely affect its business, financial condition and results of operations.

 

The Company is subject to stringent governmental regulation, in the future may become subject to additional regulations and if it is unable to comply, its business may be materially harmed.

 

Pharmaceutical companies operate in a high-risk regulatory environment. The FDA and other national health agencies can be very slow to approve a product and can also withhold product approvals. In addition, these health agencies also oversee many other aspects of the Company’s operations, such as research and development, manufacturing, and testing and safety regulation of products. As a result, regulatory risk is normally higher than in other industry sectors.

 

The Company is or may become subject to various federal, provincial, state and local laws, regulations and recommendations. The Company and third parties providing manufacturing, research and/or development services to the Company is subject to various laws and regulations, relating to product emissions, use and disposal of hazardous or toxic chemicals or potentially hazardous substances, infectious disease agents and other materials, and laboratory and manufacturing practices used in connection with the activities. If the Company, or its contracted third party, fails to comply with these regulations, the Company may be fined or suffer other consequences that could materially affect the Company’s business, financial condition or results of operations.

 

24  

The pharmaceutical sales and marketing industry within which the Company operates is a complex legal and regulatory environment. The failure to comply with applicable laws, rules and regulations may result in civil and criminal legal proceedings. As those rules and regulations change or as governmental interpretation of those rules and regulations evolve, prior conduct may be called into question. The Company may become subject of federal and/or state governmental investigations into pricing, marketing, and reimbursement of its prescription drug product. Any such investigation could result in related restitution or civil litigation on behalf of the federal or state governments, as well as related proceedings initiated against the Company by or on behalf of consumers and private payers. Such proceedings may result in trebling of damages awarded or fines in respect of each violation of law. Criminal proceedings may also be initiated against the Company. Any of these consequences could materially and adversely affect the Company’s financial results.

 

The Company is unable to predict the extent of future government regulations or industry standards,standards; however, it should be assumed that government regulations or standards will increase in the future. New regulations or standards may result in increased costs, including costs for obtaining permits, delays or fines resulting from loss of permits or failure to comply with regulations.

 

23

The Company’s products may not gain market acceptance, and as a result it may be unable to generate significant revenues.

 

Excluding Apicore’s suite ofAs at December 31, 2019, the Company has several products and except with respect to AGGRASTAT®, none of the Company’s productsin development which do not have the required manufacturing approvals or capabilities, clinical data and regulatory approvals necessary to be marketed in any jurisdiction; future clinical or preclinical results may be negative or insufficient to allow the Company to successfully market any of its products under development; and obtaining needed data and results may take longer than planned, and may not be obtained at all.

 

Even if the Company’s products under development are approved for sale, they may not be successful in the marketplace. Market acceptance of any of the Company’s products will depend on a number of factors, includingincluding: demonstration of clinical effectiveness and safety; the potential advantages of its products over alternative treatments; the availability of acceptable pricing and adequate third-party reimbursement; and the effectiveness of marketing and distribution methods for the products. Providers, payors or patients may not accept the Company’s products, even if they prove to be safe and effective and are approved for marketing by the FDA and other national regulatory authorities. The Company anticipates that itsCompany’s initial development product, will not be soldSNP, became commercially available during 2017.the third quarter of 2019 in the United States with initial sales beginning in early 2020. If the Company’s products do not gain market acceptance among physicians, patients, and others in the medical community, its ability to generate significant revenues from its products would be limited.

 

The Company may not achieve its projected development and commercial goals in the time frames it announces and expects.

 

25  

The Company sets goals for and may from time to time make public statements regarding timing of the accomplishment of objectives related to AGGRASTAT®AGGRASTAT®, ApicoreZYPITAMAGTM ReDSTM, SNP and/or its products under development, that are material to the Company’s success, such as the commencement and completion of clinical trials, anticipated regulatory approval dates, and timing of product launches. The actual timing of these events can vary dramatically due to factors such as delays or failures in the Company’s clinical trials, the uncertainties inherent in the regulatory approval process, and delays in achieving product development, manufacturing or marketing milestones. There can be no assurance that the Company’s clinical trials will be completed, that it will make regulatory submissions or receive regulatory approvals as planned, or that it will be able to adhere to its current schedule for the scale-up of manufacturing and launch of any of its products. If the Company fails to achieve one or more of these milestones as planned, that could materially affect its business, financial condition or results of operations.

 

The Company’s business involves the use of hazardous material, which requires it to comply with environmental regulations.

 

The Company’s research and development processes and commercial activities may involve the controlled storage, use, and disposal of hazardous materials and hazardous biological materials. The Company and the third-party service providers conducting manufacturing, research and development for the Company, are subject to laws and regulations governing the use, manufacture, storage, handling, and disposal of such materials and certain waste products. Although the Company believes that its safety procedures for handling and disposing of such materials comply with the standards prescribed by such laws and regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an accident, the Company could be held liable for any damages that result, and any such liability could exceed its resources. There can be no assurance that the Company will not be required to incur significant costs to comply with current or future environmental laws and regulations, or that its business, financial condition, and results of operations will not be materially or adversely affected by current or future environmental laws or regulations.

 

The Company’s insurance may not provide adequate coverage with respect to environmental matters.

 

Environmental regulations could have a material adverse effect on the results of the Company’s operations and its financial position.

 

The Company is subject to a broad range of environmental regulations imposed by federal, state, provincial, and local governmental authorities. Such environmental regulation relates to, among other things, the handling and storage of hazardous materials, the disposal of waste, and the discharge of contaminants into the environment. Although the Company believes that it is in material compliance with applicable environmental regulation, as a result of the potential existence of unknown environmental issues and frequent changes to environmental regulation and the interpretation and enforcement thereof, there can be no assurance that compliance with environmental regulation or obligations imposed thereunder will not have a material adverse effect on the Company in the future.

 

24

The Company operates in an industry that is more susceptible to legal proceedings. The Company may become involved in litigation.

26  

 

The Company operates in an industry consisting of firms that are more susceptible to legal proceedings than firms in other industries. This susceptibility is due to several factors, including but not limited to, the fact that the Company’s shares and those of its competitors are publicly traded, and the uncertainty and complex regulatory environment involved in the development and sale of pharmaceuticals. The Company intends to vigorously defend such actions if and when they arise. Defense and prosecution of legal claims can be expensive and time consuming, may adversely affect the Company regardless of the outcome due to the diversion of financial, management and other resources away from the Company’s primary operations, and could impact the Company’s ability to continue as a going concern in the longer term. In addition, a negative judgment against the Company, even if the Company is planning to appeal such a decision, or even a settlement in a case, could negatively affect the cash reserves of the Company, and could have a material negative effect on the development and sale of its products.

 

Indemnification obligations to the Company’s directors and senior management may adversely affect its financial condition.

 

The Company has entered into agreements pursuant to which it will indemnify the directors and senior management in respect of certain claims made against them while acting in their capacity as such. If the Company is called upon to perform its indemnity obligations, the Company’s financial condition will be adversely affected. The Company is not currently aware of any matters pending or under consideration that may result in indemnification payments to any of its present or former directors or senior management.

 

The Company is exposed to foreign exchange movements since the majorityall of its sales are denominated in U.S. currency.

 

The majority of the Company’s sales revenues and a substantial portion of its selling, general and administrative expenses are denominated in U.S. dollars. The Company does not utilize derivatives, such as foreign currency forward contracts and futures contracts, to manage its exposure to currency risk and as a result a change in the value of the Canadian dollar against the U.S. dollar could have a negative impact on the Company’s business prospects, financial results and financial condition. In the future, the Company may begin to utilize foreign exchange rate mitigation and management strategies, however any such efforts, if they are not based on accurate predictions of future fluctuations in foreign exchange rates, may actually have a negative impact on the Company.

 

The Company may need to raise additional capital through the sale of its securities, resulting in dilution to its existing shareholders. Such funds may not be available, or may not be available on reasonable terms, adversely affecting the Company’s operations.

 

The Company has limited financial resources and has historically financed much of its operations through the sale of securities, primarily common shares. The Company has significant on-going cash expenses and limited ability to generate cash from operations. To meet its on-goingfuture cash needs or product acquisition requirements the Company may need to rely on the taking on of additional debt and/or the sale of such securities for future financing, resulting in dilution to its existing shareholders. The Company’s long-term capital requirements may be significant and will depend on many factors, including revenue and revenue growth, continued scientific progress in its product discovery and development program, revenue, progress in the maintenance and expansion of its sales and marketing capabilities, progress in its pre-clinical and clinical evaluation of products and product candidates, time and expense associated with filing, prosecuting and enforcing its patent claims and costs associated with obtaining regulatory approvals. In order to meet such capital requirements, the Company will consider contract fees, collaborative research and development arrangements, debt financing, public financing or additional private financing (including the issuance of additional equity securities) to fund all or a part of particular programs.

The Company’s business, financial condition and results of operations will depend on its ability to obtain additional financing which may not be available under favourable terms, if at all. The Company’s ability to arrange such financing in the future will depend in part upon the prevailing capital market conditions as well as its business performance. Where additional financing is available, the Company may be required to obtain approval from the Company’s shareholders. Such approval may not be provided.

25

For the sake of clarity, any decision to conduct a major transaction, such as the possible acquisition of additional ownership interests in Apicore or the possible acquisition of one or more commercial pharmaceutical products, is likely to necessitate the raising of additional capital through the sale of its securities (resulting in dilution to its existing shareholders) and/or through additional loans. Such funds may not be available, or may not be available on reasonable terms, adversely affecting the Company’s operations. The need to raise capital may also adversely affect the Company subsequent to such a transaction or it may prevent the Company from completing such a transaction.

The Company is exposed to risks given its significant dependence on revenue from the sale of its sole commercial product, AGGRASTAT®AGGRASTAT®.

 

27  

The Company has limited financial resources and is largely dependent upon revenue from the sale of its sole commercial product, AGGRASTAT®AGGRASTAT®. The Company has significant on-going cash expenses, including commitments to advance research and development programs; however, the Company has limited ability to generate cash from other sources.

If revenue from the sale of AGGRASTAT® AGGRASTAT®is not maintained, or increased, the Company may have to reduce substantially or eliminate expenditures for research and development, testing, production and marketing of its proposed products, or obtain funds through arrangements with corporate partners that require it to relinquish rights to certain of its technologies, assets or products.

 

The Company’s effective tax rates could increase.

The Company has operations in various countries that have differing tax laws and rates. The Company’s tax reporting is supported by current domestic tax laws in the countries in which the Company operates and the application of tax treaties between the various countries in which the Company operates. The Company’s income tax reporting is subject to audit by domestic and foreign authorities. The effective tax rate of the Company may change from year to year based on changes in the mix of activities and income earned among the different jurisdictions in which the Company operates, changes in tax laws in these jurisdictions, changes in the tax treaties between various countries in which the Company operates, changes in the Company’s eligibility for benefits under those tax treaties and changes in the estimated values of tax provisions and deferred tax assets. Tax laws, regulations and administrative practices in various jurisdictions may be subject to significant change, with or without notice, due to economic, political and other conditions, and significant judgment is required in evaluating and estimating our provision and accruals for these taxes. Such changes could result in a substantial increase in the effective tax rate on all or a portion of the Company’s income.

The Company’s provision for income taxes is based on certain estimates and assumptions made by management. The Company’s consolidated income tax rate is affected by the amount of pre-tax income earned in our various operating jurisdictions, the availability of benefits under tax treaties, and the rates of taxes payable in respect of that income. The Company enters into many transactions and arrangements in the ordinary course of business in respect of which the tax treatment is not entirely certain. The Company therefore makes estimates and judgements based on knowledge and understanding of the applicable tax laws and tax treaties and the application of those tax laws and tax treaties to the Company’s business, in determining the Company’s consolidated tax provision. For example, certain countries could seek to tax a greater share of income than the Company will allocate to the business in such countries. The final outcome of any audits by taxation authorities may differ from the estimates and assumptions that the Company may use in determining our consolidated tax provisions and accruals. This could result in a material adverse effect on the Company’s consolidated income tax provision, financial condition and the net income for the period in which such determinations are made.

The Company’s provision for tax liabilities, deferred tax assets and any related valuation allowances are effect by events and transactions arising in the ordinary course of business, acquisitions of assets and businesses and non recurring items. The assessment of the appropriate amount of valuation allowance against the deferred tax assets is dependent upon several factors, including estimates of the realization of deferred income tax assets, which realization will be primarily based on future taxable income, including the reversal of existing taxable temporary differences. Significant judgement is applied to determine the appropriate amount of valuation allowance to record. Changes in the amount of any valuation allowance required could materially increase or decrease our provision for income taxes in a given period.

Future issuance of the Company’s common shares will result in dilution to its existing shareholders. Additionally, future sales of the Company’s common shares into the public market may lower the market price which may result in losses to its shareholders.

28  

 

As of December 31, 2016,2019, the Company had 15,532,40810,804,013 common shares issued and outstanding. A further 1,387,0001,428,408 common shares are issuable upon exercise of outstanding stock options (of which 1,059,308 were exercisable at December 31, 2019) and another 941,969900,000 common shares are issuable upon exercise of share purchase warrants, all of which may be exercised in the future resulting in dilution to the Company’s shareholders. The Company’s stock option plan allowsallowed for the issuance of stock options to purchase up to a maximum of 20% of the outstanding common shares at any time.the time of the approval of the stock option plan, which resulted in a fixed number of stock options allowed to be granted totaling 2,934,403.

 

By Articles of Amendment filed by the Company under theCanada Business Corporations Act on November 1, 2012, a consolidation of shares was completed to reduce the total number of outstanding shares.

On May 16, 2018, the Company announced that the TSX-V accepted the Company’s notice of its intention to make a normal course issuer bid (the “2018 NCIB”). Under the terms of the 2018 NCIB, the Company could have acquired up to an aggregate of 794,088 common shares, representing five percent of the common shares outstanding at the time of the application, over the twelve-month period that the 2018 NCIB was in place. The 2018 NCIB commenced on May 28, 2018 and ended on May 27, 2019. During the twelve months of the 2018 NCIB, the Company purchased and cancelled 771,900 common shares for a total cost of $5.1 million. The prices that the Company paid for the common shares purchased was the market price of the shares at the time of purchase.

On May 30, 2019, the Company announced that the TSX-V accepted the Company’s notice of intention to make an additional normal course issuer bid (the “2019 NCIB”). Under the terms of the 2019 NCIB, the Company may acquire up to an aggregate of 761,141 common shares, representing five percent of the common shares outstanding at the time of the application, over the twelve-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 the Company may complete its maximum purchases allowed under the 2019 NCIB. From the commencement of the 2019 NCIB, the Company purchased and cancelled 421,300 common shares for a total cost of $2.1 million. The prices that the Company paid or will pay for common shares purchased was or will be the market price of the shares at the time of purchase.

During the year ended December 31, 2019, the Company repurchased and cancelled 751,800 (2018 – 441,400), common shares as a result of the 2018 NCIB and 2019 NCIB. The aggregate price paid for these common shares totaled $4.1 million (2018 - $3.0 million). During the year ended December 31, 2019 the Company recorded $1.8 million (2018 - $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 $6.0 million (2018 - $3.5 million).

On December 20, 2019, the Company completed a Substantial Issuer Bid (“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.

However, as described above, the Company has limited financial resources and may from time to time be required to finance its operations through the sale of equity securities. In addition, it may be required to issue equity securities as consideration for services or asset acquisition transactions. Sales of substantial amounts of the Company’s common shares into the public market, or even the perception by the market that such sales may occur, may lower the market price of its common shares.

 

29  

The Company’s common shares may experience extreme price and volume volatility which may result in losses to its shareholders.

 

The Company’s common shares historically have been subject to extreme price and volume volatility. For example, during the period from January 1, 20162019 to December 31, 2016,2019, the high and low closing trading prices of the Company’s common shares on the TSX-V were CDN$10.676.85 and CDN$4.18,3.05 respectively, with a total trading volume of 9,263,4761,979,700 shares. Daily trading volume on the TSXTSX-V of the Company’s common shares for the period from January 1, 20162019 to December 31, 20162019 has fluctuated, with a high of 494,161323,400 shares and a low of 620sharesno shares traded, averaging approximately 36,9087,887 shares per trading day.

26

 

The Company expects that the trading price of its common shares will continue to be subject to wide fluctuations in response to a variety of factors including announcement of material events by the Company, such as the dependence of revenue on a single product, the status of required regulatory approvals for its products, competition by new products or new innovations, fluctuations in its operating results, general and industry-specific economic conditions and developments pertaining to patent and proprietary rights. The trading price of the Company’s common shares may be subject to wide fluctuations in response to a variety of factors and/or announcements concerning such factors, including:

 

·actual or anticipated period-to-period fluctuations in financial results;
actual or anticipated period-to-period fluctuations in financial results;

 

·litigation or threat of litigation;
litigation or threat of litigation;

 

·failure to achieve, or changes in, financial estimates of individual investors and/or by securities analysts;
failure to achieve, or changes in, financial estimates of individual investors and/or by securities analysts;

 

·new or existing products or generic equivalents to products or services or technological innovations by the Company or its competitors;
new or existing products or generic equivalents to products or services or technological innovations by the Company or its competitors;

 

·comments or opinions by securities analysts or major shareholders;
comments or opinions by securities analysts or major shareholders;

 

·conditions or trends in the pharmaceutical, biotechnology and life science industries;
conditions or trends in the pharmaceutical, biotechnology and life science industries;

 

·significant acquisitions, strategic partnerships, joint ventures or capital commitments;
significant acquisitions, strategic partnerships, joint ventures or capital commitments;

 

·results of, and developments in, the Company’s manufacturing, research and development efforts, including results and adequacy of, and developments in, its manufacturing activities, development activities, clinical trials and applications for regulatory approval;
results of, and developments in, the Company’s manufacturing, research and development efforts, including results and adequacy of, and developments in, its manufacturing activities, development activities, clinical trials and applications for regulatory approval;

 

·additions or departures of key personnel;
additions or departures of key personnel;

 

·sales of the Company’s common shares, including by holders of the notes on conversion or repayment by the Company in common shares;
sales of the Company’s common shares, including by holders of the notes on conversion or repayment by the Company in common shares;

 

·economic and other external factors or disasters or crises;
economic and other external factors or disasters or crises;

 

·limited daily trading volume; and
limited daily trading volume; and

 

·developments regarding the Company’s patents or other intellectual property or that of its competitors.
developments regarding the Company’s patents or other intellectual property or that of its competitors.

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In addition, the securities markets in the United States and Canada have recently experienced a high level of price and volume volatility, and the market price of securities of pharmaceutical companies have experienced wide fluctuations in price which have not necessarily been related to the operating performance, underlying asset values or prospects of such companies.

 

There may not be an active, liquid market for the Company’s common shares.

On October 21, 2011, the Company’s shares were transferred from the NEX board of the TSX-V to the TSX-V and began trading under the symbol “MPH”.

27

 

There is no guarantee that an active trading market for the Company’s common shares will be maintained on the TSX-V. Investors may not be able to sell their shares quickly or at the latest market price if trading in its common shares is not active.

 

If there are substantial sales of the Company’s common shares, the market price of its common shares could decline.

 

Sales of substantial numbers of the Company’s common shares could cause a decline in the market price of its common shares. The Company has two significant shareholders that each own more than 10% of the outstanding common shares of the Company as of December 31, 2019. Any sales by existing shareholders or holders of options or warrants may have an adverse effect on the Company’s ability to raise capital and may adversely affect the market price of its common shares.

 

The Company has no history of paying dividends, does not intend to pay dividends in the foreseeable future and may never pay dividends.

 

Since incorporation, the Company has not paid any cash or other dividends on its common shares and does not expect to pay such dividends in the foreseeable future as all available funds will be invested to finance the growth of its business. The Company will need to achieve significant and prolonged profitability prior to any dividends being declared, which may never happen.

 

If the Company is classified as a “passive foreign investment Company”company” for United States federal income tax purposes, it could have significant and adverse tax consequences to United States holders of its common shares.

 

The Company believes it was a “passive foreign investment company” (“PFIC”) in one or more previous taxable years, but does not believe that it was a “passive foreign investment Company”PFIC for the taxable yearyears ended December 31, 2016,2019 or December 31, 2018, and does not expect that it will be a “passive foreign investment Company” (PFIC)PFIC for the taxable year ending December 31, 2017.2020. (See more detailed discussion in Item 10E –Taxation). However, there can be no assurance that the United States Internal Revenue Service (“IRS”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, althoughU.S. Holders who own common shares of the Company expects thatwhile it may be a “Qualified Foreign Corporation” (QFC) for the taxable year ending December 31, 2015, there can be no assurances that the IRS will not challenge the determination made by the Company concerning its QFC status, that the Company will be a QFC for the taxable year ending December 31, 2016 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.

The Company’s classification as a PFIC could have significant and adverse tax consequences for United States holders of its common shares.consequences.

 

The Company no longer has a shareholder rights plan

During fiscal 2012, the Company allowed its shareholder rights plan to expire. The provisions of such plan were intended to strengthen the ability of the Board of Directors to protect the Company's shareholders, and help ensure that the shareholders were treated fairly by limiting the ability of any person or group to seize control of the Company without appropriately compensating all of the Company’s shareholders.

Risks associated with material weaknesses within the Company’s financial reporting and review process

31  

 

In connection with its review of the Company’s Internal Control over Financial Reporting, the Company has identified material weaknesses with the Company’s financial reporting and review process, involving the accounting and reporting for complex transactions, due to limited staff not allowing for appropriate reviews of such transactions. Any failure to remediate the material weaknesses, to implement the required new or improved control, or difficulties encountered in the implementation, could cause the Company to fail to meet its reporting obligations on a timely basis or result in material misstatements in the annual or interim financial statements. Inadequate internal control over financial reporting could also cause investors to lose confidence in the Company’s reported financial information, which could cause the Company’s stock price to decline.

 

28

New risks emerge from time to time. It is not possible for the Company’s management to predict all risks. The forward-looking statements contained in this document are made only as of the date of this document. The Company undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.

 

ITEM 4. INFORMATION ON THE COMPANY

 

A. History and Development of the Company

 

On December 22, 1999, the Company was formed by the amalgamation of Medicure Inc. with Lariat Capital Inc. pursuant to the provisions of theBusiness Corporations Act (Alberta). The Company was continued from Alberta to the federal jurisdiction by Certificate of Continuance issued pursuant to the provisions of theCanada Business Corporations Acton February 23, 2000.

 

The Company’s current legal and commercial name is Medicure Inc. and its current registered office and head office is 2-1250 Waverley Street, Winnipeg, Manitoba, Canada, R3T 6C6.

 

In August 2006, the Company acquired the U.S. rights to its first commercial product, AGGRASTAT®AGGRASTAT®Injection (tirofiban hydrochloride) in the United States and its territories (Puerto Rico, Virgin Islands and Guam) for US$19,000,000.U.S. $19.0 million.

 

In September 2007, the Company monetized a percentage of its current and potential future commercial revenues by entering into a debt financing agreement with Birmingham Associates Ltd. (Birmingham)(“Birmingham”), an affiliate of Elliott Associates, L.P. (Elliott)(“Elliott”) for proceeds of US$25 million. This debt was subsequently settled in July 2011 for consideration that included a royalty payable by the Company to Birmingham based on future commercial AGGRASTAT®AGGRASTAT® sales until 2023. The royalty is based on four percent of the first $2,000,000$2.0 million of quarterly AGGRASTAT®AGGRASTAT® sales, six percent on the portion of quarterly sales between $2,000,000$2.0 million and $4,000,000$4.0 million and eight percent on the portion of quarterly sales exceeding $4,000,000$4.0 million payable within 60 days of the end of the preceding quarter.

 

In February 2008, the Company announced that its pivotal Phase III MEND-CABG II clinical trials with MC-1 did not meet the primary endpoint and as a result was not sufficient to support the filings. As a result, the Company announced a restructuring plan that resulted in the organization reducing its head count by approximately 50 employees and full-time consultants. The restructuring and downsizing in March 2008 conserved capital for ongoing operations.

 

32  

Since March 2008, the Company has continued to focus on the sale and marketing of AGGRASTAT®AGGRASTAT®. The Company has also explored and implemented a number of cost savings measures and has further downsized its operations. All these initiativesmeasures were initiated due to the restructuring plan announced towards the end of fiscal 2008. These activities assisted in further reducing the Company’s use of capital, in particular its investment in research and development programs, but have moved forward certain programs on a limited and focused fashion such as the development and implementation of a new clinical, product and regulatory strategy for AGGRASTAT®AGGRASTAT® and the development of additional generic cardiovascular products.

 

During calendar years 2014, 2015 and 2016, as a part of its effort to expand sales of AGGRASTAT®AGGRASTAT®, the Company began to significantly increase the number of employees and otherwise increase expenses related to sales and marketing of AGGRASTAT®AGGRASTAT®, and related to General and Administrative costs of the Company.

On December 14, 2017 and subsequently up-dated on March 7, 2018, the Company announced it had acquired, from Zydus Cadila (“Zydus”), an exclusive license to sell and market a branded cardiovascular drug, ZYPITAMAGTM (pitavastatin magnesium) in the United States and its territories for a term of seven years with extensions to the term available. ZYPITAMAGTM is used for the treatment of patients with primary hyperlipidemia or mixed dyslipidemia and was approved earlier in 2017 by the FDA for sale and marketing in the United States. The Company launched the product using its existing commercial infrastructure during May 2018.

On January 28, 2019, the Company entered into an agreement with Sensible Medical Innovations Inc. (“Sensible”) to become the exclusive marketing partner for ReDS™ in the United States. ReDS™ is a non-invasive, FDA-cleared medical device that provides an accurate, actionable and absolute measurement of lung fluid which is important in the management of congestive heart failure. ReDS™ was already being marketed to United States hospitals by Sensible and the Company has begun marketing ReDS™ immediately using its existing commercial organization. Under the terms of the agreement, Medicure will receive a percentage of total U.S. sales revenue of the device and must meet minimum annual sales quotas.

The Company received approval in August of 2018 from the FDA for its first ANDA for SNP and Medicure’s product became available during the third quarter of 2019 in the United States with initial sales beginning in early 2020. As well, the Company is focused on the development of additional cardiovascular generic drugs which is expected to transform the Company’s commercial suite of products to more than five approved products in 2021.

In 2017,2020, the Company plans to further maintain selling, general and administrative expenditure levels as it continues to focus on the growthsale of AGGRASTAT®AGGRASTAT®, ZYPITAMAGTM, ReDSTM, and SNP and the development of additional generic cardiovascular products and its recent acquisition of Apicore.products.

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The Company’s future operations are dependent upon its ability to maintain sales of AGGRASTAT®AGGRASTAT®, to developincrease sales of ZYPITAMAGTM, ReDSTM and SNP and the development and/or acquireacquisition of new products to obtain value from its investment in Apicore and/or secure additional capital, which may not be available under favourablefavorable terms or at all, and/or renegotiate the terms of its contractual commitments and long-term debt.all.

 

If the Company is unable to maintain sales of AGGRASTAT®AGGRASTAT®, grow sales of ZYPITAMAGTM, ReDSTM and SNP and develop and/or acquire new products, obtain value from its investment in Apicore, and/or raise additional capital, and/or renegotiate the terms of its contractual commitments, management will consider other strategies including cost curtailments, delays of research and development activities, asset divestures and/or monetization of certain intangible assets.

 

During fiscal 2012, the Company’s subsidiary, Medicure International, Inc., acquired a significant quantity of the raw material (active pharmaceutical ingredient) used in the manufacture of AGGRASTAT®and terminated its supply contract with its sole supplier of the raw material for AGGRASTAT®. In addition, Medicure International, Inc. sold drug substance from inventory on hand to a third party. Also during fiscal 2012, Medicure International engaged and initiated work with a contract manufacturing organization to establish a new source of the raw material for AGGRASTAT®. In 2016, the contract manufacturing organization was approved by the FDA as the new, approved source of the raw material for AGGRASTAT®.33  

 

The Company’s subsidiary, Medicure Pharma, Inc., has a third-party manufacturer of the final product AGGRASTAT®and that supply arrangement will expire on October 31, 2017. The Company has transitioned to a new manufacturer of final product and FDA approval for commercial sale was obtained during 2016, including the new bolus vial product format for AGGRASTAT®.

On July 18, 2011, the Company borrowed $5,000,000 from the Government of Manitoba, under the Manitoba Industrial Opportunities Program (“MIOP”), to assist with settling the Company’s debt to Birmingham. Effective August 1, 2013, the Company renegotiated this debt and received an additional two yeartwo-year deferral of principal repayments. Under the renegotiated terms, the loan continued to be interest only until August 1, 2015, when blended payments of principal and interest commenced, and the loan maturity date was extended to July 1, 2018. On November 6, 2017, the Company repaid the MIOP loan from funds on hand from the proceeds of the Apicore Sale Transaction.

 

On July 3, 2014, the Company and its newly formed and wholly owned subsidiary, Medicure U.S.A. Inc. ("(“Medicure USA"USA), entered into an arrangement whereby they have acquired a minority interest in a pharmaceutical manufacturing business known as Apicore, along with an option to acquire all of the remaining issued shares within the next three years. Specifically, Medicurethe Company and Medicure USA acquired a 6.09% equity interest (5.33% on a fully-diluted basis) in two newly formed holding companies of which Apicore LLC and Apicore US LLC willwere to be wholly ownedwholly-owned operating subsidiaries. The Company'sCompany’s equity interest and certain other rights, including the option rights were obtained by the Company for services provided in its lead role in structuring a US$22.5 million majority interest purchase and financing of Apicore. There was no cash outflow in connection with the acquisition of the minority interest in Apicore. The business and operations of Apicore arewere distinct from the Company, and the Company’s primary operating focus remainscontinued to remain on the sale and marketing of AGGRASTAT®AGGRASTAT®.

 

OnOn November 17, 2016, in connection with the exercise of the Company’s acquisition of the controlling ownership in Apicore, the Company received a term loan (the “Term Loan”Term Loan) from Crown Capital Fund IV LP, an investment fund managed by Crown Capital Partners Inc. (“Crown”Crown) (TSX: CRN), in which Crown holds a 40% interest for $60,000,000$60.0 million of which $30,000,000$30.0 million was syndicated to the Ontario Pension Board (“OPB”OPB) a limited partner in Crown’s funds. Under the terms of the loan agreement with Crown, the loan bears interest at a fixed rate of 9.5% per annum, compounded monthly and payable on an interest only basis, maturing in 48 months, and is repayable in full upon maturity.

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On November 17, 2016,2017, the Company andrepaid the Crown loan from funds on hand from the proceeds of the Apicore Sale Transaction. Additionally, the Company incurred an early prepayment penalty of $2.4 million relating to the early repayment of the Term Loan.

The Term Loan was used by the Company, acting through its wholly owned subsidiary, Medicure Mauritius Limited, exercised itsto exercise the Company’s option rights to purchase interests in Apicore, Inc. and Apicore LLC. The 2016 Apicore Transaction was closed on December 1, 2016. Apicore, Inc. and Apicore LLC are affiliated entities that together operate the Apicore pharmaceutical business and are referred to together as “Apicore”. Apicore is a leading process research and development and Active Pharmaceutical Ingredients (“APIs”APIs) manufacturing service provider for the worldwide pharmaceutical industry. The acquisition bringsbrought the Company and its subsidiary’sCompany’s indirect ownership interests in Apicore, Inc. to 64% (or approximately 59% on a fully diluted basis), and the Company and its subsidiary’sCompany’s indirect ownership in Apicore LLC. to 64% (basic and fully-diluted). Five percent of Medicure’s ownership in Apicore LLC iswas then held by Apigen Investments Limited (“Apigen”Apigen), a Company which owned 100 percent of Apicore LLC, before the Acquisition.

 

The Company acquired 4,717,000 Series A Preferred Shares and 1,250,000 Warrants to purchase Class D Common Shares in Apicore, Inc. from certain investors in Apicore, Inc. Medicure Mauritius Limited acquired 4,717,000 Series A Preferred Interests and 1,250,000 Warrants to purchase Class D Common Interests in Apicore LLC, from Apigen Investments Limited. Apicore LLC is the holding company of Apicore Pharmaceuticals Private Limited which conducts the business of Apicore in India and Apigen is a Mauritius holding Company, who has minimal business activities outside of those of its subsidiary. The Warrants are exercisable into Class D Common Shares of Apicore, Inc. and Class D Common Interests of Apicore LLC, in each case at $0.01 each and are effectively ownership interests in Apicore.

Prior to the 2016 Apicore Transaction, Medicure held, directly or indirectly, approximately 5% ownership in Apicore. This initial ownership interest and the option rights were obtained for the Company’s lead role in structuring and participating in a majority interest purchase and financing of Apicore that occurred on July 3, 2014.

Medicure continuescontinued to have additional option rights until July 3, 2017 to acquire additional shares in Apicore, Inc. and Apicore LLC at predetermined prices consistent with the value reflected in the 2016 Apicore Transaction. On July 3, 2017, the Company announced that its option to acquire additional shares in Apicore, which otherwise would have expired, had been extended. The option covered an additional minority interest in Apicore (the “Minority Interest”) representing approximately 32% of the fully diluted shares of Apicore.

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On July 10, 2017, the Company, acting through Medicure Mauritius Limited, exercised the Company’s option rights to acquire the Minority Interest in Apicore Inc. and Apicore LLC from Apicore’s founding shareholders. The 2017 Apicore Transaction closed on July 12, 2017 and allowed for the acquisition of all of the shares of Apicore Inc. and Apicore LLC held by the founding shareholders (representing approximately 32% of the fully diluted ownership of Apicore) for US$24.5 million, being the price provided for under the option. This acquisition brought Medicure’s ownership in Apicore Inc. to approximately 98% (94% on a fully diluted basis).

 

On July 10, 2017, the Company announced that Apicore repaid the U.S.$9.8 million secured loan previously provided to Apicore by Medicure. Additionally, Apicore provided a U.S.$14.8 million loan to Medicure bearing interest at 12% per annum with a term of three years. These funds were obtained from Apicore’s current business which includes API sales, ANDA development partnership payments, and royalty and upfront payments from ANDA commercial partnerships. The loan proceeds were used by Medicure to help satisfy the purchase price of the 2017 Apicore Transaction.

During the year ended December 31, 2017, employees and former directors of Apicore exercised 292,500 stock options to acquire 292,500 Class E common shares of Apicore for gross proceeds to the company of U.S.$280,000. These shares, as well as 112,500 Class E common shares previously issued for gross proceeds of U.S.$48,000 were then purchased by the Company upon the employees and former directors exercising their put right to the Company. This resulted in the Company acquiring 405,000 Class E common shares of Apicore for a total cost of U.S.$2.0 million during 2017. As a result of the employees and former directors exercising their put right to the Company, the liability to repurchase Apicore Class E common shares on the statement of financial position in the Company’s consolidated financial statements was reduced.

On October 3, 2017, the Company announced that it sold its interests in Apicore (the “Sales Transaction”) to an arm’s length, pharmaceutical company (the “Buyer”). Under the Apicore Sale Transaction, the Company would receive net proceeds of approximately U.S.$105.0 million of which approximately U.S.$55.0 million was received on October 3, 2017, with the remainder to be received in early 2018. These funds received and to be received by the Company were after payment of all transaction costs, the cashing in of Apicore’s employee stock options, the redemption of the remaining shares of Apicore not owned by Medicure and other adjustments. Over the 18 months following the close of the transaction, additional payments could have become payable under the Apicore Sale Transaction, in the form of contingent payments, including an earn out payment based on the achievement of certain financial results by Apicore following closing and other customary adjustments.

On February 1, 2018, the Company announced that it had received the deferred purchase price proceeds of approximately U.S.$50.0 million from the Buyer as a result of the Apicore Sale Transaction. The U.S.$50.0 million was included in the total net proceeds of U.S.$105.0 million 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 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.

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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 will receive a net payment of U.S. $5.1 million in relation to the holdback.

The funds received from the Apicore sales transaction will be invested and used for business and product development purposes and to fund operations as needed as well as funding the purchase of common shares under the Company’s recently completed substantial issuer bid.

B. Business Overview

 

Plan of Operation

 

Medicure is a specialty pharmaceutical company engaged infocused on the research, clinical development and commercialization of human therapeutics.therapies for the United States cardiovascular market. The Company’s primary operatingpresent focus is on the sale and marketing of its acute care cardiovascular drug,products, AGGRASTAT® owned by its subsidiary, Medicure International, Inc., ZYPITAMAGTM and SNP and the sale and marketing of the ReDS PRO medical device. The products are distributed in the United States and its territories through the Company’s U.S. subsidiary, Medicure Pharma, Inc. Additional focus areasThe Company’s registered office and head office is located at 2-1250 Waverley Street, Winnipeg, Manitoba, R3T 6C6.

On September 30, 2019 the Company announced that through its subsidiary, Medicure International Inc., it has acquired the ownership of ZYPITAMAGTM from Zydus for U.S. and Canadian markets. Under terms of the agreement, Zydus will receive an upfront payment of U.S. $5.0 million and U.S. $2.0 million in deferred payments to be made over the next four years, as well as contingent payments on achievement of milestones and royalties related to net sales. With this acquisition Medicure obtained full control of marketing and pricing negotiations for the Company relate to the management and growth of Apicore, whichproduct.

Previously, on December 14, 2017, the Company acquired from Zydus, an exclusive license to sell and market ZYPITAMAGTM, a majority interestbranded cardiovascular drug, in onthe United States and its territories for a term of seven years with extensions to the term available. ZYPITAMAGTM is used for the treatment of patients with primary hyperlipidemia or mixed dyslipidemia and was approved in July 2017 by the FDA for sale and marketing in the United States. On May 1, 2018 ZYPITAMAGTM became commercially available in retail pharmacies throughout the United States. The Company’s product launch utilized its existing commercial infrastructure and while not an in-hospital product like AGGRASTAT®, ZYPITAMAGTM added to the Company’s cardiovascular portfolio and expanded the Company’s reach to new patients. ZYPITAMAGTM contributed revenue of $183,000 to Company for the year ended December 1, 2016. As well,31, 2019 and $652,000 of revenue to the Company during the year ended December 31, 2018. ZYPITAMAGTMis focusedstill in the early stages of its commercialization and the Company continues to work towards growing the ZYPITAMAGTM brand, usage of the product and revenues from ZYPITAMAGTM. The 2018 revenues were higher than those earned in 2019 due to the initial ordering by wholesaler customers of the product.

The Company received approval in August of 2019 from the FDA for its first ANDA for SNP and Medicure’s product became available during the third quarter of 2019 in the United States with initial sales beginning in early 2020.

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On January 28, 2019 the Company announced it had entered into an agreement with Sensible to become the exclusive marketing partner for ReDS™ in the United States. ReDSTM is a non-invasive, FDA-cleared medical device that provides an accurate, actionable and absolute measurement of lung fluid which is important in the management of congestive heart failure. The lung fluid measurements are used in guiding treatment and monitoring a heart failure patient’s condition and may lead to a significant decrease in readmissions and hospital costs. Clinical studies have shown an 87% reduction in heart failure readmission rates for patients using the ReDS system at home for three months post-discharge versus those who were treated with usual care alone. ReDS was already being marketed to U.S. hospitals by Sensible and Medicure began marketing ReDS immediately using its existing commercial organization. Under the terms of the agreement, Medicure receives a percentage of total U.S. sales revenue of the device and must meet minimum annual sales quotas.

In addition, Medicure invested U.S. $10 million in Sensible for a 7.71% equity stake on a fully diluted basis and in connection with this investment the Company acquired the license forReDS™ in the United States. In connection with the investment, Medicure’s Chief Executive Officer, Dr. Albert Friesen, was appointed to the Board of Directors of Sensible.

The Company has considered indicators of impairment as at December 31, 2019 and recorded a write-down of intangible assets related to the ReDSTMlicense during the year ended December 31, 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. Additionally, a loss of $6.3 million was recorded within other comprehensive loss from the revaluation of the investment in Sensible made during the year ended December 31, 2019. Despite recording this impairment on the development of three additional cardiovascular generic drugs, which are expectedlicense over ReDSTM and the investment in Sensible Medical, the Company continues to transformmarketReDS™ PRO and continues to work to safeguard or monetize the Company’s commercial suite of products from a single product to four approved products by the end of 2019.investment

 

The Company’s research and development program is focused on developing and implementing its continued regulatory, brand and life cycle management strategy for AGGRASTAT®. Medicure is also making selective research and development investments in certain additional acute cardiovascular generic and reformulation product opportunities, in additionas well as continuing the development and implementation of its regulatory, brand and life cycle management strategy for AGGRASTAT®. The Company is also continuing to exploringexplore neurological treatment applications of its legacy product P5P (MC-1, TardoxalTARDOXALTM). The Company is actively seekingfocused on the development of additional cardiovascular generic drugs which is expected to acquire and/transform the Company’s commercial suite of products to five or license additional products.more approved products in 2021.

 

Strategic changes made over recent years, coupled withThe increased sales of AGGRASTAT®, that was experienced over recent years and the 2016staged acquisition and subsequent sale of the Apicore Transaction and debt and equity financingsbusiness completed in fiscal 20152016 and 2016, have2017 dramatically improved the Company’s financial position compared to previous years. Nevertheless,The Company completed a SIB in December of 2019 where it purchased and cancelled 4.0 million common shares at a set purchase price of $6.50 per common share resulting in the Company's ability to continue in operation forpayment $26.0 million. After the foreseeable futureclosing of the transaction and despite lower cash balances and working capital levels, the Company’s financial position remains dependent upon the maintenance of AGGRASTAT®, value generation from the Apicore business, sales and upon the effective execution of its business development and strategic plans.strong..

 

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The ongoing focus of the Company includes the sale of AGGRASTAT®, ApicoreZYPITAMAGTM, ReDSPRO and SNP and the development of additional generic cardiovascular products. In parallel with the Company’s ongoing commitment to support the product,AGGRASTAT®, its valued customers and the continuing efforts of the commercial organization, the Company is in the process of developing and further implementing its regulatory, brand and life cycle management strategy for AGGRASTAT®. The objective of this effort is to further expand AGGRASTAT®’s share of the estimated US $200 million (2015) glycoprotein GP IIb/IIIa (GPI)(“GPI”) inhibitor market.market in the United States. GPIs are injectable platelet inhibitors used in the treatment of patients with acute coronary syndrome.syndrome (“ACS”). The marketing and sales of ZYPITAMAGTM became a key focus of the Company during 2018 and throughout 2019 and the marketing and sales of ReDSTM became a key focus of the Company during the first quarter of 2019.

 

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The Company has historically financed its operations principally through the net revenue received from the sale of AGGRASTAT®, ZYPITAMAGTM and ReDSTM, the sale of its equity securities, including a private placement in June 2015 for gross proceeds to the Company of $4.0 million, the issueissuance and subsequent exercises of warrants and stock options, interest on excess funds held and the issuance of debt, including the $60,000,000 term loan obtained in November 2016 allowingdebt. As announced on October 3, 2017, the Company sold the Apicore business for net proceeds to completeMedicure of approximately U.S. $105.0 million, as well as additional contingent payments. The funds generated from the 2016sale of Apicore Transaction.were partially used to repay the Company’s long-term debt, fund the recently completed SIB and the remaining funds will continue to be used to finance the Company’s operations, development and growth moving forward.

 

Effective August 1, 2013,Recent Developments

COVID-19

Subsequent to December 31, 2019, the outbreak of the novel strain of coronavirus, specifically identified as COVID-19, has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The duration and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of the government and central bank interventions. It is not possible to reliably estimate the length and severity of these developments and the impact on the liquidity, financial results and condition of the Company renegotiatedand its long-term debt and received an additional two-year deferral of principal repayments. Under the renegotiated terms, the loan continued to be interest only until July 31, 2015 with principal repayments having begun on August 1, 2015 and the loan maturing on July 1, 2018.operating subsidiaries in future periods.

 

On July 3, 2014, the Company acquired a minority interest in Apicore along with an option to acquire all of the remaining issued shares of Apicore until July 3, 2017 at a predetermined price.Substantial issuer bid

 

On November 17, 2016,4, 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 represented a 101.9% premium over the closing price of the Common Shares on the TSXV on November 1, 2019.

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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 suspended its existing normal course issuer bid (“NCIB”) in connection with the exercisecommencement of the Company’s acquisitionOffer and no subsequent purchases were completed under such NCIB prior to completion of the controlling ownershipOffer.

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 Apicore,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 atwww.sedar.comand on EDGAR atwww.sec.com.

Completion of SAVI-PCI study

On December 17, 2019, the Company receivedannounced the completion of the Shortened AGGRASTAT® (tirofiban hydrochloride) injection versus Integrilin® (eptifibatide) in Percutaneous Coronary Intervention (SAVI-PCI) Clinical Trial.

SAVI-PCI was a term loan (the “Term Loan”) from Crown Capital Fund IV LP, an investment fund managedrandomized, multicenter, open-label study enrolling 535 patients at thirteen sites in the United States, which compared tirofiban high-dose bolus injection followed by Crown Capital Partners Inc. (“Crown”) (TSX: CRN),a maintenance infusion for 1-2 hours post-PCI to label-dosing eptifibatide (double bolus followed by 12-18 hour maintenance infusion). Comparisons to a long-infusion tirofiban arm (high-dose bolus injection followed by 12-18 hour maintenance infusion post-PCI) were also performed. The primary endpoint of the study was to assess whether the short infusion tirofiban regimen in which Crown holds a 40% interest for $60,000,000 of which $30,000,000patients undergoing PCI was syndicatednon-inferior to the Ontario Pension Board (“OPB”)aforementioned eptifibatide regimen. The primary endpoint was a limited partner in Crown’s funds. Under the termscomposite rate of death, periprocedural myonecrosis, urgent target vessel revascularization (uTVR) or in-hospital, non-CABG related major bleeding within 48 hours following PCI or hospital discharge, whichever comes first, quantified according to REPLACE-2 criteria. This study was sponsored by Medicure.

Topline results of the loan agreement with Crown,SAVI-PCI trial will be communicated in 2020.

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Completion of enrolment of the loan bears interest atFABOLUS-FASTER trial

On December 12, 2019, the Company announced the completion of the FABOLUS-FASTER Phase 4 trial, a fixed raterandomized,open-label, multi-center trialassessing different regimens of 9.5% per annum, compounded monthlyintravenous platelet inhibitors, notably tirofiban and payable on an interest only basis, maturingcangrelor (an IV P2Y12 inhibitor) in 48 months, andthe early phase of primary PCI. The study enrolled 120 patients. The Company expects to release top-line data in 2020.

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 repayableapproved for use in full upon maturity.NSTE-ACS patients.

Topline results of theFABOLUS-FASTER Phase 4 trial will be communicated in 2020.

Settlement of holdback receivable

 

On November 17, 2016, the Company and its wholly owned subsidiary, Medicure Mauritius Limited, exercised its option rights to purchase interests in Apicore, Inc. and Apicore LLC. The 2016 Apicore Transaction was closed on December 1, 2016. Apicore, Inc. and Apicore LLC are affiliated entities that together operate the Apicore pharmaceutical business and are referred to together as “Apicore”. Apicore is a leading process research and development and Active Pharmaceutical Ingredients (“APIs”) manufacturing service provider for the worldwide pharmaceutical industry. The acquisition brings the Company and its subsidiary’s ownership interests in Apicore, Inc. to 64% (or approximately 59% on a fully diluted basis) and the Company and its subsidiary’s ownership in Apicore LLC. to 64% (basic and fully-diluted). Five percent of Medicure’s ownership in Apicore LLC is held by Apigen Investments Limited (“Apigen”), a Company which owned 100 percent of Apicore LLC, before the Acquisition.

