Exhibit 99.1
Condensed Interim Consolidated Financial Statements
As at SEPTEMBER 30, 2022 and for the THREE- AND NINE-MONTH periodS ended SEPTEMBER 30, 2022 and 2021
(In thousands of US dollars)
(Unaudited)
| 1 |
Condensed Interim Consolidated Statements of Financial Position
(In thousands of US dollars)
(Unaudited)
| September 30, 2022 | December 31, 2021 | |||||||
| $ | $ | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | 53,816 | 65,300 | ||||||
| Trade and other receivables (note 4) | 777 | 1,314 | ||||||
| Inventory | 238 | 73 | ||||||
| Income taxes receivable | 1,305 | 2,361 | ||||||
| Prepaid expenses and other current assets (note 5) | 2,474 | 1,772 | ||||||
| Total current assets | 58,610 | 70,820 | ||||||
| Restricted cash equivalents | 300 | 335 | ||||||
| Right of use assets | 85 | 150 | ||||||
| Property, plant and equipment | 40 | 42 | ||||||
| Identifiable intangible assets | 537 | 625 | ||||||
| Goodwill | 7,034 | 8,130 | ||||||
| Total Assets | 66,606 | 80,102 | ||||||
| LIABILITIES | ||||||||
| Current liabilities | ||||||||
| Payables and accrued liabilities (note 6) | 2,287 | 2,672 | ||||||
| Current portion of provisions | 25 | 34 | ||||||
| Income taxes payable | 99 | 115 | ||||||
| Current portion of deferred revenues (note 3) | 3,484 | 4,815 | ||||||
| Current portion of lease liabilities | 73 | 130 | ||||||
| Total current liabilities | 5,968 | 7,766 | ||||||
| Deferred revenues (note 3) | 1,462 | 1,493 | ||||||
| Deferred gain | 85 | 98 | ||||||
| Lease liabilities | 16 | 31 | ||||||
| Employee future benefits (note 7) | 9,458 | 17,485 | ||||||
| Provisions | 199 | 243 | ||||||
| Total liabilities | 17,188 | 27,116 | ||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Share capital (note 8) | 293,410 | 293,410 | ||||||
| Warrants (note 8) | 5,085 | 5,085 | ||||||
| Other capital (note 8) | 90,291 | 89,788 | ||||||
| Deficit | (338,664 | ) | (334,619 | ) | ||||
| Accumulated other comprehensive loss (“AOCI”) | (704 | ) | (678 | ) | ||||
| Total shareholders’ equity | 49,418 | 52,986 | ||||||
| Total liabilities and shareholders’ equity | 66,606 | 80,102 | ||||||
Commitments (note 12)
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
Approved by the Board of Directors
| /s/ Carolyn Egbert | /s/ Dennis Turpin | |
Carolyn Egbert Chair of the Board | Dennis Turpin Director |
| 2 |
Condensed Interim Consolidated Statements of Changes in Shareholders’ Equity
For the NINE months ended SEPTEMBER 30, 2022 and 2021
(In thousands of US dollars, except share data, unaudited)
| Common shares (number of) | Share capital | Warrants | Other capital | Deficit | Accumulated other comprehensive income (loss) | Total | ||||||||||||||||||||||
| Balance - January 1, 2022 | 4,855,876 | 293,410 | 5,085 | 89,788 | (334,619 | ) | (678 | ) | 52,986 | |||||||||||||||||||
| Net loss | — | — | — | — | (10,276 | ) | — | (10,276 | ) | |||||||||||||||||||
| Other comprehensive loss: | ||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | — | — | — | (26 | ) | (26 | ) | |||||||||||||||||||
| Actuarial gain on defined benefit plans and Remeasurement of the net defined benefit liability (note 7) | — | — | — | — | 6,231 | — | 6,231 | |||||||||||||||||||||
| Comprehensive loss | — | — | — | — | (4,045 | ) | (26 | ) | (4,071 | ) | ||||||||||||||||||
| Share-based compensation costs | — | — | — | 503 | — | — | 503 | |||||||||||||||||||||
| Balance – September 30, 2022 | 4,855,876 | 293,410 | 5,085 | 90,291 | (338,664 | ) | (704 | ) | 49,418 | |||||||||||||||||||
| Common shares (number of) | Share capital | Warrants | Other capital | Deficit | Accumulated other comprehensive income (loss) | Total | ||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Balance - January 1, 2021 | 2,507,145 | 235,008 | 12,402 | 89,505 | (322,659 | ) | (1,045 | ) | 13,211 | |||||||||||||||||||
| Beginning balance | 2,507,145 | 235,008 | 12,402 | 89,505 | (322,659 | ) | (1,045 | ) | 13,211 | |||||||||||||||||||
| Net loss (as restated note 1) | — | — | — | — | (5,474 | ) | — | (5,474 | ) | |||||||||||||||||||
| Net loss | — | — | — | — | (5,474 | ) | — | (5,474 | ) | |||||||||||||||||||
| Other comprehensive loss: | ||||||||||||||||||||||||||||
| Foreign currency translation adjustments | — | — | — | — | — | 460 | 460 | |||||||||||||||||||||
| Actuarial gain on defined benefit plans | — | — | — | — | 133 | — | 133 | |||||||||||||||||||||
| Comprehensive loss | — | — | — | — | (5,341 | ) | 460 | (4,881 | ) | |||||||||||||||||||
| Issuance of common shares, net of transaction costs | 943,448 | 29,081 | 1,897 | — | — | — | 30,978 | |||||||||||||||||||||
| Exercise of warrants | 1,400,447 | 29,770 | (9,728 | ) | — | — | — | 20,042 | ||||||||||||||||||||
| Transfer of warrant issuance costs upon 2021 exercise of warrants (note 8) | — | (532 | ) | 532 | — | — | — | — | ||||||||||||||||||||
| Exercise of deferred share units (note 8) | 840 | 20 | — | (28 | ) | — | — | (8 | ) | |||||||||||||||||||
| Share-based compensation costs | — | — | — | 292 | — | — | 292 | |||||||||||||||||||||
| Balance – September 30, 2021 | 4,851,880 | 293,347 | 5,103 | 89,769 | (328,000 | ) | (585 | ) | 59,634 | |||||||||||||||||||
| Ending balance | 4,851,880 | 293,347 | 5,103 | 89,769 | (328,000 | ) | (585 | ) | 59,634 | |||||||||||||||||||
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
