UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 20-F
REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(G) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number _____
VIVENTIA BIOTECH INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Ontario, Canada
(JURISDICTION OF INCORPORATION OR ORGANIZATION)
10 Four Seasons Place, Suite 501,
Toronto, Ontario, Canada M9B 6H7
(ADDRESSES OF PRINCIPAL EXECUTIVE OFFICES)
Securities registered or to be registered pursuant to
Section 12(b) of the Act:
TITLE OF EACH CLASS: NAME OF EACH EXCHANGE ON WHICH TO BE REGISTERED:
Common Shares Without Par Value American Stock Exchange
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
Yes [ ] No [X]
Indicate by check mark which financial statement item the registrant has elected
to follow:
Item 17 [ ] Item 18 [X]
TABLE OF CONTENTS
PAGE
FORWARD-LOOKING INFORMATION.......................................................................... 1
TERMS OF REFERENCE................................................................................... 3
PART I............................................................................................... 6
Item 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.................................. 6
Item 2: OFFER STATISTICS AND EXPECTED TIMETABLE................................................ 7
Item 3: KEY INFORMATION........................................................................ 7
Item 4: INFORMATION ON THE CORPORATION......................................................... 25
Item 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS........................................... 43
Item 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES............................................. 56
Item 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS...................................... 66
Item 8: FINANCIAL INFORMATION.................................................................. 69
Item 9: THE OFFER AND LISTING.................................................................. 70
Item 10: ADDITIONAL INFORMATION................................................................. 71
Item 11: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............................. 84
Item 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES................................. 84
PART II.............................................................................................. 85
PART III............................................................................................. 86
Item 13: FINANCIAL STATEMENTS................................................................... 86
Item 14: FINANCIAL STATEMENTS................................................................... 86
Item 15: EXHIBITS............................................................................... 86
EXHIBIT INDEX........................................................................................ 38
FORWARD-LOOKING INFORMATION
This registration statement contains forward-looking statements. In some cases,
you can identify forward looking statements by words such as "anticipate",
"believe", "plan", "estimate", "expect", "predict", "intend", "will", "may",
"could", "would", "should" and similar expressions intended to identify
forward-looking statements. These forward-looking statements are not historical
facts but reflect our current views and expectations concerning future results
and events. These statements include, without limitation, statements regarding:
- the therapeutic potential of Proxinium(TM) for the treatment of
head and neck cancer and bladder cancer;
- our estimates regarding the progress of clinical and pre-clinical
trials for our product candidates;
- our estimates regarding our capital requirements and additional
financing needs;
- our intention to apply to list our common shares on the American
Stock Exchange and our estimates regarding the completion of our
intended listing;
- our estimates of the size of the market for our products and the
eventual rate and degree of market acceptance of our products;
- the success of our integrated technology platforms in identifying
product candidates and reducing development timelines from industry
averages;
- the success of pre-clinical studies and the receipt of regulatory
approvals to commence clinical trials in humans;
-i-
- our estimates of the aggregate amount of milestone payments we may
be required to pay under our license agreements;
- our ability to manufacture pre-clinical and clinical batches of our
product candidates, and if any of our product candidates are
approved for sale, our ability to retain or acquire commercial
production capacity;
- our ability to enter into strategic partnerships in respect of the
commercial development, sales and marketing of our product
candidates;
- the success of other competing technologies that may become
available; and
- our ability to raise additional finances.
These statements involve known and unknown risks, uncertainties and other
factors which may cause our actual results, performance or achievements to be
materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. We have included
important factors in the cautionary statements included in this registration
statement, particularly in the section entitled "Risk Factors", that we believe
could cause actual results or events to differ materially from the
forward-looking statements that we make.
These risks should be carefully considered and readers should not place undue
reliance on our forward-looking statements. Like the forward-looking statements
we make, statements in this registration statement by third parties that are
forward-looking involve assumptions and limitations and you are cautioned not to
give undue weight to such third party statements.
Our statements of "belief" in respect of our product candidates are based
primarily upon our results derived to date from our pre-clinical research and
development, our research and development program with animals, and, in the case
of our lead product candidate Proxinium(TM) for the treatment of head and neck
cancer, our results from our Phase I clinical trials in Russia and our
preliminary results from our Phase I clinical trials in Brazil. We believe we
have a reasonable scientific basis to expect these particular anticipated
results to occur. It is not possible, however, to predict, based upon studies in
vitro and animal studies, whether a new therapeutic agent will be proved to be
safe and/or effective in humans. We cannot assure you that the particular
results expected by us will occur. These forward-looking statements reflect our
view only as of the date of this registration statement.
Except as required by law, we undertake no obligation to update publicly any
forward-looking statements for any reason after the date of this registration
statement, as amended and/or supplemented, or to conform these statements to
actual results or to changes in our expectations.
You should rely only on the information contained in this registration statement
and then only to the extent qualified by the risk factors and other qualifiers
contained herein. We have not authorized anyone to provide you with information
different from that contained in this registration statement.
2
TERMS OF REFERENCE
The information set forth in this registration statement is as of January 1,
2005, unless another date is indicated. All references to dollars are expressed
in Canadian funds, unless otherwise indicated. References in this registration
statement to "Viventia", "us", "we" or "our" mean Viventia Biotech Inc., unless
otherwise specified or the context otherwise requires. References in this
registration statement to "United States" or "U.S." means the United States of
America.
AT A SPECIAL MEETING OF SHAREHOLDERS HELD ON MAY 7, 2004, OUR SHAREHOLDERS
APPROVED A SPECIAL RESOLUTION AUTHORIZING THE CONSOLIDATION OF OUR ISSUED AND
OUTSTANDING COMMON SHARES ON A TEN (10) OLD FOR ONE (1) NEW COMMON SHARE BASIS.
ON MAY 12, 2004, OUR COMMON SHARES BEGAN TRADING ON A CONSOLIDATED BASIS ON THE
TSX. UNLESS OTHERWISE INDICATED, AND OTHER THAN IN CERTAIN CASES IN THE
DISCLOSURE UNDER THE HEADING "THE OFFER AND LISTING -PRICE HISTORY" AND
"ADDITIONAL INFORMATION -SHARE CAPITAL" IN THIS REGISTRATION STATEMENT, ALL
REFERENCES IN THIS REGISTRATION STATEMENT TO THE NUMBER OF OUR OUTSTANDING
COMMON SHARES, ANY DISCLOSURE THAT IS DEPENDENT ON THE NUMBER OF OUR OUTSTANDING
COMMON SHARES, AND REFERENCES TO THE NUMBER OF SECURITIES HELD BY ANY OF OUR
SHAREHOLDERS, PRESENT THE INFORMATION IN RESPECT OF OUR COMMON SHARES ON A
POST-CONSOLIDATION BASIS.
Our trademarks Hybridomics(TM), ImmunoMine(TM), and Armed Antibodies(TM)
have been registered in Canada and are pending or have been allowed in the
United States. Our trademark UnLock(TM), has been registered in Canada and
Germany and the application is pending in the United States. The Viventia logo
has been registered in Canada as well as in Australia and Germany and
application is pending in the United States. Our trademark Viventia(TM) has
been registered in Canada, Australia, the European Union and the United States.
We have made an application to register the trademark "Proxinium(TM)" in
Canada, the United States and the European Union in respect of our lead product
candidate. All other trademarks or service marks appearing in this registration
statement are the trademarks or service marks of the entity that owns them.
3
GLOSSARY OF TERMS AND PROPER NAMES
This glossary contains general terms used in the discussion of the
biopharmaceutical industry, as well as specific technical terms used in the
descriptions of our technology and business.
antibody A protein molecule produced by B-cells of the immune system in response to a
specific target (e.g. an antigen). All antibody molecules share in common the
ability to combine with its specific antigen in a lock-and-key fashion.
antigen A molecule that elicits an immune B-cell response in the body. The most
common antigens are proteins and polysaccharides.