Recent Developments

·Filing of Supplemental New Drug Application for New AGGRASTAT® Indication

On September 10, 2015, the Company announced that it had submitted a sNDA to the FDA to expand the label for AGGRASTAT® to include the treatment of patients presenting with ST Segment Elevation Myocardial Infarction (“STEMI”), a type of heart attack.AGGRASTAT® is currently approved by the FDA for treatment of patients presenting with non-ST segment elevation acute coronary syndrome (NSTE ACS). If approved for STEMI, AGGRASTAT® would be the first in its class of glycoprotein IIb/IIIa inhibitors to receive such a label in the United States.

The Company had a Prescription Drug User Fee Act (PDUFA) action date for the STEMI sNDA on July 10, 2016. Under PDUFA, the FDA aims to complete its review within ten months from the receipt of a sNDA submission. The sNDA filing was accompanied by a mandatory US $1.167 million user fee paid by Medicure International, Inc. to the FDA. In December 2016, the Company received a waiver of the user fee paid in regards to this sNDA and the Company was refunded the US $1.167 million that it had previously paid during fiscal 2015.

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On July 7, 2016, the Company announced that it has received a Complete Response Letter from the FDA for its sNDA requesting an expanded indication for patients presenting with STEMI. The FDA issued the Complete Response Letter to communicate that its initial review of the application is complete; however it cannot approve the application in its present form and requested additional information. The Company continues to work directly with the FDA to address and resolve these comments.

·Collaboration with Apicore

On January 6, 2016, the Company announced that it had initiated the development of a cardiovascular generic drug. The project was a collaboration between Medicure International, Inc. and Apicore US LLC (together with its affiliates “Apicore”), a leading manufacturer of generic active pharmaceutical ingredients ("APIs”). The collaborative project was focused on the development of an intravenous aNDA drug product for an acute cardiovascular indication. Medicure and Apicore have entered into an exclusive product supply and development agreement under which Medicure holds all commercial rights. On DecemberFebruary 13, 2016, the Companyannounced that the aNDA was filed with the U.S. Food and Drug Administration.

·Departure of President and Chief Operating Officer

On May 9, 2016, the Company announced that the employment agreement with President and Chief Operating Officer, Dawson Reimer, had been terminated, effective immediately.

·FDA Approval Received for New AGGRASTAT® Product Format

On September 1, 2016,2019, 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 U.S. $5.1 million in relation to the holdback receivable.

Patent infringement filing

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 ‘660 patent.

The patent infringement action is in response to Nexus’ filing of an ANDA seeking approval from the FDA for its new bolus vial product formatto market a generic version of AGGRASTAT® (tirofiban hydrochloride) injection before the expiration of the ‘660 patent.

The ‘660 patent is listed in FDA’s Orange Book for AGGRASTAT®. The newly approved product format is a concentrated, pre-mixed,Medicure will vigorously defend the ‘660 patent and will pursue the patent infringement action against Nexus and all other legal options available to protect its product.

SMILE-HF study demonstrates use of ReDSTM results in reductions in hospital readmission rates

On October 15, ml vial designed specifically for convenient delivery2019 the Company announced the primary results of the AGGRASTATlate-breaking SMILE®TMbolus does (25 mcg/kg)-Heart Failure (“SMILE-HF”) Clinical Trial which was presented at the Heart Failure Society of America (“HFSA”) conference in Philadelphia, Pennsylvania by Dr. William T. Abraham, the SMILE-HF national principal investigator.

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The SMILE-HF trial demonstrated that when used as intended, ReDS™ treatment guided heart failure management prevented 58% of heart failure readmission(s). DevelopmentData was collected from 268 patients by 43 centers across the United States, constituting the largest randomized control trial to date on the impact of ReDS™ on managing heart failure. Patients were recruited for the study during hospitalization and followed for up to nine months at home. Daily measurements were taken using ReDS™ with the goal of keeping lung fluid content within the normal range of 20-35%. Data aggregated in the cloud was sent to physicians to monitor and adjust medication with the goal to keep each patient’s fluid status balanced and avoid hospital readmission.

Preferred pricing agreement for ZYPITAMAGTM with the ADAP Crisis Task Force

On October 3, 2019, the Company announced that it reached a preferred pricing agreement with the AIDS Drug Assistance Program (“ADAP”) Crisis Task Force for ZYPITAMAGTM. The agreement will open access to ZYPITAMAGTM tablets to low income, underinsured and uninsured Americans who qualify for ADAP coverage in states where ZYPITAMAGTM has been adopted onto the ADAP formulary.

The ADAP Crisis Task Force negotiates reduced drug prices for all ADAP formularies. ADAP formularies provide HIV treatment to low income, uninsured, and underinsured individuals living with HIV/AIDS in all 50 states and the US territories. The ADAP Crisis Task Force was formed in 2002, and is currently comprised of representatives from Arizona, California, Florida, Illinois, Massachusetts, New York, North Carolina, Tennessee, Texas, Virginia, and Washington state HIV/AIDS divisions.

Acquisition of full US ownership of ZYPITAMAGTM

On September 30, 2019 the Company announced that through its subsidiary, Medicure International Inc., it acquired the ownership of ZYPITAMAGTM from Cadila Healthcare Ltd., India (“Zydus”) for the U.S. and Canadian markets. Under terms of the bolus vialagreement, Zydus will receive an upfront payment of U.S. $5.0 million and U.S. $2.0 million in deferred payments to be made over the next four years, as well as contingent payments on the achievement of milestones and royalties related to net sales.

Medicure previously had acquired U.S. marketing rights with a profit-sharing arrangement. With this acquisition Medicure obtained full control of marketing and pricing negotiations for the product.

Launch of ReDSTM PRO

On September 17, 2019 the Company announcedthe launch of the ReDSTMPRO (“ReDSTMPRO”) system, the next generation of lung fluid management technology for heart failure. The debut of the new system took place at the HFSA conference in Philadelphia, Pennsylvania. ReDSTM PRO is optimized for the point-of-care market, designed for use in hospitals and sub-acute facilities. ReDSTM PRO utilizes non-invasive low energy radio frequency technology that produces reliable fluid volume readings after only 45 seconds of measurement. The ReDSTMPRO can be utilized across the continuum of hospital care, from the emergency department to discharge and subacute rehabilitation.

Medicure previously announced, on January 28, 2019, that it had entered an agreement with Sensible to become the exclusive marketing partner for the ReDS™ point of care system in the United States, a non-invasive, FDA-cleared medical device that provides an accurate, actionable and absolute measurement of lung fluid which is important in the management of congestive heart failure. The ReDSTMPRO represents the next generation of this device.

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An impairment on the license over ReDSTM and the Company’s investment in Sensible was recorded during the year ended December 31, 2019, 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 is continuing to market theReDS™ PRO for the clinical management of congestive heart failure and working to safeguard or monetize the investment in Sensible.

Settlement of Patent Infringement Action

On August 21, 2019 the Company announced that its subsidiary, Medicure International Inc., settled its ongoing patent infringement action against Gland in the U.S. District Court for the District of New Jersey, which alleged infringement of the ‘660 patent. As part of the settlement, Gland has acknowledged that the ‘660 patent is valid, enforceable and infringed. The settlement resulted in the Company entering into a license agreement with Gland with an anticipated launch date for Gland’s generic product of March 1, 2023. The remaining terms of the settlement are confidential.

The Company had filed the patent infringement action against Gland alleging infringement of the ‘660 patent. The patent infringement action was in response to feedbackGland’s filing of an ANDA seeking approval from interventional cardiologists and catheterization lab nurses from across the United States. Commercial launchFDA to market a generic version of AGGRASTAT®before the expiration of the bolus vial took place‘660 patent. The ‘660 patent is listed in Octoberthe FDA’s orange book with an expiry date of May 1, 2023.

Grant of Stock Options

On June 26, 2019, the Company announced that the Board of Directors approved the grant of an aggregate of 262,000 stock options to certain directors, officers, employees and management company employees of the Company pursuant to its stock option plan. These options, which were subject to the approval of the TSX Venture Exchange, are set to expire on the fifth anniversary of the date of grant and were issued at an exercise price of $4.95 per share.

Appointment of President and Chief Operating Officer

On June 26, 2019, the Company announced that Dr. Neil Owens has been appointed President and Chief Operating Officer of the Company effective July 1, 2019. In this capacity, Dr. Owens will be responsible for implementing the Company’s strategic plans, and overseeing day-to-day operations, including the advancement and management of new and existing pharmaceutical products. Dr. Albert Friesen had served as the Company’s President since May of 2016 and the Company believes this new product format will have a positive impact on hospital utilizationcontinue to serve as Chief Executive Officer of AGGRASTAT®.

·Completion of the 2016 Apicore Transaction

On November 17, 2016, the Company and as Chair of its wholly owned subsidiary, Medicure Mauritius Limited, exercised its option rights to purchase interests in Apicore, Inc. and Apicore LLC. The 2016 Apicore Transaction was closed on December 1, 2016. Apicore, Inc. and Apicore LLC are affiliated entities that together operate the Apicore pharmaceutical business and are referred to together as “Apicore”. Apicore is a leading process research and development and Active Pharmaceutical Ingredients (“APIs”) manufacturing service provider for the worldwide pharmaceutical industry. The acquisition bringsBoard of Directors.

Normal Course Issuer Bid

On May 30, 2019, the Company and its subsidiary’s ownership interests in Apicore, Inc.announced that the TSXV has accepted the Company’s notice of intention to 64% (or approximately 59% onmake a fully diluted basis) and the Company and its subsidiary’s ownership in Apicore LLC. to 64% (basic and fully-diluted)NCIB (the “2019 NCIB”). Five percent of Medicure’s ownership in Apicore LLC is held by Apigen Investments Limited (“Apigen”), a Company which owned 100 percent of Apicore LLC, before the Acquisition.

 

Also on November 17, 2016, in connection with the exercise of the Company’s acquisition of the controlling ownership in Apicore, the Company received a term loan (the “Term Loan”) from Crown Capital Fund IV LP, an investment fund managed by Crown Capital Partners Inc. (“Crown”) (TSX: CRN), in which Crown holds a 40% interest for $60,000,000 of which $30,000,000 was syndicated to the Ontario Pension Board (“OPB”) a limited partner in Crown’s funds. Under the terms of the loan agreement2019 NCIB, Medicure could 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 was entitled to purchase up to the maximum of 761,141 common shares, representing 5% of the then common shares outstanding, over the 12-month period that the 2019 NCIB is in place.

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��

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 Financial Corp. (“PI”) acting on behalf of the Company in accordance with Crown, the loan bears interestpolicies of the TSXV and will be surrendered by the Company to its transfer agent for cancellation. The prices that the Company paid or will pay for common shares purchased will be the market price of the shares at a fixed ratethe time of 9.5% per annum, compounded monthly and payable on an interest only basis, maturing in 48 months, and is repayable in full upon maturity.purchase.

 

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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 common 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.

·Loan to Apicore and Additional Equity Acqusition

 

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 the SIB and no subsequent purchases were completed under the 2019 NCIB for the remainder of 2019.

Under the Company’s previous NCIB, which expired on May 27, 2019, the Company purchased and cancelled 771,900 of its common shares between May 28, 2018 and May 27, 2019 for a total cost to the Company of $5.1 million.

Appointment of Ms. Manon Harvey to the Company’s Board of Directors

On January 9, 2017,May 15, 2019, the Company announced that itthe appointment of Manon Harvey CPA, CA, to the Board of Directors. Ms. Harvey is a CPA, CA, and holds a Bachelor of Commerce (summa cum laude) from the University of Ottawa. Additionally, Ms. Harvey has provided a secured loan inher ICD.D designation from the amountInstitute of US$9.8 million to Apicore Inc. (“Apicore”) allowingCorporate Directors. In January 2019, she joined the University of British Columbia’s Okanagan Campus as Director, Integrated Planning and Chief Budget Officer 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 repayment of Apicore’s existing debt with Knight Therapeutics Inc. (TSX: GUD)Canada Foundation for Innovation (“CFI”), Ms. Harvey was responsible for the finance function, human resources, information technology, and Sanders Morris Harris Inc. The loan bears interest at 12% per annum, matures on December 30, 2020 and is secured by a charge over the U.S. assets of Apicore. Funding to provide this loanadministrative services. She was previously obtained from Crown Capital Fund IV, LP, an investment fund managed by Crown Capital Partners Inc. (“Crown”) (TSX:CRN), in which Crown holds a 40% interest, and the Ontario Pension Board, a limited partner in Crown’s funds, as previously announced on November 18, 2016.

The loan constituted a “related party transaction” under Multilateral Instrument 61-101 (“MI 61-101”)Protection of Minority Security Holders in Special Transactions and absent available exemptions would trigger the requirement for a formal valuation and minority shareholder approvalOfficer of the transaction. The Company has relied onCFI Board of Directors, and served as the exemptions from these requirements contained in Sections 5.5(a)Secretary and 5.7(a)Treasurer. For over 10 years, until June 2014, she was both a member of MI 61-101 on the basis that the fair market value pertaining to the transaction does not exceed 25% of the Company’s market capitalization, calculated in accordance with MI 61-101. A material change report in respect of the loan will be filed as required, but was not filed 21 days in advance of the closing of the loan due to the Company’s desire to complete the loan as quickly as possible. The loan was approved by the Board of Directors, as well as Chair of the Company.Audit Committee, for Hydro Ottawa. She is an external member of the Departmental Audit Committee of the Royal Canadian Mounted Police.

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Agreement to Market ReDSDevice

 

Additionally,On January 28, 2019 the Company announced it had entered into an agreement with Sensible to become the exclusive marketing partner for ReDS™ in the United States. ReDSTM is a non-invasive, FDA-cleared medical device that provides an accurate, actionable and absolute measurement of lung fluid which is important in the management of congestive heart failure. The lung fluid measurements are used in guiding treatment and monitoring a heart failure patient’s condition and may lead to a significant decrease in readmissions and hospital costs. Clinical studies have shown an 87% reduction in heart failure readmission rates for patients using the ReDS system at home for three months post-discharge versus those who were treated with usual care alone. ReDS was already being marketed to U.S. hospitals by Sensible and Medicure acquired an additional 112,500 Class E common shares of Apicore, representing approximately 1% of Apicore, for US$549,000 from a former employee of Apicore and former members of Apicore’s Board of Directors. These shares were issued as a resultbegan marketing ReDS immediately using its existing commercial organization. Under the terms of the exerciseagreement, Medicure receives a percentage of stock options heldtotal U.S. sales revenue of the device and must meet minimum annual sales quotas.

In addition, Medicure invested U.S. $10.0 million in Apicore by these individuals and purchased by Medicure atSensible for a pre-specified price in accordance with Apicore’s stock option plan and Medicure’s option rights. Medicure currently owns approximately 61% of Apicore7.71% equity stake on a fully diluted basis and continues to hold option rights until July 3, 2017 to acquire additional shares in Apicore.

·FDA Approval for Apicore’s Generic Tetrabenazine

On March 23, 2017,connection with this investment the Company announced that its majority-owned subsidiary, Apicore Inc., has received final approval fromacquired the FDAlicense for the Company’s aNDA for tetrabenazine tablets in the 12.5 mg and 25 mg strengths. The newly approved product is a generic equivalent of the branded product Xenazine® soldReDS™ in the United States by Valeant Pharmaceuticals. Xenazine is indicated. In connection with the investment, Medicure’s Chief Executive Officer, Dr. Albert Friesen, was appointed to treat the involuntary movements (chorea)Board of Huntington’s disease. DevelopmentDirectors of tetrabenazineSensible.

An impairment on the license over ReDSTM and the Company’s investment in Sensible was donerecorded during the year ended December 31, 2019, as a result of uncertainties with ReDSTM being experienced in partnership with TAGI Pharma Inc., which recently launchedregards to the length of the sales cycle and uptake of the product commercially.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 is continuing to market theReDS™ PRO for the clinical management of congestive heart failure and working to safeguard or monetize the investment in Sensible.

Commercial:

 

In fiscal 2007, the Company’sCompany through its wholly owned Barbadian subsidiary, Medicure International Inc., acquired the U.S. rights to its first commercial product, AGGRASTAT®, in the United States and its territories (Puerto Rico, Virgin Islands, and Guam). AGGRASTAT®, a GPI, is used for the treatment of acute coronary syndrome (“ACS”),ACS, including unstable angina (chest pain) (“UA”),UA, which is characterized by chest pain when one is at rest, and non Q wave myocardial infarction (“MI”).MI. AGGRASTAT® is indicated to reduce the rate of thrombotic cardiovascular events (combined endpoint of death, myocardial infarction, or refractory ischemia/repeat cardiac procedure) in patients with non ST elevation acute coronary syndrome (“NSTE ACS”ACS). Under a contract with Medicure International Inc., the Company’s wholly owned U.S. subsidiary, Medicure Pharma Inc., continues to support, market and distribute the product. Through a services agreement with Medicure Inc., work related to

Net AGGRASTAT® is primarily conducted by staff based in Winnipeg, Canada, with support from a small number of third party contractors.

Net revenue from the sale of finished AGGRASTAT®productsproduct sales for year ended December 31, 2019 were $19.4 million compared to $28.5 million during the year ended December 31, 2016 increased by 36% over2018.

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The Company currently sells finished AGGRASTAT® to drug wholesalers. These wholesalers subsequently sell AGGRASTAT®to hospitals where health care providers administer the net revenuedrug 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 year ended December 31, 2015. All of the Company’s sales are denominated in U.S. dollars. product at hospitals.

Hospital demand for AGGRASTAT® increased significantly compared to the comparable period inwas lower during 2019 than the prior year. The increase in revenue is primarily attributable to an increase inyear 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 became increasingly important to the Company.

The number of new customers reviewing and implementing AGGRASTAT®has increased sharply since October 11, 2013 as a result of FDA approval of the new dosingHigh Dose Bolus (“HDB”) regimen for AGGRASTAT® as announced on October 11, 2013 and due to the increased marketing and promotional efforts of the Company. Additionally, favourable fluctuations

As all of the Company’s sales are denominated in 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, this led to increased AGGRASTAT®revenues, however this was offset by the increasing price pressures facing AGGRASTAT® when comparing the two periods as well as decreases in demand.

On December 5, 2019, the Company announced it had filed a patent infringement action against Nexus in the U.S. dollar exchange rate contributeDistrict Court for the Northern District of Illinois, alleging infringement of the ‘660 patent.

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 will vigorously defend the ‘660 patent and will pursue the patent infringement action against Nexus and all other legal options available to protect its product.

Previously, on November 16, 2018, the Company filed a patent infringement action against 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.

On August 21, 2019 the Company announced that its subsidiary, Medicure International Inc., has settled this ongoing patent infringement action. As part of the settlement, Gland has acknowledged that the ‘660 patent is valid, enforceable and infringed. The settlement resulted in the Company entering into a license agreement with Gland with an anticipated launch date for Gland’s generic product of March 1, 2023. The remaining terms of the settlement are confidential.

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On September 30, 2019 the Company announced that through its subsidiary, Medicure International Inc., it has acquired the ownership of ZYPITAMAGTM from Zydus for U.S. and Canadian markets. Under terms of the agreement, Zydus will receive an upfront payment of U.S. $5.0 million and U.S. $2.0 million in deferred payments to be made over the next four years, as well as contingent payments on achievement of milestones and royalties related to net sales. With this acquisition Medicure obtained full control of marketing and pricing negotiations for the product.

Previously, on December 14, 2017, the Company acquired from Zydus, an exclusive license to sell and market ZYPITAMAGTM, a branded cardiovascular drug, in the United States and its territories for a term of seven years with extensions to the increaseterm available. ZYPITAMAGTM is used for the treatment of patients with primary hyperlipidemia or mixed dyslipidemia and was approved in revenue.July 2017 by the FDA for sale and marketing in the United States. On May 1, 2018 ZYPITAMAGTM became commercially available in retail pharmacies throughout the United States. The Company’s product launch utilized its existing commercial infrastructure and while not an in-hospital product like AGGRASTAT®, ZYPITAMAGTM added to the Company’s cardiovascular portfolio and expanded the Company’s reach to new patients. ZYPITAMAGTM contributed revenue of $183,000 to Company for the year ended December 31, 2019 and $652,000 of revenue to the Company during the year ended December 31, 2018. ZYPITAMAGTM is still in the early stages of its commercialization and the Company continues to work towards growing the ZYPITAMAGTM brand, usage of the product and revenues from ZYPITAMAGTM. The 2018 revenues were higher than those earned in 2019 due to the initial ordering by wholesaler customers of the product.

 

On October 3, 2019, the Company announced that it has reached a preferred pricing agreement with the ADAP Crisis Task Force for ZYPITAMAGTM. The agreement will open access to ZYPITAMAGTM tablets to low income, underinsured and uninsured Americans who qualify for ADAP coverage in states where ZYPITAMAGTM has been adopted onto the ADAP formulary.

The ADAP Crisis Task Force negotiates reduced drug prices for all ADAP formularies. ADAP formularies provide HIV treatment to low income, uninsured, and underinsured individuals living with HIV/AIDS in all 50 states and the US territories. The ADAP Crisis Task Force was formed in 2002, and is currently comprised of representatives from Arizona, California, Florida, Illinois, Massachusetts, New York, North Carolina, Tennessee, Texas, Virginia, and Washington state HIV/AIDS divisions.

On January 28, 2019 the Company entered into an agreement with Sensible to become the exclusive marketing partner for ReDS™ in the United States. ReDS is a non-invasive, FDA-cleared medical device that provides an accurate, actionable and absolute measurement of lung fluid which is important in the management of congestive heart failure. The lung fluid measurements are used in guiding treatment and monitoring a heart failure patient’s condition and may lead to a significant decrease in readmissions and hospital costs. Clinical studies have shown an 87% reduction in heart failure readmission rates for patients using the ReDS system at home for three months post-discharge versus those who were treated with usual care alone. ReDS is already marketed to U.S. hospitals by Sensible and Medicure expects to begin marketing ReDSimmediately using its existing commercial organization. Under the terms of the agreement, Medicure will receive a percentage of total U.S. sales revenue of the device and must meet minimum annual sales quotas.

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On September 17, 2019 the Company announcedthe launch of the ReDSTMPRO system, the next generation of lung fluid management technology for heart failure. The debut of the new system took place at the HFSA conference in Philadelphia, Pennsylvania. ReDSTM PRO is optimized for the point-of-care market, designed for use in hospitals and sub-acute facilities. ReDSTM PRO utilizes non-invasive low energy radio frequency technology that produces reliable fluid volume readings after only 45 seconds of measurement. The ReDSTMPRO can be utilized across the continuum of hospital care, from the emergency department to discharge and subacute rehabilitation. The ReDSTMPRO represents the next generation of ReDSTM.

 

On October 15, 2019 the Company announced the primary results of the late-breaking SMILE-HF Clinical Trial which was presented at the HFSA conference in Philadelphia, Pennsylvania by Dr. William T. Abraham, the SMILE-HF national principal investigator.

The SMILE-HF trial demonstrated that when used as intended, ReDS™ treatment guided heart failure management prevented 58% of heart failure readmission(s). Data was collected from 268 patients by 43 centers across the United States, constituting the largest randomized control trial to date on the impact of ReDS™ on managing heart failure. Patients were recruited for the study during hospitalization and followed for up to nine months at home. Daily measurements were taken using ReDS™ with the goal of keeping lung fluid content within the normal range of 20-35%. Data aggregated in the cloud was sent to physicians to monitor and adjust medication with the goal to keep each patient’s fluid status balanced and avoid hospital readmission.

The Company has considered indicators of impairment as at December 31, 2019 and recorded a write-down of intangible assets related to the ReDSTMlicense during the year ended December 31, 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. Additionally, a loss of $6,336 was recorded within other comprehensive loss from the revaluation of the investment in Sensible made during the year ended December 31, 2019. Despite recording the impairment on the license over ReDSTM and the investment in Sensible Medical, the Company continues to marketReDS™ PRO and continues to work to safeguard or monetize the Company’s investment.

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 has recently become available in the United States with the initial sales from SNP being recorded subsequent to December 31, 2019 in January of 2020.

On October 31, 2017, the Company acquired an exclusive license to sell and market PREXXARTAN®, which treats hypertension, in the U.S. and its territories from Carmel for a seven-year term with extensions to the term available. Medicure acquired the license rights for an upfront payment of U.S.$100,000, with an additional U.S.$400,000 payable on final FDA approval. Carmel would also be entitled to receive royalties and milestone payments from the net revenues of PREXXARTAN®. PREXXARTAN®had been granted tentative approval by the FDA and the tentative approval was converted to final approval on December 19, 2017.

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As announced on March 19, 2018 and up-dated on March 28, 2018, all PREXXARTAN®related activities were placed on hold by the Company pending the resolution of a dispute that Medicure became aware of between the owner of the New Drug Application (“NDA”), Carmel and the third-party manufacturer of the product. The Company was also named in a civil claim in Florida between the third-party manufacturer and Carmel. The claim disputed the rights granted to Medicure by Carmel in regards to PREXXARTAN®. More recently the claim against the Company was withdrawn, however the dispute between Carmel and the third-party manufacturer continues.

Medicure had intended to launch PREXXARTAN® during the first half of 2018. To date, only an up-front payment of U.S.$100,000, has been made to Carmel in regards to PREXXARTAN®and the Company has reserved all of its rights under the license agreement with Carmel for PREXXARTAN®.

Going forward and contingent on sufficient finances being available, the Company intends to further expand revenue through marketing and promotional activities, strategic investments related to AGGRASTAT® and ZYPITAMAGTM, the sales and marketing of ReDSTM and SNP, as well as the licensing, acquisition and/or development of other nichecardiovascular products that fit the commercial organization.

Research and Development:

 

The Company’s research and development activities are predominantly conducted by its wholly-owned Barbadian subsidiary, Medicure International Inc.

 

AGGRASTAT®

One of the primary ongoing research and development activities 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 could 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.

 

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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 announced that it has 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 Complete Response LetterCRL to communicate that its initial review of the application is complete;was completed; however, it cannotcould not approve the application in its present form and requested additional information. The Company continues to work directly with the FDA to address these comments.comments and explore other options available.

 

The sNDA filing was accompanied by a mandatory US $1.167U.S. $1.2 million 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.

 

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The Company is also continuing to explore other experimental uses and product formats related to AGGRASTAT®. On September 1, 2016, the Company announced that it hashad received approval from the FDA for its new bolus vial product format for AGGRASTAT®.

 

The newThis product format is a concentrated, pre-mixed, 15 ml vial containing sufficient drug to administer the FDA approved, high dose bolus (“HDB”)HDB of 25 mcg/kg given at the beginning of treatment. AGGRASTAT® is currently onlyalso sold in a pre-mixed intravenous bag format that comes in two other sizes, a 100 ml vial and a 250 ml.ml bag. The existing, pre-mixed products will 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 believescontinues to believe this new 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,” to patients receiving a 12 to 18 hour18-hour infusion of 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 April 26, 2017,2018 and on December 17, 2019, the study was approximately 80% through toCompany announced the completion of enrolment.the Shortened AGGRASTAT® (tirofiban hydrochloride) injection versus Integrilin®(eptifibatide) in Percutaneous Coronary Intervention (SAVI-PCI) Clinical Trial. Topline results of the SAVI-PCI trial will be communicated in 2020.

 

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 trialassessing different regimens of intravenous platelet inhibitors, notably tirofiban and cangrelor (an IV P2Y12 inhibitor) in the early phase of primary PCI. The study enrolled 120 patients. The Company expects to release top-line data in 2020.

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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.

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 January 6, 2016,August 13, 2018, the Company announced that it had initiated the developmentFDA has approved its ANDA for SNP. SNP is indicated for the immediate reduction of a cardiovascular generic drug.blood pressure for adult and pediatric patients in hypertensive crisis. The projectproduct 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 a collaboration between Medicure International, Inc. and Apicore US LLC (together with its affiliates “Apicore”), a leading-edge manufacturer of generic active pharmaceutical ingredients ("APIs”). The collaborative project was focusedpreviously announced by the Company on the development of an intravenous aNDA drug product for an acute cardiovascular indication. Medicure and Apicore have entered into an exclusive product supply and development agreement under which Medicure holds all commercial rights. On December 13, 2016,2016. Medicure’s SNP has recently become available in the Companyannounced that the aNDA was filedUnited States with the U.S. Food and Drug Administration.initial sales from SNP being recorded subsequent to December 31, 2019 in January of 2020.

 

In addition to the collaboration with Apicore, theThe Company is focused on the development of two additional cardiovascular generic drugs. When combined with the aNDAANDA described above and the acquisition of ZYPITAMAGTMand the marketing partnership for ReDSTM, the Company expects to transform its commercial suite of products from a single product to fourat least five approved products by the end of 2019.in 2021.

 

The Company is actively working andhad been devoting a modest amount of resources to its research and development programs, including, but not limited to the development of TARDOXALTM(pyridoxal 5 phosphate (“P5P”) formerlyknown as 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.

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On August 13, 2014, the Company announced that the preliminary results The advancement of its Phase IIa Clinical Trial, TARDOXALTM for the Treatment of Tardive Dyskinesia (TEND-TD) showed a non-statistically significant improvement in the primary efficacy endpoint in patients treated withis currently on hold. The Company changed its focus from TARDOXALTM. Medicure views these preliminary results as supportiveto other uses of continuing the programP5P and developing a modified formulation as a preludecontinues to a larger, confirmatory Phase II study.

It is the Company’s intention to develop TARDOXALTM independently and/or in conjunction with a larger pharmaceutical company for commercialization of the product. Similar partnerships may be required for other products that the Company may fromdevote time to time seek to develop. Such a partnership would provide funding for clinical development, add experienceand resources to the product development process and provide market positioning expertise. No formal agreement for such a commercial partnership has been entered into by the Company asadvancement of the date hereof.P5P development.

 

The following table summarizes the Company’s research and development programs, their therapeutic focus and their stage of development.

 

Product CandidateTherapeutic focusStage of Development
AGGRASTAT®AGGRASTAT®Acute CardiologyApproved/Marketed – Additional studies underway
Generic aNDA 1ZYPITAMAGTMPrimary Hyperlipidemia or Mixed DyslipidemiaApproved/Marketed
ReDSTMHeart Failure – Medical DeviceApproved/Marketed
PREXXARTAN®HypertensionApproved – Commercial launch on hold
SNPAcute CardiologyANDA approved/Marketed
Generic ANDA 2aNDAAcute CardiologyANDA filed
Generic aNDA 2ANDA 3Acute CardiologyFormulation development underway
Generic aNDA 3Acute CardiologyFormulation development underway
TARDOXALTM/P5PTD/Neurological indications

TARDOXALTM– On hold

P5P - Regulatory and clinical planning underway

 

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.

Potential New Products in Development Stage50  

 

Cardiovascular Generic and Reformulation Products:

 

On January 6, 2016, the Company announced that it had initiated the development of a cardiovascular generic drug. The project was a collaboration between Medicure International, Inc. and Apicore US LLC (together with its affiliates “Apicore”), a leading-edge manufacturer of generic active pharmaceutical ingredients ("APIs”). The collaborative project was focused on the development of an intravenous aNDA drug product for an acute cardiovascular indication. Medicure and Apicore have entered into an exclusive product supply and development agreement under which Medicure holds all commercial rights. On December 13, 2016, the CompanyOther Productsannounced that the aNDA was filed with the FDA. Medicure has also begun the development of two additional generic versions of acute cardiovascular drugs and is exploring other potential opportunities.

TARDOXALTMfor Neurological Conditions: One of the Company’s ongoing investments is the clinical development and commercialization of its research product, TARDOXALTM (pyridoxal 5-phosphate) for TD and other neurological conditions. TD is a serious movement disorder which results from long term treatment with antipsychotic medications. At present there is no treatment available for TD in the US. TARDOXALTM's potential for treatment of TD is supported by its biological mechanism of action and by preliminary clinical studies which indicated efficacy of a related compound in treatment of TD.

On August 13, 2014, the Company announced that the preliminary results of its Phase IIa Clinical Trial, TARDOXALTM for the Treatment of Tardive Dyskinesia (TEND-TD) showed a non-statistically significant improvement in the primary efficacy endpoint in patients treated 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.

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TEND-TD was planned as a 140 patient Phase II clinical trial to evaluate the efficacy and safety of TARDOXALTM for the treatment of Tardive Dyskinesia, with a pre-planned interim analysis after approximately 40 patients were enrolled. The primary efficacy endpoint for the study was a decrease in involuntary movements as measured by the Abnormal Involuntary Movement Scale (AIMS), a standardized test used to detect and monitor TD and other movement disorders. The results from all 37 patients (17 randomized to TARDOXALTM and 20 to matching placebo) who completed the 12-week treatment period showed a trend to greater improvement in AIMS score from baseline to completion of study in the TARDOXALTM group versus placebo. The study was not adequately powered to assess efficacy and the improvement noted was not statistically significant. No significant differences between the study groups were seen in safety endpoints, however, there was a trend to increased nausea reported in the treatment group. This side effect was anticipated and has been seen in the Company’s previous clinical studies with the product. As it was not feasible to complete an adequately powered study prior to expiry of the product and due to the Company’s limited financial resources at that time, enrolment was stopped after attainment of the target number for the pre-planned interim analysis.

 

The Company plans to maintain a modest investment in the research and development of TARDOXALTM to develop clinical development plans. The Company is also exploring modified formulations to reduce nausea that may be associated with use of the product. A larger, confirmatory Phase II study will be required to evaluate and confirm the safety and efficacy of TARDOXALTM in treatment of TD and other neurological conditions. TARDOXALTM is an experimental drug and has not been approved for commercial use by regulatory bodies such as the FDA or Health Canada.

TARDOXALTM continues to have Fast Track designation from the FDA for the treatment of moderate to severe TD. Fast Track designation is designed to facilitate the development and expedite the review of new drugs that are intended to treat serious or life-threatening conditions and that demonstrate the potential to address unmet medical needs.

Other Products:TheCompany is investing in the research 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, 2016,2019, the Company had numerous issued United States patents (see Item 5 –Operating and Financial Review and Prospects – C. Research and Development, Patents and Licenses, Etc. below).

 

Competitors’ Current Products

 

The Company’s only commercial product AGGRASTAT®AGGRASTAT®, is owned by the Company’s subsidiary, Medicure International, Inc., and is sold in the United States of America through the Company’s subsidiary, Medicure Pharma, Inc. AGGRASTAT®AGGRASTAT® is indicated to reduce the rate of thrombotic cardiovascular events (combined endpoint of death, myocardial infarction, or refractory ischemia/repeat cardiac procedure) in patients with non-ST elevation acute coronary syndrome (NSTE-ACS).

 

AGGRASTAT® AGGRASTAT®competes in a market segment commonly referred to as the anti-thrombotic market (treatments to remove or prevent formation of blood clots). More specifically, AGGRASTAT®AGGRASTAT® is an antiplatelet drug which affects thrombus (blood clot) formation by preventing the aggregation of platelets in the blood stream. Of the different classes of antiplatelet drugs, AGGRASTAT®AGGRASTAT®is a representative of the glycoprotein IIB/IIIA inhibitors drug class. There are three of these agents approved for use, including abciximabbciximab (ReoPro®),eptifibatideeptifibatide (Integrilin(Integrilin®), and tirofiban (AGGRASTAT®(AGGRASTAT®). All three are proprietary drugs and only eptifibatide has generic equivalents, which were introduced beginning in December 2015. Of the two directly competing agents, AGGRASTAT® AGGRASTAT®is most closely comparable to eptifibatide (Integrilin) as they are both highly potent, small molecule drugs that have reversible antiplatelet effects.

 

The launch of the injectable antiplatelet agent, cangrelor (KengrealTM), by The Medicines Company, occurred in 2015 and is expected to havehas had some impact on the use and sale of GPIs, including AGGRASTAT®AGGRASTAT®.

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The initial launch of generic versions of eptifibatide (Integrilin) occurred in December 2015 and could impact the utilization of AGGRASTAT®AGGRASTAT® in the future.

Due to the incidence and severity of cardiovascular diseases, the market for antihyperlipidemics is large and competition is intense. There are a number of approved antihyperlipidemic drugs, currently on the market, awaiting regulatory approval or in development. ZYPITAMAGTMwill compete with these drugs to the extent ZYPITAMAGTM and any of these drugs are approved for the same or similar indications.

Although ZYPITAMAGTM would be positioned as a relatively low-cost therapy, in certain circumstances, other treatment approaches are lower cost and may for this reason be preferred by health care professionals.

SNP was launched into a genericized market with several competitors already selling generic versions of the product and as such there is no assurance that the Company will be successful in launching SNP in 2020 and growing sales for the product. The failure of the Company to successfully launch and grow sales of SNP, or to establish a viable market for the Company’s version of the product, could have a material adverse effect on the Company’s long-term profitability.

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Competitors’ Products in Development

 

At present the Company is not aware of any other glycoprotein IIb/IIIa inhibitors in mid to late stage clinical development. However, the choice and use of AGGRASTAT®AGGRASTAT® may be affected by the continued advancement of new antithrombotic and antiplatelet agents, including the recently approved oral antiplatelet agents, ticagrelor (Brilinta®) and prasugrel (Effient®). Any future launch of generic version of AGGRASTAT®AGGRASTAT® and/or of other competitive drugs may also be expected to impact utilization of the Company’s drug. Many companies, including large pharmaceutical and biotechnology companies, are conducting development of products that are intended to address the same or a similar medical need. Many of these companies have much larger financial and other resources than the Company does, including those related to research and development, manufacturing, and sales and marketing. The Company also faces competition in recruiting scientific personnel from colleges, universities, agencies, and research organizations who seek patent protection and licensing agreements for the technologies they develop.

There are a number of approved antihyperlipidemic drugs, currently on the market, awaiting regulatory approval or in development. ZYPITAMAGTMwill compete with these drugs to the extent ZYPITAMAGTM and any of these drugs are approved for the same or similar indications.

SNP is being sold into a genericized market with several competitors already selling generic versions of the product and as such there is no assurance that the Company will be successful at growing sales of its SNP in 2020. The failure of the Company to successfully launch and grow sales of SNP, or to establish a viable market for the Company’s version of the product, could have a material adverse effect on the Company’s long-term profitability.

Divesture of Apicore

On October 3, 2017, the Company sold its interests in Apicore Operations(the “Apicore Sale Transaction”) to an arm’s length, pharmaceutical company (the “Buyer”). Under the Apicore Sale Transaction, the Company received net proceeds of approximately U.S. $105.0 million of which approximately U.S. $55.0 million was received on October 3, 2017, with the remainder received in early 2018. There is also a holdback that was to be received in 2019 as per the terms of the agreements. These funds received by the Company were after payment of all 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 other adjustments.

 

On November 17, 2016February 1, 2018, the Company and its wholly owned subsidiary, Medicure Mauritius Limited, exercised its option rights toreceived the deferred purchase interests in Apicore, Inc. and Apicore LLC. The 2016 Apicore Transaction was closed on December 1, 2016. Apicore, Inc. and Apicore LLC are affiliated entities that together operateprice proceeds of approximately U.S. $50.0 million from the Buyer as a result of the Apicore pharmaceutical business and are referred to together as “Apicore”. Apicore is a leading process research and development and Active Pharmaceutical Ingredients (“APIs”) manufacturing service provider forSale Transaction. The U.S. $50.0 million was included in the worldwide pharmaceutical industry. The acquisition brings the Company and its subsidiary’s ownership interests in Apicore, Inc. to 64% (or approximately 59% on a fully diluted basis) and the Company and its subsidiary’s ownership in Apicore LLC. to 64% (basic and fully-diluted). Five percenttotal net proceeds of Medicure’s ownership in Apicore LLC is held by Apigen Investments Limited (“Apigen”), a Company which owned 100 percent of Apicore LLC, before the Acquisition.

U.S. $105.0 million described earlier. The Company acquired 4,717,000 Series A Preferred Shares and 1,250,000 Warrants to purchase Class D Common Shares indid not receive any contingent payments based on an earn out formula as certain financial results within the Apicore Inc. from certain investors inbusiness were not met following the Apicore Inc. Medicure Mauritius Limited acquired 4,717,000 Series A Preferred Interests and 1,250,000 Warrants to purchase Class D Common Interests in Apicore LLC, from Apigen Investments Limited. Apicore LLC is the holding company of Apicore Pharmaceuticals Private Limited which conducts the business of Apicore in India and Apigen is a Mauritius holding Company, that has minimal business activities outside of those of its subsidiary. The Warrants are exercisable into Class D Common Shares of Apicore, Inc. and Class D Common Interests of Apicore LLC, in each case at $0.01 each and are effectively ownership interests in Apicore.

Prior to the 2016 Apicore Transaction, Medicure held, directly or indirectly, approximately 5% ownership in Apicore. This initial ownership interest and the option rights were obtained for the Company’s lead role in structuring and participating in a majority interest purchase and financing of Apicore that occurred on July 3, 2014.

Medicure continues to have additional option rights until July 3, 2017 to acquire additional shares in Apicore, Inc. and Apicore LLC at predetermined prices consistent with the value reflected in the 2016 ApicoreSale Transaction.

 

On January 9, 2017,February 13, 2019, the Company announced that it has providedhad 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 secured loanview 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 amountpurchaser that could result in mitigation of US$9.8 million to Apicore Inc. (“Apicore”) allowing for the repayment of Apicore’s existing debt with Knight Therapeutics Inc. (TSX: GUD) and Sanders Morris Harris Inc. The loan bears interest at 12% per annum, matures on December 30, 2020 and is secured by a charge over the U.S. assets of Apicore. Funding to provide this loan was previously obtained from Crown Capital Fund IV, LP, an investment fund managed by Crown Capital Partners Inc. (“Crown”) (TSX:CRN), in which Crown holds a 40% interest, and the Ontario Pension Board, a limited partner in Crown’s funds, as previously announced on November 18, 2016.potential claims.

 

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Additionally, Medicure acquired an additional 112,500 Class E common shares of Apicore, representing approximately 1% of Apicore, for US$549,000 from a former employee of Apicore and former members of Apicore’s Board of Directors. These shares were issued as a result of the exercise of stock options held in Apicore by these individuals and purchased by Medicure at a pre-specified price in accordance with Apicore’s stock option plan and Medicure’s option rights. Medicure currently owns approximately 61% of Apicore on a fully diluted basis and continues to hold option rights until July 3, 2017 to acquire additional shares in Apicore.

Apicore is a private, New Jersey based developer and manufacturer of specialty APIs and pharmaceuticals, including over 15 aNDA’s, one of which, is partnered with Medicure and two of which have been approved by the FDA. Apicore has two FDA approved facilities. In the United States, the Somerset, New Jersey facility can produce volumes from a few grams up to 200kg and in India, the Vadodara, Gujarat facility can produce volumes from a few kilograms up to sixty metric tons annually. Both facilities are equipped with state-of-the-art analytical and research capabilities. Apicore manufactures over 100 different API’s, including over 35 for which Drug Master Files have been submitted to the FDA and 12 that are approved for commercial sale in the U.S. by Apicore’s customers.  Apicore specializes in the manufacture of difficult to synthesize, high value and other niche API’s for many U.S. and international generic and branded pharmaceutical companies.

On December 13, 2016, the Company in conjunction with Apicoreannounced that the aNDA resulting from the collaboration project between Medicure and Apicore was filed with the FDA.The collaborative project was focused on the development of an intravenous drug product for an acute cardiovascular indication.

On March 23, 2017,5, 2019, the Company announced that its majority-owned subsidiary, Apicore Inc., has received final approval fromit had reached a settlement agreement with the FDA forpurchaser of the Company’s aNDA for tetrabenazine tabletsinterests in Apicore with respect to the 12.5 mg and 25 mg strengths. The newly approved product isamounts heldback under the Apicore sale agreement. A settlement agreement was reached under which Medicure will receive a generic equivalentnet payment of U.S. $5.1 million in relation to the branded product Xenazine® sold in the United States by Valeant Pharmaceuticals. Xenazine is indicated to treat the involuntary movements (chorea) of Huntington’s disease. Development of tetrabenazine was done in partnership with TAGI Pharma Inc., which recently launched the product commercially.holdback receivable.

 

The Company’s plan of operations is to increase Apicore’s revenues and customer base over time. The Company believes there is opportunity for organic growth within Apicore as it begins to receive FDA approval for products that are currently under development, as well as continuing to develop additional new products.

Since the date of the Acquisition, the Company has continued to operate the Apicore business separately from the Company’s pre-existing specialty pharmaceutical business, and Apicore, Inc. continues to be managed under the direction of its Board consisting of six directors, of which four are members of the Board of Directors of Medicure.

Competitive Strategy and Position

 

The Company is primarily focusing on:

 

·Maintaining and growing AGGRASTAT®AGGRASTAT® sales in the United States

 

The Company is workingcontinues to work to expand the sales of AGGRASTAT® in the United States. The present market for GPIs, of which AGGRASTAT® is one of three agents, is approximately U.S. $200 million per year. The use of AGGRASTAT®is recommended by the AHA and ACC Guidelines for the treatment of ACS. AGGRASTAT® has been shown, to reduce the rate of thrombotic cardiovascular events (combined endpoint of death, myocardial infarction, or refractory ischemia/repeat cardiac procedure) in patients with NSTE ACS.

 

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·The development and implementation of a new regulatory, brand and clinical strategy for AGGRASTAT®

As stated previously, one of the Company’s primary ongoing research and development activities is the continued development and further implementation of a new regulatory, brand and life cycle management strategy for AGGRASTAT®.

 

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® High Dose Bolus (“HDB”)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 could 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 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 GPI to receive such a label in the United States. On July 7, 2016, the Company announced that it has received a Complete Response Letter from the FDA for its sNDA requesting an expanded indication for patients presenting with STEMI. The FDA issued the Complete Response Letter to communicate that its initial review of the application is complete; however it cannot approve the application in its present form and requested additional information. The Company continues to work directly with the FDA to address these comments.

The Company is also continuing to explore other experimental uses and product formats related to AGGRASTAT®. On September 1, 2016, the Company announced that is hasit had received approval from the FDA for its new bolus vial product format for AGGRASTAT®. The newly approved product format is a concentrated, pre-mixed, 15 ml vial designed specifically for convenient delivery of the AGGRASTAT®bolus doesdose (25 mcg/kg). Development of the bolus vial was in response to feedback from interventional cardiologists and catheterization lab nurses from across the United States. Commercial launch of the bolus vial has takentook place in October of 2016 and the Company believescontinues to believe this new product format will have a positive impact on hospital utilization of AGGRASTAT®.

The Company is also providing funding for a number of investigator sponsored research projects targeting contemporary utilization of AGGRASTAT® relative to its competitors.

The “Shortened AGGRASTAT®Versus Integrilin in Percutaneous Coronary Intervention” (“SAVI PCI”)On December 12, 2019, the Company announced the completion of the FABOLUS-FASTER Phase 4 trial, is intended to generate additional clinical data related to usea randomized,open-label, multi-center trialassessing different regimens of AGGRASTAT® which may help support future investmentsintravenous platelet inhibitors, notably tirofiban and cangrelor (an IV P2Y12 inhibitor) in the product.early phase of primary PCI. The SAVI PCI study is not expected nor intendedenrolled 120 patients. The Company expects to support further changes to AGGRASTAT®’s prescribing information.release top-line data in 2020.