| 3 |
Condensed Interim Consolidated Statements of Comprehensive Loss
For the three AND NINE months ended SEPTEMBER 30, 2022 and 2021
(In thousands of US dollars, except share and per share data)
(Unaudited)
| Three months ended | Nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| (As restated- Note 1) | (As restated- Note 1) | |||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Revenues (note 3) | ||||||||||||||||
| License fees | 605 | 293 | 831 | 1,309 | ||||||||||||
| Development Services | 1,202 | 684 | 2,091 | 2,809 | ||||||||||||
| Product sales | — | — | 57 | — | ||||||||||||
| Royalties | 14 | 20 | 57 | 47 | ||||||||||||
| Supply chain | 39 | 55 | 119 | 139 | ||||||||||||
| Total revenues | 1,860 | 1,052 | 3,155 | 4,304 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Cost of sales | 14 | 31 | 106 | 72 | ||||||||||||
| Research and development expenses | 3,293 | 1,485 | 8,081 | 4,711 | ||||||||||||
| General and administrative expenses | 2,057 | 1,228 | 5,396 | 4,137 | ||||||||||||
| Selling expenses | 217 | 360 | 822 | 924 | ||||||||||||
| Total operating expenses | 5,581 | 3,104 | 14,405 | 9,844 | ||||||||||||
| Loss from operations | (3,721 | ) | (2,052 | ) | (11,250 | ) | (5,540 | ) | ||||||||
| Gain (loss) due to changes in foreign currency exchange rates | 301 | 124 | 977 | (42 | ) | |||||||||||
| Other finance costs | — | (4 | ) | (3 | ) | (21 | ) | |||||||||
| Net finance income (costs) | 301 | 120 | 974 | (63 | ) | |||||||||||
| Loss before income taxes | (3,420 | ) | (1,932 | ) | (10,276 | ) | (5,603 | ) | ||||||||
| Income tax recovery | — | — | — | 129 | ||||||||||||
| Net loss | (3,420 | ) | (1,932 | ) | (10,276 | ) | (5,474 | ) | ||||||||
| Other comprehensive loss: | ||||||||||||||||
| Items that may be reclassified subsequently to profit or loss: | ||||||||||||||||
| Foreign currency translation adjustments | (105 | ) | 39 | (26 | ) | 460 | ||||||||||
| Items that will not be reclassified to profit or loss: | ||||||||||||||||
| Actuarial gain (loss) on defined benefit plans and remeasurement of the net defined benefit liability (note 7) | (1,794 | ) | 219 | 6,231 | 133 | |||||||||||
| Comprehensive loss | (5,319 | ) | (1,674 | ) | (4,071 | ) | (4,881 | ) | ||||||||
| Net loss per share [basic and diluted] | (0.70 | ) | (0.40 | ) | (2.12 | ) | (1.21 | ) | ||||||||
| Weighted average number of shares outstanding (note 11): | ||||||||||||||||
| Basic | 4,855,876 | 4,851,880 | 4,855,876 | 4,509,731 | ||||||||||||
| Diluted | 4,855,876 | 4,851,880 | 4,855,876 | 4,509,731 | ||||||||||||
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
| 4 |
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(In thousands of US dollars)
(Unaudited)
| Three months ended | Nine months ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| (As restated- | (As restated- | |||||||||||||||
| Note 1) | Note 1) | |||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Cash flows from operating activities | ||||||||||||||||
| Net loss for the period | (3,420 | ) | (1,932 | ) | (10,276 | ) | (5,474 | ) | ||||||||
| Items not affecting cash and cash equivalents: | ||||||||||||||||
| Provision | 7 | 19 | 12 | 39 | ||||||||||||
| Depreciation and amortization | 33 | 33 | 104 | 105 | ||||||||||||
| Share-based compensation costs | 443 | 19 | 503 | 292 | ||||||||||||
| Employee future benefits (note 7) | 69 | 50 | 266 | 149 | ||||||||||||
| Amortization of deferred revenues | (1,248 | ) | (527 | ) | (1,952 | ) | (1,601 | ) | ||||||||
| Foreign exchange on items denominated in foreign currencies | — | (45 | ) | — | 82 | |||||||||||
| Gain on disposal of property, plant and equipment | — | — | — | (1 | ) | |||||||||||
| Interest accretion on lease liabilities | 3 | 2 | 3 | 5 | ||||||||||||
| Refund (payment) of income taxes | — | (426 | ) | 830 | (2,067 | ) | ||||||||||
| Other asset | — | (25 | ) | — | (107 | ) | ||||||||||
| Changes in operating assets and liabilities (note 9) | 168 | 1,344 | 254 | 2,410 | ||||||||||||
| Net cash used in operating activities | (3,945 | ) | (1,488 | ) | (10,256 | ) | (6,168 | ) | ||||||||
| Cash flows from financing activities | ||||||||||||||||
| Issuance of common shares (note 8) | — | — | — | 34,200 | ||||||||||||
| Transaction costs (note 8) | — | — | — | (3,221 | ) | |||||||||||
| Proceeds from exercise of warrants (note 8) | — | — | — | 20,042 | ||||||||||||
| Payments on lease liabilities | (33 | ) | (31 | ) | (101 | ) | (95 | ) | ||||||||
| Net cash provided by (used in) financing activities | (33 | ) | (31 | ) | (101 | ) | 50,926 | |||||||||
| Cash flows from investing activities | ||||||||||||||||
| Proceeds from disposal of property, plant and equipment | — | — | — | 1 | ||||||||||||
| Purchase of intangible assets | — | — | — | (490 | ) | |||||||||||
| Purchase of property and equipment | (9 | ) | (5 | ) | (57 | ) | (25 | ) | ||||||||
| Change in restricted cash equivalents | 4 | (20 | ) | 4 | (20 | ) | ||||||||||
| Net cash used in investing activities | (5 | ) | (25 | ) | (53 | ) | (534 | ) | ||||||||
| Effect of exchange rate changes on cash and cash equivalents | (358 | ) | (322 | ) | (1,074 | ) | (493 | ) | ||||||||
| Net change in cash and cash equivalents | (4,341 | ) | (1,866 | ) | (11,484 | ) | 43,731 | |||||||||