B-cells Immune cells that produce antibodies when they are exposed to antigens.
biologic Any antibody, protein, virus, therapeutic serum, toxin, antitoxin, vaccine,
blood, blood component or derivative, allergenic product or analogous product
for prevention, treatment or cure of diseases or injuries of humans,
including its use as an aid in the diagnosis of evaluation of susceptibility
or immunity.
biopharmaceutical A chemical or biological product made by, or with the help of, a living
organism, and which affects living processes such as cell growth, metabolism,
and division.
cancer The uncontrolled growth of cells in the body resulting from multiple errors
in the processes controlling cell growth, replication and function. Cancers
arise from specific tissues in the body, and often duplicate some of the
features of those tissues, but in a disorganized and chaotic manner.
cGMP or current good A standard set of operating guidelines under which a manufacturing facility
manufacturing practice functions such that every step in the testing and manufacturing process of a
drug is documented and monitored.
chimeric Comprising of cells of two or more distinct genomes (e.g. mouse and human).
clinical trials A carefully designed series of ethical experiments aimed at establishing the
safety and efficacy of a drug or other substance designed to treat human
disease. A typical therapeutic molecule must pass through three phases of
trials prior to receiving regulatory approval Phase I (safety), Phase II
(initial efficacy), and Phase III (large-scale efficacy).
cytotoxic Detrimental or destructive to cells.
fermentation suite A classified clean room within the manufacturing facility where the cell
culture system synthesizes a specific antibody or protein.
HAMA response or "human Human antibodies produced during an immune response against transplanted
anti-mouse antibody" response mouse antibodies, which can lead to the immune rejection of the mouse
antibody.
human antibody A monoclonal antibody derived from the human immune system.
human immune system A network of cells, signal and effector molecules that are primarily
responsible for defending the organism against foreign substances (e.g.
bacteria, viruses). Theimmune system is capable of recognizing a wide
diversity of foreign antigens and possesses memory against specific antigens
which it previously has encountered (e.g. vaccination).
hybridoma An immortalized cell culture that produces a single antibody (e.g. a
monoclonal antibody).
4
immortal cell A cell that can divide in culture indefinitely.
immune response The coordinated response of the human immune system to an infection, tumor,
or any other signal that triggers it.
in vitro In an artificial environment, test tube or culture media.
murine Derived from mice.
orphan drug status A designation awarded by the FDA to help facilitate the development and
marketing of drugs for the treatment of rare diseases or conditions that
affect fewer than 200,000 patients in the United States.
payload A cancer-killing agent that is attached to a carrier (e.g. antibody).
phage display A laboratory or manufacturing technique for production of antibodies by
viruses (phage).
pharmacokinetic The study of the processes by which a drug is absorbed, distributed,
metabolized, and eliminated by the body.
pre-clinical studies Studies designed to assess the effectiveness and safety of a new medication
in model systems (cells and animals)prior to clinical studies in humans.
radioisotope A chemical molecule that spontaneously emits radiation. Radioisotopes can be
used in radiation therapy to treat cancer or as tracers in nuclear medicine
scans for diagnostics.
radiolabelled A radioactive atom or group of atoms attached to a molecule of interest.
small molecule Chemical molecules with drug action potential.
5
PART I
ITEM 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
A. DIRECTORS AND SENIOR MANAGEMENT.
DIRECTORS AND OFFICERS POSITION BUSINESS ADDRESS
- ---------------------- --------------------------------- ------------------------------------------
Martin Barkin Director since June 1996 DRAXIS Health Inc.
6870 Goreway Drive, Suite 200
Mississauga, Ontario L4V 1P1
John J. Borer, III Director since June 2000 Rodman & Renshaw LLC
330 Madison Avenue, Suite 200
New York, NY 10017
Michael Byrne Chief Financial Officer and Viventia Biotech Inc.
Corporate Secretary 10 Four Seasons Place, Suite 501, Toronto,
Ontario, Canada, M9B 6H7
Michael Cross Chief Operating Officer Viventia Biotech Inc.
10 Four Seasons Place, Suite 501, Toronto,
Ontario, Canada, M9B 6H7
Leslie L. Dan Chair of the Board of Directors c/o Viventia Biotech Inc.
since July 1995 10 Four Seasons Place, Suite 501, Toronto,
Ontario, Canada, M9B 6H7
Nick Glover President and Chief Executive Viventia Biotech Inc.
Officer, Director since June 2004 10 Four Seasons Place, Suite 501, Toronto,
Ontario, Canada, M9B 6H7
Glen MacDonald Vice President, Research Viventia Biotech Inc.
147 Hamelin St. Winnipeg, Manitoba,
Canada M9B 6H7
Murray S. Palay Director since August 1997 Quadrant Asset Management
1800-360 Main Street Winnipeg,
Manitoba R3C 323
Louis Siminovitch Director since March 2000 University of Toronto
1 King's College Circle Toronto, Ontario
M5S 1A1
Mark Wainberg Director since August 1997 McGill University
845 Sherbrooke St. W Montreal, Quebec
H3A 2T5
B. ADVISERS.
Our principal bankers are Royal Bank of Canada, Life Sciences Health Care
Markets, 6880 Financial Drive, Mississauga, Ontario L5N 7Y5.
Our legal advisor in Canada and the United States is Torys LLP, of Toronto,
Ontario and New York, New York.
The registrar and transfer agent for our common shares is Computershare Trust
Company of Canada at its principal offices in Toronto, Canada.
6
C. AUDITORS.
Our auditors since June 22, 2001 have been Ernst & Young LLP, Ernst & Young
Tower, 222 Bay Street, Toronto, Ontario, M5K 1J7.
ITEM 2: OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3: KEY INFORMATION
A. SELECTED FINANCIAL DATA.
The selected financial data is derived from the audited annual financial
statements for the years ended December 31, 2004, 2003, 2002, 2001 and 2000 and
the unaudited financial statements for the periods ended March 31, 2005 and
2004. The financial statements have been prepared in accordance with Canadian
generally accepted accounting principles, are in Canadian dollars and are
included in this registration statement under Item 18: "Financial Statements".
THREE MONTHS ENDED MARCH 31,
2005 2004
---------------- ----------------
(IN THOUSANDS OF DOLLARS, EXCEPT
PER SHARE AND OUTSTANDING SHARE NUMBERS, UNAUDITED)
---------------------------------------------------
Net Loss (5,446) (3,348)
Basic and Diluted Loss per Share (0.19) (0.11)
Total Assets 7,040 2,722
Net Assets (26,539) (7,818)
Capital Stock 73,079 72,488
Bridge Financing Loans(1) 4,600 4,200
Total Long Term Debt (including current portion) 29,186 4,000
Shares outstanding 29,206 29,206
- --------------
NOTE:
(1) Subsequent to March 31, 2005 we received two additional bridge financing
loans in the aggregate amount of $3,000,000 bearing interest at 4.5% per
annum.
YEAR ENDED DECEMBER 31,
2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AND OUTSTANDING SHARE NUMBERS)
Net Loss (17,172) (12,778) (12,269) (14,770) (11,629)
Basic and Diluted Loss per Share (0.59) (0.45) (0.62) (0.80) (0.71)
Total Assets 6,839 2,739 11,249 7,425 16,136
Net Assets 21,255 (4,484) 3,698 6,076 14,997
Capital Stock 63,262 63,220 60,447 50,556 44,707
Bridge Financing Loans(1) - 1,500 - - -
Total Long Term Debt (including current portion) 24,706 4,000 6,000 - -
Shares outstanding 29,206 29,186 26,673 19,530 17,739
CANADIAN AND UNITED STATES ACCOUNTING POLICIES DIFFERENCES
The financial statements have been prepared in accordance with Canadian GAAP.
The principles conform in all material respects with U.S. GAAP except as
described in Note 19 to the financial statements contained in this registration
statement. For all the years presented, the selected financial data are prepared
in accordance with Canadian GAAP.
7
CURRENCY EXCHANGE RATES
All references to dollars are expressed in Canadian funds, unless otherwise
indicated. On December 31, 2004 the exchange rate for the conversion of U.S.
dollars into Canadian dollars was Cdn.$1.00 = U.S.$0.8310 based on the inverse
of the noon rates as issued by the Bank of Canada. On May 18, 2005, the exchange
rate for the conversion of U.S. dollars into Canadian dollars was Cdn.$1.00 =
U.S.$0.7925 based on the inverse of the noon rates as issued by the Bank of
Canada. Certain amounts stated in this registration statement reflect this more
recent exchange rate. The following tables set forth the high and low rates of
exchange of U.S. dollars into Canadian dollars for each month during the
previous six months and the average rates for our five most recent fiscal years
calculated by using the average of the exchange rates on the last day of each
month during the period. These rates are based upon the inverse of the nominal
noon exchange rates reported by the Bank of Canada in U.S. dollars.