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·Developing additional acute cardiovascular generic and reformulation productsGrowing sales of ZYPITAMAGTM in the United States

On September 30, 2019 the Company announced that through its subsidiary, Medicure International Inc., it has acquired the ownership of ZYPITAMAGTM from Zydus for U.S. and Canadian markets. Under terms of the agreement, Zydus will receive an upfront payment of U.S. $5,000 and U.S. $2,000 in deferred payments to be made over the next four years, as well as contingent payments on achievement of milestones and royalties related to net sales.

Previously, on December 14, 2017, the Company acquired from Zydus, an exclusive license to sell and market ZYPITAMAGTM, a branded cardiovascular drug, in the United States and its territories for a term of seven years with extensions to the term available. ZYPITAMAGTM is used for the treatment of patients with primary hyperlipidemia or mixed dyslipidemia and was approved in July 2017 by the FDA for sale and marketing in the United States. On May 1, 2018 ZYPITAMAGTM became commercially available in retail pharmacies throughout the United States. The Company’s product launch utilized its existing commercial infrastructure and while not an in-hospital product like AGGRASTAT®, ZYPITAMAGTM added to the Company’s cardiovascular portfolio and expanded the Company’s reach to new patients. ZYPITAMAGTM contributed revenue of $183,000 to Company for the year ended December 31, 2019 and $652,000 of revenue to the Company during the year ended December 31, 2018. ZYPITAMAGTM is still in the early stages of its commercialization and the Company continues to work towards growing the ZYPITAMAGTM brand, usage of the product and revenues from ZYPITAMAGTM. The 2018 revenues were higher than those earned in 2019 due to the initial ordering by wholesaler customers of the product.

Growing sales of ReDSTM in the United States

 

On January 6, 2016,28, 2019 the Company entered into an agreement with Sensible to become the exclusive marketing partner for ReDS™ in the United States. ReDS is a non-invasive, FDA-cleared medical device that provides an accurate, actionable and absolute measurement of lung fluid which is important in the management of congestive heart failure. The lung fluid measurements are used in guiding treatment and monitoring a heart failure patient’s condition and may lead to a significant decrease in readmissions and hospital costs.  Clinical studies have shown an 87% reduction in heart failure readmission rates for patients using the ReDS system at home for three months post-discharge versus those who were treated with usual care alone. ReDS is already marketed to U.S. hospitals by Sensible and Medicure expects to begin marketing ReDSimmediately using its existing commercial organization.  Under the terms of the agreement, Medicure will receive a percentage of total U.S. sales revenue of the device and must meet minimum annual sales quotas.  

On September 17, 2019 the Company announcedthe launch of the ReDSTM PRO system, the next generation of lung fluid management technology for heart failure. The debut of the new system took place at the HFSA conference in Philadelphia, Pennsylvania. ReDSTM PRO is optimized for the point-of-care market, designed for use in hospitals and sub-acute facilities. ReDSTM PRO utilizes non-invasive low energy radio frequency technology that produces reliable fluid volume readings after only 45 seconds of measurement. The ReDSTM PRO can be utilized across the continuum of hospital care, from the emergency department to discharge and subacute rehabilitation. The ReDSTMPRO represents the next generation of ReDSTM.

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The Company has considered indicators of impairment as at December 31, 2019 and recorded a write-down of intangible assets related to the ReDSTMlicense during the year ended December 31, 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. Additionally, a loss of $6.3 million was recorded within other comprehensive loss from the revaluation of the investment in Sensible made during the year ended December 31, 2019. Despite recording this impairment on the license over ReDSTM and the investment in Sensible Medical, the Company continues to marketReDS™ PRO and continues to work to safeguard or monetize the Company’s investment

Acquisitions, licensing or marketing partnerships for new commercial products

The Company continues to explore additional opportunities for the acquisition or licensing of other cardiovascular products that fit the commercial organization.

Developing additional cardiovascular generic and reformulation products

On August 13, 2018, the Company announced that itthe 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 had initiatedbeen previously announced by the development of a cardiovascular generic drug. The project was a collaboration between Medicure International, Inc. and Apicore US LLC (together with its affiliates “Apicore”), a leading-edge manufacturer of generic active pharmaceutical ingredients ("APIs”). The collaborative project was focusedCompany on the development of an intravenous aNDA drug product for an acute cardiovascular indication. Medicure and Apicore have entered into an exclusive product supply and development agreement under which Medicure holds all commercial rights. On December 13, 2016,2016. Medicure’s SNP has recently become available in the Companyannounced that the aNDA was filedUnited States with the FDA.initial sales from SNP being recorded subsequent to December 31, 2019 in January of 2020.

Medicure hasis also begun the development ofdeveloping two additional generic versions of acute cardiovascular drugs and is exploring other potential opportunities.

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·Generating material value for the Company from the majority ownership position in Apicore and, potentially, from the Company’s option to acquire additional shares of Apicore

On July 3, 2014, the Company acquired a minority interest in Apicore along with an option to acquire all of the remaining issued shares of Apicore within the next three years at a predetermined price. The business and operations of Apicore are distinct from the Company, and the Company’s primary operating focus remains on the sale and marketing of AGGRASTAT®.

On November 17, 2016, the Company and its wholly owned subsidiary, Medicure Mauritius Limited, exercised its option rights to purchase interests in Apicore, Inc. and Apicore LLC. The 2016 Apicore Transaction was closed on December 1, 2016. Apicore, Inc. and Apicore LLC are affiliated entities that together operate the Apicore pharmaceutical business and are referred to together as “Apicore”. Apicore is a leading process research and development and Active Pharmaceutical Ingredients (“APIs”) manufacturing service provider for the worldwide pharmaceutical industry. The acquisition brings the Company and its subsidiary’s ownership interests in Apicore, Inc. to 64% (or approximately 59% on a fully diluted basis) and the Company and its subsidiary’s ownership in Apicore LLC. to 64% (basic and fully-diluted). Five percent of Medicure’s ownership in Apicore LLC is held by Apigen Investments Limited (“Apigen”), a Company which owned 100 percent of Apicore LLC, before the Acquisition. The Company intends to seek opportunities to increase the value of its majority position in Apicore and believes that the potential realization of value through the exercise of its option to acquire all of the remaining issued shares of Apicore could benefit the Company’s shareholders.

·The development of TARDOXALTM for Tardive Dyskinesia and other neurological indications

The Company is actively working and devoting a modest amount of resources to this program, including, but not limited to the development of TARDOXALTM(formerly known as MC-1) for neurological conditions such as Tardive Dyskinesia. This work includes, but is not limited to, working with the FDA to better understand and refine the next steps in development of the product.

It is the Company’s intention to develop TARDOXALTM independently and/or in conjunction with a larger pharmaceutical company for commercialization of the product. Similar partnerships may be required for other products that the Company may from time to time seek to develop. Such a partnership would provide funding for clinical development, add experience to 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.

C. Organizational Structure

 

Medicure International, Inc., a wholly owned subsidiary of the Company, was incorporated pursuant to the laws of Barbados, West Indies, on May 23, 2000. Medicure International, Inc.’s registered office is located at Whitepark House, White Park Road, Bridgetown, Barbados. Medicure International Inc.’s head office is located at 1st Floor Limegrove Centre Holetown, St. James, Barbados.

 

Medicure Pharma, Inc., a wholly owned subsidiary of the Company, was incorporated pursuant to the laws of the State of Delaware, United States of America, on September 30, 2005. Medicure Pharma Inc.’s registered office is 2711 Centerville Road, Suite 400, Wilmington, Delaware, 19808. Medicure Pharma, Inc.’s head office is located at 49 Napoleon Court,116 Village Blvd. Suite 2, Somerset,202, Princeton, NJ, 08873.08540.

 

Medicure U.S.A., Inc., a wholly owned subsidiary of the Company, was incorporated pursuant to the laws of the State of Delaware, United States of America, on June 23, 2014. Medicure U.S.A. Inc.’s registered office is 2711 Centerville Road, Suite 400, Wilmington, Delaware, 19808.

 

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Medicure Mauritius Limited, a wholly owned subsidiary of the Company was incorporated pursuant to the laws of the Republic of Mauritius on November 17, 2016. Medicure Mauritius Limited’s registered office is 6th floor, Tower A, 1 CyberCity, Ebene, Mauritius.

 

Apicore, Inc.,Apigen Investments Limited, a majoritywholly owned subsidiary of the Company, was incorporated pursuant to the laws of the State of Delaware, United States of America, on March 19, 2014. Apicore,Inc.’s registered and head offices are 49 Napoleon Court, Somerset, New Jersey, 08873. Apicore US, LLC. is a wholly owned subsidiary of Apicore, Inc.

Apicore LLC, a a majority owned subsidiary of the Company, was incorporated pursuant to the laws of the State of Delaware, United States of America, on March 19, 2014. Apicore Pharmaceuticals Private Limited is a wholly-owned subsidiary of Apicore LLC. and was incorporated in India in July 2006.

Apigen Investments Limited, a Company that is 12% owned by Medicure Inc. was incorporated pursuant to the laws of the Republic of Mauritius on June 27, 2014. Apigen Investments Limited’s registered office is 4th floor, Tower A, 1 CyberCity, Ebene, Mauritius.

 

American Cardio Therapeutics Inc., a Company that is 49% owned by 55  

Medicure Pharma Inc.,Europe Limited, a wholly owned subsidiary of the Company, was incorporated pursuant to the laws of the State of Delaware, United States of America,Ireland on September 30, 2005. American Cardio Therapeutics Inc.’sOctober 17, 2017. Medicure Pharma Europe Limited’s registered office is 2711 CentervilleBlock 3, Harcourt Centre, Harcourt Road, Suite 400, Wilmington, Delaware, 19808. As at May 31, 2014, American Cardio Therapeutics Inc. had no activity and it is the Company’s intention that American Cardio Therapeutics Inc. will be wound up.Dublin 2.

 

D. Property, Plant and Equipment

 

Office Space

 

Included within thebusiness and administration services agreemententered into with Genesys Venture Inc. (see Item 5F -Contractual Obligations), is the use of office space at Genesys Venture Inc.’s head office located at 1250 Waverley Street in Winnipeg, Manitoba, Canada. As at December 31, 2016,2019, the Company had use of approximately 10,00014,720 square feet.

Apicore US LLC. has leased office space and production facilities at 49 Napoleon Court in Somerset, New Jersey, United States of America from Dap Dhaduk II, LLC. As at December 31, 2016, the Company had use of approximately 32,500 square feet.

Apicore Pharmaceuticals Private Limited owns approximately eight acres of land and manufacturing facilities in India, with approximately 61,500 square feet of production and utilities space.

 

ITEM 4A. UNRESOLVED STAFF COMMENTS

 

Not applicable

 

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

This section contains forward-looking statements involving risks and uncertainties. The Company'sCompany’s actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under part Item 3D - Risk Factors. The following discussion of the financial condition, changes in financial conditions and results of operations of the Company for the years ended December 31, 20162019 and December 31, 20152018 should be read in conjunction with the consolidated financial statements of the Company. The Company’s consolidated financial statements are presented in Canadian dollars and have been prepared in accordance with IFRS included under Item 18 to this Annual Report.

 

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Critical Accounting Policies and Estimates

Estimates

 

The preparation of the Company’sthese 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 of the CompanyCompany’s and its subsidiariessubsidiaries’ functional currency and the determination of the Company's cash generating units ("CGU") for the purposes of impairment testing.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 as follows:included in the following notes to the consolidated financial statements for the year ended December 31, 2019:

 

·ValuationThe valuation of the investment in Sensible Medical

The valuation of the royalty obligation

 

·ProvisionsThe provisions for returns, chargebacks, rebates and discounts

 

·The measurement and valuation of inventory

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·The measurement and period of use of intangible assets

 

·The estimation of accruals for research and development costs

·The measurement of the amount and assessment of the recoverability of income tax assets

·Allocation of purchase consideration to the fair value of assets acquired and liabilities assumed.

·Valuation of acquired intangible assets.

·The assumptions and model used to estimate the value of share-based payment transactions and warrantsincome tax provisions

 

Valuation of financial instruments

Financial Assets

Initial recognition and measurement

Upon recognition of a financial asset, classification is made based on the royaltybusiness 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 Company may irrevocably designate the presentation of subsequent changes in the fair value of such equity instrument as FVTPL

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, short-term investments and accounts receivable 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. The holdback receivable was 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 classified 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 warrant liabilityto pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and other long-term liabilityeither (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.

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Financial liabilities

Initial recognition and measurement

 

The Company has the following non-derivativerecognizes a financial liabilities which are classified as other financial liabilities: short-term borrowings, accounts payable and accrued liabilities, income taxes payable, deferred revenue, finance lease obligations 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 rate 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 and acquisition payable which are recognized on an amortized over the term of the associated debt using the effective interest rate method. Amortization is a non-cash charge to finance expense.cost basis.

 

The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled, or when they expire.

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 required 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.

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The other long-term liabilityacquisition payable 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 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 rate and making assumptions about them.rate.

 

Warrants withOffsetting 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 exerciseintention 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 denominatedthat 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 that market participants would use when pricing an asset 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 derivative. 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.

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Provision for returns, chargebacks, rebates and discounts

The Company has three commercially available products that generated revenue for the year ended December 31, 2019, AGGRASTAT®, ZYPITAMAG™ and ReDSTM(the “Products”) which it sells to United States customers. AGGRASTAT® and ZYPITAMAG™ are sold to wholesalers for resale; with AGGRASTAT® primarily being sold by the wholesalers to hospitals, while ZYPITAMAG™ is primarily sold by wholesalers to pharmacies. The Company sells ReDSTMdirectly to end users. Revenue from the sale of AGGRASTAT® and ZYPITAMAG™ is recognized upon the receipt of goods by the wholesaler, the point in time in which title and control of the transferred goods pass from the Company to the wholesale customer. At this point in time, the wholesaler has gained the sole ability to route the goods, and there are no unfulfilled obligations that could affect the wholesaler’s acceptance of the goods. Delivery of the product occurs when the goods have been received at the wholesaler in accordance with the terms of the sale. Revenue from the sale of ReDSTM is 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 and classified as fair value through profit and loss. The warrant liability wasis 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 was recorded as a gain or loss indate of the consolidated statement of net income and comprehensive income within finance expense. These warrants have not been listed on an exchange and therefore do not trade on an active market.invoice, which is consistent with market practice.

 

The warrant liability was recorded at the fair value of the warrants at the date at which they were granted and subsequently revalued at each reporting date. Estimating fair value for these warrants required determining the most appropriate valuation model which is dependent on the terms and conditions of the grant. This estimate also required determining the most appropriate inputs to the valuation model including the expected life of the warrants, volatility and dividend yield and making assumptions about them. These warrants expired, unexercised, on December 31, 2016

The liability to repurchase Apicore Class E shares was recorded at its fair value based on the fixed price of the employees’s put option net of the option’s exercise price.

The derivative option on Apicore Class C shares was recorded at the fixed purchase price in accordance with the terms and conditions of the grant.

The Apicore Series A-1 preferred shares were valued at their fair value in relation to the valuation of Apicore conducted to value the Company’s business combination.

Estimating fair value required using the most appropriate valuation model which is dependent on management’s assumptions on future cash flows and an appropriate discount rate.

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:

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 - Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.

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 AGGRASTAT® generally comprises finished commercial product, 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.

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Revenue from the sale of APIs, in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of estimated returns, trade discounts and volume rebates, if any. Revenue is recognized when persuasive evidence exists, usually upon shipment of the product, 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.

The Company may enter into collaboration agreements for product development for its APIs and product pipeline. The terms of the agreements may include nonrefundable signing fees, milestone payments and profit sharing arrangements on any profits derived from product sales from these collaborations. These multiple element arrangements are analyzed to determine whether the deliverables can be separated or whether they must be accounted for as a single unit of accounting. Up-front fees are recognized as revenue when persuasive evidence of an arrangement exists, the fee is fixed or determinable, delivery or performance has been substantially completed and collection is reasonably assured. If there are no substantive performance obligations over the life of the contract, the up-front non-refundable payment is recognized when the underlying performance obligation is satisfied. If substantive contractual obligations are satisfied over time or over the life of the contract, revenue may be deferred and recognized over the performance. The term over which upfront fees are recognized is revised if the period over which the Company maintains substantive contractual obligations changes.

Milestone payments are recognized as revenue when the condition is met, if the milestone is not a condition to future deliverables and collectability is reasonably assured. Otherwise, they are recognized over the remaining term of the agreement or the performance period.

The measurement and valuation of inventory

AGGRASTAT® inventories consist of unfinished product (raw materials in the form of API) and finished commercial product which are available for sale and are measured at the lower of cost and net realizable value.

AGGRASTAT® pre-launch inventory represents inventory for which regulatory approval is being sought, but has not yet been received and therefore is not available for sale. Pre-launch inventory is capitalized when the likelihood of obtaining regulatory approval is high. Should the likelihood of obtaining regulatory approval decline, any capitalized costs will be written-off in cost of goods sold. If regulatory approval is subsequently obtained, any write-down would be reversed, to the extent that the assigned cost is realizable.

Additionally, inventory includes raw materials, work in process and finished goods (APIs) which are manufactured and sold within the Apicore business and are measured at the lower of cost and net realizable value.

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.

Inventories are written down to net realizable value when the cost of inventories is estimated to be unrecoverable due to 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.

The measurement and period of use of intangible assets

Intangible assets that are acquired separately are measured at cost less accumulated amortization and accumulated impairment losses. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. 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.

 

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The costLicenses are amortized on a straight-line basis over the contractual term of intangible assetsthe acquired in a business combination is its fair value at the date of acquisition.license. 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. 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. Customer lists are amortized on a straight-line basis over approximately twelve years, or its economic life, if shorter.

 

Amortization on 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'sCompany’s patents and trademarks are expensed as incurred.

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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 aeare treated as changes in accounting estimates in the consolidated statements of income.

Estimation of accruals for researchnet (loss) income and development costscomprehensive (loss) income.

 

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.

The 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 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.

 

The 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.

 

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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. The Company and its subsidiaries have open tax years, primarily from 2010 to 2019, 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.

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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.

AllocationNEW ACCOUNTING STANDARDS AND INTERPRETATIONS

Set out below is the impact of purchase considerationthe mandatory adoption of the new accounting standard:

IFRS 16,Leases (“IFRS 16”)

Effective January 1, 2019, the Company has adopted IFRS 16 using the modified retrospective approach, recognizing a right of use asset equal to the fair value of assets acquired and liabilities assumed and valuation of acquired intangible assets.

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 at fair valueslease liability at the date of acquisition. On an acquisition-by-acquisition basis, any non-controlling interestinitial application, and prior periods were not restated. IFRS 16 which requires lessees to recognize assets and liabilities for most leases, with exemptions available for leases with a term that is twelve (12) months or less, or where the underlying asset is of a low value.

Unless exempted, as noted above, upon inception of a lease, lessees will be required to recognize a right-of use (“ROU”) asset, representing the Company’s right to use the underlying asset and a lease liability representing its obligation for lease payments due to the lessor. ROU assets and the corresponding liability are initially measured either at fairthe present value of non-cancellable payments, including those made in accordance with an option period when the non-controlling interestCompany expects to exercise an option period to extend or not terminate a lease.

Effective November 1, 2014, the Company entered into a sub-lease with Genesys Venture Inc. (“GVI”), a related party, to lease office space at a rate of $170,000 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 $212,000 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 $306,000 per annum until the end of the term of the lease. The discount rate used by the Company in calculating the lease obligation relating to the ROU asset is five percent.

The impact of the adoption of IFRS 16 on the Company’s statement of financial position at January 1, 2019 is as follows:

  December 31, 2018  Impact of transition to IFRS 16  January 1, 2019 
Assets            
Property and equipment $316,000  $677,000  $993,000 
             
Current liabilities            
Lease obligation $-  $300,000  $300,000 
             
Non-current liabilities            
Lease obligation $-  $377,000  $377,000 
  $316,000  $-  $316,000 

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The impact of the adoption of the Company’s operating lease commitments to the lease obligations recognized as a result of the adoption of IFRS 16 is as follows:

Operating lease commitments, including renewal options, as at December 31, 2018 $715,000 
Adjustment of lease commitments to present value of lease liability  (38,000)
Lease obligation as at January 1, 2019 $677,000 

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. This resulted in an increase to the ROU asset of $685,000. As at December 31, 2019, the lease obligation of the statement of financial position totaled $1.1 million with $240,000 recorded as the current portion of the lease obligation.

NEW ACCOUNTING STANDARD NOT YET ADOPTED

Amendments to IFRS 3 – definition of a business:

In October 2018, the International Accounting Standards Board (“IASB”) issued amendments to IFRS 3 Business Combinations, that seek to clarify whether a transaction results in an asset or a business acquisition. The amendments include an election to use a concentration test. This is a simplified assessment that results in an asset acquisition if substantially all of the fair value of the proportionate sharegross assets is concentrated in a single identifiable asset or a group of similar identifiable assets. The amendments apply to businesses acquired in annual reporting periods beginning on or after January 1, 2020. The Company does not expect the net assets acquired.amendments to have a significant impact on the consolidated financial statements upon adoption.

 

Contingent consideration is measured at fair value on acquisition date and is included as part of the consideration transferred. The fair value of the contingent consideration liability is remeasured at each reporting date with the corresponding gain or loss being recognized in earnings.

Goodwill is initially measured at cost, being the excess of fair value of the cost of the business combinations over the Company’s share in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. Any negative difference is recognized directly in the consolidated statements of 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 12 months of the date of the acquisition.

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 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.

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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

A. Operating Results

 

General

 

AlthoughThrough 2019, the Company is currentlywas focused on Medicure International’s solemaintaining and growing the sales AGGRASTAT® and ZYPITAMAGTM and the commercial product, AGGRASTAT®, this product has not been able to generate enoughlaunch of ReDSTM. The Company earned its initial revenue for the Company to reach sustained profitability.from SNP in January of 2020.

 

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, 20162019 Compared to the Twelve Months Ended December 31, 20152018

 

For the twelve months ended December 31, 2016, the results described below contain the operations of Apicore for the period from December 1, 2016 to December 31, 2016, which was acquired in the 2016 Apicore Transaction as at December 1, 2016.

Net AGGRASTAT®AGGRASTAT® product sales for year ended December 31, 20162019 were $29,980,000,$19.4 million compared to $22,083,000 in$28.5 million during the comparable period in 2015. year ended December 31, 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 of the Company’s sales are denominated in US dollars.

 

Net revenue from the sale of finished AGGRASTAT®products for the year ended December 31, 2016 increased by 36% over the net revenue for the year ended December 31, 2015. All of the Company’s sales are denominated in U.S. dollars.

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Hospital demand for AGGRASTAT® increased significantly compared to the comparable period inwas lower during 2019 than the prior year. The increase in revenue is primarily attributable to an increase inyear 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 number of new customers reviewing and implementingCompany’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 sharply ascompetition 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 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.

During the year ended December 31, 2019, ReDSTM contributed revenue of $618,000 from the sale of the product in the United States.

Net ZYPITAMAGTM product sales for year ended December 31, 2019 were $183,000 compared to $652,000 during the year ended December 31, 2018.

The Company currently sells ZYPITAMAGTM to drug wholesalers. These wholesalers subsequently sell ZYPITAMAGTMto pharmacies who in turn sell the product to patients. The decrease in ZYPITAMAGTM product sales for the year ended December 31, 2019 is 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 ZYPITAMAGTMrevenues to the increase in revenue.grow throughout 2020 and beyond.

 

The Company also recorded and additional $7,799,000 in revenues from Apicore for the period from December 1, 2016 to December 31, 2016.

AGGRASTAT® costCost of goods sold represents direct product costs associated with AGGRASTAT®AGGRASTAT®, ZYPITAMAGTM, ReDSTM and SNP including and write-downs for obsolete inventory, and amortization of the related acquired AGGRASTAT®intangible assets.assets and royalties paid on ZYPITAMAGTM.

 

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AGGRASTAT® AGGRASTAT®cost of goods sold excluding amortization, for the year ended December 31, 2016 were $2,374,0002019 was $3.6 million compared to $1,604,000 for the comparable period in the prior year. For the year ended December 31, 2016, 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 2015.

Amortization of AGGRASTAT® intangible assets decreased$3.7 million for the year ended December 31, 2016 to $1,347,000, when compared to $656,000 for the comparable period in the prior year.2018. The decrease is as a result of the AGGRASTAT® intangible assets becoming fully amortized during 2016 resulting in only ten months of amortization being recorded.

Additionally, the Company recorded cost of goods sold pertaining to Apicore totalling $6,048,000, however this included $2,731,000 that related to cost of goods sold on fair valued inventory.is the result of lower volume of AGGRASTAT product sold, as well as a higher percentage of 250 ml bags sold versus the other AGGRASTAT®formats.

 

Total selling, general, and administrative expendituresReDSTMcost of goods sold for the year ended December 31, 2016 were $16,233,000, compared2019 totaled $904,000 and consisted of $263,000 paid to $10,237,000 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®the amortization of the ReDSTMwere $11,730,000 license, which was recorded on the statement of financial position within intangible assets, prior to the impairment recorded over the ReDSTMintangible assets.

ZYPITAMAGTMcost of goods sold for the year ended December 31, 2016, compared2019 totaled $1.9 million and includes $34,000 relating to $7,666,000 forproduct sold to the comparable periodCompany’s wholesale customers, $1.0 million relating to a write-down of ZYPITAMAGTM product inventory, $797,000 from amortization of the ZYPITAMAGTM license and $2,000 relating to royalties on the sale of ZYPITAMAGTMresulting from the acquisition of the product in September of 2019.

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The cost of goods sold related to SNP relates to an impairment loss on the prior year. Selling, general, and administrative expenditures – Other were $3,672,000 forwrite-down of inventory of $940,000 recorded during the year ended December 31, 2016, compared to $2,571,0002019 as a result of reduced selling prices for the comparable periodproduct experienced in the prior year. Selling, general, and administrative expenditures – Apicore were $831,000 for the period from December 1, 2016market pertaining to December 31, 2016. SNP.

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®, ZYPITAMAGTM, ReDSTMand 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 decreased during the year ended December 31, 2019 as compared to the prior year due to commercial launch costs relating to ZYPITAMAGTM 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 tolower share-based compensation expenses during the year ended December 31, 20162019 as compared to same period in the prior year mainly due to:

·Additional payroll costs associated with the sale of AGGRASTAT® due to additional head office employees providing support for AGGRASTAT® as the Company’s headcount increased from 39 at December 31, 2015 to over 50 at December 31, 2016; and

·Increased travel costs associated with the sale of AGGRASTAT® due to more sales people travelling to service accounts and increased frequency of hospital visits.

Selling, general and administrative expenditures – Other increased during the year ended December 31, 2016 as compared to same period in the prior year mainly due to:2018.

 

·Higher costs associated with the acquisition of Apicore including legal and professional fees and additional salaries relating to corporate and business development activities.

Research and development expenditures include costs associated with the Company’s clinical development and preclinical programs including salaries, monitoring and other research costs. The Company expenses all research costs and has not had any development costs that meet the criteria for capitalization under IFRS. Prepaid 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, 20162019 were $5,092,000,$4.3 million compared to $4,865,000$6.7 million for the comparable period in the prior year.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 centredcentered costs and monitoring costs, as well as research and development costs associated with the development projects being undertaken to develop additional cardiovascular generic products and research and development conducted within the Apicore business.products. The Company expenses research costs and has not had any development costs that meet the criteria for capitalization under IFRS. The increase in research and development expenditures, fordecrease experienced during the year ended December 31, 2016 as2019 when compared to the year ended December 31, 20152018 is primarilya 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 additional cardiovascular generic products,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 well as amortizationat December 31, 2018.

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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 toformer President and Chief Executive Officer of Apicore intangible assets which waswere recorded within research and development expenses.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.

 

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Generally, included in research and development expenses are charges related to impairment of the Company’s intangibles assets, 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.

 

OnThe Company has considered indicators of impairment as at December 1, 2016,31, 2019 and 2018. The Company recorded a write-down of intangible assets related to the Company exercised certain option rights that resultedReDSTMlicense during the year ended December 31, 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 acquiring a majority interest in Apicore Inc.Company’s sales being below the committed amounts required by the exclusive marketing and Apicore LLC. The transaction was accounted for as a business combination achieved in stages. Apicore is a private, New Jersey based developer and manufacturer of specialty Active Pharmaceutical Ingredients (“API”) and pharmaceuticals specializing in the manufacturing of difficult to synthesize, high value and other niche APIs for many United States and international generic and branded pharmaceutical companies. The exercise of certain options resulted in the Company acquiring 4,717,000 Series A Preferred Shares and 1,250,000 Class D Warrants in Apicore in exchange for US$33,750,000 cash, increasing the Company’s ownership in Apicore to 64% (approximately 60% on a fully diluted basis)distribution agreement regarding ReDSTM. The Company retains option rights to purchasedid not record any write-down of intangible assets during the issued Class C common shares in Apicore until July 3, 2017, which represent 39% of the outstanding Apicore shares. In addition, Apicore has issued and outstanding Series A-1 preferred shares representing 2% of the outstanding shares which are redeemable at the option of the holder afteryear ended December 31, 2019. Finally, Apicore’s Class E shares are reserved for the exercise of employee stock options. At December 1, 2016, 25,000 Class E shares, were issued and outstanding and 447,500 options became fully vested on the change in control with the employee’s right to put the outstanding Apicore Class E shares and options2018.

With respect to the Company upon the change in control. Remaining Apicore stock options outstanding of 400,000 were unaffected by the change of control and will fully vest in 2017.

As at July 3, 2014, the investment in Apicore was initially valued at $1,276,849 and subsequently measured at amortized cost and the option rights received were recorded at a value of $275,922 and subsequently revalued at each reporting dateintangible asset related to fair value. Immediately prior to the Company exercising certain options to acquire a controlling interest in Apicore, the investment in Apicore was recorded at $6,418,867. The increase in value 0f $4,895,573 was recorded on the statement of net income (loss). In addition, immediately prior to the exercise of certain options to acquire a controlling interest in Apicore, the derivative representing the value associated to the option rights was revalued toZYPITAMAGTM, management calculated its fair value of $20,788,011. The changeless 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 option rights of $20,560,440 was recorded in the statement of net income (loss)analysis for the year ended December 31, 20162019 as a revaluationthe recoverable amount exceeded the carrying amount by approximately $1.6 million at the high end of the derivative.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.

 

During the year ended December 31, 2015, the Company recorded a reversal of an impairment loss relating to AGGRASTAT intangible assets, originally written down during the year ended May 31, 2008, totalling $788,305 as a result of sustained improvements in the AGGRASTAT business

Finance expenseThe finance income for the year ended December 31, 2016 was $3,417,000, compared2019 relates to $4,123,000 ininterest on cash and investments held by the comparable period inCompany and a recovery from accretion on the prior year. The increase inCompany’s royalty obligation, partially offset by bank changes, accretion of the Company’s acquisition payable and other interest incurred during the year ended December 31, 2019. This compares to finance expenseincome for the year ended December 31, 2016 as compared2018, which relates to interest on cash and investments held by the prior fiscal year is due to the loan obtained from Crown Capital in November of 2016, higherCompany, offset primarily by accretion on the Company’s royalty obligation resulting from the Company’s continued sales growth and interest cists associated with the debt that was obtained within Apicore as part of the 2016 Apicore Transaction. The royalty obligation arose out of the previous debt settlement.obligation.

 

The net foreign exchange loss for the year ended December 31, 2016 was $262,000,2019 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 $69,000 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 year 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, 2016 compared to2018, which resulted from taxable income in the United States from the Company’s commercial business during the period. 

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For the year ended December 31, 2015.

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The2019, the Company recorded currenta net loss of $19.8 million or $1.32 per share ($1.32 per share diluted) compared to net income tax expense of $501,000$3.9 million or $0.25 per share ($0.24 per share diluted) for the year ended December 31, 2016 relating to becoming taxable in the United States during 2016 and a future income tax expense of $302,000 pertaining to temporary differences.

For the year ended December 31, 2016, the Company recorded consolidated net income of $27,657,000 or $1.84 per share compared to $1,668,000 or $0.12 per share for the twelve months ended December 31, 2015.2018. As discussed above, the main factors contributing to the increase in the net incomeloss were the revaluationimpairment loss recorded on the ReDSTMlicense, impairment losses recorded in regards to inventories of ZYPITAMAGTM and SNP, a loss recorded upon the settlement of the optionholdback receivable, lower revenues and existing investment in Apicore , as well asrevenue increases which were partially offset by increases in cost of goods sold, selling, general and administration andresearch and development.foreign exchange losses experienced during the year ended December 31, 2019.

 

For the year ended December 31, 2016,2019, the Company recorded a total comprehensive loss of $26.8 million compared to total comprehensive income of $27,235,000 compared to $2,474,000$4.5 million for the year ended December 31, 2015.2018. 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) income per share was 15,002,005 for the year ended December 31, 20162019 and 13,461,609 for the year ended December 31, 2015.2018 was 14,998,540 and 15,791,396, respectively.

 

The weighted average number of common shares outstanding used to calculate diluted (loss) income per share was 17,316,401 for the year ended December 31, 20162019 and 15,765,570 for the year ended2018 was 14,998,540 and 16,563,663, respectively.

As at December 31, 2015.2019, the Company had 10,804,013 common shares outstanding, 900,000 warrants to purchase 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 Company had 10,804,013 common shares outstanding, 900,000 warrants to purchase common shares and 1,394,208 stock options, of which 1,074,708 were exercisable, to purchase common shares outstanding.

Twelve Months Ended December 31, 20152018 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.2017

 

Net AGGRASTAT® product sales for year ended December 31, 20152018 were $22,083,000,$28.5 million compared to $8,426,000 in$27.1 million during the comparable period in 2014. year ended December 31, 2017.

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 of the Company’s sales are denominated in US dollars.

 

Net revenue from the sale of finished

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Hospital demand for AGGRASTAT® products for the year ended December 31, 2015 increased by 162% over the net revenue for the twelve months ended December 31, 2014. Thecontinued to increase in revenue compared to the previousprior year and the comparable quarter for the previous year is primarily attributable to an increase inwith the number of new hospital customers using AGGRASTAT® and thecontinuing to increase inleading to patient market share held by the product. Revenue growth was also aided by favourable fluctuations inproduct increasing to over 50% during the U.S. dollar exchange rate throughout the third quarter.year ended December 31, 2017 and to approximately 65% as at December 31, 2018. The Company'sCompany’s commercial team continues to work on further expanding its customer base.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®. 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 became increasingly important for the Company during 2018 and continues to occur during 2019.

 

The number of new customers reviewing and implementing AGGRASTAT® increased sharply since October 11, 2013 as a result of FDA approval of the High Dose Bolus (“HDB”) regimen for AGGRASTAT® and due to the increased marketing and promotional efforts of the Company.

As 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 second half of 2018 when compared to the 2017, Canadian dollar revenue growth increased, however it was offset by the increasing price pressures facing AGGRASTAT® when comparing the two periods. Net revenue from AGGRASTAT®in U.S. dollars for 2018 totaled $21.9 million compared to $20.9 million in 2017.

ZYPITAMAGTMcontributed $652,000 of revenue to the Company during the year ended December 31, 2018 and although early into the commercial availability of the product the Company continues to work towards growing the ZYPITAMAGTM brand.

Cost of goods sold represents direct product costs associated with AGGRASTAT®AGGRASTAT®and ZYPITAMAGTM,including and write-downs for obsolete inventory and amortization of the related acquired AGGRASTAT®intangible assets.

 

CostAGGRASTAT®cost of goods sold excluding amortization, for the year ended December 31, 2015 were $1,604,0002018 was $3.7 million compared to $393,000$3.5 million for the comparable period in the prior year. For the year ended December 31, 2015,2018, the increases to cost of goods sold areis the result of increases in net saleshigher volume of AGGRASTAT®AGGRASTAT product sold offset by a significant write-down of expired inventory during the period whenyear ended December 31, 2017. During the year ended December 31, 2018, the Company wrote-off inventory of $3,000 that had expired or was otherwise unusable, compared to $385,000 during the same period in 2014.year ended December 31, 2017.

 

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AmortizationZYPITAMAGTMcost of AGGRASTAT® intangible assets increasedgoods sold for the year ended December 31, 20152018 is $142,000 relating to $656,000, when comparedthe cost of the ZYPITAMAGTM product sold to $663,000the Company’s wholesale customers and $196,000 pertaining to the amortization of the ZYPITAMAGTM license for the comparable period inperiods, which is recorded on the prior year. The increase is asstatement of financial position within intangible assets and $92,000 relating to a resultwrite-down of fluctuations in foreign exchange rates causing the amortization expense to be higher during the year ended December 31, 2015 as the asset is owned by a subsidiary whose functional currency is the US dollar.inventory that had expired or was otherwise unusable.

 

Total selling, general, and administrative expenditures for the year ended December 31, 2015 were $10,237,000, compared to $5,549,000 for the comparable period in the prior year. Selling general, and administrative expenditures related to AGGRASTAT®were $7,666,000 for the year ended December 31, 2015, compared to $4,038,000 for the comparable period in the prior year. 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®and ZYPITAMAGTM.

Selling expenses for the year ended December 31, 2018 were $15.6 million compared to $11.5 million for the year ended December 31, 2017.

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Commercial sales expenses increased during the year ended December 31, 2018 as compared to the prior year as sales and marketing costs including the size of the Company’s commercial team increased between the two periods to support the launch of ZYPITAMAGTMas well as on going sales efforts of the commercial team in regards to the Company’s products.

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, generalGeneral and administrative expenditures – AGGRASTAT®expenses for the year ended December 31, 2018 were $3.9 million compared to $3.4 million for the year ended December 31, 2017. General and administrative expenses increased for the year ended December 31, 2018 as compared to the year ended December 31, 2017 primarily as a result of $1.0 million of stock-based compensation recorded during the year ended December 31, 2015 as2018 compared to same period in the prior year mainly due to:

·Additional payroll costs associated with the sale of AGGRASTAT® due to additional head office employees providing support for AGGRASTAT® as the Company’s headcount increased from 18 at December 31, 2014 to 39 at December 31, 2015; and

·Increased travel costs associated with the sale of AGGRASTAT® due to more sales people travelling to service accounts and increased frequency of hospital visits.

Selling, general and administrative expenditures – Other increased during the year ended December 31, 2015 as compared to same period in the prior year mainly due to:

·Higher stock-based compensation expenses, which totaled $1,460,318 during the year ended December 31, 2015 as a result of stock options issued during the year, compared to $915,849 for the twelve months ended December 31, 2014.

Net research and development expenditures$491,000 for the year ended December 31, 2015 were $4,865,000, compared to $999,000 for the comparable period in the prior year. 2017.

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. Prepaid 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, 2018 were $6.7 million, compared to $5.1 million for the year ended December 31, 2017. 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 increase in research and development expenditures for the year ended December 31, 2015 as2018 when compared to the twelve monthsyear ended December 31, 20142017 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 research and development expenditures increased as a result of manufacturing set-up coststhe timing of expenses and work associated with each development project undertaken by the Company, primarily the Company’s development of additional generic ANDA cardiovascular products.

Subsequent to December 31, 2018, on February 13, 2019, the Companyreceived 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 notice did not contain sufficiently detailed information to enable the Company to assess the merits of the claims. The Company will proceed diligently to investigate the potential claims and attempt to satisfactorily resolve them with a view to having the holdback receivable released.

In consideration of the uncertainty associated with the AGGRASTAT® finished productpotential 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. The Buyer did not make the required payments on the holdback receivable in February and development costs associated with non-AGGRASTAT® projects.April 2019.

 

Generally, included in research and development expenses are charges related to impairment of the Company’s intangibles assets, 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

The Company recorded an impairment loss of $636,000 for the year ended December 31, 2017 pertaining to a write-down in the value of the intangible assets relating to the Company’s commercial and research operations and a decision was madelicense acquired for PREXXARTAN® due to no longer pursue these patents and as a result the carrying value of these patents was written off.on-going litigation surrounding the product.

 

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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.

 

During the year ended December 31, 2015, the Company recorded a reversal of an impairment loss relating to AGGRASTAT intangible assets, originally written down during the year ended May 31, 2008, totalling $788,305 as a result of sustained improvements in the AGGRASTAT business68  

During the twelve months ended December 31, 2014, the Company recognized $1,385,000 ofThe finance income pertaining to investment structuring services resulting from its acquisition of a minority interest in a pharmaceutical manufacturing business known as Apicore. The Company’s equity interest and certain other rights, including the option rights, were obtained by the Company for services provided in its lead role in structuring 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 year ended December 31, 2015 was $4,123,000, compared2018 relates primarily to $2,145,000 ininterest on cash and investments held by the comparable period inCompany during 2018 partially offset by accretion on the prior year. The increase inCompany’s royalty obligation, which compares to finance expense for the year ended December 31, 2015 as compared2017 which primarily related 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 interest on the Company’s continued sales growth.long-term debt. The royalty obligation arose outCompany repaid its long-term debt during the fourth quarter of the previous debt settlement.2017.

 

The netincrease in the foreign exchange lossgain for the year ended December 31, 2015 was $69,000,2018 when compared to a net foreign exchange loss of $18,000 for the comparable periodyear ended December 31, 2017 relates to increases in the prior year. The change is due to higher fluctuations in the Canadian dollar versus the US dollar experiencedexchange rate between the two periods combined with the significant increase in US dollar cash and short-term investments held by the Company during the year ended December 31, 2015 compared to2018.

The income tax expense of $897,000 during the twelve monthsyear ended December 31, 2014.2018 is primarily related to taxable income in the United States during the year ended December 31, 2018. Income tax recovery of $9.1 million during the year ended December 31, 2017 was primarily the result of the utilization of Canadian tax losses as part of the sale of the Apicore business and other credits offset by taxable income in the United States.

 

The Company recognized an income tax recovery of $379,000loss from discontinued operations for the year ended December 31, 20152017 relates to the extent itApicore business, which was divested through the Apicore Sale Transaction which was completed on October 2, 2017. As the Apicore business was divested during 2017, there is probable that future taxable profits will be available against whichno income or loss from discontinued operations for the accumulated tax losses and temporary differences can be utilized.year ended December 31, 2018.

 

For the year ended December 31, 2015,2018, the Company recorded consolidated net income from continuing operations of $1,668,000$3.9 million or $0.12$0.25 per share ($0.24 per share diluted) compared to $463,000consolidated net income from continuing operations of $11.5 million or $0.04$0.74 per share ($0.63 per share diluted) for the twelve monthsyear ended December 31, 2014.2017. As discussed above, the main factors contributing to the increase in the net income were the income resulting from investment structuring services relating to the acquisition of a minority interest in Apicore in the comparable period offset by the significant increase revenues experienced duringdecrease was higher selling, general and administrative expenses and research and development expenses for the year ended December 31, 20152018 when compared to the comparable periodyear ended December 31, 2017 and the revaluation of the holdback receivable, offset by higher foreign exchange gains and finance income, net. For the year ended December 31, 2018, the Company did not record any net income or loss from discontinued operations related to the Apicore business compared to income from discontinued operations of $31.9 million or $2.04 per share ($1.76 per share diluted) in 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, 2017. For the year ended December 31, 2018, the Company recorded net income of $3.9 million or $0.25 per share ($0.24 per share diluted) compared to net income of $43.4 million or $2.78 per share ($2.39 per share diluted) for the year ended December 31, 2017.

 

For the year ended December 31, 2015,2018, the Company recorded a total comprehensive income of $2,474,000$4.5 million compared to $620,000total comprehensive income of $43.4 million for the twelve monthsyear ended December 31, 2014.2017. The change in comprehensive income results from the factors described above.above and the fluctuations in the US dollar exchange rate during the periods.

 

The weighted average number of common shares outstanding used to calculate basic income per share was 13,461,608 for the yearyears ended December 31, 20152018 and 12,209,907 for the twelve months ended December 31, 2014.

2017 was 15,791,396 and 15,636,853, respectively. The weighted average number of common shares outstanding used to calculate diluted income per share was 15,765,570 for the yearyears ended December 31, 20152018 and 13,843,126 for the twelve months ended2017 was 16,563,663 and 18,138,080, respectively.

As at December 31, 2014.2018, the Company had 15,547,812 common shares outstanding, 900,000 warrants to purchase common shares and 1,394,642 stock options, of which 1,044,892 were exercisable, to purchase common shares outstanding.

 

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B. Liquidity and Capital Resources

 

Since the Company’s inception, it has financed operations primarily from net revenue received from the sale of AGGRASTAT®AGGRASTAT®, ZYPITAMAGTM and ReDSTM, the sale of its equity securities, the issue 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 U.S. $105.0 million of which approximately U.S. $55.0 million was received on October 3, 2017, with the remainder received in early 2018. There is also a holdback receivable of U.S. $10.0 million that is 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 November 17, 2016, in connection with the exercise of the Company’s acquisition of the controlling ownership in Apicore, the Company received a term loan (the “Term Loan”) from Crown Capital Fund IV LP, an investment fund managed by Crown Capital Partners Inc. (“Crown”) (TSX: CRN), in which Crown holds a 40% interest for $60,000,000 of which $30,000,000 was syndicated to the Ontario Pension Board (“OPB”) a limited partner in Crown’s funds. Under the terms of the loan agreement with Crown, the loan bears interest at a fixed rate of 9.5% per annum, compounded monthly and payable on an interest only basis, maturing in 48 months, and is repayable in full upon maturity.

The loan was used by the Company and its wholly owned subsidiary, Medicure Mauritius Limited, exercised its option rights to purchase interests in Apicore, Inc. and Apicore LLC. The 2016 Apicore Transaction was closed on DecemberFebruary 1, 2016. Apicore, Inc. and Apicore LLC are affiliated entities that together operate the Apicore pharmaceutical business and are referred to together as “Apicore”. Apicore is a leading process research and development and Active Pharmaceutical Ingredients (“APIs”) manufacturing service provider for the worldwide pharmaceutical industry. The acquisition brings the Company and its subsidiary’s ownership interests in Apicore, Inc. to 64% (or approximately 59% on a fully diluted basis) and the Company and its subsidiary’s ownership in Apicore LLC. to 64% (basic and fully-diluted). Five percent of Medicure’s ownership in Apicore LLC is held by Apigen Investments Limited (“Apigen”), a Company which owned 100 percent of Apicore LLC, before the Acquisition.

On December 18, 2014,2018, the Company announced that it had received the Boarddeferred purchase price proceeds of Directors had approved a change inapproximately U.S. $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 U.S. $50.0 million was included in the first full fiscal year endedtotal net proceeds of U.S. $105.0 million 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 change in year end from May 31 to December 31 was made by5, 2019, the Company to better alignannounced that it had reached a settlement agreement with the purchaser of the Company’s financial reporting calendarinterests in Apicore with its industry peersrespect to the amounts heldback under the Apicore sale agreement. A settlement agreement was reached under which Medicure received a net payment of U.S. $5.1 million in relation to the holdback receivable.

The funds received from the Apicore sales transaction were invested and with most other companies trading onused for business and product development purposes and to fund operations as needed as well as funding the TSX-V. As a resultpurchase of this change in year end, it is important to note thatcommon shares under the comparable period, being the twelve months ended December 31, 2014 is unaudited.Company’s recently completed SIB.