| Cash and cash equivalents – Beginning of period | 58,157 | 69,868 | 65,300 | 24,271 | ||||||||||||
| Cash and cash equivalents – End of period | 53,816 | 68,002 | 53,816 | 68,002 | ||||||||||||
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
| 5 |
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS AT SEPTEMBER 30, 2022 AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(amounts in thousands of US dollars, except share and per share data and as otherwise noted)
(Unaudited)
1. Business overview
Summary of business
Aeterna Zentaris (the “Company” or “Aeterna”) is a specialty biopharmaceutical company commercializing and developing therapeutics and diagnostic tests. The Company’s lead product, Macrilen™ (macimorelin), is the first and only U.S. Food and Drug Administration (“FDA”) and European Medicines Agency-approved oral test indicated for the diagnosis of patients with adult growth hormone deficiency (“AGHD”). Macrilen™ is currently marketed in the US through a license agreement (the “Novo Amendment”) between the Company and Novo Nordisk Health Care AG (“Novo”) and in the United Kingdom and Europe through a license agreement with Consilient Healthcare Inc (“Consilient” or “CH”) under the trade name of Ghryvelin®. The Company is also dedicated to the development of therapeutic assets and has recently taken steps to establish a pre-clinical pipeline to potentially address unmet medical needs across several indications with a focus on rare or orphan indications and with the potential for pediatric use.
These unaudited condensed interim consolidated financial statements were approved by the Board of Directors (the “Board”) on November 2, 2022.
Basis of presentation
These unaudited condensed interim consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”) applicable to the preparation of interim financial statements, including IAS 34, Interim Financial Reporting. These unaudited condensed interim consolidated financial statements should be read in conjunction with the Company’s annual consolidated financial statements as at and for the year ended December 31, 2021. The accounting policies used in these condensed interim consolidated financial statements are consistent with those presented in the Company’s annual consolidated financial statements, with the addition of the Company’s policy with respect to the government assistance which is as follows:
Government assistance
Amounts received or receivable resulting from government assistance programs, including grants and refundable investment tax credits for research and development, are accounted for in accordance with IAS 20 - Accounting for government grants and disclosure of government assistance and are recognized where there is reasonable assurance that the amount of government assistance will be received, and all attached conditions will be complied with. When the amount relates to an expense item such as research and development costs, it is recognized as income on a systematic basis as a reduction to the costs that it is intended to compensate. When the grant relates to an asset, it reduces the carrying amount of the asset and is then recognized as income over the useful life of the depreciable asset by way of a reduced depreciation charge.
COVID-19 & Russia and Ukraine conflict
The rise in COVID-19 variants has caused delays in site initiation and patient enrollment in our DETECT-trial and may be impacting sales activities for Macrilen™ in the US. Further, the continuation of the COVID-19 pandemic and the Russia/Ukraine conflict may also cause some patients to be unwilling to enroll in our trials or be unable to comply with clinical trial protocols if such events impede patient movement or interrupt healthcare services, both of which would delay our ability to conduct clinical trials or release clinical trial results on a timely basis and could delay our ability to obtain regulatory approval and commercialize our product candidates. For the period ended September 30, 2022, the Company assessed the impact of the uncertainties around the COVID-19 pandemic and the Russia/Ukraine conflict on its judgments, estimates, accounting policies and amounts recognized in these unaudited condensed interim consolidated financial statements and determined that no adjustments were required to the carrying value of assets and liabilities. During the quarter ended June 30, 2022, management determined that the recruitment for the DETECT-trial and the remaining development services under the Novo Amendment may now continue until later into 2023 compared to the end of the 2022 year as anticipated at the end of the previous fiscal year. It is expected that the delays associated with COVID-19 and the Russia/Ukraine conflict will result in additional costs to the program. As such, this change in estimate resulted in reversal of revenue in both the license fees and development services for the quarter ended June 30, 2022. During the quarter ended September 30, 2022, Novo provided the Company with a notice of termination of the Novo Amendment. Refer to note 3 for further details on the Novo Amendment. The Company will continue to monitor the impact of the development of the COVID-19 pandemic and Russia/Ukraine conflict in further reporting periods. Actual results could differ from these estimates, and such differences may be material.