PERIOD HIGH LOW
- ------------- ------ ------
December 2004 0.8354 0.8295
January 2005 0.8369 0.8019
February 2005 0.8131 0.7958
March 2005 0.8320 0.8024
April 2005 0.8288 0.7925
May 2005 0.8083 0.7872
YEAR ENDED AVERAGE RATE
- ------------------------- ------------
December 31, 2000 0.6734
December 31, 2001 0.6458
December 31, 2002 0.6368
December 31, 2003 0.7135
December 31, 2004 0.7683
B. CAPITALIZATION AND INDEBTEDNESS.
Our authorized capital consists of an unlimited number of preferred shares,
issuable in series, and an unlimited number of common shares. As of March 31,
2005, we had 29,206,115 common shares outstanding, each carrying the right to
one vote per share at any meeting of our shareholders (other than at meetings at
which only holders of another class or series of shares are entitled to vote),
which may be given in person or by proxy, and there were no preferred shares
outstanding. As of March 31, 2005, there were 1,862,792 options to purchase
common shares outstanding, warrants to purchase 11,447,113 common shares
outstanding and two secured convertible debentures outstanding. The two
convertible debentures are held by the Dan Group and are in the principal
amounts of $12,584,143 and $10,562,568, respectively, and these principal
amounts are convertible into 8,389,428 and 7,041,713 common shares and common
share purchase warrants to purchase another 4,194,714 and 3,520,856 common
shares, respectively, at the option of the Dan Group, at any time. Any accrued
interest on the convertible debentures will be convertible into units at a
conversion price equal to the ten-day weighted average trading price of our
common shares on the TSX for the ten consecutive trading days prior to
conversion, less the maximum discount permitted by the TSX.
As of March 31, 2005, we had $1,433,660 owing to Mr. Leslie Dan as a result of a
loan made by Mr. Dan to us to finance capital expenditures made in respect of
our Winnipeg facility.
During the three months ended March 31, 2005, the Company received three bridge
financing loans from Mr. Leslie Dan and an entity controlled by Mr. Dan. On
February 17, 2005, the Company received a bridge financing loan in the amount of
$500,000, on March 1, 2005, the Company received a bridge financing loan in the
amount of $1,500,000, and on March 23, 2005, the company received a bridge
financing loan in the amount of $2,600,000. These loans bear interest at 4.5%
per annum and are payable upon demand. Subsequent to March 31, 2005, on April
28, 2005 and May 12, 2005 the Company received two bridge financing loans from
Mr. Dan and an entity controlled by Mr. Dan in the amount of $1,500,000 each
bearing interest at 4.5% per annum and are payable on demand.
8
C. REASONS FOR THE OFFER AND USE OF PROCEEDS.
Not applicable.
D. RISK FACTORS.
An investment in our common shares involves a high degree of risk and should be
considered speculative. You should carefully consider the risks and
uncertainties described below, as well as other information contained in this
registration statement, including under Item 5: "Operating and Financial Review
and Prospects" and in our financial statements and accompanying notes, before
making any investment. Additional risks and uncertainties not presently known to
us or that we believe to be immaterial may turn out to be material and may
adversely affect our business. If any of the following risks occur, our
business, financial condition, and results of operations could be seriously
harmed and you could lose all or part of your investment. Further, if we fail to
meet the expectations of the public market in any given period, the market price
of our common shares could decline.
RISKS RELATED TO OUR FINANCIAL CONDITION
WE HAVE A "GOING CONCERN" NOTE IN OUR FINANCIAL STATEMENTS. WE MUST RAISE MONEY
FROM INVESTORS TO FUND OUR OPERATIONS. IF WE ARE UNABLE TO FUND OUR OPERATIONS,
WE WILL CEASE DOING BUSINESS.
There is a "going concern" note in our financial statements. This note means
that there is substantial doubt as to whether we can continue as an ongoing
business without additional funding. As at March 31, 2005, we had cash reserves,
consisting of cash and cash equivalents, of approximately $2,038,000 and a
negative net working capital of approximately $6,664,000. In 2004, we incurred a
net loss of $17,172,000, and in 2003 we incurred a net loss of $12,778,000. In
the first three months of 2005 we incurred a net loss of $5,446,000.
Without additional funding, we will have inadequate funds to continue our
existing corporate, administrative, and operational functions for the remainder
of 2005. We also have commitments under our license agreements to make milestone
payments of $257,000 in 2005 and $100,000 in each of 2006 through 2009. We
anticipate that we will need to raise approximately $22,500,000 for the
remainder of 2005, and we intend to raise the necessary funds in the second
quarter of 2005. Since February 17, 2005 we have funded operations by way of
three bridge loans from our Chairman and principal shareholder Mr. Leslie Dan
and an entity controlled by him. Subsequent to year end we have received three
bridge loans in the aggregate amount of $4,600,000. The average monthly amount
of cash that we are using, and expect to use over the next 12-18 months for all
of our operations, is approximately $2,500,000. For a further discussion of our
liquidity and capital resources, you should also refer to Item 5: "Operating and
Financial Review and Prospects" in this registration statement. We expect to
rely on bridge financing loans, while continuing to seek additional sources of
funding to finance operations into the future, through public or private equity
or debt financings, collaborative arrangements with pharmaceutical companies
and/or from other sources. We cannot assure you that additional financing will
be available or, even if it is available, that it will be available on terms
acceptable to us. Furthermore, the "going concern" note in our financial
statements could make it more difficult for us to raise additional funds, as
potential financing sources could demand unreasonable terms, or be unwilling to
provide funding. Furthermore, some investment funds and other investors are not
authorized to invest in companies with "going concern" notes. Moreover, the
convertible debentures issued to Mr. Leslie Dan and ADH Investments (1999) Inc.,
contain restrictive covenants requiring their approval prior to our company
engaging in certain activities, including: creating security interests in
company assets, entering into any merger transaction, disposing of assets
outside the ordinary course of business, declaring dividends, purchasing,
redeeming or retiring any of our shares, entering into any transactions outside
the ordinary course of business, providing financial assistance to any person
except to a subsidiary of our company, changing our company's name or the
location of its chief executive offices, incurring any additional indebtedness
or creating any new subsidiaries. Finally, any future financing may have a
dilutive effect on the holdings of shareholders.
If adequate funds are not available, we may be required to reduce the scope of,
or eliminate one or more of our research and development programs, significantly
scale back or even cease operations, sell or license some of our technologies
under terms that are less favorable than they otherwise might have been if we
were in a better financial position, or consider merging with another company or
positioning ourselves to be acquired by another company. If
9
it became necessary to take one or more of these actions, this will have an
adverse effect on our stock price and you may lose a substantial portion of, or
your entire investment.
WE HAVE NOT DERIVED ANY REVENUE TO DATE FROM THE COMMERCIAL SALE OF PRODUCTS,
HAVE NEVER HAD ANY REVENUES FROM COMMERCIAL SALES AND HAVE RELIED ON EQUITY AND
DEBT FINANCINGS TO SUPPORT OUR OPERATIONS.
We have not derived any revenue to date from the commercial sale of products.
Our future profitability will depend upon our ability to bring products to
market in a timely manner, obtain regulatory approvals and enter into suitable
licensing or partnering arrangements to commercialize our products. Since
January 2000, the Dan Group has financed substantially all of our operations. If
they cease to provide additional financing and we are unable to raise money from
third parties, we will cease doing business.
Since January 1, 2000, we have financed substantially all of our operations
through bridge financing loans received from and the sale of equity securities
and the issuance of secured convertible debentures to the Dan Group, and through
an approximately $2,804,000 equity financing made by Teva in September 2003. Mr.
Dan is on the board of directors of Teva's parent company, Teva Pharmaceutical
Industries Limited.
WE HAVE A HISTORY OF OPERATING LOSSES AND WE EXPECT TO INCUR FUTURE LOSSES. IF
WE ARE UNABLE TO ACHIEVE SIGNIFICANT REVENUES IN THE FUTURE, WE WILL CEASE DOING
BUSINESS.
Since our inception, we have incurred significant losses each year. We expect to
incur significant operating losses as we continue our product candidate research
and development and continue our clinical trials. We will need to generate
significant revenues in order to achieve and maintain profitability. Our ability
to generate revenue in the future is dependent, in large part, on completing
product development, obtaining regulatory approvals, and commercializing, or
entering into agreements with third parties to commercialize, our product
candidates. We cannot assure you that we will ever successfully commercialize or
achieve revenues from sales of our therapeutic products if they are successfully
developed or that we will ever achieve or maintain profitability. Even if we do
achieve profitability, we may not be able to sustain or increase profitability.