 

Cash fromused in operating activities for the year ended December 31, 2016 increased by $6.3 million to 6.42019 was $14.6 million compared to cash from operating activitiesoperations of $143,000$742,000 for the comparable period in the prior yearyear. The decrease in cash from operating activities is primarily due to higherthe net income after adjusting for non-cash items.loss incurred during the year ended December 31, 2019.

 

InvestingCash from investing activities for the year ended December 31, 2016 were2019 totaled $34.3 million primarily from the conversion of short-term investments into cash used totaling $42.2which totaled $47.7 million and related$6.7 million was received in relation to the proceeds from the holdback receivable. Offsetting this where payments made by the Company during the year ended December 31, 2019 in regards to the acquisition of Apicore upon completion of the 2016 Apicore Transaction on December 1, 2016,ZYPITAMAGTM which totaled $6.6 million and the acquisition propertyof ReDSTM intangible assets for $7.0 million and equipment, including leasehold improvementsthe investment in Sensible Medical Innovations Ltd. of $464,000, compared to $227,000 relating to$6.3 million. Additionally, $186,000 was spent regarding the acquisition of property, plant and equipment forduring the twelve monthsyear ended December 31, 2015.2019. For the year ended December 31, 2018, $65.2 million was received as proceeds from the Apicore Sale Transaction, $44.1 million was used to acquire short-term investments, $1.3 million was paid for the acquisition of the ZYPITAMAGTM license and $197,000 was spent regarding the acquisition of property, plant and equipment resulting in cash from investing activities of $19.7 million during the year ended December 31, 2018.

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Cash fromused in financing activities for the twelve months ended December 31, 2016 included $60.0 million received from the term debt financing completed in November of 2016, $1.8 million and $39,000 received upon the exercise of stock options and warrants, respectively, during fiscal this period and $1.7 million in repayments on the MIOP debt. Financing activities for the year ended December 31, 2015 included $3.62019 totaled $30.3 million receivedand related to cash paid to acquire the Company’s common shares under the SIB which totaled $26.1 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 a private placement financing completed in June of 2015, $33,000 and $150,000 received upon the exercise ofemployees exercising stock options during the year. Cash used in financing activities for the year ended December 31, 2018 totaled $2.7 million and warrants, respectively,related to cash paid to acquire the Company’s common shares under the NCIB which totaled $3.0 million, offset by the receipt of $363,000 from employees exercising stock options during fiscal this period and $694,000 in repayments on long-term debt.the year.

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As at December 31, 2016,2019, the Company had unrestricted cash totaling $12.3$13.0 million compared to $3.6$24.1 million as of December 31, 2015.2018. The Company did not have any short-term investments as at December 31, 2019. At December 31, 2018, the Company had short-term investments in the form of term deposits with maturities of greater than three months and less than one year which totaled $47.7 million. As at December 31, 2016,2019, the Company had a negative working capital of $5.7$19.7 million versus working capital of $7.0compared to $72.7 million as at December 31, 2015.2018.

During the year ended December 31, 2019, the Company repurchased and cancelled 751,800 (2018 – 441,400), common shares as a result of the 2018 NCIB and 2019 NCIB. The aggregate price paid for these common shares totaled $4.1 million (2018 - $3.0 million). During the year ended December 31, 2019 the Company recorded $1.8 million (2018 - $480,000) 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 $6.0 million (2018 - $3.5 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 retained 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 hasdid not have any long-term debt recorded in its consolidated financial statements as at December 31, 2016 of $71.1 million recorded in its financial statements.2019.

 

On July 18, 2011, the Company borrowed $5,000,000 from the Government of Manitoba, under the Manitoba Industrial Opportunities Program, to assist with settling the Company’s long-term debt at that time. The loan bears interest annually at the crown corporation borrowing rate plus two percent. The loan was renegotiated effective August 1, 2013 to remain subject to interest-only monthly payments until August 1, 2015, at which time the monthly payments became blended as to principal and interest, and the maturity date of the loan was extended from July 1, 2016 to July 1, 2018. The loan is secured by the Company’s assets and guaranteed by the Chief Executive Officer of the Company and entities controlled by the Chief Executive Officer. The Company must meet its debt repayment obligations and failure to do so could cause the lender to realize upon its security interest in the Company’s assets, and to call on the guarantee provided by the Chief Executive Officer and entities controlled by him. The Company has made all payments to date in relation to this indebtedness; however, there is no certainty that the Company will be able to continue servicing the debt.

On November 17, 2016, in connection with the exercise of the Company’s acquisition of the controlling ownership in Apicore, the Company received a term loan (the “Term Loan”) from Crown Capital Fund IV LP, an investment fund managed by Crown Capital Partners Inc. (“Crown”) (TSX: CRN), in which Crown holds a 40% interest for $60,000,000 of which $30,000,000 was syndicated to the Ontario Pension Board (“OPB”) a limited partner in Crown’s funds. Under the terms of the loan agreement with Crown, the loan bears interest at a fixed rate of 9.5% per annum, compounded monthly and payable on an interest only basis, maturing in 48 months, and is repayable in full upon maturity. The loan is secured by the Company’s assets including its ownership interests in Apicore. The Company must meet its debt repayment obligations and on-going financial covenants and failure to do so could cause the lender to realize upon its security interest in the Company’s assets. The Company has made all payments to date in relation to this indebtedness,; however, there is no certainty that the Company will be able to continue servicing the debt.

Through the acquisition completed in the 2016 Apicore Transaction, the Company, through Apicore, has additional debt agreement with Knight Therapeutics Inc. The Knight Loan bears interest at 12% per annum, with interest paid quarterly at the end of each quarter with unpaid interest and principal due June 30, 2018. The Knight Loan is secured by a security interest in substantially all of the Apicore Inc’s, as well as the assets of another subsidiary acquired. The subsidiary is required to maintain certain financial covenants, based on results of the subsidiary, under the terms of the Knight Loan. Subsequent to December 31, 2016, on January 6, 2017, the interest and principal remaining were paid in full in regards to the Knight Loan.

Finally, through the acquisition completed in the 2016 Apicore Transaction, the Company, through Apicore, has an additional debt agreement with Dena Bank. The loan bears interest at LIBOR plus 4%, with equal monthly payments of principal and interest, maturing June 30, 2020. The loan is secured by land, building, and machinery of the Company, a pledge of 778,440 equity shares of Apicore LLC, each with a value of $0.15 USD and a guarantee by the directors of Apicore.

The minimum annual debt obligations are disclosed under Contractual Obligations.

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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®

One of the primary ongoing research and development activities 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.

 

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The Company believes that further expanded indications and dosing regimens could 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 announced that it has 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 Complete Response LetterCRL to communicate that its initial review of the application is complete;was completed; however, it cannotcould not approve the application in its present form and requested additional information. The Company continues to work directly with the FDA to address these comments.comments and explore other options available.

 

The sNDA filing was accompanied by a mandatory US $1.167U.S. $1.2 million 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.

 

The Company is also continuing to explore other experimental uses and product formats related to AGGRASTAT®. On September 1, 2016, the Company announced that it hashad received approval from the FDA for its new bolus vial product format for AGGRASTAT®.

 

The newThis product format is a concentrated, pre-mixed, 15 ml vial containing sufficient drug to administer the FDA approved, high dose bolus (“HDB”)HDB of 25 mcg/kg given at the beginning of treatment. AGGRASTAT® is currently onlyalso sold in a pre-mixed intravenous bag format that comes in two other sizes, a 100 ml vial and a 250 ml.ml bag. The existing, pre-mixed products will 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).

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Commercial launch of the bolus vial occurred during the fourth quarter of 2016 and the Company believescontinues to believe this new product format will have a positive impact on hospital utilization of AGGRASTAT®.

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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,” to patients receiving a 12 to 18 hour18-hour infusion of 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 April 26, 2017,2018 and on December 17, 2019, the study was approximately 80% through toCompany announced the completion of enrolment.the Shortened AGGRASTAT® (tirofiban hydrochloride) injection versus Integrilin®(eptifibatide) in Percutaneous Coronary Intervention (SAVI-PCI) Clinical Trial. Topline results of the SAVI-PCI trial will be communicated in 2020.

 

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 trialassessing different regimens of intravenous platelet inhibitors, notably tirofiban and cangrelor (an IV P2Y12 inhibitor) in the early phase of primary PCI. The study enrolled 120 patients. The Company expects to release top-line data in 2020.

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.

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 January 6, 2016,August 13, 2018, the Company announced that it had initiated the developmentFDA has approved its ANDA for SNP. SNP is indicated for the immediate reduction of a cardiovascular generic drug.blood pressure for adult and pediatric patients in hypertensive crisis. The projectproduct 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 a collaboration between Medicure International, Inc. and Apicore US LLC (together with its affiliates “Apicore”), a leading-edge manufacturer of generic active pharmaceutical ingredients ("APIs”). The collaborative project was focusedpreviously announced by the Company on the development of an intravenous aNDA drug product for an acute cardiovascular indication. Medicure and Apicore have entered into an exclusive product supply and development agreement under which Medicure holds all commercial rights. On December 13, 2016,2016. Medicure’s SNP has recently become available in the Companyannounced that the aNDA was filedUnited States with the U.S. Food and Drug Administration.initial sales from SNP being recorded subsequent to December 31, 2019 in January of 2020.

 

In addition to the collaboration with Apicore, theThe Company is focused on the development of two additional cardiovascular generic drugs. When combined with the aNDAANDA described above and the acquisition of ZYPITAMAGTMand the marketing partnership for ReDSTM, the Company expects to transform its commercial suite of products from a single product to fourat least five approved products by the end of 2019.in 2021.

 

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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(pyridoxal 5 phosphate (“P5P”) formerly known as 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 TARDOXALTMto other uses of P5P and continues to devote time and resources to the advancement of P5P development.

 

On August 13, 2014,The following table summarizes the Company announced that the preliminary results of its Phase IIa Clinical Trial, TARDOXALTM for the Treatment of Tardive Dyskinesia (TEND-TD) showed a non-statistically significant improvement in the primary efficacy endpoint in patients treated 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.

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It is the Company’s intention to develop TARDOXALTM independently and/or in conjunction with a larger pharmaceutical company for commercialization of the product. Similar partnerships may be required for other products that the Company may from time to time seek to develop. Such a partnership would provide funding for clinical development, add experience to 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-sponsored research and development net expendituresprograms, their therapeutic focus and their stage of development.

Product CandidateTherapeutic focusStage of Development
AGGRASTAT®Acute CardiologyApproved/Marketed – Additional studies underway
ZYPITAMAGTMPrimary Hyperlipidemia or Mixed DyslipidemiaApproved/Marketed
ReDSTMHeart Failure – Medical DeviceApproved/Marketed
PREXXARTAN®HypertensionApproved – Commercial launch on hold
SNPAcute CardiologyANDA approved/Marketed
Generic ANDA 2Acute CardiologyANDA filed
Generic ANDA 3Acute CardiologyFormulation development underway
TARDOXALTM/P5PTD/Neurological indications

TARDOXALTM– On hold

P5P - Regulatory and clinical planning underway

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, 2016 were $4,113,000, excluding amortization of intangible assets (year ended December 31, 2015 - $4,865,000, seven months ended December 31, 2014 - $783,0002019, the Company had numerous issued United States patents (see Item 5 –Operating and year ended May 31, 2014 - $689,000)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 has 71 issued patentspatent from the United States Patent Office providing protection for AGGRASTAT®AGGRASTAT®and related its current and historic development compounds. 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 NumberIssue DateTitle
5,965,581October 12, 1999Compositions for Inhibiting Platelet Aggregation
5,972,967October 26, 1999Compositions for Inhibiting Platelet Aggregation
5,978,698November 2, 1999Angioplasty Procedure Using Nonionic Contrast Media
6,136,794October 24, 2000Platelet Aggregation Inhibition Using Low Molecular Weight Heparin in Combination with a GP IIb/IIIa Antagonist
6,770,660August 3, 2004Method for Inhibiting Platelet Aggregation

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Patents 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.

Apicore US LLC Issued Patents List:

Patent NumberIssue DateTitle
US 7,446,227 B211/4/2008Process for preparation of 5H-dibenzo[a,d] cycloheptene derivatives
US 7,662,992 B22/16/2010Process for preparation of isosulfan blue
US 9,353,0505/31/2016Process for preparation of isosulfan blue
US 8,969,6163/3/2015Process for preparation of isosulfan blue
US 8,450,487 B25/28/2013Process for the preparation of cis-2-methylspiro (1,3-oxathiolane 5-3′) quinuclidine
US 8,748,6316/10/2014Process for preparing saxagliptin and its novel intermediates useful in the synthesis thereof
US 9,150,51110/6/2015Process for preparing saxagliptin and its novel intermediates useful in the synthesis thereof
US 9,493,47311/15/2016Processes for making ponatinib and intermediates thereof

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Apicore relies on a number of patents, patent applications and proprietary knowledge to maintain its competitive advantage over other API/ aNDA generic, and branded companies

 

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)www.wipo.int).

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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 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.

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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.

 

D. Trend Information

 

Net AGGRASTAT® product sales for AGGRASTAT® foryear ended December 31, 2019 were $19.4 million compared to $28.5 million during the year ended December 31, 2016 were $29,980,000, compared to $22,083,000 for the twelve months ended December 31, 2015. 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 of the Company’s sales are denominated in US dollars.

 

Net revenue from the sale of finished AGGRASTAT® products for the year ended December 31, 2016 increased by 36% over the net revenue for the year ended December 31, 2015. All of the Company’s sales are denominated in U.S. dollars. 76  

Hospital demand for AGGRASTAT® increased significantly compared to the comparable period inwas lower during 2019 than the prior year. The increase in revenue is primarily attributable to an increase inyear 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 became increasingly important to the Company.

The number of new customers reviewing and implementing AGGRASTAT® has increased sharply since October 11, 2013 as a result of FDA approval of the new dosingHigh Dose Bolus (“HDB”) regimen for AGGRASTAT®as announced on October 11, 2013. Additionally, favourable fluctuations and due to the increased marketing and promotional efforts of the Company.

As all of the Company’s sales are denominated in U.S. dollars and the U.S. dollar exchange rateimproved in value against the Canadian dollar when comparing the year ended December 31, 2019 with the year ended December 31, 2018, this led to increased AGGRASTAT®revenues, however this was offset by the increasing price pressures facing AGGRASTAT® when comparing the two periods as well as decreases in demand.

During the year ended December 31, 2019, ReDSTM contributed revenue of $618,000 from the sale of the product in the United States.

Net ZYPITAMAGTM product sales for year ended December 31, 2019 were $183,000 compared to $652,000 during the year ended December 31, 2018. The 2018 revenues were higher than those earned in 2019 due to the increaseinitial ordering by wholesaler customers of the product.

The Company currently sells ZYPITAMAGTM to drug wholesalers. These wholesalers subsequently sell ZYPITAMAGTMto pharmacies who in revenue.turn sell the product to patients. The decrease in ZYPITAMAGTM product sales for the year ended December 31, 2019 is a result of initial stocking at the wholesale level during the year ended December 31, 2018. The Company expects ZYPITAMAGTMrevenues to grow throughout 2020 and beyond.

 

The Company is not aware of any other trends, uncertainties, demands, commitments or events which are reasonably likely to have a material effect upon 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.

 

E. Off-balance Sheet Arrangements

 

As of December 31, 2016,2019, the Company does not have any off-balance sheet arrangements, other than those disclosed below.

 

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F. Contractual Obligations

 

The following tables set forth the Company’s contractual obligations as of December 31, 2016:2019:

 

  Contractual Obligations Payment Due By Period 
(in thousands of CDN$) Total  2017  2018  2019  2020  2021  Thereafter 
Short-term borrowings $1,384  $1,384  $-  $-  $-  $-  $- 
Accounts Payable and Accrued Liabilities  17,242   17,242   -   -   -   -   - 
Long-term debt obligations  63,557   2,906   268   268   60,115   -   - 
Finance lease obligations  368   107   97   82   82   -   - 
Purchase Agreement commitments  6,148   1,940   764   735   566   574   1,567 
Total $28,699  $23,579  $1,129  $1,085  $60,763  $574  $1,567 
  Contractual Obligations Payment Due By Period (in Thousands)
(in thousands of CDN$) Total 2020 2021 2022 2023 2024 Thereafter
Accounts Payable and Accrued Liabilities  9,384   9,384   -   -   -   -   - 
Income Taxes Payable  517   517   -   -   -   -   - 
Lease Obligation  1,230   238   238   238   238   238   40 
Acquisition Payable  2,596   649   649   649   649   -   - 
Purchase Agreement Commitments  5,919   3,043   1,243   1,243   195   195   - 
Total $19,646  $13,831  $2,130  $2,130  $1,082  $433  $40 

 

Short-term Borrowings

The Company, through the acquisition of a subsidiary as described in note 4 of the Company’s financial statements has entered into a credit facility withDena Bank, headquartered in India. The facility provides a USD denominated pre-shipment credit facility“Pre-shipment credit facility” and an Indian Rupee (INR) denominated working capital facility“Working capital facility”. The available credit facility is an aggregate amount of the Dena facility and pre-shipment credit facility to a maximum of INR 75,000,000 (CAD $1,480,547).

CrownCapital Fund IV LP Term Loan (“Crown Loan”)

On November 17, 2016,Payments in connection with the exercise ofCompany’s royalty obligation, as described below, are excluded from the Company’s acquisition of the controlling ownership in Apicore, described in Note 4, the Company received a term loan from Crown Capital Fund IV LP, an investment fund managed by Crown Capital Partners Inc. (“Crown”), in which Crown holds a 40% interest for $60,000,000 of which $30,000,000 was syndicated to the Ontario Pension Board (“OPB”) a limited partner in Crown’s funds. Under the terms of the loan agreement, the Crown Loan bears interest at a fixed rate of 9.5% per annum, compounded monthly and payable on an interest only basis, maturing in 48 months, and is repayable in full upon maturity.table above.

 

The Company has granted 450,000 warrants to each of Crown and OPB. Each warrant entitles the holder to purchase one Medicure common share at an exercise price of $6.50 for a period of four years. The Company presents and discloses its financial instruments in accordance with the substance of its contractual arrangement. Accordingly, the Company recorded a liability of $58,200,000 less related debt issuance costs of $3,538,648. The liability component has been accreted using the effective interest rate method, and during the year ended December 31, 2016, the Company recorded accretion of $36,884, non-cash interest expense related to financing costs of $110,237 and interest expense of $702,574 on the Crown Loan. The fair value assigned to the warrants issued of $1,948,805 has been separated from the fair value of the liability and is included in shareholder’s equity, net of its pro rata share of financing costs of $116,695.Commitments

 

The effective interest rate on the Crown Loan for the year ended December 31, 2016 was 12%.

Beginning in 2017, the Company will be required to maintain certain financial covenants under the terms of the Crown Loan.

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Knight Therapeutics Inc. Loan (“Knight Loan”)

The Company, through the acquisition of a subsidiary as described Note 4 of the Company’s financial statements, has a debt agreement with Knight Therapeutics Inc. The Knight Loan bears interest at 12% per annum, with interest paid quarterly at the end of each quarter with unpaid interest and principal due June 30, 2018. The Knight Loan is secured by a security interest in substantially all of the acquired subsidiary’s assets.

The effective rate of interest on the Knight Loan for the year ended December 31, 2016 was 12%.

The subsidiary is required to maintain certain financial covenants, based on results of the subsidiary, under the terms of the Knight Loan. As at December 31, 2016, the Company was in compliance with the terms of the Knight Loan.

Subsequent to December 31, 2016, on January 6, 2017, the interest and principal outstanding on the Knight Loan were repaid in full from the remaining funds provided under the Crown Loan, which was recorded on the statement of financial position at December 31, 2016 as cash held in escrow. As a result, the repayments relating to the Knight Loan have not been included in contractual obligations table.

Dena Bank Loan

The Company, through the acquisition of a subsidiary as described in Note 4 of the Company’s financial statements has a debt agreement with Dena Bank. The loan bears interest at LIBOR plus 4%, with equal monthly payments of principal and interest, maturing June 30, 2020. The loan is secured by the land, building, and machinery of a subsidiary, a pledge of 778,440 equity shares of Apicore LLC. with a value each of $0.15 USD, and a guarantee by directors of Apicore LLC.

The effective rate of the loan for the year ended December 31, 2016 was 9%.

Manitoba Industrial Opportunities Loan (“MIOP Loan)

On July 18, 2011, the Company borrowed $5,000,000 from the Government of Manitoba, under the Manitoba Industrial Opportunities Program ("MIOP"), to assist in the settlement of its then existing long-term debt. The loan bears interest annually at 5.25% and originally matured on July 1, 2016. The loan was payable interest only for the first 24 months, with blended principal and interest payments made monthly thereafter until maturity. Effective August 1, 2013, the Company renegotiated its long-term debt and received an additional two-year deferral of principal repayments. Under the renegotiated terms, the loan continued to be interest only until August 1, 2015, at which point blended principal and interest payments began. The loan matures on July 1, 2018 and is secured by the Company's assets and guaranteed by the Chief Executive Officer of the Company and entities controlled by the Chief Executive Officer. The Company issued 1,333,333 common shares (20,000,000 pre-consolidated common shares) of the Company with a fair value of $371,834, net of share issue costs of $28,166, in consideration for the guarantee to the Company's Chief Executive Officer and entities controlled by the Chief Executive Officer. In connection with the guarantee, the Company entered into an indemnification agreement with the Chief Executive Officer under which the Company shall pay the Guarantor on demand all amounts paid by the Guarantor pursuant to the guarantee. In addition, under the indemnity agreement, the Company agreed to provide certain compensation upon a change in control of the Company. The Company relied on the financial hardship exemption from the minority approval requirement of Multilateral Instrument ("MI") 61-101. Specifically, pursuant to MI 61-101, minority approval is not required for a related party transaction in the event of financial hardship in specified circumstances.

The Company is required to maintain certain non-financial covenants under the terms of the MIOP loan. In connection with the business combination described in note 4, the Company did not obtain required approvals from MIOP prior to completing the transaction due to the timing of the closing of the transaction. As a result, $969,413, net of deferred debt issue costs has been included within current liabilities on the statement of financial position as at December 31, 2016. The Company has subsequently received a waiver from MIOP waiving any right to call the loan and the long-term portion of the MIOP loan will no longer be included within current liabilities going forward. Aside from this approval, the Company was in compliance with the terms of the loan as at December 31, 2016.

The effective interest rate on the MIOP loan for the year ended December 31, 2016 was 7%.

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Finance Lease Obligations

The Company, through the acquisition of a subsidiary as described in note 4 of the Company’s financial statements has entered into three capital lease arrangements to finance the acquisition of certain equipment. The Company’s obligations under finance leases are secured by the associated equipment.

Commitments

The Company has entered into a manufacturing and supply agreement to purchase a minimum quantity of AGGRASTAT®unfinished product inventory totalling US$totaling U.S.$150,000 annually (based on current pricing) until 2024.

Effective November 1, 2014, the Company entered into2024 and a sub-lease with Genesys Venture Inc. (“GVI”) to lease office space at a rateminimum quantity of $170,000 per annum for three years ending October 31, 2017. The lease was amendedAGGRASTAT®finished product inventory totaling U.S.$218,000 annually (based on May 1, 2016current pricing) until 2022 and increased the leased area covered under lease agreement at a rate of $212,000 per annum€525,000 annually (based on current pricing) until October 31, 2019.

The Company, through the acquisition of a subsidiary as described in Note 4 of the Company’s financial statements, leases office and manufacturing facilities from a related part, under a non-cancelable agreement expiring in 2024 at escalating rental rates throughout the term of the lease. The terms of the agreement specify that the Company has the option to purchase the building and land at the then fair value, as well as the option to renew the lease for an additional five year period2022.

 

Effective January 1, 2016,2019, the Company entered into a newrenewed its business and administration services agreement with GVI, 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. Subsequent to December 31, 2016 and effective January 1, 2017, this agreement was renewed for an additional year for $7,083 per month or $85,000 per year.

The Company had entered into manufacturing and supply agreements, as amended, to purchase a minimum quantity of AGGRASTAT® from a third party and all remaining committed payments relating to inventory purchases were completed prior to December 31, 2016. Effective January 1, 2014, the agreement was amended and the amounts previously due during fiscal 2014 were deferred and bore interest at 3.25% per annum, with monthly payments being made against this balance owing of US$45,000 until June 30, 2015. These payments were applied to inventory purchases made during fiscal 2015 and prepayments for future manufacturing that were completed during fiscal 2016, and as at December 31, 2016, there is no amount owing or prepaid under this agreement. As at December 31, 2015 and 2014, there was $1,063,707 and $549,247, respectively recorded within prepaid expenses in regards to this agreement. For the year ended December 31, 2016, no interest was recorded relating to amounts owing under this agreement For the year ended December 31, 2015 and the seven months ended December 31, 2014, $22,675 and $18,738, respectively, was recorded within finance expense relating to this agreement. The Company signed an amendment to this manufacturing and supply agreement which extended the agreement to October 31, 2017 however all purchase commitments were fulfilled prior to December 31, 2016.

The Company, through the acquisition of a subsidiary as described in Note 4 of the Company’s financial statements, the Company has entered into various collaborative agreements with six parties for the development of products which continue through 2025. The agreements include terms of renewal, ranging from one to three years, subject to mutual approval. The total expected costs to be incurred under these agreements approximated US$8.7 million as at December 31, 2016.

 

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.

 

SubsequentOn October 31, 2017, the Company acquired an exclusive license to December 31, 2016,sell and market PREXXARTAN® (valsartan) oral solution in the United States and its territories with a subsidiaryseven-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 U.S.$100,000, with an additional U.S.$400,000 payable on final FDA approval and will be obligated to pay royalties and milestone payments from the net revenues of PREXXARTAN®. The U.S.$400,000 payment is on hold pending resolution of thedispute between the licensor and the third-party manufacturer of PREXXARTAN®described in note 16(d) to the Company’s consolidated financial statements and is recorded within accounts payable and accrued liabilities on the consolidated statements of financial position.

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On December 14, 2017 the Company acquired an exclusive license to sell and market a branded cardiovascular drug, ZYPITAMAGTM(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 purchaseprofit-sharing arrangement withresulting in a vendor to purchase software inportion of the next year with an estimated cost of US$149,000.

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Debt obligations reflect the minimum annual payments under the debt financing agreement. In additionnet profits from ZYPITAMAGTMbeing paid to the contractual obligations disclosed above,licensor. No amounts are due and/or payable pertaining to profit sharing on this product and the Company and its wholly-owned subsidiaries, have ongoing research and development agreementsprofit-sharing arrangement was eliminated with third parties in the ordinary courseCompany’s acquisition of business. These agreements include research and development related to AGGRASTAT® and TARDOXALZYPITAMAGTM on September 30, 2019 as well as other product opportunities.described in note 9 to the Company’s consolidated financial statements.

 

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. $100,000 of the funding was repaid during the year ended December 31, 2016 and the remaining $100,000 will be repaid during the year ended December 31, 2017.

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 10 of12 to the Company’s consolidated financial statements, 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 recorded for the year ended December 31, 2016 totalled $1,795,089, (year ended December 31, 2015 - $1,207,772, seven months ended December 31, 2014 - $210,576, year ended May 31, 2014 - $201,131)2019 totaled $1.0 million (2018$1.7 million) with payments made during the year ended December 31, 20162019 of $1,712,389 (year ended December 31, 2015 - $642,768, seven$1.4 million (2018$1.5 million).

Beginning with the acquisition of ZYPITAMAGTM, completed on September 30, 2019, the Company is obligated to pay royalties on any commercial net sales of ZYPITAMAGTM to Zydus subsequent to the acquisition date. During the three months ended December 31, 2014 - $156,722, year ended May2019, the Company accrued $2,000 in royalties in regards to ZYPITAMAGTM which is recorded within cost of goods sold on the statement of net (loss) income and comprehensive (loss) income and within accounts payable and accrued liabilities on the statement of financial position as at December 31, 2014 - $165,291).2019.

 

The Company is obligated to pay royalties to third parties based on any future commercial net sales of MC-1, aggregating up PREXXARTAN®to 3.9% on net sales.the licensor ofPREXXARTAN®. To date, no royalties are due and/or 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, theCompany 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.

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On September 10, 2015, the Company submitted a supplemental New Drug Application (“sNDA”) to the United States Food and Drug Administration ("FDA")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€300,000 over the course of a three yearthree-year period in equal quarterly instalments following approval. On July 7, 2016, the Company announced it has received a Complete Response Letter stating the sNDA cannot be approved in 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 statements of net (loss) income and comprehensive (loss) income pertaining to this contingent liability.

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The Company, through the acquisition of a subsidiary as described in Note 4, is subject to a stringent regulatory environment. Any product designed and labeled for use in humans requires regulatory approval by government agencies prior to commercialization. In particular, human therapeutic products are subject to rigorous preclinical and clinical trials to demonstrate safety and efficacy and other approval procedures of the FDA. Various Federal, state, local, and foreign statutes and regulations also govern testing, manufacturing, labeling, distribution, storage, and record-keeping related to such products and their promotion and marketing. In addition, the current regulatory environment at the FDA could lead to increased testing and data requirements which could impact regulatory timelines and costs to the Company and its suppliers.

 

During 2015, the Company began a development project of a cardiovascular generic drug in collaboration with Apicore.The Company throughhas entered into a supply and development agreement under which the acquisition of a subsidiary as described in Note 4,Company holds all commercial rights to the drug. In connection with this project, the Company is involved in legal matters. In 2016,obligated to pay Apicore 50% of net profit from the sale of this drug.On August 13, 2018, the Company and another pharmaceutical company filed a complaint in the United States District Court for the Eastern District of Texas against a third party assertingannounced that the patents of two of the Company’s products were infringed and, inFDA has approved its ANDA for SNP, a later filing, sought monetary damages and injunctive relief. The Court has not issued a final ruling or entered an order on the matter. The Companygeneric intravenous cardiovascular product and the other pharmaceutical company prevailed in a similar action filed inproduct became available commercially during the United States District Court for the Districtthird quarter of New Jersey. However, the defendant has indicated that they will file a formal request for a review of the disputed patents with the United States Patent and Trademark Office.2019. To date, no amounts are due and/or payable pertaining to profit sharing on this product.

 

These related mattersClaims 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 in early stages of the legal process; however, management does not believeno claims or possible claims that the ultimate resolution of this matter will haveif resolved would either individually or collectively result in a material adverse impact on the Company’s financial position, results of operations, or cash flows.flows, these matters are inherently uncertain and management’s view of these matters may change in the future.

 

On February 13, 2019, the Companyreceived 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 notice did not contain sufficiently detailed information to enable the Company to assess the merits of the claims. The Company will proceed diligently to investigate the potential claims and attempt to satisfactorily resolve them with a view to having the holdback receivable released.

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.

During 2018, theCompany 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.

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.

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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, President, 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. Dr. Friesen’s date of birth is May 19, 1947.

 

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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 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, 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 one Canadian healthcare 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.

 

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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.

 

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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

Ms. 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.

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Neil Owens – President and Chief Operating Officer

Dr. 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 the University of Manitoba and has Postdoctoral experience with the European Institute of Chemistry and Biology (Bordeaux, France). His research background has focused on organic & medicinal chemistry, and the overall application of 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 Consulting Agreement. Previous to his time at Genesys 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 OperationsManagement

 

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).

 

Dr. Neil Owens - President and Chief Operating Officer: Dr. Owens is responsible for the day to day operations of the Company (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 and other development products (see “Directors and Senior Management” under this item).

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B. Compensation

 

Compensation paid to the directors, and executive officers of the Company during the year ended December 31, 2015,2019, is described below and stock-based compensation described in Item 6(E) below:

 

The Company recorded $99,309$66,000 in fees paid or payable to Board members for attendance at meetings between January 1, 20162019 and December 31, 20162019 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.

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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, July 18, 2011, and July 18, 2016.2016, January 1, 2017 and January 1, 2019. For the yearyears ended December 31, 2016,2019 and 2018, the Company recorded payable to A.D. Friesen Enterprises Ltd., $237,790$331,000 and 315,000, 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, 2016,2017, a bonus of $54,247$125,000 was accrued to Dr. Friesen.Friesen, which was paid to him during the year ended December 31, 2018. During the year ended December 31, 2018, a bonus of $31,500 was accrued to Dr. Friesen, which was paid to him during the year ended December 31, 2019. No bonus has been accrued as at December 31, 2019.

 

Dawson Reimer served as the Company’s as President and Chief Operating Officer and received a salary of $205,000 payable in equal semi-monthly instalmentsinstallments and a bonus at the discretion of the 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.immediately. Mr. Reimer was paid $73,458$73,000 up to the date of his termination and $222,478$222,000 pertaining to severance during the year ended December 31, 2016. All amounts pertaining to this severance were paid during 2016 and there is no additional liability in this regard.

 

Effective January 1, 2016, the business and administration services agreement with GVI no longer included the Chief Financial Officer'sOfficer’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 yearone-year term, at a rate of $135,000 annually. TheDuring 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.

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.

 

Graeme Merchant servesserved the Company as Vice President, Commercial Operations until the conclusion of his employment in September 2017 and received a salary of $172,500 payable in equal semi-monthly instalments and bonuses aggregating $12,938 paid$161,000 during the year ended December 31, 2016.

 

During the year ended December 31, 2016,2018, the Company paid directors a total of Nil (Year ended May(December 31, 2017: Nil; December 31, 2016: Nil, December 31, 2015: Nil seven months endedand December 31, 2014: Nil, Year ended May 31, 2014: Nil; Year ended May 31, 2013: Nil; and Year ended May 31, 2012: 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.

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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 these amounts payableowing to the Board of Directors for the year ended December 31, 2016.2019. As at December 31, 2016,2018, the Company has $13,279had $1,000 of accrued compensation owing to the independent members of the Board of Directors relating to Directors fees.

 

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On July 11, 2014,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 issueissued 106,490 of its common shares at a deemed price of $1.98 per common share to satisfy $210,850$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 issueissued 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.

 

C. Board Practices

 

The Board of Directors presently consists of five directors, who were all elected at the Company’s annual general meeting of the shareholders held on June 22, 2016.26, 2019. 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.

 

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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.

 

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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.

 

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.

 

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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, 2016,2018, 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.

 

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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'sCompany’s financial statements, and

 

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·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.

 

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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’s independent auditors;

(5) performance of the Company’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’s independent auditor, Board and Company management. The responsibilities of a member of the Committee are in addition to such member’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’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

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disclosed in the Company’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’s accounting, internal

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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’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’s shares are traded including any of the following non-audit services:

 

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's independent auditors;
(5) performance of the Company'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's independent auditor, Board and Company management. The responsibilities of a member of the Committee are in addition to such member'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'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'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.

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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'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's certificate of incorporation, memorandum, articles or similar documents, or by the Board.

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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's shares are traded including any of the following non-audit services:
1)    Bookkeeping or other services related to accounting records or financial statements of the Company;

2)    Financial information systems design and implementation consulting services;

3)   Appraisal or valuation services, fairness opinions, or contributions-in-kind reports;

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4)   Actuarial services;

5)   Internal audit outsourcing services;

6)   Any management or human resources function;

7)   Broker, dealer, investment advisor, or investment banking services;

8)   Legal services;

 

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9)   Expert services related to the auditing service; and

10) 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:

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:

i)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;

j)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

k)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' review and examination of the Company'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 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’ review and examination of the Company’s accounts.

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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:

 

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:
l)The Company'sCompany’s audited and unaudited financial statements and related notes;

m)The Company'sCompany’s Management Discussion & Analysis (“MD&A”) and news releases related to financial results;

n)The Company’s management certifications of the financial statements and accompanying MD&A as required under applicable securities laws;

o)The Company’s annual information form (“AIF”), if one is prepared and filed.

p)The independent auditor'sauditor’s audit of the financial statements and its report thereon;

q)Any significant changes required in the independent auditor'sauditor’s audit plan;

r)The appropriateness of the presentation of any non-IFRS related financial information;

s)Any serious difficulties or disputes with management encountered during the course of the audit; and

t)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's annual report.
Review and discuss with management and the independent auditor the adequacy of the Company'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's financial reports

 

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’s annual report.

Review and discuss with management and the independent auditor the adequacy of the Company’s internal accounting and financial controls that management and the Board have established and the

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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’s financial reports.

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’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’s financial statements or accounting policies.

Review with the Company’s legal counsel legal matters that may have a material impact on the financial statements, the Company’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’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’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’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,

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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:

 

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'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's financial statements or accounting policies.
Review with the Company's legal counsel legal matters that may have a material impact on the financial statements, the Company'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'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'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'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.

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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.

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Notwithstanding the foregoing, a person will not be considered to have a material relationship with the Company solely because he or she:

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:

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:
1.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

2.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.

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.

 

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A person shall have acquired such attributes through:

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.

 

(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.

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.

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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.

 

D. Employees

 

In addition to the individuals disclosed in Section A. Directors and Senior Management of this item, the Company has 5845 employees through Medicure and 245 through Apicore as at December 31, 2016.2019. During the year ended December 31, 2016,2019, the Company increased itsCompany’s total employment and plans to continue to increase total employment during 2017.decreased from the previous year as part of the Company’s cost curtailment activities.

 

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E. Share Ownership

 

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, 2016.2019.

 

Title of Class Identity of Person or Group Amount Owned Percentage of Class Identity of Person or GroupAmount OwnedPercentage of Class
          
Common shares Dr. Albert D. Friesen(1) (2)  2,461,955(1)  15.85%Dr. Albert D. Friesen(1)2,273,227(1)21.04%
Common shares Dr. Arnold Naimark(3)  35,194   0.23%Dr. Arnold Naimark39,1940.36%
Common shares Gerald P. McDole(2)  44,950   0.29%Gerald P. McDole48,9500.45%
Common shares Peter Quick(3)  40,278   0.26%Peter Quick28,1500.26%
Common shares Brent Fawkes(2)  12,376   0.08%Brent Fawkes12,3760.11%
Common shares James Kinley  2,100   0.01%Manon Harvey-
Common shares Graeme Merchant  20,367   0.13%Dr. Neil Owens-
Common sharesJames Kinley47,1000.44%

 

(1)Dr. Albert D. Friesen holds 834,867721,267 shares personally or in an RRSP, a Canadian individual retirement plan. The rest of the shares are held by ADF Family Holding Corp. ADF Enterprises Inc., his wife Mrs. Leona M. Friesen, and CentreStone Ventures Limited Partnership Fund (the “Fund”).Fund. Dr. Friesen is the General Partner of theCentreStone Ventures Limited Partnership Fund.

 

(2)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 of outstanding amounts owing to CEO and members of the Company’s Board of Directors. The shares were issued on January 9, 2015.

(3)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 and a consultant, pursuant to which the Company will issue 108,206 of its common shares at a deemed price of $1.44 per common share to satisfy $155,817 of outstanding amounts owing to these individuals. The shares were issued on March 20, 2015.

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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 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.

 

99  

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, 2016.2019. 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 DateNumber of Shares Subject to IssuanceExercise Price per Share

Expiry Date

Dr. Albert D. Friesen  5,000  $6.16  April 7, 2021

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

  414,000  $1.50  July 18, 2021
  7,500  $1.90  July 7, 2024
  9,000  $1.90  March 27, 2025
Dr. Arnold Naimark  7,333  $14.70  December 11, 2017

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

  3,333  $0.60  September 3, 2018
  667  $0.60  April 16, 2019
  4,000  $6.16  April 7, 2021
  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

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

  3,333  $0.60  September 3, 2018
  667  $0.60  April 16, 2019
  4,000  $6.16  April 7, 2021
  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

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

  667  $14.70  December 11, 2017
  3,333  $0.60  September 3, 2018
  667  $0.60  April 16, 2019
  4,000  $6.16  April 7, 2021
  45,000  $0.30  May 10, 2023
  4,500  $1.90  July 7, 2024
  7,200  $1.90  March 27, 2025
Brent Fawkes  4,000  $6.16  April 7, 2021

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

  45,000  $0.30  May 10, 2023
  4,500  $1.90  July 7, 2024
  7,200  $1.90  March 27, 2025
Manon Harvey15,000$4.95June 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  $6.16  April 7, 2021

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

  45,000  $0.30  May 10, 2023
  7,500  $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
  4,000  $6.16  April 7, 2021
  100,000  $1.50  July 18, 2021
  8,500  $1.90  July 7, 2024
  7,200  $1.90  March 27, 2025

 

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100  

 

On April 6, 2016,June 26, 2019, the Company grantedannounced that the Board of Directors had approved the grant of an aggregate of 265,025262,000 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, 225,025approval of the TSX Venture Exchange, are set to expire on the fifth anniversary of the date of grant and 40,000 are set to expire on the first anniversary of the date of grant. All of the options were issued at an exercise price of $6.16$4.95 per share. Of the 265,025stock options granted 180,000 were granted to officers and directors of the Company.

On February 1, 2018, the Company announced that its Board of Directors had approved the grant of 100,000 stock options to an officer of the Company pursuant to its stock option plan. These options, which were subject to the approval of the TSX-V, are set to expire on April 6, 2016, 235,025 vested immediately, 10,000 vested on June 30, 2016, 10,000 vested on September 30, 2016the fifth anniversary of the date of grant and 10,000 vest on December 31, 2016. The options vesting on June 30, 2016, September 30, 2016 and December 31, 2016 were forfeited and terminated duringissued at an exercise price of $7.30 per share. 

During the year ended December 31, 2016.

Subsequent to December 31, 2016, 50,9502019, Gerald McDole, Arnold Naimark and Peter Quick each exercised 667 stock options were exercised, 1,400to acquire 667 common shares of the Company each at an exercise price of $1.90 per$0.60.

During the year ended December 31, 2018, James Kinley exercised 45,000 stock options to acquire 45,000 common share and 35,500shares of the Company at an exercise price of $3.90 per common share and 14,050 at an exercise price of $6.16 per common share for total gross proceeds to the Company of $227,658.$0.30.

None of the exercised stock options pertained to officers or directors of the Company.

 

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

 

A. Major Shareholders

 

As of December 31, 2016,2019, 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.

 

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Title of Class Identity of Person or Group Amount Owned  Percentage of Class 
         
Common shares Dr. Albert D. Friesen  2,461,955(1)  15.85%
  Winnipeg, Manitoba        
           
Common shares MM Asset Management Inc.  2,524,445   16.25%
  Toronto, Ontario        

Title of ClassIdentity of Person or GroupAmount Owned(3)Percentage of Class
    
Common shares

Dr. Albert D. Friesen

Winnipeg, Manitoba

2,273,227(1)21.04%
    
Common sharesMM Asset Management Inc.2,410,56722.31%
 Toronto, Ontario  
    
Common sharesPenderFund Capital Management Ltd1,150,59710.65%
    

Notes:

(1)Dr. Albert Friesen holds 834,867781,267 shares personally or in an RRSP. The rest of the shares are held by ADF Family Holding Corp., his wife Mrs. Leona M. Friesen, and CentreStone Ventures Limited Partnership Fund. Dr. Friesen is the General Partner of CentreStone Ventures Limited Partnership Fund.

 

As of December 31, 2016, 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.

101  

 

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, 2016,2019, 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 2,617,2202,448,997 (or 16.85%22.67% 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.

 

84

B. Related Party Transactions

 

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;

  

102  

(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.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.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, 2019 and 2018, 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 $54,380$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, 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 $237,790$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.

 

85

103  

 

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'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. Effective 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. SubsequentEffective January 1, 2017, the Company renewed its business and administration services agreement with GVI, under which the Company is committed to December 31, 2016pay $7,000 per month or $85,000 per year for a one-year term and effective January 1, 2017,2018, this agreement was renewed for an additional one yearone-year term. Effective January 1, 2019, 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, 2016,2019 the Company paid GVI, a company controlled by the Chief Executive Officer, a total of $85,000 (year ended December 31,(2018 – $85,000; 2017 – $85,000; 2016 $85,000, 2015 - $215,000, seven months ended December 31, 2014 - $115,000, year ended May 31, 2014 - $190,000)$215,000) for business administration services, $222,500 (year ended December 31,$295,000 (2018 - $228,000, 2017 – $212,000; 2016 – $223,000; 2015 - $176,051, seven months ended December 31, 2014 - $36,500, year ended May 31, 2014 - $30,500)$176,000) in rental costs and $41,975 (year ended December 31,$47,000 (2018 - $47,000, 2017 – $44,000; 2016 – $42,000; 2015 - $33,575, seven months ended December 31, 2014 - $25,115, year ended May 31, 2014 - $33,735) $34,000) for commercial and information technology support services. As described in note 15,17(b) to the Company’s audited consolidated financial statements included in this annual report, the business administration services summarized above are provided to the Company through a consulting agreement with GVI. The 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, will behave been paid directly by the Company through a consulting 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;

 

86

104  

Nature of AgreementEffective DateTerms
Regulatory affairs supportJune 22, 2009Services provided as needed on an hourly basis
Pharmacovigilance and medical affairs supportJanuary 1, 2014Monthly retainer of $2,000, plus hourly charges for pharmacovigilance services outside base services.
Pharmacovigilance and medical affairs supportJanuary 1, 2014Monthly retainer of $1,250, plus hourly charges for pharmacovigilance services outside base services.
Quality assurance supportJune 1, 2010Services provided as needed on an hourly basis.
AGGRASTAT®clinical trial managementClincial servicesMay 1, 2010Services provided as needed on an hourly basis.

 

During the year ended December 31, 2016,2019, the Company paid GVI CDS $595,464, (year ended December 31,$406,000 (2018 - $858,000, 2017 – $716,000; 2016 – $592,000, 2015 - $330,764, seven months ended December 31, 2014 - $56,904, year ended May 31, 2014 - $125,583)$331,000) 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, 2016,2019, the Company paid CanAm $560,205 (year ended December 31,$133,000 (2018 - $393,000, 2017 – $458,000; 2016 – $560,000; 2015 - $399,580, seven months ended December 31, 2014 - $233,938, year ended May 31, 2014 - $229,732)$400,000) 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, 2017 and 2016, there was no interest charged on these amounts payable to related.related parties. For the year ended December 31, 2015 seven months ended December 31, 2014 and the year ended May 31, 2014, $4,517, $10,127 and $14,918, respectively,$5,000 was recorded within finance expense in relation to these amounts payable to related parties.

Beginning with the acquisition of Apicore (the “Acquisition”) on December 1, 2016 and ending with the Apicore Sales Transaction on October 2, 2017, as described in note 45 of the Company’sconsolidated financial statements, the Company incurred rental charges pertaining to leased manufacturing facilities and office space from Dap Dhaduk II LLC (“Dap Dhaduk”), an entity controlled by a minority shareholder and member of the board of directors of Apicore Inc. ForIncluded within discontinued operations on the period from December 1, 2016consolidated statements of net income and comprehensive income is payments to Dap Dhaduk totaling $263,000 and $30,000 for the years ended December 31, 2017 and 2016, rental expenses from Dap Dhaduk totalled $29,869.

respectively.

Beginning with the acquisitionAcquisition on December 1, 2016 and ending with the Apicore Sales Transaction on October 2, 2017, as described in note 45 of the Company’sconsolidated financial statements, the Company purchased inventory totalling of $217,382, from Aktinos Pharmaceuticals Private Limited (“Aktinos”and Aktinos HealthCare Private Limited (together, “Aktinos”), an Indian based entity that is significantly influenced by a close family member of the Chief Executive Officer of Apicore Inc. For the year ended December 31, 2017, the Company paid Aktinos $1.6 million (2016 – $217,000) for purchases of inventory, which were included in assets of the Apicore business sold (note 5) in connection with the Apicore Sales Transaction.