| 6 |
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS AT SEPTEMBER 30, 2022 AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(amounts in thousands of US dollars, except share and per share data and as otherwise noted)
(Unaudited)
Restatement of comparative period figures
At the end of the prior fiscal year 2021, the Company restated its previously reported condensed consolidated interim financial statements for the three-month period ended March 31, 2021 and the three-month and six-month periods ended June 30, 2021 and three-month and nine-month periods ended September 30, 2021 with respect to the recognition of revenue for the Novo Amendment, signed in November 2020. During the fourth quarter of 2021, management reassessed the classification of the development activities associated with the DETECT-trial and concluded that subsequent to the Novo Amendment, the parties no longer shared joint control of these activities and, as such, these development activities no longer met the definition of a joint operation, as defined in IFRS 11 - Joint Arrangements. Therefore, pursuant to the guidance in IFRS 15 - Revenue from Contracts with Customers, the Company reclassified the charges to Novo, from research and development expenses to development services revenue, in the related periods. In addition, the license fees related to the pediatric indication were adjusted to reflect the revised pattern of recognition as the performance obligation for the development services has now been combined with the pediatric license. In addition, the accounting for prepaid expenses and other assets and deferred revenues related the DETECT-trial expenses incurred was restated. The condensed interim consolidated financial statements were not adjusted and refiled at the time of discovery of the error, rather the comparatives are being corrected now with the filing of the interim financials for the period ended September 30, 2022. The impacts of the September 30, 2021 restatements are as follows (amounts in thousands, except for basic and diluted loss per share):
Summary of Detailed Information about Restatement Explanatory
| Previously | Effect of | |||||||||||
| reported | restatement | Amended | ||||||||||
| $ | $ | $ | ||||||||||
| Consolidated interim statement of loss and comprehensive loss for the three-month period ended September 30, 2021 | ||||||||||||
| License fees | 527 | (234 | ) | 293 | ||||||||
| Development service revenues | — | 684 | 684 | |||||||||
| Research and development expenses | 801 | 684 | 1,485 | |||||||||
| Net loss | (1,698 | ) | (234 | ) | (1,932 | ) | ||||||
| Total comprehensive loss | (1,440 | ) | (234 | ) | (1,674 | ) | ||||||
| Basic and diluted loss per share | (0.35 | ) | (0.05 | ) | (0.40 | ) | ||||||
| Consolidated interim statement of loss and comprehensive loss for the nine-month period ended September 30, 2021 | ||||||||||||
| License fees | 1,601 | (292 | ) | 1,309 | ||||||||
| Development service revenues | — | 2,809 | 2,809 | |||||||||
| Research and development expenses | 1,902 | 2,809 | 4,711 | |||||||||
| Net loss | (5,182 | ) | (292 | ) | (5,474 | ) | ||||||
| Total comprehensive loss | (4,589 | ) | (292 | ) | (4,881 | ) | ||||||
| Basic and diluted loss per share | (1.07 | ) | (0.06 | ) | (1.21 | ) | ||||||
| Consolidated interim statement of financial position as of September 30, 2021 | ||||||||||||
| Prepaid expenses and other current assets | 3,431 | 600 | 4,031 | |||||||||
| Current portion of deferred revenues | 2,075 | 943 | 3,018 | |||||||||
| Deficit | (327,708 | ) | (292 | ) | (328,000 | ) | ||||||
2. Critical accounting estimates and judgements
The preparation of condensed interim consolidated financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of the Company’s assets, liabilities, revenues, expenses and related disclosures. Judgments, estimates and assumptions are based on historical experience, expectations, current trends and other factors that management believes to be relevant at the time at which the Company’s condensed interim consolidated financial statements are prepared.
Management reviews, on a regular basis, the Company’s accounting policies, assumptions, estimates and judgments in order to ensure that the condensed interim consolidated financial statements are presented fairly and in accordance with IFRS applicable to interim financial statements. Critical accounting estimates and assumptions, as well as critical judgments used in applying accounting policies in the preparation of the Company’s condensed interim consolidated financial statements, were the same as those applied to the Company’s annual consolidated financial statements as at and for the years ended December 31, 2021 and December 31, 2020.
| 7 |
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS AT SEPTEMBER 30, 2022 AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(amounts in thousands of US dollars, except share and per share data and as otherwise noted)
(Unaudited)
3. License and supply arrangements
Novo Nordisk Health Care AG
On November 16, 2020, the Company, through AEZS Germany, entered into the Novo Amendment of its existing License Agreement with Novo related to the development and commercialization of macimorelin. The Company earns product sales, royalties and supply chain revenue, in addition to license fees and development service revenue from conducting the DETECT-trial, from Novo.