Until we receive regulatory approval for sales of products incorporating our
licensed and/or patented technologies, we cannot sell our products and will not
have revenues from sales. The research, development, production, and marketing
of new products requires the application of considerable technical and financial
resources. However, any revenues generated from such products, assuming they are
successfully developed, marketed, and sold, may not be realized for a number of
years.
RISKS RELATED TO OUR BUSINESS AND INDUSTRY
WE ARE IN THE EARLY STAGES OF PRODUCT DEVELOPMENT. OUR PRODUCT CANDIDATES MAY
NOT BE EFFECTIVE AT A LEVEL SUFFICIENT TO SUPPORT A PROFITABLE BUSINESS VENTURE.
IF THEY ARE NOT, WE WILL BE UNABLE TO CREATE MARKETABLE PRODUCTS AND WE WILL
HAVE TO CEASE OPERATIONS.
Our product candidates are in the preliminary development stage, have not been
approved for marketing by any regulatory authority, and cannot be commercially
distributed in any markets until such approval is obtained. We cannot assure you
that our monoclonal antibody therapies will be effective at a level sufficient
to support a profitable business venture. The science on which our technologies
are based may also fail due to flaws or inaccuracies in the data, or because the
data are not predictive of future results. The science upon which our business
is based may prove to be totally or partially incorrect. Because our science may
be flawed or incorrect, we may never be able to create a marketable product. If
we are unable to do so, we will not generate revenues, we will have to cease
operations, and you will lose your entire investment.
In addition, it takes a significant period of time for a new therapeutic drug to
be developed, to obtain the necessary regulatory approvals to permit its sale,
to establish appropriate distribution channels and market acceptance, and to
obtain insurer reimbursement approval. This time period is generally not less
than 10 years. None of our
10
therapeutic product candidates has been commercialized and completion of the
commercialization process for any of our product candidates will require
significant investments of time and funds. We cannot predict either the total
amount of funds that will be required, or assure you that we will be successful
in obtaining the necessary funds. It is also not possible for us to predict the
time required to complete the regulatory process or if there will be sufficient
market demand at such time. If any of our products are approved, we cannot
assure you that it will be possible to produce them in commercial quantities at
reasonable cost, successfully market them, or whether any investment made by us
in the commercialization of any products would be recovered through sales,
license fees, or related royalties. Furthermore, the time it takes for products
to reach market acceptance exposes us to significant additional risks, including
the development of competing products, loss of investor interest, changing
market needs, changes in personnel, and regulatory changes.
Since the process of discovering and developing monoclonal antibodies is our
core business, we anticipate that we will remain engaged in research and
development for the foreseeable future. As one or two products advance to
commercialization, we expect that other potential products will replace them as
research and development candidates. For example, we estimate that
Proxinium(TM) is a minimum of 4 years away from approval and commercialization
and VB6-845 is a minimum of 6 years away from approval and commercialization.,
although the process could take much longer.
WE RELY ON, AND INTEND IN THE FUTURE TO CONTINUE TO RELY ON, LICENSES FROM THIRD
PARTIES AND ANY BREACH OR TERMINATION OF THESE LICENSE ARRANGEMENTS COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION, AND RESULTS OF
OPERATIONS.
We currently hold key licenses from third parties for certain technologies,
including the University of Zurich (Proxinium(TM)), McGill University
(Hybridomics(TM)), Columbia University (Hybridomics(TM)), and the former
shareholders of Tanox and Biovation (cytotoxic proteins). We also hold a
non-exclusive license from XOMA Ireland Ltd., under which we have licensed a
proprietary bacterial cell expression technology intended to facilitate
increases in antibody production yields. We are also in the process of
negotiating a license agreement in respect of one form of the antibody of our
Proxinium(TM)) product candidate.
Unless otherwise terminated in accordance with their terms, our key licenses
will expire as follows:
LICENSOR EXPIRATION DATE
- -------- ---------------
University of Zurich The license expires on March 18, 2026, the expiration date of the longest-lived
patent rights.
McGill University The license expires on the earlier of (a) ten years from the date of
commercialization of the first licensed product and (b) April 28, 2014.
Columbia University The license expires on March 18, 2018, the expiration date of the last to expire
licensed patents.
Tanox The license expires (a) on a country-by-country basis in accordance with the license
agreement, (b) ten years from the date of the first commercial sale of a particular
licensed product in countries where there is no patent protection for that licensed
product, or (c) December 21, 2025, the expiration date of the last to expire licensed
patents in countries where there is available patent protection.
Biovation The license is on a country-by-country and product-by-product basis, and expires on
the later of (a) with respect to the rights in a particular country, ten years after
the first commercial sale of a particular licensed product in that country, and (b)
December 21, 2025, the expiration of the last to expire of the licensed patents.
XOMA The license expires on the later of (a) May 22, 2018, the expiration of the last
patent with patent rights and (b) November 30, 2011.
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The dates reflecting the expiration date of the longest-lived patent rights
listed above do not take into consideration the possibility that a failure to
maintain these patents, a terminal disclaimer or other future actions may affect
the actual expiration date of the patents. Pending applications may never mature
into patents, which could affect the lifespan of certain licenses. Finally,
future applications could result in the extension of the license term beyond the
dates listed above.
We cannot assure you that we will obtain any additional required licenses, that
our existing licenses or new licenses, if obtained, will not terminate, or that
they will be renewed. The failure to obtain, the termination of, or the failure
to renew any of these licenses would have a material adverse effect on our
pre-clinical and clinical programs and may cause us to suspend or cease our
operations. In addition, we cannot assure you that these licenses will remain in
good standing or that the technology we have licensed under these agreements has
been adequately protected or is free from claims of infringement of the
intellectual property rights of third parties.
Pursuant to the terms of the licenses noted above and our other license
agreements, and any agreements we may enter into in the future, we are and could
be obligated to exercise diligence in bringing potential products to market and
to make license payments and certain potential milestone payments that, in some
instances, could be substantial. We are obligated and may in the future be
obligated, to make royalty payments on the sales, if any, of products resulting
from licensed technology and, in some instances, may be responsible for the
costs of filing and prosecuting patent applications. Because we require
additional funding, we may not be able to make payments under current or future
license agreements, which may result in our breaching the terms of any such
license agreements. Any breach or termination of any license could have a
material adverse effect on our business, financial condition, and results of
operations.
MUCH OF OUR POTENTIAL SUCCESS AND VALUE LIES ON OUR OWNERSHIP AND USE OF
INTELLECTUAL PROPERTY AND, AS A RESULT, OUR FAILURE TO PROTECT OUR INTELLECTUAL
PROPERTY COULD NEGATIVELY AFFECT US.
Confidentiality
Since some of our technology is not patented or licensed but protected by the
law of trade secrets, our ability to maintain the confidentiality of our
technology is crucial to our ultimate possible commercial success. In order to
protect our confidential information, we have adopted the following procedures:
- all of our employees must sign and are bound by confidentiality
agreements;
- no sensitive or confidential information is disclosed to any party
unless appropriate confidential disclosure agreements are first
signed; and
- all confidential material that is provided to a party is marked as
confidential and is requested to be returned when the user no longer
has a need to have the material, or when the term of any applicable
confidential disclosure agreement governing the use of the material
expires.
We are unaware of any violations of our confidentiality procedures, and to date
we have never experienced a violation of our confidentiality procedures that has
caused our company material harm. Nevertheless, we cannot assure you that our
procedures to protect confidentiality are effective, that third parties will not
gain access to our trade secrets or disclose our technology, or that we can
meaningfully protect our rights to our trade secrets. We cannot prevent a person
from violating the terms of any confidential disclosure agreement. Furthermore,
by seeking patent protection in various countries, it is inevitable that
important technical information will become available to our competitors,
through publication of such patent applications. If we are unable to maintain
the confidentiality of our technology in appropriate circumstances, this could
have a material adverse impact on our business, financial condition, and results
of operations.