105  

Beginning with the Acquisition on December 1, 2016 and ending with the Apicore Sales Transaction on October 2, 2017, as described in note 5 of the consolidated financial statements, the Company incurred research and development charges from Omgene Life Sciences Pvt. Ltd. (“Omgene”), an entity significantly influenced by a close family member of the Chief Executive Officer of Apicore Inc. Included within discontinued operations on the consolidated statements of net income and comprehensive income is payments to Omgene totaling $26,000 and nil for the years ended December 31, 2017 and 2016, respectively.

 

Beginning with the Acquisition on December 1, 2016 and ending with the Apicore Sales Transaction on October 2, 2017, as described in note 5 of the consolidated financial statements,, the Company incurred pharmacovigilance charges from 4C Pharma Solutions LLC (“4C Pharma”), an entity significantly influenced by a close family member of the Chief Executive Officer of Apicore Inc. Included within discontinued operations on the consolidated statements of net income and comprehensive income is payments to 4C Pharma totaling $6,000 and nil for the years ended December 31, 2017 and 2016, respectively.

As at December 31, 2016,2019, included in accounts payable and accrued liabilities is $100,493 (December 31, 2015$95,000 (2018 - $23,494 and December 31, 2014 - $120,962)$17,000) payable to GVI, $336,008 (December 31, 2015 - $64,539 and December 31, 2014 - $145,100)$56,000 (2018$134,000) payable to GVI CDS, $80,582 (December 31, 2015 - $60,611 and December 31, 2014 - $247,752)no amounts (2018$40,000) payable to CanAm, and $467,250 payable to Aktinos whichCanAm. These amounts are unsecured, payableon demand and bear interestnon-interest bearing. In addition, the other long-term liability totaling $1.2 million as described above.

Effective July 18, 2016,at December 31, 2018 (2017 - $1.1 million) is payable to the Company renewed its consulting agreement with itsformer President and Chief Executive Officer through ADF Enterprises Inc, a company owned byof Apicore upon receipt of the Chief Executive Officer. for a term of five years, at a rate of $300,000 annually. The Company may terminate this agreement at any time upon 120 days written notice. During the year ended December 31, 2016 the Company recorded a bonus of $54,247 (year ended December 31, 2015 - $100,000, seven months ended December 31, 2014 - $58,904, year ended May 31, 2014 - $286,849) to its Chief Executive Officer which is recorded within selling, general and administrative expenses. holdback receivable.

As at December 31, 2016, included in2019, the Company did not have any amounts payable (2018$5,000) recorded within accounts payable and accrued liabilities is $54,380 (December 31, 2015 – $45,753 and December 31, 2014 - $345,753) payablerelating to A.D. Friesen Enterprises Ltd. as a result of this consulting agreement, which is unsecured, payable on demand and non-interest bearing.

87

On July 11, 2014, the Company announced that, subject to all necessary regulatory approvals, it had entered into a shares for debt 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 Executive Officer. Of the amount payable to the Chief Executive Officer as at December 31, 2014, $297,808 was included in this sharesmembers of the Company's Board of Directors for debt agreement. The shares were issued on January 9, 2015.

services provided.

Effective January 1, 2016, the business and administration services agreement with GVI no longer included the Chief Financial Officer's services and2018, the Company signed arenewed 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 yearone-year term, at a rate of $135,000$155,000 annually. The agreement may becould have been terminated by either party, at any time, upon 30 days written notice. During the year ended December 31, 2016 the Company recorded a bonus of $10,000 to its Chief Financial Officer which is recorded within selling, general and administrative expenses. As at December 31, 2016, included in accounts payable and accrued liabilities is $22,313Any amounts payable to JFK Enterprises Ltd. as a result of this consulting agreement, which iswere 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.

 

C. Interests of Experts and Counsel

 

Not applicable

 

ITEM 8. FINANCIAL INFORMATION

 

A. Consolidated Statements or Other Financial Information

 

financial Statements

 

The consolidated financial statements of the Company as at December 31, 2019 and 2018 and for the years ended December 31, 20162019, 2018 and 2015, the seven months ended December 31, 2014 and year ended May 31, 20142017 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, PricewaterhouseCoopers LLP as at and for the years ended December 2019 and 2018 and Ernst & Young LLP.LLP for the year ended December 31, 2017.

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Legal Proceedings

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.

 

ThereOn December 5, 2019, the Company announced it had filed a patent infringement action against in the U.S. District Court for the Northern District of Illinois, alleging infringement of the ‘660 patent.

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 FDA’s orange book with an expiry date of May 1, 2023. Medicure will vigorously defend the ’660 patent and will pursue the patent infringement action against Nexus and all other legal options available to protect its product.

Previously, on November 16, 2018, the Company filed a patent infringement action against 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.

On August 21, 2019 the Company announced that its subsidiary, Medicure International Inc., has settled this ongoing patent infringement action. As part of the settlement, Gland has acknowledged that the ‘660 patent is valid, enforceable and infringed. The settlement resulted in the Company entering into a license agreement with Gland with an anticipated launch date for Gland’s generic product of March 1, 2023. The remaining terms of the settlement are confidential.

During 2018, theCompany 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.

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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.

 

B. Significant Changes

 

There have been no significant changes to the accompanying financial statements since December 31, 2016,2018, except as disclosed in this Annual Report on Form 20-F.

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ITEM 9. THE OFFERING AND LISTING

 

A. Listing Details

 

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 theCanada 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'sCompany’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.

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The following table 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  TSX/NEX/TSX-V 
  High ($)  Low ($) 
       
Fiscal Quarter Ended        
December 31, 2016  10.67   5.48 
September 30, 2016  7.20   5.49 
June 30, 2016  6.98   4.73 
March 31, 2016  7.29   4.18 
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 30, 2013  0.53   0.14 
August 31, 2013  0.28   0.10 
May 31, 2013  0.45   0.20 
February 28, 2013  0.67   0.23 

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1.(1) The Company changed its fiscal year end from May 31 to December 31 in 2014, resulting in a stub fiscal year of June 1, 2014 to December 31, 2014. For comparison purposes, trading data is presented for calendar rather than fiscal periods.
 TSX-VTSX-V
 High ($)Low ($)
   
Fiscal Quarter Ended 
December 31, 2019 5.243.00
September 30, 20195.024.15
June 30, 20196.354.68
March 31, 2019 6.905.95
December 31, 2018 7.155.71
September 30, 20187.386.60
June 30, 20187.555.90
March 31, 2018 7.406.70
December 31, 2017 8.716.90
September 30, 20178.457.50
June 30, 20179.826.50
March 31, 201710.558.52
December 31, 201610.675.48
September 30, 20167.205.49
June 30, 20166.984.73
March 31, 20167.294.18

 

B. Plan of Distribution

 

Not applicable.

 

C. Markets

 

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”.

 

D. Selling Shareholders

 

Not applicable.

 

E. Dilution

 

Not applicable.

 

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F. Expenses of the Issue

 

Not applicable.

 

ITEM 10. ADDITIONAL INFORMATION

 

A. Share Capital

 

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.

 

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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;

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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.

 

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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.

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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.

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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;

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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.

 

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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 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 theInvestment Canada Act (Canada) by an investor that is not a “Canadian” as defined in theInvestment Canada Act (Canada), unless after review the Minister responsible for theInvestment 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.

 

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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 theInvestment 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:

 

a)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 theInvestment Canada Act (Canada), if the acquisition is subject to approval under theBank Act (Canada), theCooperative Credit Associations Act (Canada), theInsurance Companies Act(Canada) or theTrust 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.

94

 

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.

 

C. Material Contracts

 

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.

 

None

 

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D. Exchange Controls

 

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.

 

E. Taxation

 

Material U.S. Federal Income Tax ConsequencesConsiderations

 

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).

95

 

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.

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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. 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.

 

96

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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).

 

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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.

 

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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 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, 2016,2019, and does not expect that it will be a “passive foreign investment Company”PFIC for the taxable year ending December 31, 2017.2020. (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, 2016,2020, 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, 20162020, 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.

 

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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.

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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.

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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.

 

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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.

 

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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 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. Ayear, 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.

 

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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 December 31, 2016,2019 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, 2017.2020. 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, 20162020, 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.

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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.

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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.

 

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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.

 

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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

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G. Statement by Experts

 

Not applicable

 

G. Statement by Experts

Not applicable

H. Documents on Display

 

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.

 

I. Subsidiary Information

 

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 1% during the year ended December 31, 2016, with all other variables held constant, would result in a corresponding increase or decrease on the Company's net income (loss) of approximately $250,000 (year ended December 31, 2015 - $20,000, seven months ended December 31, 2014 - $4,000, year ended May 31, 2014 - $2,000). An increase in the crown company borrowingas it does not have any variable rate of 1% during the year ended December 31, 2016, with all other variables held constant, would result in a corresponding increase or decrease on the Company's net income (loss) of approximately $26,000 (December 31, 2015 - $49,000, seven months ended December 31, 2014 - $52,000, year ended May 31, 2014 - $52,000).borrowings.

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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, 2016,2019, it is estimated that approximately 70%60% 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, 2019, 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, 2016 would have impacted loss for the year by 10%.Company's net (loss) income of approximately $448,000. 

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

 

Not applicable

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PART II

 

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

 

Not applicable

 

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

 

Not applicable

 

ITEM 15. CONTROLS AND PROCEDURES

 

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.

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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

 

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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, 2014,2019, 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, 20162019 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 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.

105

Changes in Internal Control over Financial Reporting and Planned Remediation Activities

There have been no changes in the Company'sCompany’s internal controls identified 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 undertaken to date in fiscal 2016.2020. 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 correct this material weakness at this time.

 

ITEM 16. RESERVED

 

Not applicable

127  

 

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

 

As of December 31, 2016,2019, 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.

 

ITEM 16B. CODE OF ETHICS

 

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 November 21, 2018, the Company changed its auditors from Ernst & Young LLP to PricewaterhouseCoopers 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.

 

TheFor the fiscal year ended December 31, 2018, the Company incurred the followingdid not incur any fees to Ernst & Youngfrom PricewaterhouseCoopers LLP, for the previous two fiscal years.however $140,000 of audit fees were accrued at December 31, 2018. As at December 31, 2016,2019, the Company hadhas accrued $150,000 relating$162,000 in relation to Ernst & Young LLP audit fees.fees from PricewaterhouseCoopers LLP.

 

(a)  Audit fees 2016  2015 
 $90,000  $86,400 
(a)  Audit fees20192018
 $146,000$-

Audit fees consist of fees billed for the audit of the Company’s annual financial statements.

 

 

Audit fees consist of fees billed for the audit of the Company’s annual financial statements.

128  

 

(b)  Audit-related fees20192018
 106$-$-

Audit-related fees consist of fees billed for accounting consultations.

(c)  Tax fees20192018
$-$-
 
(d)  All other fees20192018
$-$-

(b)  Audit-related fees 2016  2015 
 $-  $- 

  

Audit-related fees consist of fees billed for accounting consultations.

(c)  Tax fees 2016  2015 
 $-  $- 

(d)  All other fees 2016  2015 
 $-  $- 

(e) Audit Committee’s Pre-approval Policies

 

All Ernst & YoungPricewaterhouseCoopers LLP services and fees are approved by the Audit Committee.

 

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

 

Not applicable

 

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

 

On 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.

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 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, 2016,2018 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”).

129  

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 notreflect 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 pursuantas at the time that the Offer was commenced. After giving effect to any repurchase program or otherwise.the Offer, the Company had 10,804,013 Common Shares outstanding.

 

130  

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 atwww.sedar.comand 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.

ITEM 16F. CHANGE IN REGISTRANT'SREGISTRANT’s CERTIFYING ACCOUNTANT

Not applicable.

131  

ITEM 16G. CORPORATE GOVERNANCE

Not applicable.

ITEM 16H. MINE SAFETY DISCLOSURE

 

Not applicable.

 

ITEM 16G. CORPORATE GOVERNANCE

Not applicable.

ITEM 16H.MINE SAFETY DISCLOSURE

Not applicable.

PART III

 

ITEM 17. FINANCIAL STATEMENTS

 

Not applicable. See “Item 18 –Financial Statements”.

 

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:

 

1.ReportReports of Independent Registered Public Accounting Firm;Firms;

2.Consolidated Statements of Financial Position;

3.3. Consolidated Statements of Net (Loss) Income (Loss) and Comprehensive Income (Loss); Income;

4.Consolidated Statements of Changes in DeficiencyEquity

5.Consolidated Statements of Cash Flows; and

6.Notes to Consolidated Financial Statements.

 

107

132  

 

 



Consolidated Financial Statements

(Expressed in thousands of Canadian Dollars)Dollars, except per share amounts)

 

MEDICURE INC.

 

Year ended December 31, 20162019

 

108

133  

 

 

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 & YoungPricewaterhouseCoopers LLP, the Company’s external auditors for the year ended December 31, 2019, 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 years ended December 31, 2019 and 2018. Ernst & Young LLP, the Company’s external auditors for the year ended December 31, 2017, 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 year ended December 31, 2017. The reports of PricewaterhouseCoopers LLP and Ernst & Young LLP follow.

/s/ Albert Friesen /s/ James Kinley
 
Dr. Albert D. Friesen Mr. James F. Kinley CPA CA
Chief Executive Officer Chief Financial Officer
April 26, 2017 

  

April 15, 2020

109

134  

 

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 statements of financial position of Medicure Inc. and its subsidiaries (together, the Company) as of December 31, 2019 and 2018, and the related consolidated statements of net (loss) income and comprehensive (loss) income, changes in equity and cash flows for the years then ended, including the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and its financial performance and its cash flows for the years then ended in conformity 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 audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

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.

135  

 

 

 

Independent auditors’ report

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 since 2018.

136  

Report of independent registered public accounting firm

 

To the Shareholders of

Medicure Inc.

 

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated financial statements ofMedicure Inc. [the “Company”], which comprise the consolidated statements of financial position as at December 31, 2016, December 31, 2015, and December 31, 2014, and the consolidated statementsstatement of net income (loss) and comprehensive income, (loss), changes in equity (deficiency) and cash flows for the yearsyear ended December 31, 2016 and December 31, 2015, the seven-month period ended December 31, 2014,2017, and the twelve-month period ended May 31, 2014, andrelated notes, comprising a summary of significant accounting policies and other explanatory information.

 

Management’s responsibility forIn our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial performance of the Company and its consolidated cash flows for the year ended December 31, 2017, in accordance with International Financial Reporting Standards [“IFRSs”] as issued by the International Accounting Standards Board.

 

Basis for Opinion

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards [“IFRSs”] as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditors’ responsibility

Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits.audit. We conducted our auditsaudit in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States) [“PCAOB”]. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.misstatement, whether due to error or fraud. Those standards also require that we comply with ethical requirements, including independence. We were not engagedare required to perform anbe independent with respect to the Company in accordance with the ethical requirements that are relevant to our audit of the Company’sconsolidated financial statements in Canada, the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We are a public accounting firm registered with the PCAOB.

An audit includes performing procedures to assess the risks of material misstatements of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included obtaining and examining, on a test basis, audit evidence regarding the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control overrelevant to the Company’s preparation and fair presentation of the consolidated financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designingstatements in order to design 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Accordingly, we express no such opinion.

137  

– 2 –

 

An audit involves 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 of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, evaluating the appropriateness of accounting policies and principles used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

 

We believe that the audit evidence we have obtained in our auditsaudit is sufficient and appropriate to provide a reasonable basis for our audit opinion.

 

OpinionWe served as the Company’s auditor from 2013 to 2017.

 

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position ofMedicure Inc.as at December 31, 2016, December 31, 2015, and December 31, 2014, and its financial performance and its cash flows for the years ended December 31, 2016 and December 31, 2015, the seven-month period ended December 31, 2014, and the twelve-month period ended May 31, 2014 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

Winnipeg, Canada Chartered Professional Accountants

May 1, 2018

138  

 

Consolidated Statements of Financial Position

(expressed in thousands of Canadian dollars, except per share amounts)

As at December 31 Note  2019  2018 
Assets            
Current assets:            
Cash and cash equivalents     $12,965  $24,139 
Short-term investments      -   47,747 
Accounts receivable  6   10,216   10,765 
Inventories  7   6,328   4,239 
Prepaid expenses      1,855   2,697 
Total current assets      31,364   89,587 
Non-current assets:            
Property, plant and equipment  4 & 8   1,282   316 
Intangible assets  9   9,599   1,705 
Holdback receivable  5 & 10   -   11,909 
Other assets      39   117 
Deferred tax assets  14   -   127 
Total non-current assets      10,920   14,174 
Total assets     $42,284  $103,761 
             

Liabilities and Equity

            
Current liabilities:            
Accounts payable and accrued liabilities     $9,384  $14,377 
Current portion of royalty obligation  12   872   1,496 
Current portion of acquisition payable  9   649   - 
Current income taxes payable  14   517   1,058 
Current portion of lease obligation  4   240   - 
Total current liabilities      11,662   16,931 
Non-current liabilities            
Royalty obligation  12   1,176   2,035 
Acquisition payable  9   1,655   - 
Lease obligation  4   849   - 
Other long-term liabilities  5 & 10   -   1,201 
Total non-current liabilities      3,680   3,236 
Total liabilities      15,342   20,167 
Equity:            
Share capital  13(b)  85,364   122,887 
Warrants  13(d)  1,949   1,949 
Contributed surplus      8,028   7,628 
Accumulated other comprehensive income      (5,751)  1,268 
Deficit      (62,648)  (50,138)
Total Equity      26,942   83,594 
Total liabilities and equity     $42,284  $103,761 
Commitments and contingencies  16(a) & 16(d)        
Subsequent events  22        

On behalf of the board 

“Dr. Albert D. Friesen”

“Mr. Brent Fawkes”

April 26, 2017DirectorDirector 

 

See accompanying notes to the consolidated financial statementsstatements.

 

110

139  

 

 

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  2019  2018  2017 
Revenue, net                
Product sales, net     $20,173  $29,109  $27,133 
Cost of goods sold  7 & 9   7,272   4,152   3,465 
Gross profit      12,901   24,957   23,668 
                 
Expenses                
Selling      13,399   15,580   11,515 
General and administrative      3,395   3,922   3,353 
Research and development      4,349   6,681   5,148 
       21,143   26,183   20,016 
                 
Other expense (income):                
Revaluation of holdback receivable  10   3,623   1,473   (83)
Impairment loss on intangible assets  9   6,321   -   636 
       9,944   1,473   553 
Finance (income) costs:                
Finance (income) expense, net  15   (1,115)  (1,061)  837 
Foreign exchange (gain) loss, net      2,570   (6,461)  (175)
       1,455   (7,522)  662 
Net (loss) income before income taxes     $(19,641) $4,823  $2,437 
Income tax (expense) recovery                
Current  14   (22)  (678)  9,393 
Deferred  14   (123)  (219)  (333)
       (145)  (897)  9,060 
Net (loss) income before discontinued operations     $(19,786) $3,926  $11,497 
Net income from discontinued operations, net of tax  5   -   -   31,924 
Net (loss) income     $(19,786) $3,926  $43,421 
Item that may be reclassified to profit or loss                
Exchange differences on translation of foreign subsidiaries:                
Continuing operations      (683)  595   (30)
Discontinued operations      -   -   21 
Item that will not be reclassified to profit and loss                
Revaluation of investment in Sensible Medical at FVOCI  11   (6,336)  -   - 
Comprehensive (loss) income     $(26,805) $4,521  $43,412 
                 
(Loss) earnings per share from continuing operations                
Basic  13(e)  $(1.32) $0.25  $0.74 
Diluted  13(e)  $(1.32) $0.24  $0.63 
             
Earnings per share from discontinued operations            
Basic  13(e)  $-  $-  $2.04 
Diluted  13(e)  $-  $-  $1.76 
             
(Loss) earnings per share            
Basic  13(e)  $(1.32) $0.25  $2.78 
Diluted  13(e)  $(1.32) $0.24  $2.39 

See accompanying notes to the consolidated financial statements.

 

 
Consolidated Statements of Financial Position
(expressed in Canadian dollars)

140  

 

As at December 31 Note 2016  2015  2014 
            
Assets              
Current assets:              
Cash and cash equivalents   $12,266,177  $3,568,592  $493,869 
Cash held in escrow 11(b)  12,809,072   -   - 
Accounts receivable 5  17,200,778   9,823,616   1,637,676 
Inventories 6  12,176,644   2,289,275   1,099,576 
Prepaid expenses 17  759,077   1,767,071   642,976 
Total current assets    55,211,748   17,448,554   3,874,097 
Non-current assets:              
Property and equipment 7  10,300,639   230,162   33,161 
Goodwill 4  47,485,572   -   - 
Intangible assets 8  100,864,817   1,411,992   1,096,946 
Other assets    161,891   -   - 
Investment in Apicore 4  -   1,559,599   1,361,824 
Long-term derivative 4  -   227,571   194,491 
Deferred tax assets 15  701,000   379,000   - 
Total non-current assets    159,513,919   3,808,324   2,686,422 
Total assets   $214,725,667  $21,256,878  $6,560,519 
               
Liabilities and Equity              
Current liabilities:              
Short-term borrowings 9 $1,383,864  $-  $- 
Accounts payable and accrued liabilities 13 & 18  17,242,366   7,079,091   3,248,877 
Current income taxes payable 15  504,586   -   - 
Deferred revenue    1,161,608   -   - 
Current portion of finance lease obligation 10  89,241   -   - 
Current portion of long-term debt 11  2,883,752   1,625,191   654,877 
Current portion of royalty obligation 12  2,019,243   1,648,180   473,744 
Derivative option on Apicore Class C shares 4  32,901,006   -   - 
Liability to repurchase Apicore Class E shares 4  2,700,101   -   - 
Total current liabilities    60,885,767   10,352,462   4,377,498 
Non-current liabilities              
Long-term debt 11  68,180,424   2,617,593   4,225,949 
Finance lease obligation 10  242,449   -   - 
Royalty obligation 12  3,666,479   3,725,272   1,715,310 
Due to vendor 4  2,759,507   -   - 
Fair value of Apicore Series A-1 preferred shares 4  1,755,530   -   - 
Other long-term liability 13  133,999   100,000   152,778 
Deferred tax liabilities 15  38,142,775   -   - 
Total non-current liabilities    114,881,163   6,442,865   6,094,037 
Total liabilities    175,766,930   16,795,327   10,471,535 

 

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  Non-
Controlling
Interest
  

 

 

Total

Equity

 
Balance, December 31, 2018     $122,887  $1,949  $7,628  $1,268  $(50,138) $83,594  $-  $83,594 
Net loss for the year ended
December 31, 2019
      -   -   -   -   (19,786)  (19,786)  -   (19,786)
Other comprehensive income for the year ended December 31, 2019      -   -   -   (7,019)  -   (7,019)  -   (7,019)
                                     
Transactions with owners, recorded directly in equity                                    
Buy-back of common shares under normal course issuer bid  13(b)  (5,955)  -   -   -   1,810   (4,145)  -   (4,145)
Buy-back of common shares under substantial issuer bid  13(b)  (31,605)  -   -   -   5,466   (26,139)  -   (26,139)
Stock options exercised  13(c)  37   -   (17)  -   -   20   -   20 
Share-based compensation  13(c)  -   -   417   -   -   417   -   417 
Total transactions with owners      (37,523)  -   400   -   7,276   (29,847)  -   (29,847)
Balance, December 31, 2019     $85,364  $1,949  $8,028  $(5,751) $(62,648) $26,942  $-  $26,942 

  

(Continuedcontinued on next page)

 

See accompanying notes to the consolidated financial statementsstatements.

 

111

141  

 

 

Consolidated Statements of Changes in Equity (continued)

 
Consolidated Statements of Financial Position (continued)
(expressed in Canadian dollars)

(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

  Equity
(Deficit)
  Total  Non-
Controlling
Interest
  

 

 

Total

Equity

 
Balance, December 31, 2017     $125,734  $1,949  $6,897  $673  $(54,544) $80,709  $-  $80,709 
Net income for the year ended
December 31, 2018
      -   -   -   -   3,926   3,926   -   3,926 
Other comprehensive income for the year ended December 31, 2018      -   -   -   595   -   595   -   595 
Transactions with owners, recorded directly in equity                                    
Buy-back of common shares under normal course issuer bid  13(b)  (3,501)  -   -   -   480   (3,021)  -   (3,021)
Stock options exercised  13(c)  654   -   (291)  -   -   363   -   363 
Share-based compensation  13(c)  -   -   1,022   -   -   1,022   -   1,022 
Total transactions with owners      (2,847)  -   731   -   480   (1,636)  -   (1,636)
Balance, December 31, 2018     $122,887  $1,949  $7,628  $1,268  $(50,138) $83,594  $-  $83,594 

As at December 31 Note 2016  2015  2014 
Equity (Deficiency):              
Share capital 14(b)  124,700,345   121,413,777   117,045,763 
Warrants 14(d)  2,020,152   101,618   - 
Contributed surplus    6,756,201   6,789,195   5,360,748 
Accumulated other comprehensive income    681,992   1,104,388   298,329 
Deficit    (97,289,953)  (124,947,427)  (126,615,856)
Total equity (deficiency) attributable to shareholders of the company    36,868,737   39,661,280   (3,911,016)
Non-controlling interest    2,090,000   -   - 
Total equity (Deficiency)    38,958,737   4,461,551   (3,911,016)
Commitments and contingencies 17            
Subsequent events 4,11, 13, 14(c), 14(d), 17(a)            
Total liabilities and equity   $214,725,667  $21,256,878  $6,560,519 

On behalf of the board

"Dr. Albert D. Friesen""Mr. Brent Fawkes"
DirectorDirector
     Attributable to shareholders of the Company       
  Note  Share
Capital
  Warrants  Contributed
Surplus
  

Accumulated

other

comprehensive income (loss)

  Equity
(Deficit)
  Total  Non-
Controlling
Interest
  

 

 

 

 

Total

Equity

 
Balance, December 31, 2016     $124,700  $2,021  $6,756  $682  $(97,965) $36,194  $2,090  $38,284 
Net income for the year ended
 December 31, 2017
      -   -   -   -   43,421   43,421   -   43,421 
Other comprehensive loss for the year ended December 31, 2017      -   -   -   (9)  -   (9)  -   (9)
Disposition of non-controlling interests      -   -   -   -   -   -   (2,090)  (2,090)
Transactions with owners, recorded directly in equity                                    
Stock options exercised  13(c)  870   -   (350)  -   -   520   -   520 
Warrants exercised  13(d)  164   (72)  -   -   -   92   -   92 
Share-based compensation  13(c)  -   -   491   -   -   491   -   491 
Total transactions with owners      1,034   (72)  141   -   -   1,103   -   1,103 
Balance, December 31, 2017     $125,734  $1,949  $6,897  $673  $(54,544) $80,709  $-  $80,709 

 

See accompanying notes to the consolidated financial statementsstatements.

 

112

142  

 

 
Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss)
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014 and year ended May 31, 2014

  Note Year
ended
December 31,
2016
  Year 
ended
December 31,
2015
  Seven months
ended
December 31,
2014
  Year
ended
May 31, 
2014
 
Revenue, net                  
AGGRASTAT®   $29,979,633  $22,083,128  $5,264,395  $5,050,761 
Active Pharmaceutical Ingredients    7,798,838   -   -   - 
Total Revenue, net    37,778,471   22,083,128   5,264,395   5,050,761 
Cost of goods sold 6 & 8  9,769,265   2,259,867   600,574   868,122 
Gross Profit    28,009,206   19,823,261   4,663,821   4,182,639 
                   
Expenses                  
Selling, general and administrative    16,233,276   10,237,116   3,231,392   3,624,695 
Research and development    5,092,495   4,865,255   783,130   688,671 
     21,325,771   15,102,371   4,014,522   4,313,366 
Income (loss) before the undernoted    6,683,435   4,720,890   649,299   (130,727)
                   
Other expense (income):                  
Revaluation of long-term derivative 4  (20,560,440)  (33,080)  81,431   - 
Gain on step acquisition 4  (4,895,573)  -   -   - 
Reversal of impairment loss 8  -   (788,305)  -   - 
Investment structuring services 4  -   -   (1,385,099)  - 
Loss on settlement of debt 14(b)  -   60,595   -   - 
     (25,456,013)  (760,790)  (1,303,668)  - 
                   
Finance costs (income):                  
Finance expense, net 14(d) & 16  3,416,678   4,123,452   729,657   1,808,987 
Foreign exchange loss (gain), net    262,469   68,799   27,714   (5,618)
     3,679,147   4,192,251   757,371   1,803,369 
Net income (loss) before taxes   $28,460,301  $1,289,429  $1,195,596  $(1,934,096)
Income taxes (expense) recovery                  
Current 15  (501,315)  -   -   - 
Deferred 15  (301,512)  379,000   -   - 
Net income (loss)   $27,657,474  $1,668,429  $1,195,596  $(1,934,096)
Translation adjustment    (422,396)  806,059   143,538   86,679 
Comprehensive income (loss)   $27,235,078  $2,474,488  $1,339,134  $(1,847,417)
Earnings (loss) per share:                  
Basic 14(e) $1.84  $0.12  $0.10  $(0.16)
Diluted 14(e) $1.60  $0.11  $0.09  $(0.16)
                   
Weighted average shares outstanding:                  
Basic    15,002,005   13,461,609   12,204,827   12,196,745 
Diluted    17,316,401   15,765,570   13,843,126   12,196,745 

 

See accompanying notes to the consolidated financial statementsConsolidated Statements of Cash Flows

(expressed in thousands of Canadian dollars, except per share amounts)

113

 
Consolidated Statements of Changes in Equity (Deficiency)
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014 and year ended May 31, 2014

    Attributable to shareholders of the Company       
  Note Share
Capital
  Warrants  Contributed
Surplus
  Accumulated
other
comprehensive
income
  Equity
(Deficit)
  Total  Non-
Controlling 
Interest
  Total
Equity
(Deficiency)
 
Balance, December 31, 2015  $121,413,777  $101,618  $6,789,195  $1,104,388  $(124,947,427) $4,461,551  $-  $4,461,551 
Net income for the year ended December 31, 2016    -   -   -   -   27,657,474   27,657,474   -   27,657,474 
Other comprehensive income for the year ended December 31, 2016    -   -   -   (422,396)  -   (422,396)  -   (422,396)
Acquisition of non-controlling interests 4  -   -   -   -   -   -   2,090,000   2,090,000 
                                   
Transactions with owners, recorded directly in equity                                  
Issuance of warrants 14(d)  -   1,948,805   -   -   -   1,948,805   -   1,948,805 
Stock options exercised 14(c)  3,217,125   -   (1,372,995)  -   -   1,844,130   -   1,844,130 
Warrants exercised 14(d)  69,443   (30,271)  -   -   -   39,172   -   39,172 
Share-based compensation 14(c)  -   -   1,340,001   -   -   1,340,001   -   1,340,001 
Total transactions with owners    3,286,568   1,918,534   (32,994)  -   -   5,172,10808   -   5,172,108 
Balance, December 31, 2016   $124,700,345  $2,020,152  $6,756,201  $681,992  $(97,289,953) $36,868,737  $2,090,000  $38,958,737 
                                   
Balance, December 31, 2014   $117,045,763  $-  $5,360,748  $298,329  $(126,615,856) $(3,911,016) $-  $(3,911,016)
Net income for the year ended December 31, 2015    -   -   -   -   1,668,429   1,668,429   -   1,668,429 
Other comprehensive income for the year ended December 31, 2015    -   -   -   806,059   -   806,059   -   806,059 
                                   
Transactions with owners, recorded directly in equity                                  
Issuance of common shares 14(b)  4,021,782   -   -   -   -   4,021,782   -   4,021,782 
Issuance of warrants 14(d)  -   232,571   -   -   -   232,571   -   232,571 
Stock options exercised 14(c)  65,034   -   (31,869)  -   -   33,165   -   33,165 
Warrants exercised 14(d)  281,198   (130,953)  -   -   -   150,245   -   150,245 
Share-based compensation 14(c)  -   -   1,460,316   -   -   1,460,316   -   1,460,316 
Total transactions with owners    4,368,014   101,618   1,428,447   -   -   5,898,079   -   5,898,079 
Balance, December 31, 2015   $121,413,777  $101,618  $6,789,195  $1,104,388  $(124,947,427) $4,461,551  $-  $4,461,551 

See accompanying notes to the consolidated financial statements

114

 
Consolidated Statements of Changes in Equity (Deficiency) (continued)
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014 and year ended May 31, 2014

    Attributable to shareholders of the Company       
  Note Share
Capital
  Warrants  Contributed
Surplus
  Accumulated
other
comprehensive
income
  Equity
(Deficit)
  Total  Non-
Controlling 
Interest
  Total
Equity
(Deficiency)
 
Balance, May 31, 2014   $117,036,672  $-  $4,743,035  $154,791  $(127,811,452) $(5,876,954) $-  $(5,876,954)
Net income for the seven months ended December 31, 2014    -   -   -   -   1,195,596   1,195,596   -   1,195,596 
Other comprehensive income for the seven months ended December 31, 2014    -   -   -   143,538   -   143,538   -   143,538 
                                   
Transactions with owners, recorded directly in equity                                  
Stock options exercised 14(c)  9,091   -   (2,992)  -   -   6,099   -   6,099 
Share-based compensation 14(c)  -   -   620,705   -   -   620,705   -   620,705 
Total transactions with owners    9,091   -   617,713   -   -   626,804   -   626,804 
Balance, December 31, 2014   $117,045,763  $-  $5,360,748  $298,329  $(126,615,856) $(3,911,016) $-  $(3,911,016)
                                   
Balance, May 31, 2013   $117,033,258  $-  $4,449,305  $68,112  $(125,877,356) $(4,326,681) $-  $(4,326,681)
Net loss for the year ended May 31, 2014    -   -   -   -   (1,934,096)  (1,934,096)  -   (1,934,096)
Other comprehensive income for the year ended May 31, 2014    -   -   -   86,679   -   86,679   -   86,679 
                                   
Transactions with owners, recorded directly in equity                                  
Stock options exercised 14(c)  3,414   -   (1,414)  -   -   2,000   -   2,000 
Share-based compensation 14(c)  -   -   295,144   -   -   295,144   -   295,144 
Total transactions with owners    3,414   -   293,730   -   -   297,144   -   297,144 
Balance, May 31, 2014   $117,036,672  $-  $4,743,035  $154,791  $(127,811,452) $(5,876,954) $-  $(5,876,954)

See accompanying notes to the consolidated financial statements

115

 
Consolidated Statements of Cash Flows
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014 and year ended May 31, 2014

  Note Year ended
December 31,
2016
  Year ended
December 31,
2015
  Seven Months
ended
December 31, 
2014
  Year ended
May 31, 
2014
 
               
Cash (used in) provided by:                  
Operating activities:                  
Net income (loss) for the period   $27,657,474  $1,668,429  $1,195,596  $(1,934,096)
Adjustments for:                  
Income tax (expense) recovery 15                
Current    504,586   -   -   - 
Future    301,512   (379,000)  -   - 
Reversal of impairment loss 8  -   (788,305)  -   - 
Investment structuring services    -   -   (1,552,771)  - 
Revaluation of derivative 4  (20,560,440)  (33,080)  81,431   - 
Gain on step acquisition 4  (4,895,573)  -   -   - 
Loss on settlement of debt 14(b)  -   60,595   -   - 
Amortization of property and equipment 7  189,008   31,544   5,033   7,727 
Amortization of intangible assets 8  2,192,024   659,390   428,116   553,542 
Share-based compensation 14(c)  1,400,241   1,460,316   620,705   295,144 
Write-up (write-down) of inventory 6  (108,817)  40,920   (80,874)  22,209 
Finance expense, net 16  3,416,678   4,123,452   729,657   1,808,987 
Difference between fair value of other long-term liability and funding received 11  -   47,222   -   (14,483)
Unrealized foreign exchange (gain) loss    215,386   111,817   (27,892)  5,303 
Change in the following:                  
Accounts receivable    (4,174,691)  (8,185,940)  (690,074)  (514,986)
Inventories    2,520,499   (1,230,619)  (253,049)  114,937 
Prepaid expenses    1,706,109   (1,124,095)  (436,788)  (176,733)
Accounts payable and accrued liabilities    (531,576)  4,637,217   639,573   407,966 
Deferred revenue    (382,727)  -   -   - 
Other long-term liability    (102,828)  -   -   - 
Interest paid 16  (1,223,664)  (314,300)  (225,459)  (299,346)
Royalties paid 12  (1,712,390)  (642,768)  (156,722)  (165,291)
Cash flows from operating activities    6,410,811   142,795   276,482   110,880 
Investing activities:                  
Acquisition of property and equipment 7  (464,208)  (226,570)  (16,713)  (5,513)
Other assets    (1,229)  -   -   - 
Acquisition of Apicore, net of cash acquired 4  (41,711,546)  -   -   - 
Acquisition of intangible assets 8  -   -   (7,206)  - 
Cash flows used in investing activities    (42,176,983)  (226,570)  (23,919)  (5,513)
For the year ended December 31 Note  2019  2018  2017 
Cash (used in) provided by:                
Operating activities:                
Net (loss) income from continuing operations for the year     $(19,786) $3,926  $11,497 
Net income from discontinued operations for the year  5   -   -   31,924 
       (19,786)  3,926   43,421 
Adjustments for:                
Gain on sale of Apicore  5   -   -   (55,254)
Current income tax expense (recovery)  14   22   678   (9,393)
Deferred income tax expense (recovery)  14   123   219   (1,514)
Impairment of intangible assets  9   6,321   -   636 
Impairment of property, plant and equipment  8   95   -   - 
Revaluation of holdback receivable  10   3,623   1,473   (83)
Amortization of property, plant and equipment  8   485   103   1,173 
Amortization of intangible assets  9   1,438   196   6,634 
Share-based compensation  13(c)  417   1,022   623 
Write-down of inventories  7   1,983   95   385 
Finance (income) expense, net  15   (1,115)  (1,061)  837 
Unrealized foreign exchange (gain) loss      362   (5,323)  271 
Change in the following:                
Accounts receivable      (318)  (1,341)  (3,713)
Inventories      (4,072)  (1,259)  145 
Prepaid expenses      842   (1,793)  77 
Other assets      78   -   33 
Accounts payable and accrued liabilities      (4,992)  7,132   48,398 
Deferred revenue      -   -   (621)
Other long-term liabilities      -   -   77 
Interest received (paid), net  15   1,685   255   (7,486)
Income taxes paid  14   (477)  (2,041)  (894)
Royalties paid  12   (1,355)  (1,539)  (1,829)
Cash flows (used in) from operating activities      (14,641)  742   21,923 
Investing activities:                
Investment in Sensible Medical  11   (6,337)  -   - 
Proceeds from Apicore Sale Transaction  5   -   65,235   89,720 
Receipt of holdback receivable funds  10   6,719   -   - 
Redemptions (purchase) of short-term investments      47,747   (44,100)  - 
Acquisition of Class C common shares of Apicore  5   -   -   (31,607)
Acquisition of Class E common shares of Apicore  5   -   -   (2,641)
Acquisition of property, plant and equipment  8   (186)  (197)  (1,195)
Acquisition of intangible assets  9   (13,660)  (1,281)  (127)
Cash flows from investing activities      34,283   19,657   54,150 

  

(Continuedcontinued on next page)

 

See accompanying notes to the consolidated financial statementsstatements.

 

116

143  

 

 

 
Consolidated Statements of Cash Flows (continued)
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014 and year ended May 31, 2014

Consolidated Statements of Cash Flows (Continued)

Financing activities:                  
Issuance of common shares, net of share issue costs 14(b)  -   3,630,324   -   - 
Exercise of stock options 14(c)  1,844,130   33,165   6,099   2,000 
Exercise of warrants 14(b)  39,172   150,245   -   - 
Increase in cash held in escrow    (12,809,072)  -   -   - 
Issuance of long-term debt 11  55,114,518   -   -   - 
Increase in short-term borrowings    332,555   -   -   - 
Repayment of long-term debt 11  -   (694,444)  -   - 
Finance lease payments 10  (10,463)  -   -   - 
Cash flows from financing activities    44,510,840   3,119,290   6,099   2,000 
Foreign exchange gain on cash held in foreign currency    (47,083)  39,208   910   315 
Increase in cash    8,697,585   3,074,723   259,572   107,682 
Cash, beginning of period    3,568,592   493,869   234,297   126,615 
Cash, end of period   $12,266,177  $3,568,592  $493,869  $234,297 
                   
Supplementary information:                  
Non-cash investing activities                  
Investment structuring services   $-  $-  $1,552,711  $- 
Non-cash financing activities:                  
Shares issued on debt settlement 14(b) $-  $624,029  $-  $- 
Warrants issued as share issue costs 14(b) $1,948,805  $232,571  $-  $- 

(expressed in thousands of Canadian dollars, except per share amounts)

For the year ended December 31 Note  2019  2018  2017 
Financing activities:                
Repurchase of common shares under substantial issuer bid  13(b)  (26,139)  -   - 
Repurchase of common shares under normal course issuer bid  13(b)  (4,145)  (3,021)  - 
Proceeds from exercise of stock options  13(c)  20   363   520 
Proceeds from exercise of Apicore stock options  13(c)  -   -   422 
Proceeds from exercise of warrants  13(d)  -   -   92 
Repayment of long-term debt      -   -   (75,181)
Repayment of note payable to Apicore  5  -   -   (18,507)
Increase in short-term borrowings      -   -   162 
Decrease in cash held in escrow      -   -   12,809 
Finance lease payments      -   -   (102)
Payment of due to vendor  5  -   -   (3,186)
Cash flows used in financing activities      (30,264)  (2,658)  (82,971)
Foreign exchange (loss) gain on cash held in foreign currency      (552)  1,138   (108)
(Decrease) increase in cash      (11,174)  18,879   (7,006)
Cash and cash equivalents, beginning of period      24,139   5,260   12,266 
Cash and cash equivalents, end of period     $12,965  $24,139  $5,260 

 

See accompanying notes to the consolidated financial statementsstatements.

 

117

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Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

Notes to the Consolidated Financial Statements

(expressed in thousands of Canadian dollars, except per share amounts)

 

1.Reporting entity

 

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.

On September 30, 2019 the Company acquired ownership of ZYPITAMAGTM 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 on December 14, 2017. With this acquisition the Company obtained full control of the product including marketing and pricing negotiation for ZYPITAMAGTM. ZYPITAMAGTM 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 marketingin the United States. On May 1, 2018 ZYPITAMAGTM was made available in retail pharmacies throughout the United States.

On January 28, 2019, the Company became the exclusive marketing partner for the ReDS™ point of care system (“ReDS™”) in the United States. ReDS™ is a non-invasive, FDA-cleared medical device that provides an accurate, actionable and absolute measurement of lung fluid which is important in the management of congestive heart failure.

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 generic cardiovascular products. The Company continues to seek to acquire or license additional cardiovascular products.

 

TheDuring 2017, the Company, through its recently acquired subsidiaries (Note 4) is alsoApicore, was involved in the manufacturing, development, marketing, and selling ofActive Pharmaceutical Ingredients(“API”) to generic pharmaceutical customers and provides customsproviding custom synthesis for early phase pharmaceutical research of branded products. Through these subsidiaries, the Company also participatesparticipated in collaborations with other parties in the research and development stages of specific products. In October 2017 and January 2018, respectively, the Company sold its interests in Apicore’s U.S. business and Apicore’s Indian business and the Company no longer participates in this line of business.

 

2.Basis of preparation of financial statements:statements

 

(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 April 26, 2017.15, 2020.

 

(b)Basis of presentation

 

The consolidated financial statements have been prepared on the historical cost basis except for the following items:

 

·Derivative financial instruments are measured at fair value.

 

·Liability to repurchase Apicore Class E shares

·Derivative option on Apicore Class C shares

·Fair value of Apicore Series A-1 preferred shares

·Financial instruments at fair value through profit andor loss (“FVTPL”) are measured at fair value.

 

Financial instruments at fair value through other comprehensive income (“FVOCI”) are measured at fair value.

In December 2014, the Company received approval from securities regulators to change its financial year end from May 31 to December 31. The change of year end enabled the Company to align its year end with industry peers and with most other companies trading on the TSX Venture Exchange. The change in year end results in the current and immediately preceding period reflecting twelve months of operations ending December 31, 2016 and 2015, while the next comparative period ended December 31, 2014 only reflects seven months of operations. An additional comparable period reflects the twelve months ended May 31, 2014.

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CertainNotes to the Consolidated Financial Statements

(expressed in thousands of the comparative figures have been reclassified to conform with the presentation in the current year.Canadian dollars, except per share amounts)

 

2.Basis of preparation of financial statements (continued)

(c)Functional and presentation currency

 

The consolidated financial statements are presented in Canadian dollars, which is the Company'sCompany’s functional currency. All financial information presented has been rounded to the nearest thousand dollar except where indicated otherwise.

118

 
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

otherwise. The Company has rounded comparative figures, which were previously presented as rounded to the nearest dollar, to the nearest thousand dollar to conform to current year presentation. Additionally, certain of the comparative figures have been reclassified to conform with the current year presentation, namely for the current year presentation selling expenses have been presented separately from general and administration expenses on the statements of net (loss) income and comprehensive (loss) income.

 

2.Basis of preparation of financial statements (continued):

(d)Use of estimates and judgments

 

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 of the CompanyCompany’s and its subsidiaries’ functional currency and the determination of the Company's cash generating units ("CGU") for the purposes of impairment testing.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 notes:notes to the consolidated financial statements for the year ended December 31, 2019:

 

·Note 3(c)(ii)(i): ValuationThe valuation of the investment in Sensible Medical

Note 3(c)(iii): The valuation of the royalty obligation

 

·Note 3(e): ProvisionsThe provisions for returns, chargebacks, rebates and discounts

 

·Note 3(g) The measurement and valuation of inventory

·Note 3(j): The measurement and period of use of intangible assets

 

·Note 3(k): The estimation of accruals for research and development costs

·Note 3(p): The measurement of the amount and assessment of the recoverability of income tax assets and income tax provisions

 

·3.Note 4: Allocation of purchase consideration to the fair value of assets acquired and liabilities assumed.

·Note 4: Valuation of acquired intangible assets.

·Note 3(n)(ii): The assumptions and model used to estimate the value of share-based payment transactions and warrants

3.Significant accounting policies:policies

 

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, unless otherwise indicated.

(a)Basis of consolidation

 

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., Medicure U.S.A. Inc. and, Medicure Mauritius Limited, Medicure Pharma Europe Limited and Apigen Investments Limited. Additionally, consolidated in the December 31, 2017 comparative figures include,se financial statements from the date of acquisition (Note 4) are(note 5), the accounts of subsidiaries whichthat are controlled by the Company including, Apicore Inc., Apicore US LLC., Apigen Investments Limited,LLC, Apicore LLC. AndLLC and Apicore Pharmaceuticals Private Limited. These additional subsidiaries were classified as discontinued operations for 2017 and Apicore Inc. and Apicore US LLC were sold during 2017 as described in note 5. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intercompany transactions and balances and unrealized gains and losses from intercompany transactions have been eliminated.