On August 26, 2022, Novo provided the Company with a notice of termination of the Novo Amendment. Under the terms of the Novo Amendment, the termination is effective May 23, 2023 upon the completion of a 270 day notice period (“notice period”). Upon termination, the rights and licenses granted by the Company to Novo under the Novo Amendment are returned to the Company, and the Company has full rights to continue the clinical development and future commercialization of Macrilen™. Following the notice of termination and throughout the 270 day notice period, Novo will continue to fund all DETECT-trial costs up to $8.6 million (€9 million), and any additional DETECT-trial costs incurred over $8.6 million (€9 million) up to $9.2 million (€9.8 million) will be shared equally between Novo and Aeterna.
The Company concluded that the notice of termination represents a contract modification for accounting purposes. The Company further concluded that upon receipt of the notice of termination, the remaining goods and services to be performed during the notice period are considered distinct goods and services and therefore, the contract modification is to be accounted for prospectively. As of the date of receipt of the notice of termination from Novo, the Company had recognized total license fees associated with the Pediatric Indication of $1,615 (€1,880) and total development services revenue of $3,865 (€4,448). Subsequent to the receipt of the notice of termination, management estimated the combined transaction price of the remaining services to be performed as $7,937 (€7,776), comprised of Pediatric Indication license fees of $2,872 (€2,814) and development services revenue of $5,065 (€4,962). Revenue associated with this combined performance obligation will be recognized as pediatric development services are incurred during the notice period, until the date of termination on May 23, 2023, using the cost-to-cost method. As such, all amounts in deferred revenue are classified as current as at September 30, 2022 to reflect the revised timing. Management will continue to reevaluate the transaction price at the end of each reporting period.
MegaPharm Ltd
In June 2020, the Company entered into an exclusive distribution and quality agreement with MegaPharm Ltd. (“MegaPharm”) for the commercialization in Israel and in the Palestinian Authority of macimorelin to be used in the diagnosis of patients with adult growth hormone deficiency and in clinical development for the diagnosis of pediatric growth hormone deficiency (the “MegaPharm Agreement”). As of September 30, 2022, there have been no products supplied under this agreement.
Consilient Healthcare
On December 7, 2020, the Company entered into an exclusive licensing agreement with “CH” for the commercialization of macimorelin in the European Economic Area and the United Kingdom (the “CH License Agreement”). The Company earns licenses fees and product sale revenue from CH.
NK Meditech Limited
The Company and NK Meditech Limited (“NK”) entered into a licensing agreement, effective November 30, 2021 and pursuant to which the Company granted to NK the exclusive right to commercialize (including marketing, selling and offering to sell) macimorelin in the Republic of Korea (the “ROK”) and as applicable, in the Democratic People’s Republic of Korea (“DPRK”) to the extent NK is allowed to use the aforementioned licensed rights in the latter (“NK License Agreement”). As of September 30, 2022, there have been no products supplied under this agreement.
The following table provides a summary of deferred revenue balances:
Summary of Revenue Explanatory
| September 30, 2022 | ||||||||||||
| Current | Non-Current | Total | ||||||||||
| $ | $ | $ | ||||||||||
| Novo Amendment | 3,466 | — | 3,466 | |||||||||
| CH License Agreement | 18 | 1,345 | 1,363 | |||||||||
| NK License Agreement | — | 117 | 117 | |||||||||
| Total | 3,484 | 1,462 | 4,946 | |||||||||
| 8 |
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS AT SEPTEMBER 30, 2022 AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(amounts in thousands of US dollars, except share and per share data and as otherwise noted)
(Unaudited)
| December 31, 2021 | ||||||||||||
| Current | Non-Current | Total | ||||||||||
| $ | $ | $ | ||||||||||
| Novo Amendment | 4,791 | 23 | 4,814 | |||||||||
| CH License Agreement | 24 | 1,334 | 1,358 | |||||||||
| NK License Agreement | — | 136 | 136 | |||||||||
| Total | 4,815 | 1,493 | 6,308 | |||||||||
4. Trade and other receivables
Summary of Detailed Trade and Other Receivables Explanatory
| September 30, 2022 | December 31, 2021 | |||||||
| $ | $ | |||||||
| Trade accounts receivable (net of expected credit losses of $55 (December 31, 2021 – $55) | 383 | 877 | ||||||
| Value-added tax | 162 | 372 | ||||||
| Grant receivable | 201 | — | ||||||
| Other | 31 | 65 | ||||||
| Trade and other receivables | 777 | 1,314 | ||||||
In March 2022, the Company was awarded a monetary subsidy with respect to two pre-clinical programs—namely, the Company’s development of an oral vaccine against infections with SARS-CoV-2 and the development of a product candidate for the treatment of neuromyelitis optica. The subsidy was awarded pursuant to the provisions of the German Act on Tax Incentives for Research and Development, which provides direct reimbursement of certain qualifying R&D expenditures to eligible entities. The CoV-2 grant is related to R&D expenditures incurred in 2021 and during 2022. The Neuromyelitis Optica grant is related to expenditures incurred in 2021 and during 2022.