Our Patents
Our success depends in part on our ability to obtain patents, operate without
having third parties circumvent our rights, operate without infringing the
proprietary rights of third parties, and maintain trade secret protection. As of
the date of this registration statement, we had 18 patents and patent
applications relating to VB6-011 in the United States, Canada, the European
Union, and other countries, of which we have been granted five patents in the
United
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States, Australia, New Zealand, and Singapore. Three of these five patents
expire on May 22, 2017, one expires on May 22, 2016 and one expires on October
22, 2017. One of our pending Australian patent applications, which is a
Divisional application to a granted patent, has been allowed, and no notice of
opposition has been received during the three month opposition period. The
expiry date for this Divisional application is May 22, 2017. In order for this
Divisional application to be granted, the granted patent from which this
Divisional application is derived will have to be surrendered. The Divisional
application will include the scope of the surrendered patent. As of the date of
this registration statement, we have one provisional patent application related
to VB6-008 and one provisional patent application related to VB6-050, both filed
in the United States.
The patent position of pharmaceutical and biotechnology companies is uncertain
and involves complex legal and financial questions for which, in some cases,
important legal principles are largely unresolved. Patent offices vary in their
policies regarding the breadth of biopharmaceutical patent claims that they
allow. In addition, the coverage claimed in a patent application can be
significantly reduced during prosecution before a patent is issued. We may not
be granted patents of meaningful scope based on the applications we have filed
and those we intend to file. We cannot assure you that our pending patent
applications will result in patents being granted, that we will develop
additional proprietary products that are patentable, that patents that have
already been granted to us will provide us with any competitive advantage or
will not be challenged or invalidated by any third parties, or that patents of
others will not have an adverse effect on our ability to do business. In
addition, the laws of certain foreign countries do not protect intellectual
property rights to the same extent as do the laws of Canada or the United
States. We cannot assure you that others will not independently develop similar
products or processes, duplicate any of our products or processes, or design
around the products or processes we may patent.
Our Licensed Patents
We have exclusively licensed, on a worldwide basis, the rights to certain
patents and patent applications relating to certain of our product candidates
and technologies. We have an exclusive, world-wide license agreement with The
University of Zurich, Switzerland, that contains a right to sublicense on six
patent applications related to our lead product candidate Proxinium(TM), of
which two are in the United States, one is in each of Canada, Europe and Japan
and one is an international application that relates to the use of
Proxinium(TM) in the treatment of head and neck cancer (squamous cell
carcinomas) and bladder cancer. We also have exclusive, world-wide license
agreements with each of Tanox, Inc., subsequently assigned by Tanox to the
former shareholders of Tanox Pharma B.V., and with Biovation Ltd., that contain
a right to sublicense on patent applications for the cytotoxic protein component
of our product candidates VB6-008, VB6-011, VB6-050 and VB6-845. These licenses
include 1 patent that expires on June 8, 2018 and 3 patent applications to the
native form of the cytotoxic protein in the United States (one granted and one
pending), Canada and Europe and 2 provisional patent applications in the United
States to the modified form of the protein. Other technology for which we have
obtained exclusive or non-exclusive licenses are protected by an additional 66
granted or pending patents or patent applications. We rely on these licenses to
adequately protect and maintain the intellectual property that is the subject of
the license agreements. In some cases, the licensors do not have the obligation
to maintain this intellectual property. In other cases, provided that we
maintain our license obligations, the licensor must prepare, file, prosecute,
and maintain such intellectual property. If either we or the licensor fail to
maintain our respective license obligations, the intellectual property may be
abandoned.
Third Party Patents
Our commercial success also depends significantly on our ability to operate
without infringing the patents and other proprietary rights of third parties.
From time to time, companies may possess rights to technologies in the same
areas of research and development as ours, may have patents similar to ours, and
may notify us that we may require licenses from them in order to avoid
infringing their rights in that technology or in order to enable us to
commercialize our own technology. Patent applications are, in many cases,
maintained in secrecy until patents are issued. Our competitors or potential
competitors may have filed applications for, or may have received patents and
may obtain additional and proprietary rights to compounds or processes used by
or competitive with ours. The publication of discoveries in the scientific or
patent literature frequently occurs substantially later than the date on which
the underlying discoveries were made and patent applications are filed. In the
event of infringement or violation of another party's patent, we may be
prevented from pursuing product development or commercialization. In addition,
we may be required to obtain licenses under patents or other proprietary rights
of third parties. We cannot assure you that any licenses required under such
patents or proprietary rights will be available on terms
13
acceptable to us. If we do not obtain such licenses, we could encounter delays
in introducing one or more of our products to the market, without infringing
third party patents, or we could find that the development, manufacturing or
sale of products requiring these licenses could be foreclosed.
Patent Litigation
Patent litigation is becoming widespread in the biopharmaceutical industry and
we cannot predict how this will affect our efforts to form strategic alliances,
conduct clinical testing, or manufacture and market any of our product
candidates that we may successfully develop. We are unaware of any potential
issues related to our possible infringement or violation of another party's
patent. If challenged, however, our patents may not be held to be valid. We
could also become involved in interference or impeachment proceedings in
connection with one or more of our patents or patent applications to determine
priority of invention. If we become involved in any litigation, interference,
impeachment, or other administrative proceedings, we will likely incur
substantial expenses and the efforts of our technical and management personnel
will be significantly diverted. We have the obligation to protect and bear the
cost of defending the patent rights of the patents we own. With respect to our
licensed patents:
- Under the Exclusive License Agreement between Biovation Limited and
our company, dated March 8, 2004, the licensor has the right and
option, but not the obligation, to litigate to protect the patents.
If the licensor does not initiate action, we have the right, but not
the obligation to do so. The party that takes action will pay all
costs associated with the litigation.
- Under the Exclusive License Option Agreement between the Trustees of
Columbia University in the City of New York and our company, dated
June 23, 2003, the licensor has the right, but not the obligation,
to litigate to protect the patents. If the licensor does not
initiate action, we have the right to do so. Cost sharing and the
distribution of recovery is to be determined in each case as
specified in the agreement.
- Under the Exclusive License Agreement between University of Zurich
and our company, dated January 9, 2003, the licensor has the right
and option, but not the obligation, to litigate to protect the
patents. If the licensor does not initiate action, we have the
right, but not the obligation to do so. The party that takes action
will pay all costs associated with the litigation. Net recoveries
belong to the party/parties taking action (except with respect to
the amount to be paid to the licensor under the agreement if we
successfully litigate). If we learn of any substantial infringement
of patent rights, we must inform the licensor. We may request that
the licensor take legal action against a third party for the
infringement of patent rights. Recoveries from those actions will
belong to the party bringing suit (with exceptions described in the
agreement).
- Under the Exclusive License Agreement between Tanox, Inc. and our
company, dated August 20, 2002, the licensor has the right and
option, but not the obligation, to litigate to protect the patents.
If the licensor does not initiate action, we have the right, but not
the obligation to do so. Net recoveries (if we litigate) are
considered net sales and are subject to royalty payments.
We cannot assure you that we will have the financial or other resources
necessary to enforce or defend a patent infringement or proprietary rights
violation action. Moreover, if our products infringe the patents, trademarks, or
proprietary rights of others, we could, in certain circumstances, become liable
for substantial damages, which also could have a material adverse effect on our
business, financial condition, and results of operations. Where there is any
sharing of patent rights, either through co-ownership or different licensed
"fields of use", one owner's actions could lead to the invalidity of the entire
patent.
OUR BUSINESS IS SUBJECT TO SIGNIFICANT TO SIGNIFICANT GOVERNMENT REGULATION AND
FAILURE TO ACHIEVE REGULATORY APPROVAL OF OUR DRUG CANDIDATES WOULD SEVERELY
HARM OUR BUSINESS.
The FDA regulates the development, testing, manufacture, record-keeping,
labeling, distribution, and promotion of pharmaceutical products in the United
States pursuant to the Food, Drug, and Cosmetic Act and related regulations. We
must receive premarket approval by the FDA prior to commercial sale in the U.S.
of any of our product candidates. Similar regulations are enforced by Health
Canada and by other regulatory agencies in each jurisdiction
14
in which we seek to do business. The regulatory review process is lengthy and
expensive, and the outcome of the approval process is uncertain. Before
receiving approval we must acquire and submit extensive preclinical and clinical
data and supporting information for each indication to establish the safety and
efficacy of our drug candidates. In addition, we must show that we can produce
our drug candidates consistently at quality levels suitable for administration
in humans in accordance with a complex set of regulations known as current Good
Manufacturing Practices (cGMP's). Premarket approval is a lengthy and expensive
process and takes several years. Future legislation or changes in FDA policy may
change during the period of product development and clinical trials. We may not
be able to obtain FDA approval or approval from other regulatory agencies for
any commercial sale of any drug candidate. We may encounter delays or rejections
in the regulatory approval process at any time. Even if approval is obtained,
the FDA may determine that additional clinical trials are required after
marketing has begun. Except for any potential licensing or marketing
arrangements with other pharmaceutical or biotechnology companies, we will not
generate any revenues in connection with our drug candidates unless and until we
obtain clearance from the FDA, Health Canada or comparable agencies in each
market to commercialize our products. Given the uncertainty, extensive time, and
financial expenditures involved in moving a drug through the regulatory and
clinical trial process in Europe, Canada, the United States, and elsewhere, we
may never be able to successfully develop safe, commercially viable products. If
we are unable to do so, we may have to cease operations.