 

119

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Notes to the Consolidated Financial Statements

(expressed in thousands of Canadian dollars, except per share amounts)

 

 
3.Notes to the Consolidated Financial StatementsSignificant accounting policies (continued)
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

 

3.Significant accounting policies (continued):

(b)Foreign currency

 

Items included in the financial statements of each of the Company'sCompany’s consolidated subsidiaries are measured using the currency of the primary economic environment in which the subsidiary operates (the functional currency). The consolidated financial statements are presented inCanadian dollars, which is the Company'sCompany’s functional and presentation currency.

 

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 andor loss. Non-monetary items that are not carried at fair value are translated using the exchange rates as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined.

 

The results and financial position of the Company'sCompany’s foreign operations that have a functional currency different from the Company’s functional and presentation currency are translated into Canadian dollars as follows:

 

(i)assets and liabilities of foreign operations are translated at the closing rate at the date of the consolidated statement of financial position;

 

(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 (loss) in the cumulative translation account.

 

When a foreign operation is disposed of, the component of other comprehensive income relating to that particular foreign operation is recognized in the consolidated statements of net income and comprehensive income, as part of the gain or loss on sale where applicable.

 

(c)Financial instruments

 

(i)Financial Assets

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 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 Company may irrevocably designate the presentation of subsequent changes in the fair value of such equity instrument as FVTPL

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, short-term investments and accounts receivable are classified within this category.

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(GRAPHIC) 

Notes to the Consolidated Financial Statements

(expressed in thousands of Canadian dollars, except per share amounts)

3.Significant accounting policies (continued)

(i)(c)Financial assetsinstruments (continued)

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. The holdback receivable was 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 classified within this category.

(ii) 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.

(iii) Financial liabilities

Initial recognition and measurement

 

The Company initially recognizes loans and receivables and deposits on the date that they are originated. All othera financial assets are recognized initiallyliability on the trade date atin which the Companyit becomes a party to the contractual provisions of the instrument.

The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred.

Financial assets and liabilities are offset and the net amount presented in the consolidated statements of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.

The Company classifies non-derivative financial assets into the following category: loans and receivables. The Company has not classified any assets or liabilities as available-for-sale or designated any financial assets upon initial recognition as fair value through profit and loss.

Derivatives embedded in host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held-for-trading. These embedded derivatives are measured at fair value with changes in fair value recognized in the consolidated statements of income. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required.

120

 
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

3.Significant accounting policies (continued):

(c)Financial instruments (continued)

(i)Financial assets (continued)

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognized initiallyinstrument at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivablesFinancial liabilities are subsequently measured at amortized cost using the effective interest method less any impairment. Loansor FVTPL, and receivables are comprised of accounts receivable.

(ii)Financial liabilities

not subsequently reclassified. The Company has the following non-derivativeCompany’s financial liabilities which are classified as other financial liabilities: short-term borrowings, accounts payable and accrued liabilities, income taxesroyalty obligation and acquisition payable deferred revenue, finance lease obligations and long-term debt.which are recognized on an amortized cost basis.

 

All other financial liabilities are recognized initially on the trade date at which the Company becomes a party to the contractual provisions of the instrument. Such financial liabilities are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortized cost using the effective interest method. Costs incurred to obtain financing are deferred and amortized over the term of the associated debt using the effective interest rate 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.

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 required 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 liabilityacquisition payable 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 requires 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 rate and making assumptions about them.

Warrants with an exercise price denominated in a foreign currency are recorded as a liability and classified as fair value through profit and loss. The warrant liability was included within accounts payable and accrued liabilities and the change in the fair value of the warrants was recorded as a gain or loss in the consolidated statement of net income and comprehensive income 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 value of the warrants at the date at which they were granted and subsequently revalued at each reporting date. Estimating fair value for these warrants required determining the most appropriate valuation model which is dependent on the terms and conditions of the grant. This estimate also required determining the most appropriate inputs to the valuation model including the expected life of the warrants, volatility and dividend yield and making assumptions about them. These warrants expired, unexercised, on December 31, 2016.

The liability to repurchase Apicore Class E shares was recorded at its fair value based on the fixed price of the employees���s put option net of the option’s exercise price.

The derivative option on Apicore Class C shares was recorded at the fixed purchase price in accordance with the terms and conditions of the grant.

121

 
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

3.Significant accounting policies (continued):

(c)Financial instruments (continued)

(ii)Financial liabilities (continued)

The Apicore Series A-1 preferred shares were valued at their fair value in relation to the valuation of Apicore conducted to value the Company’s business combination.

Estimating fair value required using the most appropriate valuation model which is dependent on management’s assumptions on future cash flows and an appropriate discount rate.

 

(iv) 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.

(v) 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 that market participants would use when pricing an asset 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 different fair value.

148  

(GRAPHIC) 

Notes to the Consolidated Financial Statements

(expressed in thousands of Canadian dollars, except per share amounts)

3.Significant accounting policies (continued)

(c)Financial instruments (continued)

(vi) Transaction costs

Transaction costs for all financial instruments measured at amortized cost, the transaction costs are included 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.

(vii) 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 derivative. 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.

(d)Impairment of financial assets

 

At each reporting date, the Company assesses whether there is objective evidence that a financial asset or a group ofAn “expected credit loss” impairment model applies to financial assets is impaired. If such evidence exists, the Company recognizes an impairmentwhich requires a loss forallowance to be recorded on financial assets carriedmeasured at amortized cost. The losscost based on their expected credit losses. An estimate is the difference between the amortized cost of the loan or receivable andmade to determine the present value of the estimated future cash flows associated with the asset, and if required, an impairment loss is recorded. The impairment loss reduces the carrying value of the impaired financial asset to the value of the estimated present value of the future cash flows associated with the asset, discounted usingat the instrument’sfinancial asset’s original effective interest rate. The carrying amount of the assetrate is reduced by this amountrecorded either directly or through the use of an allowance account and the amount of theresulting impairment loss is recognizedrecorded in profit andor loss.

 

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.

 

(e)Revenue recognitionfrom contracts with customers

 

The Company has three commercially available products that generated revenue for the year ended December 31, 2019, AGGRASTAT®, ZYPITAMAG™ and ReDSTM(the “Products“) which it sells to United States customers. AGGRASTAT® and ZYPITAMAG™ are sold to wholesalers for resale; with AGGRASTAT® primarily being sold by the wholesalers to hospitals, while ZYPITAMAG™ is primarily sold by wholesalers to pharmacies. The Company sells ReDSTMdirectly to end users. Revenuefrom the sale of AGGRASTAT® generally comprises finished commercial product,and ZYPITAMAG™ is recognized upon the receipt of goods by the wholesaler, the point in the course of ordinary activities, is measured at the fair valuetime in which title and control of the consideration received or receivable, net of estimated returns, chargebacks, trade discounts and volume rebates. Revenue is recognized when persuasive evidence exists, usually intransferred goods pass from the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferredCompany to the buyer, recovery ofwholesale customer. At this point in time, the consideration is probable,wholesaler has gained the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement withsole ability to route the goods, and there are no unfulfilled obligations that could affect the amountwholesaler’s acceptance of revenue can be measured reliably. If it is probable that discounts will be granted and the amount can be measured reliably, thengoods. Delivery of the discount is recognized as a reductionproduct occurs when the goods have been received at the wholesaler in accordance with the terms of revenue as the sales are recognized.

sale. Revenue from the sale of APIs,ReDSTM is recognized upon the receipt of goods by the end user, the point in the course of ordinary activities is measured at the fair valuetime in which title and control of the consideration received or receivable, nettransferred 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 estimated returns, trade discountsand volume rebates, if any. Revenue is recognized when persuasive evidence exists, usually upon shipmentthe goods. Delivery of the product thatoccurs when the significant risks and rewards of ownershipgoods have been transferredshipped to the buyer, recoverycustomer and the customer has accepted the products in accordance with the terms 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.sale.

 

The Company may enter into collaboration agreementsSales are made subject to certain discounts available for product development for its APIs and product pipeline. Theprompt payment, volume discounts, rebates or chargebacks. Revenue from these sales is recognized based on the price specified per the pricing terms of the agreements may include nonrefundablesigning fees, milestone payments and profit sharing arrangements on any profits derived from product sales from thesecollaborations. These multiple element arrangements are analyzed to determine whether the deliverables can beseparated or whether they must be accounted for as a single unit of accounting. Up-front fees are recognized asrevenue when persuasive evidence of an arrangement exists, the fee is fixed or determinable, delivery orperformance has been substantially completed and collection is reasonably assured. If there are no substantiveperformance obligations over the lifeinvoices, net of the contract,estimated discounts, rebates or chargebacks. Variable consideration is based on historical information, using the up-front non-refundable paymentexpected value method. Revenue is only recognized when theunderlying performance obligationto the extent that it is satisfied. If substantive contractual obligationshighly 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 customers for the discounts in which they are satisfied over time or overthe lifeentitled. Sales do not contain an element of financing as sales are made with credit terms within the normal operating cycle of the contract, revenue may be deferred and recognized overdate of the performance. The term overinvoice, which upfrontfees are recognized is revised if the period over which the Company maintains substantive contractual obligationschanges.consistent with market practice.

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Milestone payments are recognized as revenue whenNotes to the condition is met, if the milestone isnot a condition to future deliverables and collectability is reasonably assured. Otherwise, they are recognized overthe remaining termConsolidated Financial Statements

(expressed in thousands of the agreement or the performance period.

Canadian dollars, except per share amounts)

122

 

3.Significant accounting policies (continued)

 
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

 

3.Significant accounting policies (continued):

(f)Cash and cash equivalents

 

The Company considers all liquid investments purchased with a maturity of three months or less at acquisition to be cash and cash equivalents, which are carried and classified at amortized cost and are classified as loans and receivables.cost.

 

(g)Short-term investments

The Company considers all liquid investments purchased with a maturity greater than three months and less than one year at acquisition to be short-term investments, which are carried and classified at amortized cost.

(h)Inventories

 

AGGRASTAT® inventoriesInventories consist of unfinished product (raw materialsmaterial in the formof API)API and packaging materials) and finishedcommercial product, which are available for sale and are measured at the lower of cost and net realizable value.

AGGRASTAT®pre-launch inventory represents inventory for which regulatory approval is being sought, but has not yet been received and therefore is not available for sale. Pre-launch inventory is capitalized when the likelihood of obtaining regulatory approval is high. Should the likelihood of obtaining regulatory approval decline, any capitalized costs will be written-off in cost of goods sold. If regulatory approval is subsequently obtained, any write-down would be reversed, to the extent that the assigned cost is realizable.

Additionally, inventory includes raw materials, work in process and finished goods (APIs) which are manufactured and sold within the Apicore business and are measured at the lower of cost and net realizable value.

 

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.

 

Inventories are written down to net realizable value when the cost of inventories is estimated to be unrecoverable due to 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.

 

(h)(i)Property plant and equipment

 

(i)Recognition and measurement

 

Items of property, plant and equipment are measured at cost less accumulated amortization and accumulated impairment losses.losses and reversals. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. The costs of the day-to-day servicing of property, plant and equipment are recognized in the consolidated statements of net (loss) income and comprehensive (loss) income in the period in which they are incurred.

(ii)Amortization

 

Amortization is recognized in profit or loss over the estimated useful lives of each part of an item of property, plant and equipment in a manner whichthat most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. The estimated useful lives for the current and comparative periods are as follows:

 

AssetBasisRate
BuildingsStraight-line3% to 4%
Computers, office equipment, furniture and fixturesStraight-line/Diminishing balance20 to 25%
Machinery and equipmentStraight-line20% to 25%
Leasehold improvementsStraight-lineTerm of lease
ReDS™ demonstration unitsStraight-line33%
Right of use assetsStraight-lineTerm of lease

 

Amortization methods, useful lives and residual values are reviewed at each period end and adjusted if appropriate.

 

123

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(GRAPHIC) 

Notes to the Consolidated Financial Statements

(expressed in thousands of Canadian dollars, except per share amounts)

 

 
Notes to the Consolidated Financial Statements3.Significant accounting policies (continued
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

3.Significant accounting policies (continued):

(i)Leases

The determination of whether an arrangement is a lease is based on the substance of the arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfillment of the arrangement is dependent on the use of specific assets and the arrangement conveys a right to use the assets, even if those assets are not explicitly specified in an arrangement.

A lease is classified at inception date as a finance or operating lease. A lease that transfers substantially all the risks and rewards incidental to ownership to the Company is classified as a finance lease.

Finance leases are capitalized at the commencement of the lease at the inception date fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance expense and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in finance costs in the statement of Net Income (loss) and Comprehensive income (loss).

Leased assets are depreciated over the useful life of each asset. However, if there is no reasonable certainty that the Company will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.

An operating lease is a lease other than a finance lease. Operating lease payments are recognized as an operating expense in the statement of net income (loss) on a straight-line basis over the lease term.

 

(j)Intangible assets

 

Intangible assets that areacquired separately are measured at cost less accumulated amortization and accumulated impairment losses. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. 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.

 

The costLicenses are amortized on a straight-line basis over the contractual term of intangible assetsthe acquired in a business combination is its fair value at the date of acquisition. license.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. 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. Customer lists are amortized on a straight-line basis over approximately twelve years, or its economiclife, if shorter.

Amortization on 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'sCompany’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 aeare treated as changes in accounting estimates in the consolidated statements of net (loss) income and comprehensive (loss) income.

 

(k)Research and development

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.

 

124

 
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

3.Significant accounting policies (continued):

(k)Research and development (continued)

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.

 

(l)Government assistance

Government assistance, in the form of grants, is recognized at fair value where there is reasonable assurance that the grant will be received and 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, plant and equipment is deducted from the cost of the related property, plant and equipment. The benefits of investment tax credits for scientific research and experimental development expenditures ("(“SR&ED"&ED”) incurred directly by the Company are recognized in the period the qualifying expenditure is made, providingprovided there is reasonable assurance of recoverability. SR&ED investment tax credits receivable are recorded at their net realizable value.

 

151  

(GRAPHIC) 

Notes to the Consolidated Financial Statements

(expressed in thousands of Canadian dollars, except per share amounts)

3.Significant accounting policies (continued)

(m)Impairment of non-financial assets

 

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 and comprehensive income and included in research and development expense if they relate to patents.income. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The recoverable amount is the greater of the asset'sasset’s or CGU'sCGU’s fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. In determining fair value less costcosts to sell, an appropriate valuation model is used. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the CGU to which the asset belongs.

 

For assets other than goodwill, impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset'sasset’s carrying amount does not exceed the carrying amount that would have been determined, net of amortization, if no impairment loss had been recognized.

 

Goodwill is tested for impairment annually as at November 30, 2016 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 thatthan its carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot beare not reversed in future periods.

 

125(n)

 
Notes to the Consolidated Financial StatementsEmployee benefits
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

 

3.Significant accounting policies (continued):

(n)Employee benefits

(i)Short-term employee benefits

 

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.

 

(ii)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 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.

 

152  

(GRAPHIC) 

Notes to the Consolidated Financial Statements

(expressed in thousands of Canadian dollars, except per share amounts)

3.Significant accounting policies (continued)

(n)Employee benefits (continued)

(ii)Share-based payment transactions (continued)

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(being the total expense as calculated at the grant date]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.

 

(o)Finance income and finance costs

 

Finance costs comprise interest expense on borrowings which are recognized in net income (loss)and comprehensive income using the effective interest rate method, changes in the fair value of the warrant liability, accretion on the royalty obligation, prepayment fees on the early repayment of long-term debt and amortization of deferred debt issue costs using the effective interest rate method, offset by any finance income which is comprised of interest income on funds invested whichand is recognized as it accrues in net income (loss),and comprehensive income, using the effective interest method rate.rate method.

 

Foreign currency gains and losses are reported on a net basis.

 

(p)Income taxes

 

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 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.

126

 
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

3.Significant accounting policies (continued):

(p)Income taxes (continued)

 

The 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.

 

153  

 (GRAPHIC)

Notes to the Consolidated Financial Statements

(expressed in thousands of Canadian dollars, except per share amounts)

3.Significant accounting policies (continued)

(p)Income taxes (continued)

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. The Company and its subsidiaries have open tax years, primarily from 2010 to 2019, 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.

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.

 

(q)Earnings per share

 

The Company presents basic earnings per share ("EPS"(“EPS”) data for its common voting shares. Basic EPS is calculated by dividing the profit or loss attributable to common voting shareholders of the Company by the weighted average number of common voting shares outstanding during the period, adjusted for the Company'sCompany’s own shares held. Diluted EPS is computed similar to basic EPS except that the weighted average shares outstanding are increased to include additional shares for the assumed exercise of stock options and warrants, if dilutive. The number of additional shares is calculated by assuming that outstanding stock options and warrants were exercised and that the proceeds from such exercise were used to acquire common shares at the average market price during the reporting periods.

 

(r)Business combinations and goodwill

 

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 at 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 is included as part of the consideration transferred. The fair value of the contingent consideration liability is remeasured at each reporting date with the corresponding gain or loss being recognized in earnings.profit or loss.

 

Goodwill is initially measured at cost, being the excess of fair value of the cost of the business combinations over the Company’s share in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. Any negative difference is recognized directly in the consolidated statements of net income and comprehensive 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 12twelve months of the date of the acquisition.

 

127

154  

 

(GRAPHIC) 

Notes to the Consolidated Financial Statements

(expressed in thousands of Canadian dollars, except per share amounts)

 

 
3.Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

3.Significant accounting policies (continued):

(s)New standards and interpretations not yet adopted

IFRS 9Financial Instruments: Classification and Measurement ("IFRS 9")

IFRS 9 replaces the guidance in IAS 39,Financial Instruments: Recognition and Measurement, and brings together the classification and measurement, impairment and hedge accounting phases of the IASB’s project. The standard eliminates the existing IAS 39 categories of held-to-maturity, available-for-sale and loans and receivables.

Financial assets will be classified into one of two categories on initial recognition:policies (continued)

 

·(s)financial assets measured at amortized cost; or

·financial assets measured at fair value.New standard not yet adopted

 

UnderAmendments to IFRS 9, for financial liabilities measured at fair value under3 – definition of a business:

In October 2018, the International Accounting Standards Board (“IASB”) issued amendments to IFRS 3 Business Combinations, that seek to clarify whether a transaction results in an asset or a business acquisition. The amendments include an election to use a concentration test. This is a simplified assessment that results in an asset acquisition if substantially all of the fair value option, changes in fair value attributable to changes in credit risk will be recognized in other comprehensive income, with the remainder of the change recognizedgross assets is concentrated in profit and loss. IFRS 9 is effective fora single identifiable asset or a group of similar identifiable assets. The amendments apply to businesses acquired in annual reporting periods beginning on or after January 1, 2018 and is to be applied retrospectively with some exemptions.2020. The Company is currently evaluatingdoes not expect the amendments to have a significant impact ofon the above standard on itsconsolidated financial statements.statements upon adoption.

 

4.IFRS 15Revenue from Contracts with Customers ("IFRS 15")New standards and interpretations

 

IFRS 15, issued by the IASB in May 2014, is applicable to all revenue contracts and provides a model for the recognition and measurement of gains or losses from sales of some non-financial assets. The core principle is that revenue is recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard will also result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and improve guidance for multiple-element arrangements. IFRS 15 is effective for annual periods beginning on or after January 1, 2018, and is to be applied retrospectively, with earlier adoption permitted. Entities will transition following either a full or modified retrospective approach. The Company is currently evaluating the impact of the above standard on its financial statements.

IFRS 16,Leases ("(“IFRS 16"16”)

 

InEffective January 2016,1, 2019, the IASB issuedCompany has adopted IFRS 16 using the modified retrospective approach, recognizing a right of use asset equal to the lease liability at the date of initial application, and prior periods were not restated. IFRS 16 which requires lessees to recognize assets and liabilities for most leases. Lessees will have a single accounting model for all leases, with certain exemptions. The new standard is effective January 1, 2019, with limited early application permitted. The new standard permits lessees to use either a full retrospective or a modified retrospective approach on transitionexemptions available for leases existing atwith a term that is twelve months or less, or where the dateunderlying asset is of transition, with options to use certain transition reliefs. The Company is currently evaluating the impact of the above amendments on its financial statements.a low value.

 

IAS 7,StatementsUnless exempted, as noted above, upon inception of Cash Flows(“IAS 7”a lease, lessees will be required to recognize a right-of use (“ROU”) asset, representing the Company’s right to use the underlying asset and a lease liability representing its obligation for lease payments due to the lessor. ROU assets and the corresponding liability are initially measured at the present value of non-cancellable payments, including those made in accordance with an option period when the Company expects to exercise an option period to extend or not terminate a lease.

 

Amendments to IAS 7 require entities to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. The application of the standard does not require disclosure for comparative periods. The new standard is effective for annual periods beginning on or after JanuaryEffective November 1, 2017 with early application permitted. The Company is currently evaluating the impact of the above amendments on its financial statements.

IFRS 2,Share-based Payment

In June 2016, the IASB issued amendments to IFRS 2, Share-based Payment, clarifying how to account for certain types of share-based payment transactions. The amendments will apply on after January 1, 2018 for the Company. The Company is currently evaluating the impact of the amendments to IFRS 2 on its consolidated financial statements.

128

 
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

3.Significant accounting policies (continued):

(s)New standards and interpretations not yet adopted (continued)

IAS 12,Recognition of Deferred Tax Assets for Unrealized Losses(“IAS 12”)

Amendments to IAS 12 require entities to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of that deductible temporary difference. Additional guidance is provided on estimation of future taxable profits and the circumstances in which taxable profit may reduce the recovery of some assets for more than their carrying amount. The new standard is effective for annual periods beginning on or after January 1, 2017 to be applied retrospectively. Early adoption of the standard is permitted. The Company is currently evaluating the impact of the above amendments on its financial statements.

4.Business combinations:

On July 3, 2014, the Company entered into an arrangement whereby it acquired a minority interestsub-lease with Genesys Venture Inc. (“GVI”), a related party as described in note 17(b), to lease office space at a pharmaceutical manufacturing business known as Apicore, alongrate of $170 per annum for three years ending October 31, 2017, with an option to acquire all18-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 remaining issued shares prior to July 3, 2017. Specifically, the Company acquired a 6.09% equity interest (5.33% on a fully-diluted basis) in two newly formed holding companies of which Apicore LLC. and Apicore US LLC (together “Apicore”) will be wholly owned operating subsidiaries. The Company's equity interest and certain other rights, including the option rights, were obtained by the Company for services provided in its lead role in structuring a US$22.5 million majority interest purchase and financing of Apicore. There was no cash consideration in connection with the acquisitionterm of the minority interest in Apicore, with the exception of costs incurredlease. The discount rate used by the Company in relationcalculating the lease obligation relating to the transaction which totaled $167,672.ROU asset is five percent.

 

SubsequentThe impact of the adoption of IFRS 16 on the Company’s statement of financial position at January 1, 2019 is as follows:

   December 31, 2018   Impact of transition to IFRS 16   January 1, 2019 
Assets            
Property and equipment $316  $677  $993 
             
Current liabilities            
Lease obligation $-  $300  $300 
             
Non-current liabilities            
Lease obligation $-  $377  $377 
  $316  $-  $316 

155  

(GRAPHIC) 

Notes to the Consolidated Financial Statements

(expressed in thousands of Canadian dollars, except per share amounts)

4.New standards and interpretations (continued)

IFRS 16,Leases (“IFRS 16”) (continued)

The impact of the adoption of the Company’s operating lease commitments to the lease obligations recognized as a result of the adoption of IFRS 16 is as follows:

Operating lease commitments, including renewal options, as at December 31, 2018 $715 
Adjustment of lease commitments to present value of lease liability  (38)
Lease obligation as at January 1, 2019 $677 

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 an 18-month renewal period available. This resulted in an increase to the ROU asset of $685. As at December 31, 2019, the lease obligation of the statement of financial position totaled $1,089 with $240 recorded as the current portion of the lease obligation.

5.Discontinued operations

On October 2, 2017, the Company sold its interests in Apicore (the “Apicore Sale Transaction”) to an arm’s-length, pharmaceutical company (the “Buyer”). The Company acquired Apicore in a series of transactions occurring between July 3, 2014 and July 12, 2017.

Under the Apicore granted stock options to certain membersSale Transaction, the Company received a payment of its management teamUS$57,623 (CDN - $72,058) upon the closing of the transaction. Additional working capital and boarddeferred payments of directors, as well as certain of its employees and 25,000 of these stock optionsUS$52,887 (CDN - $65,235) were exercised priorreceived subsequent to December 1, 2016. This resulted31, 2017 as part of the Apicore Sales Transaction and were recorded as consideration receivable as at December 31, 2017. Additionally, a contingent payment in the Company’s ownership being diluted to 6.07% (4.95% fully diluted).

The Company had a contractual obligation to assist in fundingform of an earn-out based on the resolutionachievement of certain specified damages if they were encountered before July 3, 2016, not to exceed US$5 million. The specified mechanismfinancial results by Apicore for the Company to fulfill this obligation is throughyear ended December 31, 2017 could have been received, however the purchase offinancial results specified under the Apicore Sales Transaction were not achieved. As a portion of the equity of Apicore at a specified, discounted price per share. The occurrence of any of the specified damages that would precipitate such a purchase was not anticipated by the Company nor did any obligation arise prior to July 3, 2016, thereforeresult, no amount hadhas been recorded in the consolidated financial statements.statements pertaining to this potential earn-out payment. Additionally, under the Apicore Sale Transaction, the Buyer held an option to acquire Apicore’s Indian operations for a fixed price until December 31, 2017. This option lapsed without exercise and the Company sold Apicore’s Indian operations, to a company owned by the former President and Chief Executive Officer of Apicore Inc. in January of 2018 with the net assets held for sale being released from accounts payable and accrued liabilities at that time.

Set out below is the financial performance for years ended December 31, 2019, 2018 and 2017 relating to the Apicore business:

Year ended December 31  2019   2018   2017 
Revenue $-  $-  $22,759 
Expenses  -   -   (47,936)
Loss from discontinued operations $-  $-  $(25,177)
Income tax recovery  -   -   1,847 
Loss after income tax recovery $-  $-   (23,330)
Gain on disposition of the Apicore business  -   -   55,254 
Income from discontinued operations $-  $-  $31,924 

156  

(GRAPHIC) 

Notes to the Consolidated Financial Statements

(expressed in thousands of Canadian dollars, except per share amounts)

5.Discontinued operations (continued)

 

As at July 3, 2014, the investment in Apicore was initially valued at $1,276,849 and subsequently measured at amortized cost and the option rights received were recorded at a value of $275,922 and subsequently revalued at each reporting date to fair value. Immediately prior topreviously described, the Company exercisingretained ownership in Apicore’s Indian operations until the lapse of the Buyer Option and during January of 2018, Apicore’s Indian operations were sold to a company owned by the former President and Chief Executive Officer of Apicore Inc.

Immediately before the classification as discontinued operations, the recoverable amount was estimated for certain optionsitems and no impairment loss was identified. As at December 31, 2017, a write-down of $1,791 was recognized to acquire a controlling interestreduce the carrying amount of the assets in Apicore, the investmentdisposal group to their fair value less costs to sell, which totaled $7,077. This impairment was recognized in Apicore was recorded at $6,418,867 (2015 - $1,559,599). The increasediscontinued operations in value of $4,895,573 was recorded on the statement ofstatements net income (loss). In addition, immediately prior to the exercise of certain options to acquire a controlling interest in Apicore, the derivative representing the value associated to the option rights was revalued to its fair value of $20,788,011 (2015 - $227,571). The change in the value of the option rights of $20,560,440 was recorded in the statement of netand comprehensive income (loss) for the year ended December 31, 2016 as a revaluation of the derivative (2015 - $33,080).2017.

 

On December 1, 2016,Set out below is the Company exercised certain option rights that resulted in the Company acquiring a majority interest in Apicore Inc. The transaction was accounted for as a business combination achieved in stages. Apicore is a private, New Jersey based developer and manufacturer of specialty Active Pharmaceutical Ingredients (“API”) and pharmaceuticals specializing in the manufacturing of difficult to synthesize and other niche APIs for many United States and international generic and branded pharmaceutical companies. The exercise of certain options resulted in the Company acquiring 4,717,000 Series A Preferred Shares and 1,250,000 Class D Warrants in Apicore in exchange for US$33,750,000 cash increasing the Company’s ownership in Apicore to 64% (approximately 60% on a fully diluted basis). The Company retains option rights to purchase the issued Class C common shares in Apicore until July 3, 2017, which represent 39% of the outstanding Apicore shares. In addition, Apicore has issued and outstanding Series A-1 preferred shares representing 2% of the outstanding shares which are redeemable at the option of the holder after December 31, 2019. Finally, Apicore’s Class E shares are reservedflow information for the exercise of employee stock options. At December 1, 2016, 25,000 Class E shares, were issued and outstanding and 447,500 options became fully vested on the change in control with the employees holding a right to put the outstanding Apicore Class E shares and options to the Company upon the change in control. Remaining Apicore stock options outstanding of 400,000 were unaffected by the change of control and will fully vest in 2017.

129

 
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Yearsyears ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

4.Business combinations (continued):

As the transaction was accounted for as a business combination achieved in steps, on acquiring control of Apicore, the Company revalued its previous interest in Apicore at fair value on the date of control and recognized a gain on step acquisition.

Determination of the gain was as follows:

Fair value of 6.07% interest on December 1, 2016 $6,418,867 
Carrying value of 6.07% interest prior to control  1,523,294 
Gain on step acquisition $4,895,573 

For purposes of assessing the assets acquired and liabilities assumed, the Apicore Series A-1 preferred shares have been classified as a liability on the basis of the holder’s redemption right. The Apicore Series A-1 preferred shares are redeemable by the holder after December 31, 2019, in three annual instalments at the greater of the fair value of the shares at the redemption date2018 and the net assets of the Company. The Class E common shares issued and the outstanding 497,500 Apicore options over Apicore Class E common shares with an employee put feature have been classified as a liability to repurchase Apicore Class E shares based on the fixed redemption price upon the change in control. The remaining Apicore options outstanding have been recorded in equity as a non-controlling interest. The Company’s call option over Apicore’s Class C common shares provides Medicure with present access to the returns associated with the related ownership interest as the option price is fixed with an exercise price below fair value and the parties have agreed that no dividends will be paid to other shareholders until July 3, 2017. Therefore the Company has accounted for the acquisition as if it has acquired all the outstanding interests of Apicore and recognized a derivative option on Apicore Class C sahres under the call option. As a result, 100% of the financial results of Apicore have been included in the Company’s financial statements from the date of acquisition.

The fair value of the assets acquired and the liabilities assumed have been determined on a provisional basis and are based on information that is currently available to the Company. Additional information is being gathered to finalize these provisional measurements, particularly with respect to intangible assets, property and equipment, inventory, deferred revenue and deferred taxes. Accordingly, the measurement of the assets acquired and liabilities assumed may change upon finalization of the Company’s valuations and completion of the purchase price allocation, both of which are expected to occur no later than one year from the acquisition date.The following table summarizes the provisional fair values of the identifiable assets and liabilities of as at the date of the acquisition

130

 
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

4.Business combinations (continued):

Net Assets Acquired    
Cash $3,611,307 
Accounts receivable  3,202,471 
Inventory  12,299,051 
Prepaid expenses  698,115 
Property and equipment  9,795,629 
Intangible assets  101,712,420 
Goodwill  47,485,572 
Other assets  160,662 
Accounts payable and accrued liabilities  (9,831,337)
Short-term borrowings  (1,051,309)
Advances on development arrangements  (1,544,335)
Long-term debt  (13,655,679)
Finance lease obligations  (342,153)
Fair value of Apicore Series A-1 preferred shares  (1,755,530)
Other liabilities  (136,827)
Deferred tax liabilities  (37,749,605)
Net assets acquired $112,898,452 
     
Summary of purchase consideration    
Cash paid $45,322,853 
Due to vendor  2,759,507 
Exercise of Apicore derivative  20,788,011 
Fair value of 6.07% interest held  6,418,867 
Non-controlling interest  2,069,409 
Derivative option on Apicore Class C shares  32,901,006 
Liability to repurchase Apicore Class E shares  2,638,799 
Purchase consideration $112,898,452 

Transaction costs related2017 relating to the Apicore acquisition in the year ended December 31, 2016 were $126,923 and are included in selling, general and administrative expenses.business:

 

Year ended December 31 2019  2018  2017 
Net cash flows from operating activities $-  $-  $5,210 
Net cash flows from investing activities  -   -   54,326 
Net cash flows used in financing activities  -   -   (80,944)
Net cash flows used in discontinued operations $-  $-  $(21,408)

From the date of acquisition, Apicore contributed to the 2016 results $7.8 million of revenue and $0.6 million of net loss before income taxes. If the acquisition had taken place as at January 1, 2016, revenue in 2016 would have increased by an additional $31.6 million and net income before taxes in 2016 would have been reduced by approximately $2.0 million.

6.Accounts receivable

 

Subsequent to December 31, 2016, the Company acquired 145,000 Class E Common Shares for a total cost to the Company of $810,732, upon employees exercising their put right to the Company.

131

As at December 31 2019  2018 
Trade accounts receivable $10,136  $9,678 
Other accounts receivable  80   1,087 
  $10,216  $10,765 

 

 
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

5.Accounts receivable:

  December 31,
2016
  December 31,
2015
  December 31,
2014
 
Trade accounts receivable $17,023,089  $9,797,312  $1,606,473 
Other accounts receivable  177,689   26,304   31,203 
  $17,200,778  $9,823,616  $1,637,676 

Subsequent to the business combination completed and described in note 4, the Company’s customer base has diversified when compared to previous periods. As at December 31, 20162019, there were three customers with amounts owing greater than 10% of the Company’s accounts receivable which totaled 46%96% in aggregate (Customer oneA22%41%, Customer two -12% andB – 28%, Customer threeC12%27%).

 

As at December 31, 2015 and 2014,2018, there were three customers with amounts owing greater than 10% of the tradeCompany’s accounts receivable consisted of amounts owing from four and five customers, respectively, which represent approximately 100% and 99%totaled 91% in aggregate (Customer A – 47%, respectively, of trade accounts receivable.Customer B – 22%, Customer C – 22%).

 

6.Inventories:

7.Inventories

 

  December 31,
2016
  December 31,
2015
  December 31,
2014
 
AGGRASTAT®: Finished product available-for-sale $3,418,652  $1,008,773  $936,413 
AGGRASTAT®: Unfinished product  697,767   110,330   163,163 
AGGRASTAT®: Pre-launch inventory  -   1,170,172   - 
API: Finished product available-for-sale  4,693,448   -   - 
API: Work-in-progress  1,914,910   -   - 
API: Raw material and packaging material  1,451,867   -   - 
  $12,176,644  $2,289,275  $1,099,576 
As at December 31 2019  2018 
Finished product available-for-sale $5,273  $2,937 
Unfinished product and packaging materials  1,055   1,302 
  $6,328  $4,239 

 

During the year ended December 31, 2016, the Company recorded a recovery of $108,817 relating to inventories that were previously written-off. During the year ended December 31, 2015 the Company wrote-off $40,920 of inventory that had expired or was otherwise unusable. During the seven months ended December 31, 2014, the Company recorded a recovery of $80,874 relating to inventories that were previously written-off. During the year ended May 31, 2014, the Company wrote-off $22,209 of inventories that had expired or were otherwise unusable. Inventories expensed as part of cost of goods sold during the year ended December 31, 20162019 amounted to $8,531,060 (year$3,585 (2018 – $3,862; 2017 – $3,079). During the year ended December 31, 2015 - $1,563,344, seven months2019, the Company wrote-off inventory of $1,983 (2018 – $95; 2017 – $385) that had expired or was otherwise unusable through cost of goods sold on the statement of (loss) income and comprehensive (loss) income.

157  

(GRAPHIC) 

Notes to the Consolidated Financial Statements

(expressed in thousands of Canadian dollars, except per share amounts)

8.Property, plant and equipment

Cost Computer
and office
equipment
  Leasehold
improvements
  ReDS™ Demonstration
units
  Right of use
assets
  Total 
At December 31, 2017 $428  $156  $-  $-  $584 
Additions  186   12   -   -   198 
Effect of movements in exchange rates  12   -   -   -   12 
Dispositions  (156)  -   -   -   (156)
At December 31, 2018 $470  $168  $-  $-  $638 
Impact of adoption of IFRS 16 (Note 4)  -   -   -   677   677 
Additions  50   2   134   685   871 
Impairment  -   -   (130)  -   (130)
Effect of movements in exchange rates  -   -   (4)  -   (4)
At December 31, 2019 $520  $170  $-  $1,362  $2,052 

Accumulated amortization and impairment losses  Computer
and office
equipment
   Leasehold
improvements
   

ReDS™ Demonstration

units

   

Right of use

assets

   Total 
At December 31, 2017 $281  $82  $-  $-  $363 
Amortization  75   28   -   -   103 
Effect of movements in exchange rates  12   -   -   -   12 
Dispositions  (156)  -   -   -   (156)
At December 31, 2018 $212  $110  $-  $-  $322 
Amortization  111   60   37   277   485 
Impairment  -   -   (35)  -   (35)
Effect of movements in exchange rates  -   -   (2)  -   (2)
At December 31, 2019 $323  $170  $-  $277  $770 

Carrying amounts  Computer
and office
equipment
   Leasehold
improvements
   

ReDS™ Demonstration 

units 

   

Right of use 

assets 

   Total 
At December 31, 2018 $258  $58  $-  $-  $316 
At December 31, 2019 $197  $-  $-  $1,085  $1,282 

During the year ended December 31, 2014 - $349,901,2019, amortization of property, plant and equipment totaling $485 (2018 – $103; 2017 – $98) is included within general and administrative expenses on the consolidated statements of net (loss) income and comprehensive (loss) income. For the year ended MayDecember 31, 2014 - $300,378).2017, amortization of property, plant and equipment totaling $1,075 is recorded within discontinued operations.

 

132

During the year ended December 31, 2019, an impairment of property, plant and equipment totaling $95 is included within general and administrative expenses on the consolidated statements of net (loss) income and comprehensive (loss) income pertaining to an impairment of ReDSTMdemonstration units in connection with the impairment of the ReDSTM license as described in note 9.

158  

 

 
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

7.Property and equipment:

Cost Land  Building  Computer
and office
equipment
  Machinery and
equipment
  Leasehold
improvements
  Total 
Balance, May 31, 2014 $-  $-  $170,906  $-  $-  $170,906 
Additions  -   -   16,713   -   -   16,713 
Effect of movements in exchange rates  -   -   8,357   -   -   8,357 
Balance, December 31, 2014 $-  $-  $195,976  $-  $-  $195,976 
Additions  -   -   129,804       96,766   226,570 
Disposals  -   -   (21,654)          (21,654)
Effect of movements in exchange rates          24,652           24,652 
Balance, December 31, 2015 $-  $-  $328,778  $-  $96,766  $425,544 
Acquisitions under business combinations (note 4)  2,316,979   2,066,616   1,966,628   2,598,259   847,147   9,795,629 
Additions  -   56,071   148,337   200,223   59,577   464,208 
Disposals  -   -   -   -   -   - 
Effect of movements in exchange rates  -   -   (4,672)  -   -   (4,672)
Balance, December 31, 2016 $2,316,979  $2,122,687  $2,439,070  $2,798,482  $1,003,490  $10,680,709 

Accumulated amortization and 
impairment losses
 Land  Building  Computer
and office
equipment
  Machinery and 
equipment
  Leasehold
improvements
  Total 
Balance, May 31, 2014 $-  $-  $150,225  $-  $-  $150,225 
Additions  -   -   5,033   -   -   5,033 
Effect of movements in exchange rates  -   -   7,557   -   -   7,557 
Balance, December 31, 2014 $-  $-  $162,815  $-  $-  $162,815 
Amortization  -   -   23,803   -   7,741   31,544 
Disposals  -   -   (21,654)  -   -   (21,654)
Effect of movements in exchange rates  -   -   22,677   -   -   22,677 
Balance, December 31, 2015 $-  $-  $187,641  $-  $7,741  $195,382 
Amortization  -   21,408   66,940   67,540   33,119   189,008 
Effect of movements in exchange rates  -   -   (4,320)  -   -   (4,320)
Balance, December 31, 2016 $-  $21,408  $250,261  $67,540  $40,860  $380,070 

Carrying amounts Land  Building  Computer
and office
equipment
  Machinery
and 
equipment
  Leasehold
improvements
  Total 
At December 31, 2014 $-  $-  $33,161  $-  $-  $33,161 
At December 31, 2015 $-  $-  $141,137  $-  $89,025  $230,162 
At December 31, 2016 $2,316,979  $2,101,279  $2,188,809  $2,730,942  $962,630  $10,300,639 

133

 

 

 
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

Notes to the Consolidated Financial Statements

8.Intangible assets:

(expressed in thousands of Canadian dollars, except per share amounts)

Cost Patents  Trademarks  Customer
List
  Acquired
intangible
assets
  Total 
Balance, May 31, 2014 $9,238,151  $1,717,216  $303,038  $-  $11,258,405 
Additions  7,206   -   -   -   7,206 
Effect of movements in exchange rates  647,266   120,215   21,215   -   788,696 
Balance, December 31, 2014 $9,892,623  $1,837,431  $324,253  $-  $12,054,307 
Reversal of impairment loss  3,995,617   2,226,434   392,900   -   6,614,951 
Effect of movements in exchange rates  1,820,309   364,473   64,319   -   2,249,101 
Balance, December 31, 2015 $15,708,549  $4,428,338  $781,472  $-  $20,918,359 
Acquisitions under business combinations (Note 4)  -   -   -   101,712,420   101,712,420 
Effect of movements in exchange rates  (468,759)  (132,146)  (23,320)  -   (624,225)
Balance, December 31, 2016 $15,239,790  $4,296,192  $758,152  $101,712,420  $122,006,554 

Accumulated amortization and
impairment losses
 Patents  Trademarks  Customer
List
  Acquired
intangible 
assets
  Total 
Balance, May 31, 2014 $8,161,810  $1,413,917  $249,520  $-  $9,825,247 
Amortization  340,076   74,834   13,206   -   428,116 
Effect of movements in exchange rates  583,406   102,508   18,084   -   703,998 
Balance, December 31, 2014 $9,085,292  $1,591,259  $280,810  $-  $10,957,361 
Amortization  485,298   147,978   26,114   -   659,390 
Reversal of impairment loss  3,523,955   1,957,288   345,403   -   5,826,646 
Effect of movements in exchange rates  1,687,291   319,327   56,352   -   2,062,970 
Balance, December 31, 2015 $14,781,836  $4,015,852  $708,679  $-  $19,506,367 
Amortization  886,217   394,461   69,612   841,734   2,192,024 
Effect of movements in exchange rates  (428,263)  (114,121)  (20,139)  5,869   (556,654)
Balance, December 31, 2016 $15,239,790  $4,296,192  $758,152  $847,603  $21,141,737 

Carrying amounts Patents  Trademarks  Customer
List
  Acquired
intangible 
assets
  Total 
At December 31, 2014 $807,331  $246,172  $43,443  $-  $1,096,946 
At December 31, 2015 $926,713  $412,486  $72,793  $-  $1,411,992 
At December 31, 2016 $-  $-  $-  $100,864,817  $100,864,817 

 

9.Intangible assets

Cost Licenses  Patents and
Drug
Approvals
  Trademarks  Customer
list
  Total
At December 31, 2017 $1,756  $14,239  $4,014  $708  $20,717
Effect of movements in exchange rates  154   1,245   351   62   1,812
At December 31, 2018 $1,910  $15,484  $4,365  $770  $22,529
Additions (note 11)  7,038   8,930   -   -   15,968
Impairment  (6,959)  -   -   -   (6,959)
Transfers within intangible assets  (1,854)  1,457   -   -   (397)
Effect of movements in exchange rates  (135)  (942)  (209)  (37)  (1,323)
At December 31, 2019 $-  $24,929  $4,156  $733  $29,818
                    
Accumulated amortization and
impairment losses
  Licenses Patents and
Drug
Approvals
  Trademarks  Customer
list
  Total
At December 31, 2017 $-  $14,239  $4,014  $708  $18,961
Amortization  196   -   -   -   196
Effect of movements in exchange rates  9   1,245   351   62   1,667
At December 31, 2018 $205  $15,484  $4,365  $770  $20,824
Amortization  841   597   -   -   1,438
Impairment  (638)  -   -   -   (638)
Transfers within intangible assets  (397)  -   -   -   (397)
Effect of movements in exchange rates  (11)  (751)  (209)  (37)  (1,008)
At December 31, 2019 $-  $15,330  $4,156  $733  $20,219
                    
Carrying amounts Licenses  Patents and
Drug
Approvals
  Trademarks  Customer
list
  Total
At December 31, 2018 $1,705  $-  $-  $-  $1,705
At December 31, 2019 $-  $9,599  $-  $-  $9,599

On September 30, 2019 the Company acquired ownership of ZYPITAMAGTM for the U.S. and Canadian markets. Under terms of the agreement, Zydus will receive 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 ZYPITAMAGTM. 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 ZYPITAMAGTM. The fair value of the deferred payments of $649 and $1,655 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 ZYPITAMAGTM intangible assets was 4.3 years with the remaining amortization period being 4.1 years as at December 31, 2019.

As at December 31, 2018, the Company had recorded $546 within accounts payable and accrued liabilities relating to the current portion of license fees payable relating to theZYPITAMAGTMlicense acquired during the year ended December 31, 2017. This balance was paid during the year ended December 31, 2019.


 

Notes to the Consolidated Financial Statements

(expressed in thousands of Canadian dollars, except per share amounts)

9.Intangible assets

The Company has considered indicators of impairment as at December 31, 2016, December 31, 20152019 and December 31, 2014. To December 31, 2016, the Company has recorded an aggregate impairment loss of $16,136,325 primarily resulting from a previous write-down of AGGRASTAT® intangible assets and from patent applications no longer being pursued or patents being abandoned.2018. The Company recorded a reversalwrite-down of the impairment loss relating to AGGRASTAT® intangible assets originally written downrelated to the ReDSTMlicense during the year ended May 31, 2008, totalling $788,305 for the year ended December 31, 20152019 totaling $6,321 as a result of sustained improvementsuncertainties with ReDSTM being experienced in regards to the length of the sales cycle and uptake of the product with customers, resulting in the AGGRASTAT® business.Company’s sales being below the committed amounts required by theexclusive marketing and distribution agreementregarding ReDSTM. The Company did not record aany write-down of intangible assets during the seven months ended December 31, 2014 or the year ended May 31, 2014.

The Company acquired intangible assets during the year ended December 31, 20162018. The Company recorded a write-down of intangible assets during the year ended December 31, 2017 totaling $636 pertaining to a license acquired during the year, which was under litigation as described in note 4.16(d).As at December 31, 2019, intangible assets pertaining to AGGRASTAT® intangible were fully amortized.

With respect to the intangible asset related to ZYPITAMAGTM, 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 average remaining amortization periodCompany has concluded that there was no impairment as a result of the Company’sanalysis for the year ended December 31, 2019 as the recoverable amount exceeded the carrying amount by approximately $1,600 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 assets is approximately 10 years.asset exceeding the reasonable range of the recoverable amount.

134

 
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

8.Intangible assets (continued):

 

For the year ended December 31, 2016,2019, amortization of intangible assets relating to AGGRASTAT® totalling $1,347,022 (yeartotaling $1,438 (2018 - $196) is recorded within cost of goods sold. For the years ended December 31 2015 - $655,603, seven months ended December 31, 2014 - $331,547, year ended May 31, 2014 - $545,535) is recognized in cost of goods sold and2017, there was no amortization of other intangible assets totalling $875,016 (year ended December 31, 2015 - $3,787, seven months ended December 31, 2014 - $96,569, year ended May 31, 2014 - $8,007) is recognized in research and development expenses.