5. Prepaid expenses and other current assets
Summary of Prepaid Expenses and Other Current Assets Explanatory
| September 30, 2022 | December 31, 2021 | |||||||
| $ | $ | |||||||
| Prepaid insurance | 839 | 421 | ||||||
| Prepaid research and development | 1,561 | 1,329 | ||||||
| Other | 74 | 22 | ||||||
| Prepaid expenses and other current assets | 2,474 | 1,772 | ||||||
| 9 |
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS AT SEPTEMBER 30, 2022 AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(amounts in thousands of US dollars, except share and per share data and as otherwise noted)
(Unaudited)
6. Payables and accrued liabilities
Summary of Detailed Information about Payables and Accrued Liabilities Explanatory
| September 30, 2022 | December 31, 2021 | |||||||
| $ | $ | |||||||
| Trade accounts payable | 720 | 934 | ||||||
| Salaries, employment taxes and benefits | 89 | 531 | ||||||
| Accrued research and development costs | 855 | 596 | ||||||
| Other accrued liabilities | 623 | 611 | ||||||
| Payables and accrued liabilities | 2,287 | 2,672 | ||||||
7. Employee future benefits
The change in the Company’s accrued benefit obligations is summarized as follows:
Summary of Net Defined Benefit Liability Asset Explanatory
| Nine months ended September 30, 2022 | Year ended December 31, 2021 | |||||||||||||||
| Pension | Other | |||||||||||||||
| benefit plans | benefit plans | Total | Total | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Change in plan liabilities | ||||||||||||||||
| Balances – Beginning of the period | 29,313 | 99 | 29,412 | 15,435 | ||||||||||||
| Current service cost | 48 | 8 | 56 | 65 | ||||||||||||
| Interest cost | 209 | 1 | 210 | 88 | ||||||||||||
| Employee contributions | 10 | — | 10 | — | ||||||||||||
| Actuarial gain arising from changes in financial assumptions | (8,528 | ) | — | (8,528 | ) | (1,130 | ) | |||||||||
| Past service cost associated with multi-employer plan | — | — | — | 16,137 | ||||||||||||
| Actuarial loss arising from change in current assumptions on funding of future pension increases | — | — | — | 556 | ||||||||||||
| Benefits paid | (513 | ) | (1 | ) | (514 | ) | (511 | ) | ||||||||
| Impact of foreign exchange rate changes | (3,032 | ) | (14 | ) | (3,046 | ) | (1,228 | ) | ||||||||
| Balances – End of the period | 17,507 | 93 | 17,600 | 29,412 | ||||||||||||
| Change in plan assets | ||||||||||||||||
| Balances – Beginning of the period | 11,927 | — | 11,927 | — | ||||||||||||
| Presentation of plan assets as of December 31, 2021 | — | — | — | 11,963 | ||||||||||||
| Remeasurement of plan assets | (2,297 | ) | — | (2,297 | ) | — | ||||||||||
| Employer contributions | 40 | — | 40 | — | ||||||||||||
| Employee contributions | 10 | — | 10 | — | ||||||||||||
| Benefits paid | (182 | ) | — | (182 | ) | — | ||||||||||
| Impact of foreign exchange rate changes | (1,356 | ) | — | (1,356 | ) | (36 | ) | |||||||||
| Balances – End of the period | 8,142 | — | 8,142 | 11,927 | ||||||||||||
| Net liability of the unfunded plans | 8,170 | 93 | 8,263 | 12,749 | ||||||||||||
| Net liability of the funded plans | 1,195 | — | 1,195 | 4,736 | ||||||||||||
| Net amount recognized as Employee future benefits | 9,365 | 93 | 9,458 | 17,485 | ||||||||||||
| Amounts recognized: | ||||||||||||||||
| In net loss | 257 | 9 | 266 | (153 | ) | |||||||||||
| In other comprehensive (gain) loss | (7,907 | ) | (14 | ) | (7,921 | ) | (2,408 | ) | ||||||||
The calculation of the pension benefit obligation is sensitive to the discount rate assumption and other assumptions such as the rate of the pension benefit increase. Discount rates were 1.1% at December 31, 2021, 3.25% at June 30, 2022 and 3.70% at September 30, 2022 and the pension benefits increase rates were 0.50% at December 31, 2021 and June 30, 2022 and 1.0% at September 30, 2022 causing the variances in the actuarial (gain) loss on defined benefit plan during the quarter and the nine-months ended September 30, 2022.
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NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS AT SEPTEMBER 30, 2022 AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(amounts in thousands of US dollars, except share and per share data and as otherwise noted)
(Unaudited)
The Company has an unlimited number of authorized common shares (being voting and participating shares) with no par value, as well as an unlimited number of preferred, first and second ranking shares, issuable in series, with rights and privileges specific to each class, with no par value.
On July 15, 2022, the Company’s shareholders and board of directors approved an amendment to the Company’s articles of amendment to effect a 1-for-25 reverse stock split of the Company’s common shares, DSU and Warrants. The Company’s outstanding stock options were also adjusted to reflect the 1-for-25 reverse stock split of the Company’s common shares. Accordingly, all common shares, DSU and Warrants, stock options and per share amounts in these condensed interim consolidated financial statements have been retroactively adjusted for all periods presented to give effect to the reverse stock split. Outstanding stock options were proportionately reduced and the respective exercise prices, if applicable, were proportionately increased. The reverse stock split was effected in the markets on July 21, 2022.
2021
On February 19, 2021, the Company completed an underwritten public offering of common shares at $ per common share, resulting in aggregate gross proceeds of $, before deducting underwriting discounts, commissions and offering expenses of $ (the “February 2021 Financing). The Company also granted the underwriter and placement agent (the “Underwriter”), a 30-day over-allotment option to purchase up to additional common shares at a price of $ per common share (the “Underwriter Option”). Additionally, the Company issued warrants underlying common shares to the Underwriter, with each warrant bearing an exercise price of $ (the “February 2021 Placement Agent Warrants”). The February 2021 Placement Agent Warrants expire on .