WE ARE DEPENDENT ON THE SUCCESSFUL OUTCOME OF PRECLINICAL TESTING AND CLINICAL
TRIALS.
None of our products are currently approved for sale by the FDA, by Health
Canada or by any other regulatory agency in the world, and they may never
receive approval for sale or become commercially viable. Before obtaining
regulatory approval for sale, each of our product candidates must be subjected
to extensive preclinical and clinical testing to demonstrate safety and efficacy
for each proposed indication for human use. Our success will depend on the
successful outcome of our preclinical testing and clinical trials.
Our most advanced product candidate, Proxinium(TM) is in Phase I clinical
testing in Brazil and Canada, and our second most advanced product candidate
VB6-845 is in pre-clinical testing. Historically, the results from preclinical
testing and from early clinical trials often have not been predictive of results
obtained in later clinical trials. Frequently, drugs that have shown promising
results in preclinical or early clinical trials subsequently fail to demonstrate
sufficient evidence of safety or effectiveness necessary to obtain regulatory
approval. Our success will depend on the success of our current clinical trials
and subsequent clinical trials that have not yet begun. Moreover, regulatory
agencies such as the FDA and Health Canada may impose specific standards on the
evaluation of tumor response in individual patients which may differ from those
of the company or its clinical advisors. These different standards may lead the
regulatory agency to conclude that study subjects receiving any of the Company's
product candidates have had a more modest clinical response than did the Company
or its clinical advisors.
There are a number of difficulties and risks associated with clinical trials.
The possibility exists that:
- - we may discover that our product candidates may cause, alone or in
combination with another therapy, unacceptable side effects;
- - we may discover that our product candidates, alone or in combination with
another therapy, does not exhibit the expected therapeutic results in
humans;
- - results from early trials may not be predictive of results that will be
obtained from large-scale, advanced clinical trials;
- - we or the FDA or other regulatory agencies may suspend the clinical trials
of one or more of our product candidates;
- - patient recruitment may be slower than expected; and
- - patients may drop out of our clinical trials.
15
Although the U.S. FDA has given Proxinium(TM) orphan drug status for its use in
head and neck cancer, this status does not diminish any of the requirements for
market approval. Given the uncertainty surrounding the regulatory and clinical
trial process, we may not be able to develop safety, efficacy or manufacturing
data necessary for approval of our product candidates. In addition, even if we
receive approval, such approval may be limited in scope and affect the
commercial viability of such product. If we are unable to successfully obtain
approval to commercialize any product candidate, this would materially harm our
business, impair our ability to generate revenues and adversely impact our stock
price.
DELAYS IN CLINICAL TRIALS WILL CAUSE US TO INCUR ADDITIONAL COSTS, WHICH COULD
JEOPARDIZE THE TRIALS AND ADVERSELY AFFECT OUR LIQUIDITY AND FINANCIAL RESULTS.
Due to the high costs of clinical trials, a delay in our trials, for any reason,
will require us to spend additional funds to keep our product candidates moving
through the regulatory process. If we do not have or cannot raise the necessary
additional funds, the testing of our product candidates could be cancelled. If
we are required to spend additional funds, it will require us to spend funds
that could have been used for other purposes and could adversely affect our
liquidity and financial results.
WE RELY ON CLINICAL INVESTIGATORS AND CONTRACT RESEARCH ORGANIZATIONS TO CONDUCT
OUR CLINICAL TRIALS.
We rely, in part, on independent clinical investigators and contract research
organizations to conduct our clinical trials. Contract research organizations
also assist us in the collection and analysis of the data generated from these
clinical trials. These investigators and contract research organizations are not
our employees and we cannot control, other than by contract, the amount of
resources, including time, that they devote to our product candidates and our
clinical trials. If independent investigators fail to devote sufficient
resources to our clinical trials, or if their performance is substandard, these
factors may delay any possible approval and commercialization of our product
candidates and could harm our chances of obtaining regulatory approval. Further,
most national regulatory agencies require that we comply with standards,
commonly referred to as "good clinical practice", for conducting, recording, and
reporting clinical trials to assure that data and reported results are credible
and accurate and that the rights, integrity, and confidentiality of trial
subjects are protected. If our independent clinical investigators and contract
research organizations fail to comply with good clinical practice, the results
of our clinical trials could be called into question and the clinical
development of our product candidates could be delayed or halted. The failure of
clinical investigators and contract research organizations to meet their
obligations to us or comply with good clinical practice procedures could
adversely affect the clinical development of our product candidates, and have a
material adverse effect on our business, financial condition, and results of
operations.
OUR SIGNIFICANT INDEBTEDNESS TO THE DAN GROUP COULD ADVERSELY AFFECT OUR
FINANCIAL CONDITION AND LIMIT OUR FINANCIAL AND OPERATING FLEXIBILITY AND
SUBJECT US TO OTHER RISKS.
As of March 28, 2005, we owed $29,180,371, not including accrued interest, to
the members and entities part of or associated with the Dan Group. This
substantial indebtedness could have important consequences. For example, it
could:
- limit our ability to obtain additional financing in the future to
refinance our existing debt and our working capital, capital
expenditures, acquisitions and other general corporate purposes;
- require us to dedicate a substantial portion of any cash flow we may
have in the future to the payment of principal and interest on our
debt, thereby reducing funds available for our development and
operations;
- hinder our ability to adjust rapidly to changing market conditions;
- make us more vulnerable to economic downturns; and
- limit our ability to withstand competitive pressures.
If we do not have sufficient funds to repay our debt when it becomes due, we
will be required to obtain additional financing, which might not be available to
us on commercially reasonable terms. If we fail to obtain such financing, we
might have to limit or cease our operations.
16
Our indebtedness to the Dan Group consists of the following:
- On November 3, 2004, we issued to Ms. Dan-Hytman, a secured
convertible debenture in the principal amount of $10,562,568 and to
Mr. Dan a secured convertible debenture in the principal amount of
$12,584,143. These debentures are secured by a first charge over all
of our assets and bear interest at the rate of 4.5% per year,
compounded annually. The convertible debentures mature on November
3, 2006. The convertible debentures are convertible, at the option
of the holder, at any time into units at a price of $1.50 per unit.
Each unit will be comprised of one common share and one half of a
common share purchase warrant. Each whole common share purchase
warrant will enable the holder to purchase an additional common
share at an exercise price of $2.00 per common share at any time for
a period of four years from the date of issuance.
- The convertible debentures include customary representations and
warranties. The convertible debentures also contain customary events
of default, with the addition of an event of default for the
occurrence of a material adverse effect on our operations. Covenants
under the convertible debentures restrict our ability to, among
other things:
- create, issue, incur, assume or permit to exist any additional
encumbrance on any of our property;
- change the nature of the business;
- merge, consolidate or dispose of our undertakings and assets;
- pay dividends and make certain other distributions;
- make certain alteration of capital;
- enter into transactions out of the ordinary course of
business;
- change locations; and
- incur additional indebtedness.
These restrictive covenants could limit our ability to pursue our growth plan,
restrict our flexibility in planning for, or reacting to, changes in our
business and industry and increase our vulnerability to general adverse economic
and industry conditions.
- On November 3, 2004, Mr. Dan loaned us $1,600,000 in order to
finance capital expenditures in respect of our Winnipeg facility.
The loan bears interest at a rate of 5.0% per year and we are
repaying the loan on a monthly basis. As of March 28, 2005,
$1,433,660 remained outstanding under the loan.
- On February 17 and March 1, 2005, we received bridge financing loans
from Mr. Dan in the amounts of $500,000 and $1,500,000,
respectively. The loans are payable on demand and bear interest at a
rate of 4.5% per year.
- On March 21, 2005, our board of directors approved an additional
bridge financing loan of $2,600,000 from Clairmark Investments, an
entity owned by Mr. Dan.