As described in note 11, intangible assets were pledged as security against long-term debt.

9.Short-term borrowings:

  December 31,
2016
 
Working capital facility $424,714 
Pre-shipment credit facility  959,150 
  $1,383,864 

The Company, through the acquisition of a subsidiary (note 4) has entered into a credit facility withDena Bank, headquartered in India. The facility provides a USD denominated pre-shipment credit facility“Pre-shipment credit facility” and an Indian Rupee (INR) denominated working capital facility“Working capital facility”. The available credit facility is an aggregate amount of the Dena facility and pre-shipment credit facility to a maximum of INR 75,000,000 (CAD $1,480,547). Interest rates and security on each credit classification are as follows:

Facility typeInterest rateSecurity
Working capital facilityBank Base Rate + 2.55%25% of raw materials and finished goods inventories
33 1/3% of work-in-progress
50% of net accounts receivable <90 days, 100% > 90 days

Pre-shipment credit

LIBOR + 3.50%

25% of raw materials and finished goods inventories
33 1/3% of work-in-progress
50% of net accounts receivable <90 days, 100% > 90 days

10.Finance lease obligations:

The Company, through the acquisition of a subsidiary (Note 4) has entered into three capital lease arrangements to finance the acquisition of certain equipment. The Company’s obligations under finance leases are secured by the associated equipment. Future minimum lease payments under finance leases, together with the present value of therecorded within net minimum lease payments are as follows:

2017 $107,283 
2018  96,696 
2019  81,871 
2020  81,871 
Total minimum lease payments  367,721 
Less: Amounts representing finance expense  (36,031)
Present value of minimum lease payments  331,690 
Current portion of finance lease obligation  (89,241)
  $242,449 

135

 
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

11.Long-term debt:

  December 31,
2016
  December 31,
2015
  December 31, 
2014
 
Crown Capital Fund IV LP term loan $54,808,473  $-  $- 
Knight Therapeutics Inc. loan  12,721,292   -   - 
Dena Bank Loan  918,567   -   - 
Manitoba Industrial Opportunities Program loan  2,615,844   4,242,784   4,880,826 
   71,064,176   4,242,784   4,880,826 
Current portion of long-term debt  (2,883,752)  (1,625,191)  (654,877)
  $68,180,424  $2,617,593  $4,225,949 

Principal repayments to maturity by fiscal year are as follows:

2017 $2,906,797 
2018  267,908 
2019  267,908 
2020  60,114,843 
   63,557,456 
Less: deferred debt issue expenses (net of accumulated amortization of $594,317)  (5,447,962)
  $58,109,494 

(a)CrownCapital Fund IV LP Term Loan (“Crown Loan”)

On November 17, 2016, in connection with the exercise of the Company’s acquisition of the controlling ownership in Apicore, described in Note 4, the Company received a term loanincome from Crown Capital Fund IV LP, an investment fund managed by Crown Capital Partners Inc. (“Crown”), in which Crown holds a 40% interest for $60,000,000 of which $30,000,000 was syndicated to the Ontario Pension Board (“OPB”) a limited partner in Crown’s funds. Under the terms of the loan agreement, the Crown Loan bears interest at a fixed rate of 9.5% per annum, compounded monthly and payable on an interest only basis, maturing in 48 months, and is repayable in full upon maturity.

The Company has granted 450,000 warrants to each of Crown and OPB. Each warrant entitles the holder to purchase one Medicure common share at an exercise price of $6.50 for a period of four years. The Company presents and discloses its financial instruments in accordance with the substance of its contractual arrangement. Accordingly, the Company recorded a liability of $58,200,000 less related debt issuance costs of $3,538,648. The liability component has been accreted using the effective interest rate method, and duringcontinuing operations. For the year ended December 31, 2016,2017, amortization of the Companyacquired intangible assets totaling $6,634 was recognized within loss from discontinued operations.

10.Holdback receivable

The holdback receivable of US$10 million, originated on October 2, 2017 as a part of the Apicore Sale Transaction described in note 5. The holdback receivable was initially recorded accretion of $36,884, non-cash interest expense related to financing costs of $110,237 and interest expense of $702,574 on the Crown Loan. The fair value assigned to the warrants issued of $2,065,500 has been separated from theat its fair value of the$11,941 and subsequently was measured at FVTPL. The other long-term liability and is included in shareholder’s equity, net of its pro rata share of financing costs of $116,695.

The effective interest rate on the Crown Loan for the year ended December 31, 2016 was 12%.

Beginning in 2017, the Company will be required to maintain certain financial covenants under the terms of the Crown Loan.

(b)Knight Therapeutics Inc. Loan (“Knight Loan”)

The Company, through the acquisition of a subsidiary as described in Note 4 has a debt agreement with Knight Therapeutics Inc. The Knight Loan bears interest at 12% per annum, with interest paid quarterly at the end of each quarter with unpaid interest and principal due June 30, 2018. The Knight Loan is secured by a security interest in substantially all of the acquired subsidiary’s assets.

The effective rate of interest on the Knight Loan for the year ended December 31, 2016 was 12%.

136

 
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

11.Long-term debt (continued):

(b)Knight Therapeutics Inc. Loan (“Knight Loan”) (continued)

The subsidiary is required to maintain certain financial covenants, based on results of the subsidiary, under the terms of the Knight Loan. As at December 31, 2016, the Company was in compliance with the terms of the Knight Loan.

Subsequent to December 31, 2016, on January 6, 2017, the interest and principal outstanding on the Knight Loan were repaid in full from the remaining funds provided under the Crown Loan, which was recorded on the statement of financial position at December 31, 2016 as cash held in escrow. As a result, the repayments relatingpayable to the Knight Loan have not been included in the principal repayments to maturity by fiscal year table.

(c)Dena Bank Loan

The Company, through the acquisition of a subsidiary as described in Note 4 has a debt agreement with Dena Bank. The loan bears interest at LIBOR plus 4%, with equal monthly payments of principalformer President and interest, maturing June 30, 2020. The loan is secured by the land, building, and machinery of a subsidiary, a pledge of 778,440 equity shares of Apicore LLC. with a value each of $0.15 USD, and a guarantee by directors of Apicore LLC.

The effective rate of the loan for the year ended December 31, 2016 was 9%.

(d)Manitoba Industrial Opportunities Loan (“MIOP Loan”)

On July 18, 2011, the Company borrowed $5,000,000 from the Government of Manitoba, under the Manitoba Industrial Opportunities Program ("MIOP"), to assist in the settlement of its then existing long-term debt. The loan bears interest annually at 5.25% and originally matured on July 1, 2016. The loan was payable interest only for the first 24 months, with blended principal and interest payments made monthly thereafter until maturity. Effective August 1, 2013, the Company renegotiated its long-term debt and received an additional two-year deferral of principal repayments. Under the renegotiated terms, the loan continued to be interest only until August 1, 2015, at which point blended principal and interest payments began. The loan matures on July 1, 2018 and is secured by the Company's assets and guaranteed by the Chief Executive Officer of the Company and entities controlled by the Chief Executive Officer. The Company issued 1,333,333 common shares (20,000,000 pre-consolidated common shares)Apicore upon receipt of the Company with a fair value of $371,834, net of share issue costs of $28,166, in consideration for the guarantee to the Company's Chief Executive Officer and entities controlled by the Chief Executive Officer. In connection with the guarantee, the Company entered into an indemnification agreement with the Chief Executive Officer under which the Company shall pay the Guarantor on demand all amounts paid by the Guarantor pursuant to the guarantee. In addition, under the indemnity agreement, the Company agreed to provide certain compensation upon a change in control of the Company. The Company relied on the financial hardship exemption from the minority approval requirement of Multilateral Instrument ("MI") 61-101. Specifically, pursuant to MI 61-101, minority approval is not required for a related party transaction in the event of financial hardship in specified circumstances.holdback receivable.

 

On February 13, 2019, the Companyreceived 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 isproceeded 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 to maintain certain non-financial covenants underpayments on the termsholdback receivable in February 2019 and April 2019.

In consideration of the MIOP loan. In connectionuncertainty associated with the business combination described in note 4,potential claims asserted by the Buyer, the Company did not obtain required approvals from MIOP prior to completingreduced the transaction due to the timingcarrying value of the closing ofholdback receivable by $1,473 on the transaction. As a result, $969,413, net of deferred debt issue costs has been included within current liabilities on theconsolidated statement of financial position as at December 31, 20162018.

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 toformer President and has been includedChief Executive Officer of Apicore totaling US$880 (CDN$1,165) which were recorded within other long-term liabilities were settled by the 2017 repaymentsBuyer. Immediately prior to the settlement, the Company reduced the carrying value on the principal repaymentsstatement of financial position of the holdback receivable by $3,623 to maturity by fiscal year table.the net recoverable value from the negotiated settlement.

11.Investment in Sensible Medical

On January 24, 2019, the Company acquired a 9.36% equity interest (7.71% on a fully-diluted basis) in Sensible Medical Innovations Ltd. (“Sensible”), and concurrently entered into an exclusive marketing and distribution agreement with Sensible to market ReDSTM in the United States. The Company has subsequently receivedacquired the rights for US$10,000 (CDN$13,351) plus US$68 (CDN$91) in directly attributable costs.


 

Notes to the Consolidated Financial Statements

(expressed in thousands of Canadian dollars, except per share amounts)

11.Investment in Sensible Medical (continued)

On completion of the transaction, the Company recorded the initial fair value assigned to the investment in Sensible Medical at $6,337 with the remainder attributed to the rights associated with the distribution agreement accounted for within intangible assets and ReDS™ demonstration units which are recorded within property and equipment, $7,038 was recorded within intangible assets relating to the license acquired through the exclusive marketing and distribution agreement and $67 was recorded within property and equipment pertaining to ReDS™ demonstration devices acquired as part of the agreement.

The Company made an irrevocable election at initial recognition to recognize changes in the fair value of the investment in Sensible Medial through other comprehensive income (loss), as this is a waiver from MIOP waiving any right to call the loanstrategic investment, and the long-term portion ofCompany considers this classification to be more relevant. As noted above, the MIOP loan will no longer be included within current liabilities going forward. Aside from this approval,initial fair value assigned to the Companyinvestment upon initial recognition was in compliance with the terms of the loan as at December 31, 2016.

The effective interest rate on the MIOP loanfor$6,337. During the year ended December 31, 20162019, the Company recorded other comprehensive loss of $6,336 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 license was 7% (yearbeing amortized over the term of the license agreement which was equal to ten years. During the year ended December 31, 2015 – 7%, seven months2019, amortization of $641 was recorded within cost of goods sold. The Company recorded a write-down of intangible assets related to the ReDSTMlicense during the year ended December 31, 2014 – 7%,2019 totaling $6,321.

The exclusive marketing and distribution agreement with Sensible included a period of co-exclusivity, whereby Sensible may sell, market, and distribute products directly to customers in select states of the United States using its own sales force. The Company is currently eligible to receive 20% of the revenue earned by Sensible from such sales during the co-exclusivity period, and may be eligible to receive up to 35% of the revenue earned by Sensible upon certain conditions being met. During the year ended MayDecember 31, 2014 – 7%).2019, the Company recorded revenue of $289 relating to the payments from Sensible from sales made by their sales force.

 

137

12.Royalty obligation

 

 
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

12.Royalty obligation:

On July 18, 2011, the Company settled its then existing long-term debt with Birmingham Associates Ltd. ("Birmingham"(“Birmingham”), an affiliate of Elliott Associates L.P., in exchange for i) $4,750,000$4,750 in cash; ii) 2,176,003 common shares (32,640,043 pre-consolidation common shares) of the Company; and iii) a royalty on future AGGRASTAT® sales until May 1, 2023. The royalty is based on 4% of the first $2,000,000$2,000 of quarterly AGGRASTAT® sales, 6% on the portion of quarterly sales between $2,000,000$2,000 and $4,000,000$4,000 and 8% on the portion of quarterly sales exceeding $4,000,000$4,000 payable within 60 days of the end of the preceding three monththree-month periods ended February 28, May 31, August 31 and November 30. The previous lenderBirmingham 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 timelines associated with commercialization of the product is on hold.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.

 

The initialroyalty obligation was recorded at its fair value assigned toat the royalty obligation, based on an expected value approach,date at which the liability was incurred, estimated to be $901,915. The royalty obligation is$902, and subsequently measured at amortized cost using the effective interest rate method with the associated cash flows being revisedat each period resultingreporting date. This resulted in a carrying value as at December 31, 20162019 of $5,685,722 (December 31, 2015 - $5,373,452 and December 31, 2014 - $2,189,054)$2,048 (2018$3,531) of which $2,019,243 (December 31, 2015 - $1,648,180, December 31, 2014 - $473,744)$872 (2018$1,496) represents the current portion of the royalty obligation. The net change in the royalty obligation for the year ended December 31, 20162019 of $2,271,436 (year ended December 31, 2015 - $3,791,282, seven months ended December 31, 2014 - $492,722, year ended May 31, 2014 - $1,349,372)a recovery of $316 (2018expense of $355; 2017expense of $748) is recorded within finance (income) expense on the consolidated statements of net (loss) income and comprehensive (loss) income. Royalties recorded for the year ended December 31, 2016 totalled $1,795,089, (year ended December 31, 2015 - $1,207,772, seven months ended December 31, 2014 - $210,576, year ended May 31, 2014 - $201,131)2019 totaled $1,023 (2018$1,654; 2017$1,243) with payments made during the year ended December 31, 20162019 of $1,712,389 (year ended December 31, 2015 - $642,768, seven months ended December 31, 2014 - $156,722, year ended May 31, 2014 - $165,291)$1,355 (2018$1,539; 2017$1,829).


 

Notes to the Consolidated Financial Statements

(expressed in thousands of Canadian dollars, except per share amounts)

13.Capital Stock

 

13.Other long-term liabilities:

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 funding was received during the year ended May 31, 2013. The funding is repayable when certain sales targets are met and the repayment requirement remains in effect for a period not less than eight fiscal years. The Company repaid $100,000 of this funding during the year ended December 31, 2016. Subsequent to December 31, 2016, the remaining $100,000 relating to this funding was repaid by the Company resulting in no further repayment requirements in regards to this government funding.

The funding was originally recorded as other long-term liability and was initially recorded at a fair value of $167,261 with the difference between the fair value of the liability and the funding received being recorded as a reduction in research and development expenses. The liability subsequently was measured at amortized cost using the effective interest method, with the associated cash flows being revised each period, which resulted in a carrying value at December 31, 2016 of $100,000 (December 31, 2015 - $200,000 and December 31, 2014 - 152,778) which represents the current portion and is included within accounts payable and accrued liabilities on the consolidated statements of financial position. There was no net change in the fair value of this liability for the year ended December 31, 2016. The net change in the other long-term liability for the year ended December 31, 2015 of $ 47,222, for seven months ended December 31, 2014 of nil and for the year ended May 31, 2014 of $14,483 was recorded as a research and development expense on the consolidated statements of net income (loss) and comprehensive income (loss).

In additional the Company had other long-term liabilities of $33,999 (December 31, 2015 and 2014 – nil).

138

 
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

14.Capital stock:

(a)Authorized

 

The Company has authorized share capital of an unlimited number of common voting shares, an unlimited number of classClass A common shares and an unlimited number of preferred shares. The preferred shares may be issued in one or more series, and the directors may fix prior to each series issued, the designation, rights, privileges, restrictions and conditions attached to each series of preferred shares.

 

(b)Shares issued and outstanding

 

Shares issued and outstanding are as follows:

 

  Number of Common Shares  Amount 
Balance, May 31, 2013  12,196,508  $117,033,258 
Shares issued upon exercise of stock options (note 14c)  3,333   3,414 
Balance, May 31, 2014  12,199,841  $117,036,672 
Shares issued upon exercise of stock options (note 14c)  10,066   9,091 
Balance, December 31, 2014  12,209,907  $117,045,763 
Shares issued for cash net of issue costs of $627,247 (1)  1,829,545   3,397,753 
Shares issued on settlement of debt(2) (3)  314,073   624,029 
Shares issued upon exercise of stock options (note 14c)  23,350   65,034 
Shares issued upon exercise of warrants (note 14d)  68,293   281,198 
Balance, December 31, 2015  14,445,168  $121,413,777 
Shares issued upon exercise of stock options (note 14c)  1,069,434   3,217,125 
Shares issued upon exercise of warrants (note 14d)  17,806   69,443 
Balance, December 31, 2016  15,532,408  $124,700,345 
  Number of Common Shares  Amount
Balance, December 31, 2017 15,782,327  $125,734
Shares issued upon exercise of stock options (13(c)) 206,885   654
Shares repurchased and cancelled under a normal course issuer bid(1) (441,400)  (3,501)
Balance, December 31, 2018 15,547,812  $122,887
Shares issued upon exercise of stock options (13(c)) 8,001   37
Shares repurchased and cancelled under a normal course issuer bid(1) (751,800)  (5,955)
Shares repurchased and cancelled under a substantial issuer bid(2) (4,000,000)  (31,605)
Balance, December 31, 2019 10,804,013  $85,364

(1)On May 16, 2018, the Company announced that the TSX-V accepted the Company’s notice of its intention to make a normal course issuer bid (the “2018 NCIB”). Under the terms of the 2018 NCIB, the Company could have acquired up to an aggregate of 794,088 common shares, representing five percent of the common shares outstanding at the time of the application, over the twelve-month period that the 2018 NCIB was in place. The 2018 NCIB commenced on May 28, 2018 and ended on May 27, 2019. During the twelve months of the 2018 NCIB, the Company purchased and cancelled 771,900 common shares for a total cost of $5,085. The prices that the Company paid for the common shares purchased was the market price of the shares at the time of purchase.

(1)On June 26, 2015, the Company closed a private placement offering with a syndicate of underwriters (the "Offering") of 1,829,545 common shares at a price of $2.20 per share with aggregate gross proceeds to the Company of $4,024,999. Share issue costs totalled $627,247 pertaining to the Offering. The underwriters received a cash commission equal to 7.0% of the gross proceeds raised in the Offering. In addition, the underwriters were granted warrants to purchase common shares of Medicure equal to 7.0% of the total number of common shares issued pursuant to the Offering, exercisable for a 24-month period from the closing of the Offering at a price of $2.20 per common share. There were 128,068 warrants issued in connection with offering with a fair value of $232,571, which is included in the share issue costs of $627,247.

(2) On July 11, 2014,May 30, 2019, the Company announced that subjectthe TSX-V accepted the Company’s notice of intention to all necessary regulatory approvals, it had entered intomake an additional normal course issuer bid (the “2019 NCIB”). Under the terms of the 2019 NCIB, the Company may acquire up to an aggregate of 761,141 common shares, representing five percent of the common shares outstanding at the time of the application, over the twelve-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 the Company may complete its maximum purchases allowed under the 2019 NCIB. From the commencement of the 2019 NCIB, the Company purchased and cancelled 421,300 common shares for debt agreements with its Chief Executive Officer, Dr. Albert Friesen, and certain membersa total cost of $2,081. The prices that the Company paid or will pay for common shares purchased was or will be the market price of the Boardshares at the time of Directors, pursuant to whichpurchase.

During the year ended December 31, 2019, the Company will issue 205,867 of itsrepurchased and cancelled 751,800 (2018 – 441,400), common shares withas a fair valueresult of $1.98 perthe 2018 NCIB and 2019 NCIB. The aggregate price paid for these common share to satisfy $407,617 of outstanding amounts owing toshares totaled $4,145 (2018 - $3,021). During the Chief Executive Officeryear ended December 31, 2019 the Company recorded $1,810 (2018 - $480) directly in its deficit representing the difference between the aggregate price paid for these common shares and membersa reduction of the Company’s Board of Directors. The shares were issued on January 9, 2015.

(3) On January 27, 2015, the Company announced that, subject to all necessary regulatory approvals, it had entered into shares for debt agreements with certain members of the Board of Directors and a consultant, pursuant to which the Company will issue 108,206 of its common shares with a fair value of $1.44 per common share to satisfy $155,817 of outstanding amounts owing to these individuals. The shares were issued on March 20, 2015 and resulted in a loss of $60,595 due to increases in the share price between the date of the debt settlements and the issuance of the shares. This loss is recorded on the consolidated statements of income and comprehensive income as a loss on settlement of debt.capital totaling $5,955 (2018 - $3,501).

139

 
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

 

14.(2)Capital stock (continued):On December 20, 2019, the Company completed a Substantial Issuer Bid (“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 $26,000 in cash. The Company incurred an additional $139 on transaction costs related to the SIB for a total aggregate purchase price paid of $26,139. During the year ended December 31, 2019, the Company recorded $5,466 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 $31,605.


 

Notes to the Consolidated Financial Statements

(expressed in thousands of Canadian dollars, except per share amounts)

13.Capital Stock (continued)

 

(c)Stock option plan

 

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 2,441,9812,934,403 common shares of the Company at any time. The stock options generally have a maximum term of between five and ten years.

On July 7, 2014, the Company granted an aggregate of 332,300 options to certain directors, officers, employees, management company employeesyears and consultants of the Company. Of these options, 92,300 are set to expire on the tenth anniversary ofvest within a five-year period from the date of grant, and 240,000 are set to expire on the fifth anniversary of the date of grant. All 332,300 options were issued at an exercise price of $1.90 per share and vested immediately.

 

On March 27, 2015,Changes in the Company granted an aggregatenumber of 236,070 options to certain directors, officers, employees, management company employees and consultants of the Company pursuant to the Company’s stock option plan. Of these options, 181,070 are set to expire on the tenth anniversary 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 options are set to expire on the fifth anniversary of the date of grant and were issued at an exercise price of $2.50 per share and vested immediately.

On November 25, 2015, the Company granted an aggregate of 168,000 options to certain employees and consultants of the Company pursuant to the Company’s stock option plan. These options are set to expire on the fifth anniversary of the date of grant and were issued at an exercise price of $3.90 per share and vested immediately.

On April 6, 2016, the Company granted an aggregate of 265,025 options to certain directors, officers, employees, management company employees and consultants of the Company pursuant to the Company’s Stock Option Plan. Of these options, 225,025 are set to expire on the fifth anniversary of the date of grant and 40,000 are set to expire on the first anniversary of the date of grant. All of the options were issued at an exercise price of $6.16 per share. Of the 265,025 options granted on April 6, 2016, 235,025 vested immediately, 10,000 vested on June 30, 2016, 10,000 vested on September 30, 2016 and 10,000 vest on December 31, 2016. The options vesting on June 30, 2016, September 30, 2016 and December 31, 2016 were forfeited and terminatedoutstanding during the year ended December 31, 2016.2019 is as follows:

 

140

 
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

14.Capital stock (continued):

(c)Stock option plan (continued)
Year ended December 31, 2019 Options  Weighted
average
exercise
price
Balance, beginning of period 1,394,642  $3.91
Granted 262,000   4.95
Exercised (8,001)  (2.45)
Forfeited, cancelled or expired (220,233)  (6.75)
Balance, end of period 1,428,408  $3.67
Options exercisable, end of period 1,059,308  $2.88

 

Changes in the number of options outstanding during the years ended December 31, 20162018 and 2015, seven months ended December 31, 2014 and year ended May 31, 20142017 are as follows:

 

  December 31, 2016  December 31, 2015 
  Shares  Weighted
average
exercise
price
  Shares  Weighted
average
exercise
price
 
Balance, beginning of period  2,277,126  $1.90   1,720,253  $2.12 
Granted  265,025   6.16   644,070   2.65 
Exercised  (1,069,434)  (1.72)  (23,350)  (1.42)
Forfeited, cancelled or expired  (85,717)  (9.59)  (63,847)  (15.60)
Balance, end of period  1,387,000  $2.37   2,277,126  $1.90 
Options exercisable, end of period  1,387,000  $2.37   2,277,126  $1.90 

 December 31, 2014 May 31, 2014 
Year ended December 31 2018 2017
 Shares Weighted
average
exercise
price
 Shares Weighted
average
exercise
price
  Options Weighted
average
exercise
price
 Options Weighted
average
exercise
price
Balance, beginning of period  1,418,019  $2.15   1,421,352  $2.14  1,602,127  $3.58  1,387,000  $2.37
Granted  332,300   1.90   -   -  200,000   7.25  476,000   7.20
Exercised  (10,066)  (0.61)  (3,333)  (0.60) (206,885)   (1.76)  (207,950)   (2.50)
Forfeited, cancelled or expired  (20,000)  (1.05)  -   -  (200,600)   (6.85)  (52,923)   (8.58)
Balance, end of period  1,720,253  $2.12   1,418,019  $2.15  1,394,642  $3.91  1,602,127  $3.58
Options exercisable, end of period  1,720,253  $2.12   1,418,019  $2.15  1,044,892  $2.80  1,231,127  $2.50

 

Options outstanding at December 31, 20162019 consist of the following:

 

Range of
exercise prices
 Number
outstanding
  Weighted
average
remaining
contractual life
 Options outstanding
weighted average
exercise price
  Number
exercisable
 
$0.30  270,000  6.35 years $0.30   270,000 
$0.31 - $1.00  35,332  1.88 years $0.60   35,332 
$1.01 - $3.00  737,420  5.42 years $1.61   737,420 
$3.01 - $5.00  119,500  3.90 years $3.90   119,500 
$5.01 - $10.00  210,175  4.26 years $6.16   210,175 
$10.01 - $15.00  11,240  0.95 years $14.55   11,240 
$20.01 - $23.10  3,333  0.04 years $23.10   3,333 
$0.30 - $23.10  1,387,000  5.16 years $2.37   1,387,000 

Range of
exercise prices
 Number
outstanding
  

Weighted
average
remaining
contractual life

  Options outstanding
weighted average
exercise price
  Number
exercisable
$0.30 185,000  3.35 years  $0.30  185,000
$1.01 - $3.00 539,433  2.30 years  $1.59  539,433
$3.01 - $4.00 29,000  0.90 years  $3.90  29,000
$4.01 - $5.00 262,000  4.49 years  $4.95  52,400
$5.01 - $7.30 412,975  2.76 years  $7.08  253,475
$0.30 - $7.30 1,428,408  2.94 years  $3.67  1,059,308
141

 

 

 
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

Notes to the Consolidated Financial Statements

(expressed in thousands of Canadian dollars, except per share amounts)

13.Capital Stock (continued)

 

14.Capital stock (continued):

(c)Stock option plan (continued)

 

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, 20162019 is $1,340,001 (year ended December 31, 2015 - $1,460,316, seven months ended December 31, 2014 - $620,705, year ended May 31, 2014 - $295,144)$417 (2018 – $1,022; 2017 – $491). The compensation expense was determined based on the fair value of the options at the date of measurement using the Black-Scholes option pricing model. The expected life of sharestock 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, 2019, 2018, and 2017 was determined based on the fair value of the options at the date of measurement using the Black-Scholes option pricing model:

 

Year ended
December 31,2016
Year ended
December 31, 2015
Seven months
ended
December 31, 2014
Expected option life4.8 - 5.0 years1.0 - 5.3 years5.0 – 5.4 years
Risk free interest rate0.52% - 0.67%0.57% - 0.92%1.01% – 1.66%
Dividend yieldnilnilNil
Expected volatility115.59% - 117.56%135.03% - 171.07%142.68% - 166.39

Subsequent to December 31, 2016, 50,950 stock options were exercised, 1,400 at an exercise price of $1.90 per common share and 35,500 at an exercise price of $3.90 per common share and 14,050 at an exercise price of $6.16 per common share for total gross proceeds to the Company of $227,658.

Years ended December 31:201920182017
Expected option life4.4 years4.4 years4.5 years
Risk free interest rate1.40%1.92%-2.04%1.71%
Dividend yieldnilnilnil
Expected volatility47.10%85.14%-93.72%80.44%

 

Additionally, prior to its disposal Apicore hashad a stock option plan and at the December 1, 2016 acquisition date, there were 897,500 options to purchase Class E common stock of Apicore Inc. outstanding.497,500 options became fully vested on the change in control with the employee’s right to put the outstanding Apicore Class E shares and options to the Company upon the change in control. The remaining Apicore stock options outstanding of 400,000 were unaffected by the change of control and will fully vest invested during 2017. The value of the put option was initially recorded as a liability to repurchase Apicore Class E shares on the statementconsolidated statements of financial position and the value of the remaining options iswas recorded as non-controlling interest within equity.

During the period from December 1, 2016 toyear ended December 31, 2016,2017, employees and former directors of Apicore exercised 292,500 stock options to acquire 292,500 Class E common shares of Apicore for gross proceeds to the Company of US$280. These shares, as well as 112,500 Class E common shares previously issued for gross proceeds of US$48 were then purchased by the Company upon the employees and former directors exercising their put right to the Company. This resulted in the Company acquiring 405,000 Class E common shares of Apicore for a total cost of US$1,975 (CDN - $2,690) during 2017. As a result of the employees and former directors exercising their put right to the Company, the liability to repurchase Apicore Class E common shares on the consolidated statements of financial position was reduced.

On July 3, 2017, the remaining employee put options over 117,500 Class E shares, to be issued upon the exercise of stock options, of Apicore expired without being exercised by the employees and the value of these options, totaling $615, was reclassified as a non-controlling interest. As a result, there remained 517,500 stock options in Apicore Inc. outstanding prior to the sale transaction which occurred on October 2, 2017.

During the year ended December 31, 2017, the Company recorded $60,240$132 of stock-based compensation expense within selling, general and administration expensesthe loss from discontinued operations on the statementconsolidated statements of net income.income and comprehensive income relating to stock options in Apicore.

 

(d)Warrants

On June 26, 2015, the Company closed a private placement offering with a syndicate of underwriters as described in note 14(b). The underwriters were granted warrants to purchase common shares of Medicure equal to 7.0% of the total number of Shares issued pursuant to the Offering, exercisable for a 24 month period from the closing of the Offering at a price of $2.20 per Share. There were 128,068 warrants issued in connection with offering with a fair value of $232,571, which is included in the share issue costs of $627,247.

 

On November 17, 2016 as part of Crown Loan (Note 11),in connection with a term loan entered into to fund an acquisition, the Company issued 900,000 warrants to the loan holders,lenders, exercisable for a 48-month period following the issuance of the loan at a price of $6.50 per share. The fair value of the warrants issued in connection with the loan was $2,065,500$2,066 net of its pro-rata share of financing costs of $116,695$117 and were recorded in equity with a corresponding balance recorded as deferred financing costs which is netted against the associated long-term debt on the Statementsconsolidated statements of Financial Position.financial position as at December 31, 2017.

142

 

 

 
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

Notes to the Consolidated Financial Statements

(expressed in thousands of Canadian dollars, except per share amounts)

13.Capital Stock (continued)

 

14.Capital stock (continued):

(d)Warrants (continued)

 

Changes in the number of Canadian dollar denominated warrants outstanding during the years ended December 31, 20162019, 2018, and 20152017 are as follows:

 

  December 31, 2016  December 31, 2015 
  Shares  Weighted
average
exercise
price
  Shares  Weighted
average
exercise
price
 
Balance, beginning of period  59,775  $2.20   -  $- 
Granted  900,000   6.50   128,068   2.20 
Exercised  (17,806)  2.20   (68,293)  (2.20)
Balance, end of period  941,969  $6.31   59,775  $2.20 
Options exercisable, end of period  941,969  $6.31   59,775  $2.20 

There were no Canadian dollar denominated warrants outstanding during the seven months ended December 31, 2014 or the year ended May 31, 2014.

The fair value of the warrants issued during the years ending December 31, 2016 and 2015 were determined at the date of measurement using a Black-Scholes pricing model with the following assumptions:

  December 31, 2016 December 31, 2015
Expected warrant life 4.0 years 2.0 years
Risk-free interest rate 0.85% 0.63%
Dividend yield nil nil
Expected volatility 120.40% 133.93%

Subsequent to December 31, 2016, 5,000 warrants were exercised at a price of $2.20 for gross proceeds to the Company of $11,000.

IFRS require warrants with an exercise price denominated in a currency other the entity's functional currency to be treated as a liability measured at fair value. The warrants, all with U.S. dollar exercise prices, which expired on December 31, 2016 were recorded at fair value within accounts payable and accrued liabilities as at December 31, 2015 and totalled $1,161 and December 31, 2014 and totalled $36,259. Changes in fair value of the warrants for the year ended December 31, 2016 resulted in a recovery of $1,161 (year ended December 31, 2015 – recovery of $35,098, seven months ended December 31, 2014 - recovery of $18,085 and year ended May 31, 2014 – expense of $43,820) are recorded within finance expense (income).

Changes in the number of warrants with an exercise price denominated in a currency other than the Company's functional currency outstanding during the years ended December 31, 2016 and 2015, seven months ended December 31, 2014 and year ended May 31, 2014 are as follows:

Issue
(Expiry date)
 Original
granted
  Exercise
price
per share
 December
31,
2014
  Granted
(expired)
  December
31,
2015
  Granted
(expired)
  December
31,
2016
 
66,667 units (expiry - December 31, 2016  66,667  USD $18.90  66,667   -   66,667   (66,667)  - 

Issue
(Expiry date)
 Original
granted
  Exercise
price
per share
 May 31,
2013
  Granted
(expired)
  May 31,
2014
  Granted
(expired)
  December
31,
2014
 
66,667 units (expiry - December 31, 2016  66,667  USD $18.90  66,667   -   66,667   -   66,667 

The warrants that expired on December 31, 2016 were issued with a debt financing agreement in September 2007, were denominated in U.S. dollars and may have been exercised, upon certain conditions being met, on a cashless basis based on a formula described in the warrant agreements.

143

 
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014
Years ended December 31 2019  2018  2017
  Warrants  Weighted
average
exercise
price
  Warrants  Weighted
average
exercise
price
  Warrants  Weighted
average
exercise
price
Balance, beginning of period 900,000  $6.50  900,000  $6.50  941,969  $6.31
Exercised -   -  -   -  (41,969)  (2.20)
Balance, end of period 900,000  $6.50  900,000  $6.50  900,000  $6.50
Warrants exercisable, end of period 900,000  $6.50  900,000  $6.50  900,000  $6.50

 

14.Capital stock (continued):

(e)Per share amounts

The weighted average number of common voting shares outstanding for the years ended December 31, 2016 and 2015, seven months ended December 31, 2014 and year ended May 31, 2014 was 15,002,005, 13,461,609, 12,204,827 and 12,196,745, respectively. For the years ended December 31, 2016 and 2015 and the seven months ended December 31, 2014, the dilution created by options and warrants has been reflected in the per share amounts. For the year ended May 31, 2014, the dilution created by options and warrants has not been reflected in the per share amount as the effect would be anti-dilutive.

 

The following table reflects the income and share data used in thecalculation of basic (loss) earnings per share computations:for the years ended December 31, 2019, 2018 and 2017:

 

  Year 
ended
December
31,
2016
  Year
 ended 
December 31, 
2015
  Seven months
Ended
December 31, 
2014
  Year
Ended
May 31,
2014
 
Net income (loss) $27,657,474  $1,668,429  $1,195,596  $(1,934,096)
Weighted average shares outstanding
for basic earnings per share
  15,002,005   13,461,609   12,204,827   12,196,745 
Basic earnings (loss) per share $1.84   0.12   0.10   (0.16)
Year ended December 31 2019  2018  2017
Net (loss) earnings before discontinued operations $(1.32) $0.25  $0.74
Earnings from discontinued operations, net of tax  -   -   2.04
  $(1.32) $0.25  $2.78

 

The following table reflects the calculation of diluted (loss) earnings per share for the years ended December 31, 2019, 2018 and 2017:

Year ended December 31 2019  2018  2017
Net (loss) earnings before discontinued operations $(1.32) $0.24  $0.63
Earnings from discontinued operations, net of tax  -   -   1.76
  $(1.32) $0.24  $2.39

The following table reflects the (loss) income used in the basic (loss) earnings per share computations for the years ended December 31, 2019, 2018 and 2017:

Year ended December 31 2019  2018  2017
Net (loss) earnings before discontinued operations $(19,786) $3,926  $11,497
Earnings from discontinued operations, net of tax  -   -   31,924
  $(19,786) $3,926  $43,421

 

Notes to the Consolidated Financial Statements

(expressed in thousands of Canadian dollars, except per share amounts)

13.Capital Stock (continued)

(e)Per share amounts (continued)

The following table reflects the share data used in the denominator of the basic and diluted (loss) earnings per share computations:computations for the years ended December 31, 2019, 2018 and 2017:

 

  Year 
ended
December 31,
2016
  Year
 ended 
December 31, 
2015
  Seven months
Ended
December 31, 
2014
  Year
Ended
May 31,
2014
 
Net income (loss) $27,657,474  $1,668,429  $1,195,596  $(1,934,096)
Weighted average shares outstanding
for basic earnings per share
  15,002,005   13,461,609   12,204,827   12,196,745 
Effects of dilution from:                
Stock options  1,372,427   2,244,186   1,638,299   - 
Warrants  941,969   59,775   -   - 
Weighted average shares outstanding
for diluted earnings per share
  17,316,401   15,765,570   13,843,126   12,196,745 
Basic earnings (loss) per share $1.60   0.11   0.09   (0.16)
Year ended December 31  2019   2018   2017
Weighted average shares outstanding for basic (loss) earnings per share  14,998,540   15,791,396   15,636,853
Effects of dilution from:           
Stock options  -   772,267   1,601,227
Warrants  -   -   900,000
Weighted average shares outstanding for diluted (loss) earnings per share  14,998,540   16,563,663   18,138,080

 

Effects of dilution from 14,5731,428,408 stock options (2018 – 622,375, 2017 – 900) and 900,000 warrants (2018 - 900,000, 2017 – nil) were excluded in the calculation of weighted average shares outstanding for diluted (loss) earnings per share before discontinued operations for the year ended December 31, 20162019 as their exercise price exceeds the Company’s share price on the TSX Venture Exchange at December 31, 2016 (year ended December 31, 2015 – 32,940, seven months ended December 31, 2014 – 81,954 stock options). Effectsthey are anti-dilutive.

14.Income taxes

The Company recognized current income tax expense of 1,418,019 stock options were excluded from the calculation of weighted average shares outstanding for diluted earnings per share for the year ended May 31, 2014 as their effect is anti-dilutive. There were no warrants excluded from the calculation of the weighted average shares outstanding for diluted earnings per share$22 for the year ended December 31, 2016 as their exercise price exceeds the Company’s share price on the TSX Venture Exchange at December 31, 2016 (year ended December 31, 20162019 (201866,667, seven months ended December 31, 2014expense of $678; 201766,667, year ended May 31, 2014 – 66,667)

144

 
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016recovery of $9,393) and 2015, seven months ended December 31, 2014, year ended May 31, 2014

15.Income taxes:

The Company recognized a currentdeferred income tax expense of $501,315$123 for the year ended December 31, 2016 (year ended December 31, 2015 - nil, seven months ended December 31, 20142019 (2018nil, year ended May 31, 2014 - nil).

The Company recognized a deferred income tax expense of $301,512 for the year ended December 31, 2016 (year ended December 31, 2015$219, 2017recovery of $379,000, seven months ended December 31, 2014 – nil, year ended May 31, 2014 – nil)$333).

 

As at December 31, 2016, 20152019 and 2014,2018, deferred tax assets and liabilities have been recognized with respect to the following items:

 

  December 31,
2016
  December 31,
2015
  December
31,
2014
 
Deferred tax assets            
Non-capital loss carryforwards $701,000  $356,000  $- 
Other  -   23,000   - 
Total deferred tax assets $701,000  $379,000  $- 
             
Deferred tax assets/(liabilities)            
Non-capital loss carryforwards  1,101,000   -   - 
Research and development credits  922,000   -   - 
Intangible assets  (38,720,000)  -   - 
Other  (1,446,000)  -   - 
Total deferred tax liabilities $38,143,000  $-  $- 
As at December 31 2019  2018
Deferred tax assets       
Non-capital loss carryforwards $-  $127
Total deferred tax assets $-  $127

 

As at December 31, 2016, 20152019 and 2014,2018, Canadian deferred tax assets have not been recognized with respect to the following items:table. The scientific research and experimental development deferred tax assets expire between 2025 and 2028.

 

  December 31,
2016
  December 31,
2015
  December
31,
2014
 
Deferred tax assets            
Non-capital loss carryforwards $6,449,000  $7,086,000  $6,920,000 
Scientific research and experimental development  3,793,000   3,793,000   3,793,000 
Other  256,000   235,000   1,009,000 
Deferred tax liability            
Investment in Apicore  -   (70,000)  (66,000)
Total $10,498,000  $11,044,000  $11,656,000 

As at December 31 2019  2018
Deferred tax assets       
Scientific research and experimental development $2,640  $3,237
Investment in Sensible  855   -
Holdback receivable  688   199
Other  1,781   159
Non-capital losses  207   -
Total deferred tax assets $6,171  $3,595
145

 

 
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

 

15.Income taxes (continued):

Notes to the Consolidated Financial Statements

(expressed in thousands of Canadian dollars, except per share amounts)

14.Income taxes (continued)

 

The reconciliation of the Canadian statutory rate to the income tax rate applied to the net income (loss)before discontinued operations for the years ended December 31, 20162019, 2018 and 2015, seven months ended December 31, 2014 and year ended May 31, 20142017 to the income tax expense is as follows:

 

 

December 31,

2016

 December 31
2015
 December 31,
2014
 May 31
2014
 
Income (loss) for the year                
Year ended December 31 2019  2018 2017
(Loss) Income for the year           
Canadian $20,593,613  $(2,972,573) $(283,456) $(2,037,987) $(7,013) $3,440  $(2,178)
Foreign  7,866,688   4,262,002   1,479,052   103,891   (12,628)  1,383   4,615
 $28,460,301  $1,289,429  $1,195,596  $(1,934,096) $(19,641) $4,823  $2,437

 

  

December 31,

2016

  December 31
2015
  December 31,
2014
  May 31
2014
 
Canadian federal and provincial income taxes
at 27% (December 31, 2015 – 27%,
December 31, 2014 – 27%, May 31, 2014 = 27%)
 $(7,684,000) $(348,000) $(323,000) $522,000 
Gain on revaluation of option  5,551,000   -   -   - 
Permanent differences and other items  (758,000)  (537,000)  (170,000)  (256,000)
Foreign tax rate in foreign jurisdiction  1,542,000   652,000   252,000   (9,000)
Change in unrecognized deferred tax assets  546,000   612,000   241,000   (257,000)
  $(803,000) $379,000  $-  $- 
Year ended December 31 2019  2018  2017

Canadian federal and provincial income taxes at 27% (2018 – 27%; 2017 – 27%)

 $5,303  $(1,302) $(658)
Permanent differences and other items  (330)  26   (335)
Foreign tax rate in foreign jurisdictions  (1,308)  85   656
Change in unrecognized deferred tax assets  (3,810)  294   9,397
  $(145) $(897) $9,060

 

The foreign tax rate differential is the difference between the Canadian federal and provincial statutory income tax rate and the tax rates in Barbados (2.50%(2.50%), India (33.06%Mauritius (15.00%), Ireland (12.50%)and the United States (38.00%(21.00%) that is applicable to income or losses incurred by the Company'sCompany’s subsidiaries.

146

 
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

15.Income taxes (continued):

 

At December 31, 2016,2019, the Company has the following Canadian non-capitalUnited States losses available for application in future years:

 

2026 $939,620 
2027  1,111,169 
2029  5,215,484 
2030  2,711,291 
2031  1,893,976 
2032  1,485,583 
2033  928,119 
2034  1,425,224 
2035  1,692,771 
2036  3,324,853 
  $20,728,090 

Scientific research and development tax credits of $3,826,000 (December 31, 2015 - $3,826,000, December 31, 2014 - $3,826,000 and May 31, 2014 - $3,826,000), which can be applied against Canadian income taxes otherwise payable, will expiry by 2028. No asset has been recorded in relation to these credits.

2039  $243
   $243

 

At December 31, 2016, the Company has the following United States net operating losses available for application in future years:

2029 $- 
2031  - 
2034  7,577 
2035  875 
2036  2,897,368 
  $2,905,620 

At December 31, 2016,2019, the Company has the following Barbados losses available for application in future years:

 

2017 $48,218,773 
2018  8,912,592 
2019  2,427,029 
2020  1,244,865 
2023  1,311,466 
  $62,114,725 

2020  $1,210
2021   1,275
2022   3,752
   $6,237
147

 

 

 
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

Notes to the Consolidated Financial Statements

(expressed in thousands of Canadian dollars, except per share amounts)

 

16.Finance expense:

15.Finance income (expense)

 

During the years ended December 31, 20162019, 2018 and 2015, seven months ended December 31, 2014 and year ended May 31, 20142017 the Company incurredearned finance expenseincome (incurred finance expense) as follows:

 

  

December 31,

2016

  December 31,
2015
  December 31,
2014
  May 31,
2014
 
Interest on MIOP loan $218,867  $309,733  $187,451  $327,167 
Interest on Crown loan  849,694   -   -   - 
Interest on Knight loan  130,724   -   -   - 
Interest on other debt and borrowings  9,631   -   -   - 
Change in fair value of royalty obligation  2,271,436   3,791,282   492,722   1,349,372 
Change in fair value of warrant liability  (1,161)  (35,098)  (18,085)  43,821 
Other interest, net and banking fees  (62,512)  57,535   67,569   88,627 
  $3,416,678  $4,123,452  $729,657  $1,808,987 
Year ended December 31 2019  2018  2017
Interest income $886  $1,115  $47
Accretion of royalty obligation  316   (355)   (748)
Accretion of acquisition payable  (41)   -   -
Bank charges and other interest  (24)   (25)   (30)
Finance expense from lease obligation  (22)   -   -
Accretion on holdback receivable  -   326   -
Interest on MIOP loan  -   -   (106)
  $1,115  $1,061  $(837)

 

During the years ended December 31, 20162019, 2018 and 2015, seven months ended December 31, 2014 and year ended May 31, 2014,2017, the Company paidreceived (paid) finance expenseincome (expense) as follows:

 

  

December 31,

2016

  December 31,
2015
  December 31,
2014
  May 31,
2014
 
Interest paid on MIOP loan $186,467  $256,427  $153,904  $262,500 
Interest paid on Crown loan  702,574   -   -   - 
Interest paid on Knight loan  387,505   -   -   - 
Interest paid on other debt and borrowings  9,631   -   -   - 
Other interest, net and banking fees  (62,512)  57,873   71,555   36,846 
  $1,223,664  $314,300  $225,459  $299,346 
Year ended December 31 2019  2018  2017
Interest received $1,731  $279  $47
Other interest, net and banking fees  (46)  (24)  (31)
Interest paid on MIOP loan  -   -   (89)
  $1,685  $255  $(73)

16.Commitments and contingencies

 

17.Commitments and contingencies:

(a)Commitments

 

As at December 31, 2016,2019, and in the normal course of business, the Company has obligations to make future payments representing contracts and other commitments that are known and committed as follows:

 

2017 $1,940,383 
2018  764,276 
2019  735,959 
2020  566,450 
2021  573,750 
Thereafter  1,567,019 
  $6,147,837 

148

2020 $3,043
2021  1,243
2022  1,243
2023  195
2024  195
  $5,919

 

 
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

17.Commitments and contingencies (continued):

(a)Commitments (continued)

The Company has entered into a manufacturing and supply agreement to purchase a minimum quantity of AGGRASTAT®unfinished product inventory totallingtotaling US$150,000150 annually (based on current pricing) until 2024.