On February 22, 2021, the underwriter exercised the Underwriter Option in full and received 123,058 common shares in exchange for gross proceeds to the Company of $. Upon exercise of the Underwriter Option, the Underwriter also an additional February 2021 Placement Agent Warrants.
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NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS AT SEPTEMBER 30, 2022 AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(amounts in thousands of US dollars, except share and per share data and as otherwise noted)
(Unaudited)
Aggregate gross proceeds received in connection with the February 2021 Financing totaled $, less cash transaction costs of $3,221 and non-cash transaction costs, which represent the issue-date fair value of the February 2021 Placement Agent Warrants, of $1,897.
The table presented below shows the inputs and assumptions applied to the Black-Scholes option pricing model in order to determine the fair value of these Placement agent warrants:
Summary of Fair Value of Warrants Assumptions Explanatory
| Number of equivalent shares | Market value per share price | Weighted average exercise price | Risk-free annual interest rate | Expected volatility | Expected life (years) | Expected dividend yield | ||||||||||||||||||||||
| ($) | ($) | (i) | (ii) | (iii) | (iv) | |||||||||||||||||||||||
| February 2021 Placement agent warrants – public offering | 57,427 | 37 | 45.31 | % | % | 4.99 | % | |||||||||||||||||||||
| February 2021 Placement agent warrants – Underwriter Option | 8,614 | 37 | 45.31 | % | % | 4.98 | % | |||||||||||||||||||||
| (i) | During the nine-month period ended September 30, 2021, warrants were exercised as follows: | |
| (ii) | Based on United States Treasury Government Bond interest rates with a term that is consistent with the expected life of the warrants. | |
| (iii) | Based on the historical volatility of the Company’s stock price over the most recent period consistent with the expected life of the warrants. | |
| (iv) | Based upon time to expiry from the issuance date. |
During the nine-month period ended September 30, 2021, warrants were exercised as follows:
Summary of Warrants Exercise Transactions Explanatory
| Warrants exercised (number of underlying common shares) | Exercise Price | Aggregate proceeds to the Company | ||||||||||
| Warrants exercised (number of underlying common shares) | Exercise Price | Aggregate proceeds to the Company | ||||||||||
| September 2019 Investor warrants | 80,000 | $ | 41.25 | $ | 3,300 | |||||||
| February 2020 Investor warrants | 69,565 | 30.00 | 2,087 | |||||||||
| July 2020 Investor warrants | 841,822 | 11.25 | 9,471 | |||||||||
| July 2020 Placement Agent warrants | 74,667 | 14.06 | 1,050 | |||||||||
| August 2020 Investor warrants | 303,595 | 11.75 | 3,567 | |||||||||
| August 2020 Placement Agent warrants | 34,798 | 17.60 | 612 | |||||||||
| 1,404,447 | $ | 20,087 | ||||||||||
Other capital
| Nine months ended September 30, 2022 | ||||||||||||
| Stock options | Weighted average exercise price | DSUs | ||||||||||
| (Number) | ($) | (Number) | ||||||||||
| Balance – January 1, 2022 | 43,455 | 22.00 | 16,920 | |||||||||
| Granted | 2,000 | 8.88 | 80,000 | |||||||||
| Expired | — | — | — | |||||||||
| Exercised | — | — | — | |||||||||
| Balance – September 30, 2022 | 45,455 | 21.42 | 96,920 | |||||||||
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NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS AT SEPTEMBER 30, 2022 AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(amounts in thousands of US dollars, except share and per share data and as otherwise noted)
(Unaudited)
| Year ended December 31, 2021 | ||||||||||||
| Stock options | Weighted average exercise price | DSUs | ||||||||||
| (Number) | ($) | (Number) | ||||||||||
| Balance – January 1, 2021 | 20,256 | 36 | 6,920 | |||||||||
| Granted | 23,200 | 10.5 | 11,200 | |||||||||
| Expired | (1 | ) | 14,756.25 | — | ||||||||
| Exercised | — | — | (1,200 | ) | ||||||||
| Balance – December 31, 2021 | 43,455 | 22 | 16,920 | |||||||||
The DSU compensation expense for the three months ended September 30, 2022 was $ (2021 - $) and the nine months ended September 30, 2022 was $ (2021 – $) recognized over the vesting period. Vested DSUs cannot be redeemed until the holder is no longer a member of the Board.