- On March 23, 2003 we received a bridge financing loan of $2,600,000.
- On May 10, 2005, our board of directors approved an additional
bridge financing loan of $1,500,000 from Clairmark Investments, an
entity owned by Mr. Dan.
- On May 10, 2005 our board of directors approved an additional bridge
financing loan of $1,500,000 from Mr. Leslie Dan.
WE MAY BE DEPENDENT ON STRATEGIC PARTNERS AS PART OF OUR PRODUCT DEVELOPMENT
STRATEGY, AND WE WOULD BE NEGATIVELY AFFECTED IF WE ARE NOT ABLE TO INITIATE OR
MAINTAIN THOSE RELATIONSHIPS.
If any of our product candidates advance to, and subsequently successfully
complete, Phase II clinical trials, we intend to either finance further clinical
development ourselves, or enter into strategic partnerships whereby third
parties will finance further clinical development, such as Phase III clinical
trials. We cannot assure you, however, that we will be able to find partners and
establish such relationships on favorable terms, if at all, or that any such
future arrangements will be successful.
17
Should any partner fail to develop or commercialize successfully any product
candidates to which it has rights, our business, financial condition, and
results of operations may be adversely affected. The failure of any
collaborative partner to continue funding any particular program, for any
reason, could delay or halt the development or commercialization of any products
arising out of a particular program. In addition, we cannot assure you that any
of our future partners would not pursue alternative technologies or develop
alternative product candidates either on their own or in collaboration with
others, including our competitors, as a means for developing treatments for the
diseases targeted by our programs.
EVEN IF OUR PRODUCT CANDIDATES RECEIVE ALL OF THE REQUIRED REGULATORY APPROVALS,
WE HAVE NO GUARANTEE OF MARKET ACCEPTANCE OR COMMERCIALIZATION OF THE RESULTING
PRODUCTS, WHICH WILL BE DETERMINED BY OUR SALES, MARKETING, AND DISTRIBUTION
CAPABILITIES AND THE POSITIONING AND COMPETITIVENESS OF OUR PRODUCTS, COMPARED
WITH ANY ALTERNATIVES.
Even if our product candidates receive all necessary regulatory approvals and
clearances, they may not gain market acceptance among physicians, patients,
healthcare payors, and the medical community. The degree of market acceptance of
any product that we may develop will depend on a number of factors, including
marketing and distribution support for the products, establishment and
demonstration of the cost-effectiveness of the products, and the potential
advantage of our products over any alternatives.
We currently do not have any sales, marketing, or distribution capabilities, and
therefore must either acquire or internally develop sales, marketing, and
distribution capabilities or make arrangements with third parties to perform
these services. If our product candidates demonstrate sufficient clinical
benefit to obtain regulatory approval for marketing, we intend to seek third
parties as partners to market, sell, and distribute such products. These
distribution partners may not promote our products as aggressively as we would
like, may not be successful in their sales and distribution efforts, or may fail
to promote our products altogether. Any of these events would have a material
adverse effect on our business, financial condition, and results of operations.
These events may also lead us to try to establish our own marketing and sales
force. The acquisition or development of a sales and distribution infrastructure
would require substantial resources, which may divert the attention of our
management and key personnel, and have a negative impact on our product
development efforts. Moreover, we may not be able to establish in-house sales
and distribution capabilities or relationships with third parties.
If successfully developed, our products will compete with a number of drugs and
therapies currently manufactured and marketed by major pharmaceutical and other
biotechnology companies. These products may also compete with new products
currently under development by other pharmaceutical and biotechnology companies,
and with products which may cost less than our products or may be more effective
than our products. If our products do not achieve significant market acceptance,
our business, financial condition, and results of operations will be materially
adversely affected.
REIMBURSEMENT PROCEDURES AND FUTURE HEALTHCARE REFORM MEASURES ARE UNCERTAIN AND
MAY ADVERSELY IMPACT OUR ABILITY TO SUCCESSFULLY SELL OR LICENSE ANY
PHARMACEUTICAL PRODUCT.
If any of our potential products is approved for commercialization by national
regulatory authorities, the extent of sales will depend upon the availability of
reimbursement from third-party payors such as Medicare in the United States and
similar government health administration authorities in other countries, as well
as private health insurers and other organizations. Our ability to successfully
sell or license any pharmaceutical product will depend in part on the extent to
which government health administration authorities, private health insurers and
other organizations will reimburse patients or providers for the costs of any
future pharmaceutical products and related treatments. Each jurisdiction has its
own regulatory scheme. Significant variation exists as to the reimbursement
status of newly approved healthcare products, and we cannot assure you that
adequate third party coverage will be available to establish price levels
sufficient for us to realize an appropriate return on our investment in
developing new products or for existing products. Increasingly, government and
other third-party payors are attempting to contain health care costs by limiting
both coverage and the level of reimbursement for new therapeutic products.
Reimbursement levels may be related to issues of cost-effectiveness, which are
evaluated differently in different jurisdictions. Inadequate coverage or
reimbursement could adversely affect market acceptance of our products.
Recently, the prices of medical products and services have been examined and
challenged by third parties and consumers of such products and services.
Successful challenges or government reform in this area could negatively affect
our profitability.
18
In the United States, government and other third-party payers have sought to
contain healthcare costs by limiting both coverage and the level of
reimbursement for new pharmaceutical products approved for marketing by the FDA.
In some cases, these payers may place conditions on the use of new products
which limit their market penetration or may refuse to provide any coverage for
uses of approved products to treat medical conditions even though the FDA has
granted marketing approval. Healthcare reform may increase these costs
containment efforts. U.S. managed care organizations and government health
insurance programs may seek to restrict the use of new products, delay
authorization to use new products or limit coverage. New rule making by the
Center for Medicare and Medicaid Services could affect drug coverage and
payments by Medicare. Internationally, where national healthcare systems are
prevalent, little if any funding may be available for new products, and cost
containment and cost reduction efforts can be more pronounced than in the United
States.
WE HAVE NO GUARANTEE THAT OUR PRESENT MANUFACTURING FACILITY WILL BE SUFFICIENT
FOR OUR NEEDS IN THE FUTURE.
Currently we manufacture our monoclonal antibody products in our own pilot
manufacturing facility. All manufacturing of biopharmaceutical products is
controlled by regulatory authorities. Methods of manufacture as well as
validation of manufacturing procedures and quality control systems are reviewed
by regulatory authorities, such as the FDA and Heath Canada to determine their
effect on the quality, purity and potency of products. All such manufacturing
procedures, validation programs and quality assessment activities must be
properly documented in accordance with regulatory requirements. Both the FDA and
Health Canada conduct inspections to determine compliances with "current good
manufacturing practices" or "cGMP's" to ensure that products used in human
testing are adequately characterized in terms of identity, potency and purity.
GMP standards become more stringent as the stage of human testing increases; and
material used in pivotal phase III trials is generally required to comport with
standards expected of marketed drugs..
Our manufacturing facility is not currently certified as a cGMP facility. If we
cannot demonstrate that our products are manufactured in accordance with cGMP
requirements, we may not be able to initiate clinical studies in the United
States. Comparable manufacturing requirements exist for other jurisdictions,
including Canada and the European Union.. If we cannot manufacture our products
under cGMP conditions in our own facility, the cost of outsourcing GMP
manufacturing to third parties would have a material adverse affect on our
business, financial condition and results of operations. Third party
manufacturers may not be able to meet our program needs for timing , quantity or
quality of materials; and we may encounter delays in the development of data
required for marketing approval. Any such delays may lower our revenues and
potential profitability.
COMPETITIVE PRODUCTS AND TECHNOLOGIES MAY REDUCE DEMAND FOR OUR PRODUCT
CANDIDATES AND TECHNOLOGIES.
Our success depends upon maintaining our competitive position in the research,
development, and commercialization of products and technologies in our area of
expertise. Competition from pharmaceutical, chemical and biotechnology
companies, and universities and research institutes is intense and expected to
increase. Many of these competitors have substantially greater research and
development capabilities, experience in manufacturing, marketing, financial, and
managerial resources than we do and represent significant competition for us. In
particular, we consider two companies, Seattle Genetics and Immunogen Inc., to
be our closest competitors because they employ armed antibodies to treat various
forms of cancer, although neither of them are using the armed antibodies method
to treat head and neck cancer or bladder cancer.