Effective November 1, 2014, the Company entered into2024 and a sub-lease with GVI to lease office space at a rateminimum quantity of $170,000 per annum for three years ending October 31, 2017. The lease was amendedAGGRASTAT®finished product inventory totaling US$218 annually (based on May 1, 2016current pricing) until 2022 and increased the leased area covered under lease agreement at a rate of $212,000 per annum€525 annually (based on current pricing) until October 31, 2019.

The Company, through the acquisition of a subsidiary as described in Note 4, leases office and manufacturing facilities from a related part, under a non-cancelable agreement expiring in 2024 at escalating rental rates throughout the term of the lease. The terms of the agreement specify that the Company has the option to purchase the building and land at the then fair value, as well as the option to renew the lease for an additional five year period2022.

 

Effective January 1, 2016,2019, the Company entered into a newrenewed its business and administration services agreement with GVI, as described in note 17(b), under which the Company is committed to pay $7,083$7 per month or $85,000$85 per year for a one yearone-year term. Subsequent to December 31, 2016 and effective January 1, 2017, this agreement was renewed for an additional year for $7,083 per month or $85,000 per year.

168  

 

 

The Company had entered into manufacturing and supply agreements, as amended,Notes to purchase a minimum quantitythe Consolidated Financial Statements

(expressed in thousands of AGGRASTAT® from a third party and all remaining committed payments relating to inventory purchases were completed prior to December 31, 2016. Effective January 1, 2014, the agreement was amended and the amounts previously due during fiscal 2014 were deferred and bore interest at 3.25%Canadian dollars, except per annum, with monthly payments being made against this balance owing of US$45,000 until June 30, 2015. These payments were applied to inventory purchases made during fiscal 2015 and prepayments for future manufacturing that were completed during fiscal 2016, and as at December 31, 2016, there is no amount owing or prepaid under this agreement. As at December 31, 2015 and 2014, there was $1,063,707 and $549,247, respectively recorded within prepaid expenses in regards to this agreement. For the year ended December 31, 2016, no interest was recorded relating to amounts owing under this agreement For the year ended December 31, 2015 and the seven months ended December 31, 2014, $22,675 and $18,738, respectively, was recorded within finance expense relating to this agreement. The Company signed an amendment to this manufacturing and supply agreement which extended the agreement to October 31, 2017 however all purchase commitments were fulfilled prior to December 31, 2016.share amounts)

 

The Company, through the acquisition of a subsidiary as described in Note 4, the Company has entered into various collaborative agreements with six parties for the development of products which continue through 2025. The agreements include terms of renewal, ranging from one to three years, subject to mutual approval. The total expected costs to be incurred under these agreements approximated US$8.7 million as at December 31, 2016.16.Commitments and contingencies (continued)

(a)Commitments (continued)

 

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.

 

SubsequentOn October 31, 2017, the Company acquired an exclusive license to December 31, 2016,sell and market PREXXARTAN® (valsartan) oral solution in the United States and its territories with a subsidiaryseven-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 thedispute between the licensor and the third-party manufacturer of PREXXARTAN®described in note 16(d) and is recorded within accounts payable and accrued liabilities on the consolidated statements of financial position.

On December 14, 2017 the Companyacquired an exclusive license to sell and market a branded cardiovascular drug,ZYPITAMAGTM (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 purchaseprofit-sharing arrangement resulting in a portion of the net profits from ZYPITAMAGTM 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 a vendor to purchase softwarethe Company’s acquisition of ZYPITAMAGTM on September 30, 2019 as described in the next year with an estimated cost of US$149,000.note 9.

149

 
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

 

17.Commitments and contingencies (continued):

(b)Guarantees

 

TheCompany 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.

 

(c)Royalties

 

As a part of the Birmingham debt settlement described in note 10,12, 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$2,000 of quarterly AGGRASTAT® sales, 6% on the portion of quarterly sales between $2,000,000$2,000 and $4,000,000$4,000 and 8% on the portion of quarterly sales exceeding $4,000,000$4,000 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 recorded for the year ended December 31, 2016 totalled $1,795,089, (year ended December 31, 2015 - $1,207,772, seven months ended December 31, 2014 - $210,576, year ended May 31, 2014 - $201,131)2019 totaled $1,023 (2018$1,654; 2017$1,243) with payments made during the year ended December 31, 20162019 of $1,712,389 (year ended December 31, 2015 - $642,768, seven$1,355 (2018$1,539; 2017$1,829).

Beginning with the acquisition of ZYPITAMAGTM (note 9), completed on September 30, 2019, the Company is obligated to pay royalties on any commercial net sales of ZYPITAMAGTM to Zydus subsequent to the acquisition date. During the three months ended December 31, 2014 - $156,722, year ended May2019, the Company accrued $2 in royalties in regards to ZYPITAMAGTM which is recorded within cost of goods sold on the statement of net (loss) income and comprehensive (loss) income and within accounts payable and accrued liabilities on the statement of financial position as at December 31, 2014 - $165,291).2019.

 

The Company is obligated to pay royalties to third parties based on any future commercial net sales of MC-1, aggregating up PREXXARTAN®to 3.9% on net sales.the licensor ofPREXXARTAN®. To date, no royalties are due and/or payable.

169  

 

Notes to the Consolidated Financial Statements

(expressed in thousands of Canadian dollars, except per share amounts)

16.Commitments and contingencies (continued)

 

(d)Contingencies

 

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, theCompany 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 United States Food and Drug Administration ("FDA")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. On July 7, 2016, the Company announced it has received a Complete Response Letter stating the sNDA cannot be approved in 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 statements of net (loss) income and comprehensive (loss) income pertaining to this contingent liability.

 

During 2015, the Company began a development project of a cardiovascular generic drug in collaboration with Apicore.The Company throughhas entered into a supply and development agreement under which the acquisition of a subsidiary as described in Note 4, is subject to a stringent regulatory environment. Any product designed and labeled for use in humans requires regulatory approval by government agencies prior to commercialization. In particular, human therapeutic products are subject to rigorous preclinical and clinical trials to demonstrate safety and efficacy and other approval procedures of the FDA. Various Federal, state, local, and foreign statutes and regulations also govern testing, manufacturing, labeling, distribution, storage, and record-keeping related to such products and their promotion and marketing. In addition, the current regulatory environment at the FDA could lead to increased testing and data requirements which could impact regulatory timelines and costsCompany holds all commercial rights to the Company and its suppliers.

150

 
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

17.Commitments and contingencies (continued):

(d)Contingencies (continued)

The Company, through the acquisition of a subsidiary as described in Note 4,drug. In connection with this project, the Company is involved in legal matters. In 2016,obligated to pay Apicore 50% of net profit from the sale of this drug.On August 13, 2018, the Company and another pharmaceutical company filed a complaint in the United States District Court for the Eastern District of Texas against a third party assertingannounced that the patents of two of the Company’s products were infringed and, inFDA has approved its ANDA for SNP, a later filing, sought monetary damages and injunctive relief. The Court has not issued a final ruling or entered an order on the matter. The Companygeneric intravenous cardiovascular product and the other pharmaceutical company prevailed in a similar action filed inproduct became available commercially during the United States District Court for the Districtthird quarter of New Jersey. However, the defendant has indicated that they will file a formal request for a review of the disputed patents with the United States Patent and Trademark Office.2019. To date, no amounts are due and/or payable pertaining to profit sharing on this product.

 

These related matters are in early stages of the legal process; however, management does not believe that the ultimate resolution of this matter will have a material adverse impact on the Company’s financial position, results of operations or cash flows.17.Related party transactions

 

18.Related party transactions:

(a)Key management personnel compensation

 

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 who was considered key management personnel beginning with this appointment. The then existing President retains the title of Chief Executive Officer and remains included in January 2016, thekey management personnel for all periods. The Vice-President, Commercial Operations was considered key management personnel until the conclusion of his employment in September 2017 and beginningfor the 2018 and 2019 periods, a new Vice-President, Commercial Operations was hired effective January 8, 2018 and is included in key management personnel from the effective date of his hire until the conclusion of his employment on June 30, 2019.

Beginning in December 2016 and ending of October 2, 2017, the President and Chief Executive Officer of Apicore, arewas considered key management personnel. On May 9, 2016, the Company announced that the employment agreement with the Company’s then President and Chief Operating Officer had been terminated, effective immediately. For 2016,The compensation pertaining to the President and Chief OperatingExecutive Officer wasof Apicore has been included in the income from discontinued operations in the consolidated statements of net income and comprehensive income for the year ended December 31, 2017 and his compensation has been excluded from the table below. Included in the table below is $750,000 relating to transaction bonuses paid to key management personnel.personnel which is included within the income from discontinued operations for the year ended December 31, 2017 on the consolidated statement net income and comprehensive income.

170  

 

Notes to the Consolidated Financial Statements

(expressed in thousands of Canadian dollars, except per share amounts)

17.Related party transactions (continued)

(a)Key management personnel compensation (continued)

 

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:

 

 

December 31

2016

 December 31
2015
 December 31
2014
 May 31
2014
 
Year ended December 31 2019  2018   2017
Salaries, fees and short-term benefits $871,699  $914,062  $366,015  $781,484  $781  $770  $1,463
Termination benefits  221,624   -   -   - 
Share-based payments  145,398   107,554   73,424   -   208   669   139
 $1,238,721  $1,021,616  $439,439  $781,484  $989  $1,439  $1,602

 

As at December 31, 2016,2019, the Company has $13,279 (December 31, 2015 - $5,675 and December 31, 2014 - $336,766)did not have any amounts (2018$5) recorded within accounts payable and accrued liabilities relating to amounts payable to the members of the Company'sCompany’s Board of Directors for services provided. 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, 2016, there was no interest charged on amounts payable to the Company’s Board of Directors. For the year ended December 31, 2015, seven months ended December 31, 2014 and the year ended May 31, 2014, $4,517, $10,127 and $14,918, respectively, was recorded within finance expense in relation to these amounts payable to the members of the Company's Board of Directors.

On July 11, 2014 and as described in note 12(b), the Company announced that, subject to all necessary regulatory approvals, it had entered into shares for debt agreements with certain members of the Board of Directors, pursuant to which the Company will issue common shares with a fair value of $1.98 per common share to satisfy outstanding amounts owing to the Company’s Board of Directors. Of the amounts payable to the Company's Board of Directors as at December 31, 2014, $109,809 was included in these shares for debt agreements. The shares were issued on January 9, 2015.

On January 27, 2015 and as described in note 12(b), 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 with a fair value of $1.44 per common share to satisfy $108,680 of outstanding amounts owing to the these individuals. The shares were issued on March 20, 2015.

151

 
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

18.Related party transactions (continued):

(a)Key management personnel compensation (continued)

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. Included within selling, general and administration expenses for the year ended December 31, 2016 is $221,624 pertaining to severance for the former President and Chief Operating Officer. All amounts pertaining to this severance were paid during 2016 and there is no additional liability in this regard.

 

(b)Transactions with related parties

 

Directors and key management personnel control 17%23% of the voting shares of the Company as at December 31, 2016 (December 31, 20152019 (201818%, December 31, 2014 – 19%17%).

 

During the year ended December 31, 2016,2019 the Company paid GVI, a company controlled by the Chief Executive Officer, a total of $85,000 (year ended December 31, 2015 - $215,000, seven months ended December 31, 2014 - $115,000, year ended May 31, 2014 - $190,000)$85 (2018 – $85; 2017 – $85) for business administration services, $222,500 (year ended December 31, 2015 - $176,051, seven months ended December 31, 2014 - $36,500, year ended May 31, 2014 - $30,500)$295 (2018 – $228; 2017 – $212) in rental costs and $41,975 (year ended December 31, 2015 - $33,575, seven months ended December 31, 2014 - $25,115, year ended May 31, 2014 - $33,735)$47 (2018 – $47; 2017 – $44) for commercial and information technology support services. As described in note 15,16(a), the 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 no longer includes the Chief Financial Officer's services, which effective January 1, 2016, will be paid directly by the Company through a consulting agreement.

 

Clinical research services are provided through a consulting agreement with GVI Clinical Development Solutions Inc. ("(“GVI CDS"CDS”), a company controlled by the Chief Executive Officer. Pharmacovigilance and safety, regulatory support, quality control and clinical support are provided to the Company through the GVI CDS agreement. During the year ended December 31, 2016,2019, the Company paid GVI CDS $592,464, (year ended December 31, 2015 - $330,764, seven months ended December 31, 2014 - $56,904, year ended May 31, 2014 - $125,583)$406 (2018 – $858; 2017 – $716) for clinical research services.

 

Research and development services are provided through a consulting agreement with CanAm Bioresearch Inc. ("CanAm"(“CanAm”), a company controlled by a close family member of the President and Chief Executive Officer. During the year ended December 31, 2016,2019, the Company paid CanAm $560,205 (year ended December 31, 2015 - $399,580, seven months ended December 31, 2014 - $233,938, year ended May 31, 2014 - $229,732)$133 (2018 – $393; 2017 – $458) 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, these amounts bore interest at a rate of 5.5% per annum. For the year ended December 31, 2016, there was no interest charged on these amounts payable to related. For the year ended December 31, 2015, seven months ended December 31, 2014 and the year ended May 31, 2014, $4,517, $10,127 and $14,918, respectively, was recorded within finance expense in relation to these amounts payable to related parties.

Beginning with the acquisition of Apicore (the “Acquisition”) on December 1, 2016 (Note 4)and ending with the Apicore Sales Transaction on October 2, 2017 (note 5), the Company incurred rental charges pertaining to leased manufacturing facilities and office space from Dap Dhaduk II LLC (“Dap Dhaduk”), an entity controlled by a minority shareholder and member of the board of directors of Apicore Inc. ForIncluded within discontinued operations on the period from December 1, 2016consolidated statements of net income and comprehensive income is payments to Dap Dhaduk totaling $263 for the year ended December 31, 2016, rental expenses from Dap Dhaduk totalled $29,869.2017.

 

Beginning with the acquisitionAcquisition on December 1, 2016 (Note 4)and ending with the Apicore Sales Transaction on October 2, 2017 (note 5), the Company purchased inventory totalling of $217,382, from Aktinos Pharmaceuticals Private Limited (“Aktinos”and Aktinos HealthCare Private Limited (together, “Aktinos”), an Indian based entity that is significantly influenced by a close family member of the Chief Executive Officer of Apicore Inc. For the year ended December 31, 2017, the Company paid Aktinos $1,599 for purchases of inventory, which were included in assets of the Apicore business sold (note 5) in connection with the Apicore Sales Transaction.

 

Beginning with the Acquisition on December 1, 2016 and ending with the Apicore Sales Transaction on October 2, 2017 (note 5), the Company incurred research and development charges from Omgene Life Sciences Pvt. Ltd. (“Omgene”), an entity significantly influenced by a close family member of the Chief Executive Officer of Apicore Inc. Included within discontinued operations on the consolidated statements of net income and comprehensive income is payments to Omgene totaling $26 for the year ended December 31, 2017.

171  

 

Notes to the Consolidated Financial Statements

(expressed in thousands of Canadian dollars, except per share amounts)

17.Related party transactions (continued)

(b)Transactions with related parties (continued)

Beginning with the Acquisition on December 1, 2016 and ending with the Apicore Sales Transaction on October 2, 2017 (note 5), the Company incurred pharmacovigilance charges from 4C Pharma Solutions LLC (“4C Pharma”), an entity significantly influenced by a close family member of the Chief Executive Officer of Apicore Inc. Included within discontinued operations on the consolidated statements of net income and comprehensive income is payments to 4C Pharma totaling $6 for the year ended December 31, 2017.

These transactions have been measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.

As at December 31, 2016,2019, included in accounts payable and accrued liabilities is $100,493 (December 31, 2015 - $23,494 and December 31, 2014 - $120,962)$95 (2018$17) payable to GVI, $336,008 (December 31, 2015 - $64,539 and December 31, 2014 - $145,100)$56 (2018$134) payable to GVI CDS, $80,582 (December 31, 2015 - $60,611 and December 31, 2014 - $247,752)no amounts (2018$40) payable to CanAm, and $467,250 payable to Aktinos whichCanAm. These amounts are unsecured, payableon demand and bear interest as described above.non-interest bearing.

152

 
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

18.Related party transactions (continued):

(b)Transactions with related parties (continued)

 

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.Officer, for a term of five years, at a rate of $300,000 annually.$300 annually, increasing to $315 annually, effective January 1, 2017 and increasing to $331 annually, effective January 1, 2019. The Company may terminate this agreement at any time upon 120 daysdays’ written notice. During the year ended December 31, 2016 the Company recorded a bonus of $54,247 (year ended December 31, 2015 - $100,000, seven months ended December 31, 2014 - $58,904, year ended May 31, 2014 - $286,849) to its Chief Executive Officer which is recorded within selling, general and administrative expenses. As at December 31, 2016, included in accounts payable and accrued liabilities is $54,380 (December 31, 2015 – $45,753 and December 31, 2014 - $345,753)There were not any amounts payable to A. D.A.D. Friesen Enterprises Ltd. as a result of this consulting agreement which isas at December 31, 2019 or 2018. Any amounts payable to A.D. Friesen Enterprises Ltd. are unsecured, payable on demand and non-interest bearing.

 

Effective January 1, 2016, the business and administration services agreement with GVI no longer included the Chief Financial Officer's services and2018, the Company signed arenewed 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 yearone-year term, at a rate of $135,000$155 annually. The agreement may becould have been terminated by either party, at any time, upon 30 days written notice. During the year ended December 31, 2016 the Company recorded a bonus of $10,000 to its Chief Financial Officer which is recorded within selling, general and administrative expenses. As at December 31, 2016, included in accounts payable and accrued liabilities is $22,313Any amounts payable to JFK Enterprises Ltd. as a result of this consulting agreement, which iswere 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:

18.Expenses by nature

 

Expenses incurred for the years ended December 31, 20162019, 2018 and 2015, seven months ended December 31, 2014 and year ended May 31, 20142017 from continuing operations are as follows:

 

 

December 31,

2016

 December 31,
2015
 December 31,
2014
 May 31,
2014
 
Year ended December 31 2019  2018 2017
Personnel expenses                         
Salaries, fees and short-term benefits $6,731,824  $3,908,579  $1,079,085  $1,584,724  $6,394  $7,696 $5,904
Share-based payments  1,400,241   1,460,316   620,705   295,144   417   1,022  491
  8,132,065   5,368,895   1,699,790   1,879,868   6,811   8,718  6,395
Amortization and derecognition  2,412,170   690,934   433,149   561,269 
Depreciation, amortization and impairment  2,017   299  98
Research and development  2,611,467   3,723,317   584,991   401,311   2,887   5,306  3,539
Manufacturing  1,062,684   916,939   -   127,953   752   765  955
Inventory material costs  7,933,684   1,563,344   349,901   300,378   3,851   3,862  3,079
(Write-up) write-down of inventory  (108,817)  40,920   (80,874)  22,209 
Write-down of inventory  1,983   95  385
Medical affairs  1,040,755   865,368   260,861   136,996   718   1,026  1,108
Administration  1,915,639   948,226   362,483   618,022   821   1,505  1,725
Selling and logistics  5,355,876   3,103,722   854,664   780,748   6,997   8,019  5,395
Professional fees  739,513   140,573   150,131   352,734   1,578   740  802
 $31,095,036  $17,362,238  $4,615,096  $5,181,488  $28,415  $30,335  $23,481

 

153

172  

 

 

 

Notes to the Consolidated Financial Statements

 
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

(expressed in thousands of Canadian dollars, except per share amounts)

19.Financial instruments

 

20.Financial instruments:

(a)Financial assets and liabilities

 

Set out below is a comparison by class of the carrying amounts and fair value of the Company'sCompany’s financial instruments that are carried in the consolidated financial statements as at December 31, 2016:2019 and 2018:

 

  Carrying
amount
  Fair
value
 
Financial assets        
Loans and receivables        
Cash and cash equivalents $12,266,177  $12,266,177 
Cash held in escrow  12,809,072   12,809,072 
Accounts receivable  17,200,778   17,200,778 
         
Financial liabilities        
Other financial liabilities:        
Short-term borrowings $1,383,864  $1,383,864 
Accounts payable and accrued liabilities  17,242,366   17,242,366 
Current income taxes payable  504,586   504,586 
Current portion of finance lease obligation  89,241   89,241 
Current portion of long-term debt  2,883,752   2,883,752 
Current portion of royalty obligation  2,019,243   2,019,243 
Finance lease obligation  242,449   242,449 
Long-term debt  67,947,034   67,947,034 
Royalty obligation  3,666,479   3,666,479 
Derivative option on Apicore Class C shares  32,901,006   32,901,006 
Liability to repurchase Apicore Class E shares  2,700,101   2,700,101 
Fair value of Apicore Series A preferred shares  1,755,530   1,755,530 
Due to vendor  2,759,507   2,759,507 

Included in accounts payable and accrued liabilities as at December 31, 2016 is the current portion of the other long-term liability (Level 3) of $100,000.

154

 
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

20.Financial instruments (continued):

(a)Financial assets and liabilities (continued)

Set out below is a comparison by class of the carrying amounts and fair value of the Company's financial instruments that are carried in the consolidated financial statements as at December 31, 2015 and 2014:

  December 31, 2015  December 31, 2014 
  Carrying
amount
  Fair
value
  Carrying
amount
  Fair
value
 
Financial assets                
Loans and receivables                
Cash $3,568,592  $3,568,592  $493,869  $493,869 
Accounts receivable  9,823,616   9,823,616   1,637,676   1,637,676 
Long-term derivative  227,571   227,571   194,491   194,491 
                 
Financial liabilities                
Other financial liabilities                
Accounts payable and accrued liabilities $7,079,091  $7,079,091  $3,248,877  $3,248,877 
Current portion of long-term debt  1,625,191   1,625,191   654,877   654,877 
Current portion of royalty obligation  1,648,180   1,648,180   473,744   473,744 
Long-term debt  2,617,593   2,617,593   4,225,949   4,225,949 
Royalty obligation  3,725,272   3,725,272   1,715,310   1,715,310 
Other long-term liability  100,000   100,000   152,778   152,778 

Included in accounts payable and accrued liabilities as at December 31, 2015 is the fair value of warrants denominated in a foreign currency (Level 2) of $1,161 (December 31, 2014 - $36,259) and the current portion of the other long-term liability (Level 3) of $100,000 (December 31, 2014 – nil).

As at December 31 2019  2018
  Carrying
amount
  Fair
value
  Carrying
amount
  Fair
value
Financial assets               
Financial assets measured at amortized cost               
Cash and cash equivalents $12,965  $12,965  $24,139  $24,139
Short-term investments  -   -   47,747   47,747
Accounts receivable  10,216   10,216   10,765   10,765
Investment in Sensible Medical  -   -   -   -
Holdback receivable  -   -   11,909   11,909
                
Financial liabilities               
Financial liabilities measured at amortized cost:               
Accounts payable and accrued liabilities $9,384  $9,384  $14,377  $14,377
Current portion of royalty obligation  872   872   1,496   1,496
Current portion of acquisition payable  649   649   -   -
Current portion of lease obligation  240   240   -   -
Royalty obligation  1,176   1,176   2,035   2,035
Acquisition payable  1,655   1,655   -   -
Lease obligation  849   849   -   -
Other long-term liability  -   -   1,201   1,201

 

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 holdback receivable was carried at FVTPL and the other long-term liability was 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 Company's long-term debt is estimated to approximate itsinvestment in Sensible Medical. This resulted in a carrying value based on the termsas at December 31, 2019 of the long-term debt. The royalty obligation and other long-term liability are carried at amortized cost (Level 3).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 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 – Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.

173  

 

Notes to the Consolidated Financial Statements

(expressed in thousands of Canadian dollars, except per share amounts)

19.Financial instruments (continued)

(a)Financial assets and liabilities (continued)

 

The fair value hierarchy of the following financial instruments measured at fair valueassets and liabilities on the consolidated statements of financial position as at December 31, 20162019 is as follows:

 

155
  Level 1  Level 2  Level 3
Financial assets           
           Investment in Sensible Medical $-  $-  $-
            
Financial liabilities           
Current portion of royalty obligation $-  $-  $872
Current portion of acquisition payable  -   -   649
Royalty obligation  -   -   1,176
Acquisition payable  -   -   1,655

 

The fair value hierarchy of the following financial assets and liabilities on the consolidated statements of financial position as at December 31, 2018 is as follows:

 

 
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

20.Financial instruments (continued):

(a)Financial assets and liabilities (continued)

  Level 1  Level 2  Level 3 
Financial liabilities            
Short-term borrowings $-  $1,383,864  $- 
Accounts payable and accrued liabilities          100,000 
Current portion of finance lease obligation  -   89,241   - 
Current portion of long-term debt  -   2,883,752   - 
Current portion of royalty obligation  -   -   2,019,243 
Finance lease obligation  -   242,449   - 
Long-term debt  -   67,947,034   - 
Royalty obligation  -   -   3,666,479 
Derivative option on Apicore Class C shares  -   -   32,901,006 
Liability to repurchase Apicore Class E shares  -   -   2,700,101 
Fair value of Apicore Series A-1 preferred shares  -   -   1,755,530 
  Level 1  Level 2  Level 3
Financial assets           
Holdback receivable $-  $-  $11,909
            
Financial liabilities           
Accounts payable and accrued liabilities $-  $-  $546
Current portion of royalty obligation  -   -   1,496
Royalty obligation  -   -   2,035
Other long-term liability  -   -   1,201

 

Included in accounts payable and accrued liabilities as at December 31, 20162018 is the current portion of the other long-term liability (Level 3)license fee payable of $100,000.$546.

 

Investment in Sensible Medical:The fair value hierarchy of financial instruments measured at fair value on the consolidated statements of financial position as at December 31, 2015 is as follows:

  Level 1  Level 2  Level 3 
Financial assets            
Long-term derivative $-  $-  $227,571 
             
Financial liabilities            
Accounts payable and accrued liabilities $-  $1,161  $100,000 
Current portion of long-term debt  -   1,625,191   - 
Current portion of royalty obligation  -   -   1,648,180 
Long-term debt  -   2,617,593   - 
Royalty obligation  -   -   3,725,272 
Other long-term liability  -   -   100,000 

Includedinvestment in accounts payable and accrued liabilities as at December 31, 2015 is the fair value of warrants denominated in a foreign currency (Level 2) of $1,161 and the current portion of the other long-term liability (Level 3) of $100,000.

156

 
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

20.Financial instruments (continued):

(a)Financial assets and liabilities (continued)

The fair value hierarchy of financial instruments measured at fair value on the consolidated statements of financial position as at December 31, 2014 is as follows:

  Level 1  Level 2  Level 3 
Financial assets            
Long-term derivative $-  $-  $194,491 
             
Financial liabilities            
Accounts payable and accrued liabilities $-  $36,259  $- 
Current portion of long-term debt  -   654,677   - 
Current portion of royalty obligation  -   -   473,744 
Long-term debt  -   4,225,949   - 
Royalty obligation  -   -   1,715,310 
Other long-term liability  -   -   152,778 

Included in accounts payable and accrued liabilities as at December 31, 2014 is the fair value of warrants denominated in a foreign currency (Level 2) of $36,259.

Royalty obligation:Estimating fair valueSensible Medical requires determining the most appropriate valuation model which is dependent on its underlying terms and conditions. This estimate alsodetermining the most appropriate inputs to the valuation model, including publicly traded companies similar to Sensible Medical to use as a proxy in the valuation model, a discount rate for lack of marketability of the investment and estimated costs to dispose of the investment.

Royalty obligation:The royalty obligation requires determining expected revenue from AGGRASTAT® AGGRASTAT®sales and an appropriate discount rate and making assumptions about them. If the expected revenue from AGGRASTAT®AGGRASTAT® sales were to change by 10%, then the royalty obligation liability recorded as at December 31, 20162019 would change by approximately $730,000.$257 (2018 - $211). If the discount rate used in calculating the fair value of the royalty obligation of 20% were to change by 1%, the royalty obligation liability recorded as at December 31, 20162019 would change by approximately $120,000.$15 (2018 - $22).

Acquisition payable:The acquisition payable requires determining an appropriate discount rate and making assumptions about it. If the discount rate used in calculating the fair value of the acquisition payable of 10% were to change by 1%, the acquisition payable recorded as at December 31, 2019 would change by approximately $28.

 

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 years ended December 31, 20162019, 2018 and 2015, seven months ended December 31, 2014 and the year ended May 31, 20142017 there were no transfers between Level 1 and Level 2 fair value measurements.

 

174  

 

Notes to the Consolidated Financial Statements

(expressed in thousands of Canadian dollars, except per share amounts)

19.Financial instruments (continued)

(b)Risks arising from financial instruments and risk management

 

The Company'sCompany’s activities expose it to a variety of financial risks; market risk (including foreign exchange and interest rate risks), credit risk and liquidity risk. Risk management is the responsibility of the Company, which identifies, evaluates and, where appropriate, mitigates financial risks.

 

157(i)

 
Notes to the Consolidated Financial StatementsMarket risk
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

 

20.Financial instruments (continued):

(b)Risks arising from financial instruments and risk management (continued)

(i)Market risk

(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, long-term debtincome taxes payable, royalty obligation and royalty obligation.acquisition payable. The Company has not entered into any foreign exchange hedging contracts.

 

The Company is exposed to U.S. dollar currency risk through the following U.S. denominated financial assets and liabilities:

 

(Expressed in U.S. Dollars) December 31,
2016
  December 31,
2015
  December 31,
2014
 
Cash $8,895,641  $2,391,230  $397,692 
Cash held in escrow  9,538,366         
Accounts receivable  12,083,028   7,078,982   1,384,772 
Long-term derivative  -   164,430   167,650 
Accounts payable and accrued liabilities  (9,588,229)  (4,466,722)  (1,430,885)
Income taxes payable  (375,743)  -   - 
Current portion of finance lease obligation  (66,454)  -   - 
Current portion of royalty obligation  (1,503,643)  (1,190,881)  (408,365)
Finance lease obligation  (180,542)  -   - 
Long-term debt  (9,473,000)  -   - 
Royalty obligation  (2,730,269)  (2,691,670)  (1,478,588)
Due to Vendor  (2,054,882)  -   - 
Derivative option on Apicore Class C shares  (24,499,967)  -   - 
Liability to repurchase Apicore Class E shares  (2,010,649)  -   - 
Fair value of Apicore Series A-1 preferrred shares  (1,307,268)        
  $(23,273,616) $1,285,369  $(1,367,724)

As at December 31

(Expressed in U.S. Dollars)

 2019  2018 
Cash $9,518  $17,428 
Short-term investments  -   35,000 
Accounts receivable  7,817   7,725 
Holdback receivable  -   8,730 
Other assets  30   - 
Accounts payable and accrued liabilities  (6,714)  (9,903)
Income taxes payable  (398)  (776)
Current portion of royalty obligation  (671)  (1,096)
Current portion of acquisition payable  (500)  - 
Royalty obligation  (906)  (1,492)
Acquisition payable  (1,275)  - 
Other long-term liability  -   (880)
  $6,901  $54,736 

 

Based on the above net exposures as at December 31, 2016,2019, assuming that all other variables remain constant, a 5% appreciation or deterioration of the Canadian dollar against the U.S. dollar would result in a corresponding increase or decrease, respectively on the Company'sCompany’s net income of approximately $1,164,000 (December 31, 2015 - $64,000 and December 31, 2014 - $68,000)$448 (2018 – $3,700).

 

The Company is also exposed to currency risk on the Indian Rupee,Euro, however management estimates such risk is reduced duerelating to the low valuean appreciation or deterioration of the Rupee in comparison toCanadian dollar against the Canadian dollar. Foreign currency changes in regards to the RupeeEuro would have limited impact on the operations of the Company.

 

(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. TheBased on the Company’s exposures as at December 31, 2019, as a result of the balance of cash and cash equivalents held by the Company, is exposed to interest rate risk arising primarily from fluctuationsassuming that all other variables remain constant, a 1% appreciation or deterioration in interest rates on its cash, long-term debt and other long-term liability.

An increase or decrease in interest rates of 1% during the year ended December 31, 2016, with all other variables held constant, would result in a corresponding increase or decrease, respectively on the Company'sCompany’s net income (loss) of approximately $250,000 (year ended December 31, 2015$130 (2018 - $20,000, seven months ended December 31, 2014 - $4,000, year ended May 31, 2014 - $2,000)$720). An increase in the crown company borrowing rate of 1% during the year ended December 31, 2016, with all other variables held constant, would result in a corresponding increase or decrease on the Company's net income (loss) of approximately $26,000 (December 31, 2015 - $49,000, seven months ended December 31, 2014 - $52,000, year ended May 31, 2014 - $52,000).

 

158

175  

 

 

 

 
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

Notes to the Consolidated Financial Statements

(expressed in thousands of Canadian dollars, except per share amounts)

 

19.Financial instruments (continued)

20.Financial instruments (continued):

 

(b)Risks arising from financial instruments and risk management (continued)

 

(ii)Credit risk

 

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 46%96% of the balance of amounts owing are from three customers. The Company has historically had low impairment in regards to its accounts receivable. As at December 31, 2016,2019, none of the outstanding accounts receivable were outside of the normal payment terms and the Company did not record any bad debt expenses (year ended(2018 – nil; 2017 – nil). As at December 31, 2015 - $4,142, seven months ended December 31, 2014 – bad debt expense of $4,1422019 and year ended May 31, 2014 - nil).2018, the expected credit lifetime credit losses for accounts receivable aged as current were nominal amounts.

 

(iii)Liquidity risk

 

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 as far as possible, that it will have sufficient liquidity to meet its liabilities and commitments when due and to fund future operations.

 

The majority of the Company’s accounts payable and accrued liabilities are due within the current operating period. For long-term debt repayments see note 9.

 

(c)Capital management

 

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 Company'sCompany’s management to sustain future development of the business.

 

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 thisthe current stage of the Company'sCompany’s development, in order to maximize its current business activities, the Company does not pay out dividends. Management reviews its capital management approach on an on-goingongoing basis and believes that this approach, given the relative size of the Company, is reasonable.

 

The Company’s overall strategy with respect to capital risk management remains unchanged for the year ended December 31, 2016.2019.

 

159

176  

 

 

 

Notes to the Consolidated Financial Statements

 
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

(expressed in thousands of Canadian dollars, except per share amounts)

 

21.Determination of fair values:

20.Determination of fair values

 

A number of the Company'sCompany’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following models. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

 

(a)Long-term derivativeIntangible assets

 

The long-term derivativefair value of intangible assets is based on the discounted cash flows expected to be derived from the use and eventual sale of the assets.

(b)Investment in Sensible Medical

The investment in Sensible Medical is the fair value associated towith the options rights received by the CompanyCompany’s equity investment in Sensible Medical and is classified as fair value through profit and loss.FVOCI. The change in the long-term derivativeInvestment in Sensible Medical is recorded as a revaluation of long-term derivativethrough other comprehensive (loss) income in the consolidated statement of net (loss) income and comprehensive (loss) income. The long-term derivative is non-transferable and isinvestment in Sensible Medical was recorded at fair value at the date at which it was acquired and subsequently revalued at each reporting date. Estimating fair value for this derivativeasset requires determining the most appropriate valuation model which is dependent on the terms and conditions of the derivative. This estimate also requires determining the most appropriate inputs to the valuation model, including publicly traded companies similar to Sensible Medical to use as a proxy in the expected lifevaluation model, a discount rate for lack of marketability of the derivative, volatility, dividend yieldinvestment and probabilities pertainingestimated costs to its exercise and making assumptions about them.dispose of the investment.

 

(b)(c)Share-based payment transactions

 

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 historichistorical volatility adjusted for changes expected due to publicly available information), weighted average expected life of the instruments (based on historical experience and general option holder behaviour)behavior), expected dividends, and the risk-free interest rate (based on government bonds). Service and non-market performance conditions attached to the transactions are not taken into account in determining fair value.

 

(c)(d)Royalty obligation

 

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 AGGRASTAT®AGGRASTAT® sales and an appropriate discount rate and making assumptions about them.

(e)Acquisition payable

The acquisition payable 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 an appropriate discount rate and making assumptions about it.

(f)Holdback receivable

The holdback receivable was recorded at its fair value at the date of acquisition and subsequently measured at fair value at each reporting date. Estimating fair value for this asset required determining the most appropriate valuation model which is dependent on its underlying terms and conditions. This estimate also required determining expected cash flows from this receivable including potential claims from the Buyer in the Apicore Sale Transaction (Note 10) and an appropriate discount rate and making assumptions about them.

 

(d)Liability to repurchase Apicore Class E shares

177  

The liability is recorded at its fair value being the fixed option price for which the employees can request the Company to redeem their Class E shares based on the underlying contractual terms.

(e)Derivative option on Apicore Class C shares

The derivative option is recorded at the fair value underlying the contractual terms that provided the fixed option price of Apicore’s Class C common shares at the date of grant.

(f)Fair value of the Apicore Series A-1 preferred shares

The fair value of the Apicore Series A-1 shares was determined on initial recognition in relation to valuation performed over Apicore for purposes of the Company’s acquisition of Apicore. Estimating fair value required using the most appropriate valuation model and management’s best estimates of future cash flows and an appropriate discount rate.

160

 

 

 

Notes to the Consolidated Financial Statements

 
Notes to the Consolidated Financial Statements
(expressed in Canadian dollars)
Years ended December 31, 2016 and 2015, seven months ended December 31, 2014, year ended May 31, 2014

(expressed in thousands of Canadian dollars, except per share amounts)

 

22.Segmented information:

21.Segmented information

 

ThePrior to October 2, 2017, the operations of the Company arewere classified ininto two industry segments: the marketingmarking and distribution of AGGRASTAT®commercial products (AGGRASTAT®) and the manufacturing and distribution of API.API, which was classified as held for sale and discontinued operations in 2017 (note 5). No operating segments have beenwere aggregated to form these reportable operating segments. Since the sale of API on October 2, 2017, the Company operates under one segment.

 

Revenue generated from external customers based on their locationfrom the marketing and distribution of commercial products for the years ended December 31, 20162019, 2018 and 2015; seven months ended December 31, 2014 and year ended May 31, 2014 is as follows:2017 was 100% from sales to customers in the United States.

  Year
ended
December 31
2016
  Year
ended
December 31
2015
  Seven months
 ended
December 31
2014
  Year
ended
May 31
2014
 
United States $36,823,860  $22,083,128  $5,264,395  $5,050,761 
Canada and other  954,611   -   -   - 
  $37,778,471  $22,083,128  $5,264,395  $5,050,761 

 

During the year ended December 31, 2016 70%2019, 100% of total revenue was generated from threethirteen customers. Customer A accounted for 16%38%, Customer B accounted for 28% and, Customer C accounted for 26%.28% and the remaining ten customers accounted for approximately 6% of revenue.

During the year ended December 31, 2018, 100% of total revenue was generated from eight customers. Customer A accounted for 33%, Customer B accounted for 28%, Customer C accounted for 33% and Customer D accounted for 6% and the remaining five customers accounted for less than 1% of revenue.

During the year ended December 31, 2017, 100% of total revenue was generated from nine customers. Customer A accounted for 33%, Customer B accounted for 30%, Customer C accounted for 30% and Customer D accounted for 6% and the remaining five customers accounted for less than 1% of revenue.

 

Property, plant and equipment intangible assets and otherintangible assets are located in the following countries:

 

 December 31,
2016
  December 31,
2015
 December 31,
2014
 
As at December 31 2019  2018
Canada $263,984  $219,787  $21,565  $1,282  $316
Barbados  -   1,411,992   1,096,946   9,599   1,705
India  7,896,331   -   - 
United States  103,167,032   10,375   11,596 
 $111,327,347  $1,642,154  $1,130,107  $10,881  $2,021

 

The financial measures reviewed by the Company’s chief operating decision maker are presented below for the year ended22.Subsequent events

Since December 31, 2016:2019, the outbreak of the novel strain of coronavirus, specifically identified as “COVID-19”, has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The duration and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of the government and central bank interventions. It is not possible to reliably estimate the length and severity of these developments and the impact on the liquidity, financial results and condition of the Company and its operating subsidiaries in future periods.

 

For the year ended December 31, 2016
  AGGRASTAT®  Active
 Pharmaceutical
 Ingredients
  Total 
Revenue $29,979,633  $7,798,838  $37,778,471 
Operating costs  (22,753,757)  (8,341,279)  (31,095,036)
Operating income $7,225,876  $(542,441) $6,683,435 

161

178  

 

ITEM 19. EXHIBITS

 

NumberExhibit

Exhibit
1.Articles of Incorporation and Bylaws: [15];

1.1Medicure’s Articles of Incorporation dated September 15, 1997 [1];

1.2Lariat’s Articles of Incorporation dated June 3, 1997 [1];

1.3Medicure’s Certificate of Continuance from Manitoba to Alberta dated December 3, 1999 [1];

1.4Certificate of Amalgamation for Medicure and Lariat dated December 22, 1999 [1];

1.5Medicure’s Certificate of Continuance from Alberta to Canada dated February 23, 2000 [1];

1.6Amended Certificate of Continuance and Articles of Continuance dated February 20, 2003 [3];

1.7Certificate of Amendment dated November 1, 2012 [15];[10]

1.8Bylaw No. 1A [15];[10]

1.9Bylaw No. 2 [8]

4.4.Material Contracts and Agreements: [15];

4.1Transfer Agency Agreement between Montreal Trust Company of Canada and the Company dated as of January 26, 2000, whereby Montreal Trust Company of Canada agreed to act as transfer agent and registrar with respect to the Shares [1];

4.2Medicure International Licensing Agreement between the Company and Medicure International Inc. dated June 1, 2000, wherein the Company granted Medicure International, Inc. a license with regard to certain intellectual property [1];

4.3Development Agreement between Medicure International, Inc. and CanAm Bioresearch Inc. dated June 1, 2000, wherein CanAm Bioresearch Inc. agreed to conduct research and development activities for Medicure International, Inc. [1];

4.4Amendment to the Consulting Services Agreement dated February 1, 2002 between A.D. Friesen Enterprises Ltd. and the Company whereby consulting services will be provided to the Company by Dr. Albert D. Friesen [2];

4.5Stock Option Plan approved February 4, 2002 [3];

4.5Amendment dated March 1, 2002 to the Development Agreement between Medicure International, Inc. and CanAm Bioresearch Inc. [5];

4.7Amendment dated August 7, 2003 to the Development Agreement between Medicure International, Inc. and CanAm Bioresearch Inc. [3];

4.8Amendment to the Consulting Services Agreement dated October 1, 2003 between A.D. Friesen Enterprises Ltd. and the Company whereby consulting services will be provided to the Company by Dr. Albert D. Friesen [4];

4.9Employment Agreement with Dawson Reimer dated October 1, 2001 [4];

 

162

179  

 

4.10Amendment to Employment Agreement dated April 5, 2005 between A.D. Friesen Enterprises Ltd. and the Company [5];

4.11Amendment to Employment Agreement dated April 5, 2005 between Dawson Reimer and the Company [5];

4.12Amendment to Employment Agreement dated April 5, 2005 between Derek Reimer and the Company [5];

4.13Amendment dated July 8, 2005 to the Development Agreement between Medicure International, Inc. and CanAm Bioresearch Inc. [5];

4.14Amendment to Employment Agreement dated October 1, 2005 between A.D. Friesen Enterprises Ltd. and the Company [6];

4.15Amendment to Development Agreement dated June 1, 2000 between CanAm Bioresearch Inc. and Medicure International, Inc. dated July 4, 2006 [6];

4.16Amended Stock Option Plan approved October 25, 2005 [6];

4.17Amendment to Employment Agreement dated October 1, 2006 between A.D. Friesen Enterprises Ltd. and the Company [7];

4.18Amended License Agreement between Medicure and the University of Manitoba dated November 24, 2006, originally dated August 30, 1999, wherein the University of Manitoba granted to Medicure an exclusive license with regard to certain intellectual property (the “U of M Licensing Agreement”) [7];

4.19Amendment to Employment Agreement dated October 1, 2007 between A.D. Friesen Enterprises Ltd. and the Company [8];

4.20Amended Stock Option Plan approved October 2, 2007 as filed on October 9, 2007 Form S-8 #333-146574 [15];[9]

4.21Employment Agreement with Dwayne Henley June 10, 2008 [8]

4.22Debt financing agreement between Birmingham Associates Ltd. and the Company dated September 17, 2007 [8].
4.23Business and administration services agreement between Genesys Venture Inc. and the Company dated October 1, 2010. [15];
4.24Master services agreement between GVI Clinical Development Solutions Inc. and the Company dated June 9, 2009. [15];
4.25Debt settlement agreement between Birmingham Associates Ltd. And the Company dated July 18, 2011. [15];
4.26Royalty and guarantee agreement between Birmingham Associates Ltd. And the Company dated July 18, 2011. [15];

 

 

4.274.24Business and administration services agreement between Genesys Venture Inc. and the Company dated January 1, 2012. [15];
4.28Stock Option Plan approvedamended and restated as of November 30, 2012 [15];4, 2014 [11]

4.25
4.29Stock Option Plan approvedamended and restated as of June 22, 2016 **[12]

8.1List of Significant Subsidiaries and Consolidated Affiliated Entity *

11.11.1Code of Ethics [4].

12.1Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 **.*

180  

12.2Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 **.*

13.1Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 **.
   
 [1] Herein incorporated by reference as previously included in the Company’s Form 20-F registration statement filed on January 30, 2001.
[2] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on December 31, 2002.
[3] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on October 20, 2003.
[4] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on September 15, 2004.
[5] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on August 19, 2005.
[6] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on August 10, 2006.
[7] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on August 22, 2007.
[8] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on August 27, 2008.
[9] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on September 2, 2009.
[10] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on September 28, 2010.
[11] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on September 28, 2011.

164

[12] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on September 19, 2012.

[13] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on September 27, 2013.
[14] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on September 12, 2014.
[15] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on April 14, 2015.
[16] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on March 30, 2016.
23.1ConsentConsents of Independent Registered Pubic Accounting Firm **Firms *

Notes:

 

** Filed Herewith[1] Herein incorporated by reference as previously included in the Company’s Form 20-F registration statement filed on January 30, 2001.

 

[2] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on December 31, 2002.

[3] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on October 20, 2003.

[4] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on September 15, 2004.

[5] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on August 24, 2005.

[6] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on August 16, 2006.

[7] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on August 27, 2007.

[8] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on August 29, 2008.

[9] Herein incorporated by reference as previously included in the Company’s Registration Statement on Form S-8, filed on October 9, 2007 (SEC File No. 333-146574).

[10] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on September 11, 2014.

[11] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on April 14, 2015.

[12] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on March 31, 2016.

[13] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on April 27, 2017.

165

181  

 

SIGNATURE PAGE[14] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on May 1, 2018.

 

[15] Herein incorporated by reference as previously included in the Company’s Form 20-F annual report filed on April 29, 2019.

*          Filed herewith 

**       Furnished herewith

182  

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.

 

Dated: April 26, 201715, 2020

 

ON BEHALF OF THE CORPORATION,

MEDICURE INC.

 

per:

 

/s/ Albert D. Friesen
 
Albert D. Friesen, Ph.D. 
Chairman, & CEO 

166

183