Fair value input assumptions for US dollar stock option grants
Summary of Assumptions to Determine Share-based Compensation Costs
| Nine Months Ended | Year Ended | |||||||||||
| September 30, | December 31, | |||||||||||
| 2022 | 2021 | |||||||||||
| Expected dividend yield | (a) | 0.00 | % | 0.00 | % | |||||||
| Expected volatility | (b) | 115.75 | % | 115.80 | % | |||||||
| Risk-free annual interest rate | (c) | 1.59 | % | 1.23 | % | |||||||
| Expected life (years) | (d) | |||||||||||
| Weighted average share price | $ | 8.88 | $ | 10.50 | ||||||||
| Weighted average exercise price | $ | 8.88 | $ | 10.50 | ||||||||
| Weighted average grant date fair value | $ | 7.47 | $ | 8.82 | ||||||||
| (a) | The Company has not paid dividends and it does not intend to pay dividends in the foreseeable future. | |
| (b) | Based on the historical volatility of the Company’s stock price over the most recent period consistent with the expected life of the stock options, as well as on future expectations. | |
| (c) | Based on United States Treasury Government Bond interest rates with a term that is consistent with the expected life of the stock options. | |
| (d) | Based upon historical data related to the exercise of stock options, on post-vesting employment terminations and on future expectations related to exercise behavior. |
9. Supplemental disclosure of cash flow information
Summary of Changes in Operating Assets and Liabilities Explanatory
| Three months ended | Nine months ended | |||||||||||||||
| September 30, 2022 | September 30, 2022 | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||
| Trade and other receivables | 205 | 563 | 425 | 666 | ||||||||||||
| Inventory | 41 | — | (165 | ) | (39 | ) | ||||||||||
| Prepaid expenses and other current assets | (481 | ) | 233 | (1,240 | ) | 548 | ||||||||||
| Payables and accrued liabilities | (133 | ) | 298 | (14 | ) | (17 | ) | |||||||||
| Taxes payable | 210 | — | 210 | (129 | ) | |||||||||||
| Deferred revenues | 595 | 318 | 1,425 | 1,606 | ||||||||||||
| Employee future benefits | (269 | ) | (68 | ) | (387 | ) | (225 | ) | ||||||||
| Changes in operating assets and liabilities | 168 | 1,344 | 254 | 2,410 | ||||||||||||
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NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS AT SEPTEMBER 30, 2022 AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(amounts in thousands of US dollars, except share and per share data and as otherwise noted)
(Unaudited)
10. Segment information
The Company operates in a single operating segment, being the biopharmaceutical segment.
Summary of Earnings per Share Explanatory
| $ | $ | $ | $ | |||||||||||||
| Three months ended | Nine months ended | |||||||||||||||
| September 30, | September 20, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Net loss | (3,420 | ) | (1,932 | ) | (10,276 | ) | (5,474 | ) | ||||||||
| Basic weighted average number of shares outstanding | 4,855,876 | 4,851,880 | 4,855,876 | 4,509,731 | ||||||||||||
| Net loss income per share (basic) | (0.70 | ) | (0.40 | ) | (2.12 | ) | (1.21 | ) | ||||||||
| Dilutive effect of stock options and DSUs | — | — | — | — | ||||||||||||
| Dilutive effect of warrants | — | — | — | — | ||||||||||||
| Diluted weighted average number of shares outstanding | 4,855,876 | 4,851,880 | 4,855,876 | 4,509,731 | ||||||||||||
| Net loss per share (diluted) | (0.70 | ) | 0.40 | (2.12 | ) | (1.21 | ) | |||||||||
| Items excluded from the calculation of diluted net loss per share because the exercise price was greater than the average market price of the common shares or due to their anti-dilutive effect | ||||||||||||||||
| Stock options and DSUs | 142,375 | 37,176 | 142,375 | 37,176 | ||||||||||||
| Warrants | 457,649 | 461,649 | 457,649 | 461,649 | ||||||||||||
Net loss per share is calculated by dividing net loss by the weighted average number of shares outstanding during the relevant period. Diluted weighted average number of shares reflects the dilutive effect of equity instruments, such as any “in the money” stock options, DSUs and warrants. In periods with reported net losses, all stock options and warrants are deemed anti-dilutive such that basic net loss per share and diluted net loss per share are equal, and thus “in the money” stock options and warrants have not been included in the computation of net loss per share because to do so would be anti-dilutive.
12. Commitments
Summary of Finance Lease and Operating Lease by Lessee Explanatory
| Service and manufacturing | R&D contracts | TOTAL | ||||||||||
| $ | $ | $ | ||||||||||
| Less than 1 year | 7,006 | 1,870 | 8,876 | |||||||||
| 1 - 3 years | 2,089 | 629 | 2,718 | |||||||||
| 4 - 5 years | 46 | — | 46 | |||||||||
| More than 5 years | — | — | — | |||||||||
| Total | 9,141 | 2,499 | 11,640 | |||||||||
The Company executed various agreements including in-licensing and similar arrangements with development partners. Such agreements may require the Company to make payments on achievement of stages of development, launch or revenue milestones, although the Company generally has the right to terminate these agreements at no penalty.
Based on the closing exchange rates at September 30, 2022, the Company expects to pay $8,527 including $6,394 (€6.5 million), and $1,283 (£1.2 million) and $850 USD, in R&D milestone payments and up to $37,438, including $27,043 (€27.6 million); $1,395 (£1.3 million) and $9,000 USD, in revenue related milestone payments. The table below contains all potential R&D and revenue-related milestone payments that the Company may be required to make under such agreements:
Summary of Research and Development and Revenue Related Milestone Payments Explanatory
| Future potential R&D milestone payments | Future potential revenue milestone payments | TOTAL | ||||||||||
| $ | $ | $ | ||||||||||
| Less than 1 year | 24 | — | 24 | |||||||||
| 1 - 3 years | 198 | — | 198 | |||||||||
| 4 - 5 years | 1,243 | — | 1,243 | |||||||||
| More than 5 years | 7,062 | 37,438 | 44,500 | |||||||||
| Total | 8,527 | 37,438 | 45,965 | |||||||||
The future payments that are disclosed represent contract payments and are not discounted and are not risk-adjusted. The development of any pharmaceutical product candidates is a complex and risky process that may fail at any stage in the development process due to a number of factors. The timing of the payments is based on the Company’s current best estimate of achievement of the relevant milestone.
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