We cannot assure you that developments by others will not render our product
candidates or technologies non-competitive or obsolete, or that we will be able
to achieve the level of acceptance within the medical community necessary to
compete successfully. We are aware of several potential competitors that are at
various stages of development or that have commercial sales of products that may
address similar cancer indications. The success of our competitors and their
products may have a material adverse impact on our business, financial
condition, and results of operations.
Our Platform of Technologies
Our integrated platform of technologies is based on two key features: (i)
isolating the human immune response to cancer for monoclonal antibody
generation; and (ii) delivering cytotoxic protein payloads to tumors. We have
competitors in both of these areas as described below.
19
Monoclonal Antibody Generation
Our Hybridomics(TM) technology isolates antibodies from the human immune
system and is independent of the need for a known target antigen for antibody
generation. Unlike our antibodies, the antibodies generated by our competitors
may only be generated once an antigen target has been identified and isolated
and are not obtained from humans, although some of them are commonly referred to
as "human antibodies". Antibodies generated by our competitors fall into several
classes: murine, mouse-human chimeric, humanized, or "human". We are not aware
of any competitor companies generating fully human monoclonal antibodies.
Producers of humanized antibodies that are approved for sale in the United
States include Genentech, Inc. and Hoffmann-La Roche Ltd. (Herceptin(R)),
Genentech, Inc. (Avastin), Wyeth Inc. (Mylotarg(R)), ImClone Systems
Incorporated (Erbitux), Millennium Pharmaceuticals, Inc. and Ilex Oncology, Inc.
(Campath(R)), MedImmune, Inc. (Synagis(R)), and Centocor, Inc. (Remicade(R)).
Companies that develop products based on transgenic mouse antibodies include
Abgenix, Inc. (ABX-EGF) and Cambridge Antibody Technology Group plc and Abbott
Laboratories Limited (Humira(R)). Companies that develop products approved for
sale in the United States incorporating mouse-human chimeric antibodies include
Biogen IDEC Pharmaceuticals Inc., Genentech, Inc. and Hoffman-La Roche Ltd.
(Rituxan(R)), Centocor Inc. (ReoPro(R)), and Novartis Pharma AG (Simulect(R)).
Payload Delivery
The attachment of payloads to antibodies may make them more effective. Two of
our major competitors in the field of antibody payload development, Seattle
Genetics, Inc. and ImmunoGen, Inc., have principal payload technology based upon
small molecule cytotoxic drugs that require chemical conjugation through a
linker to attach the payload to the antibody. According to the web sites of
these companies, as of January 5, 2005, each of these two companies has three
products in clinical development, the most advanced of which are in Phase II
clinical trials. In addition, there are two radiolabelled antibodies approved
for sale in the United States, Zevalin(R) (Biogen IDEC Pharmaceuticals Inc.) and
Bexxar(R) (Corixa Corp. and GlaxoSmithKline plc). In contrast, our cytotoxic
protein payloads are directly linked to our antibodies and we believe this
production of the payload and antibody together lowers production costs and
enhances the stability of the linkage. In addition, our cytotoxic protein
payloads are not expected to have the problems of radioactive exposure
associated with radioisotope payload delivery.
OUR INDUSTRY IS CHARACTERIZED BY RAPID CHANGE AND A FAILURE BY US TO REACT TO
THESE CHANGES COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
The biotechnology industry is characterized by rapid and substantial
technological change. Alternative forms of medical treatment may render our
technologies or product candidates of lower or no value in the future. Our
future success depends on our ability to adapt to this change and keep pace with
new technological developments and emerging industry standards, and we cannot
assure you that we will be able to do so.
IF WE FAIL TO HIRE OR RETAIN NEEDED PERSONNEL, THE IMPLEMENTATION OF OUR
BUSINESS PLAN COULD SLOW AND FUTURE GROWTH COULD SUFFER.
Our success depends in large part upon our ability to attract and retain highly
qualified scientific and management personnel. Competition to retain personnel
in the biotechnology field from other companies, academic institutions,
government entities, and other organizations is intense. We cannot assure you
that we will retain our current personnel and will be able to continue to
attract qualified personnel, and any failure to do so could slow implementation
of our business plan or future growth. To date, however, we have had no
difficulties attracting and retaining highly qualified scientific and management
personnel. Additionally, none of our scientific or management personnel have
indicated that they have plans to retire or leave our company in the foreseeable
future.
THE LOSS OF THE SERVICES OF OUR PRESIDENT AND CHIEF EXECUTIVE OFFICER COULD HAVE
A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
We are highly dependent on the knowledge and services of our President and Chief
Executive Officer, Dr. Nick Glover. If we were to lose Dr. Glover's services, it
would be difficult and costly to find a replacement, it would have a severe
impact on the implementation of our business plans and our future growth would
suffer. We do not
20
have "key person" insurance with respect to Dr. Glover. We and Dr. Glover have
entered into an employment agreement that may be terminated by Dr. Glover on
three months' written notice or by us without prior notice for reasons of just
cause or disability. There are no other members of our management or scientific
staff whose departure could have a material effect on our business.
WE CONDUCT CERTAIN ELEMENTS OF OUR BUSINESS INTERNATIONALLY, AND THE DECISIONS
OF SOVEREIGN GOVERNMENTS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FINANCIAL
CONDITION.
We conduct certain elements of our business internationally. We have conducted a
clinical trial in Russia, and are conducting clinical trials in Brazil and
Canada. We intend to, and may conduct clinical trials in other jurisdictions.
Sovereign governments, including Canada, may establish laws or regulations that
will be deleterious to our interests or that will affect our ability, as a
foreign corporation, to obtain access to regulatory agencies in Russia, Brazil,
Canada, and any other jurisdictions. Governments have also, from time to time,
established foreign exchange controls which could have a material adverse effect
on our business, financial condition, and results of operations. To date,
neither our operations nor our financial condition have been materially impacted
due to laws or regulations of sovereign governments.
OUR OPERATING RESULTS MAY BE SUBJECT TO CURRENCY FLUCTUATIONS, AS OUR OPERATIONS
ARE BASED LARGELY IN CANADA, WHILE SOME OF OUR EXPENSES ARE IN U.S. DOLLARS OR
OTHER FOREIGN CURRENCIES.
Our operations are based in Canada, while some of our expenses, in particular
those related to clinical trials, are in U.S. dollars or currencies other than
Canadian dollars. In 2004, approximately 80% of our payments made in relation to
accounts payable were made in Canadian dollars, approximately 15.5% were made in
U.S. dollars and approximately 4.5% were made in other foreign currencies. The
exchange rates among the Canadian dollar, the U.S. dollar, and other foreign
currencies are subject to daily fluctuations in the currency markets and these
fluctuations in market exchange rates are expected to continue in the future. We
do not engage in currency hedging activities to limit the risks of these
fluctuations. We are subject to risks associated with these currency
fluctuations which may, from time to time, impact our financial position and
results of operations.
OUR INSURANCE MAY NOT BE SUFFICIENT AND WE MAY BE EXPOSED TO LAWSUITS AND OTHER
CLAIMS RELATED TO OUR PRODUCT CANDIDATES IN CLINICAL STUDIES AND PRODUCT
LIABILITY WHICH COULD INCREASE OUR EXPENSES, HARM OUR REPUTATION, AND KEEP US
FROM GROWING OUR BUSINESS.
The sale and use of human therapeutic products, including those products we are
developing, involve an inherent risk of product liability claims and adverse
publicity. Clinical studies include trials on humans. These studies create a
risk of liability for side effects to participants resulting from an adverse
reaction to the medications being tested or resulting from negligence or
misconduct. While we currently maintain limited insurance related to our ongoing
clinical trials, we cannot assure you that this insurance will continue to be
available to us on commercially reasonable terms. Any claims might also exceed
the amounts of this coverage. If we are unable to obtain our insurance at
reasonable rates or otherwise protect ourselves against potential liability
proceedings, we may be required to slow down any future development of products
or may even be prevented from developing the products at all. Our obligation to
pay indemnities or withdraw a product candidate from clinical trials following
complaints could have a material adverse effect on our business, financial
condition, and results of operations. Claims against us, regardless of their
merit or potential outcome, may also result in severe public relations problems
that could seriously damage our reputation and business viability.
In addition, certain drug retailers require minimum product liability insurance
coverage as a condition of purchasing or accepting products for retail
distribution. If any of our product candidates are successfully developed and
approved for commercial sale, failure to satisfy these insurance requirements
could impede our ability or that of any potential distributors of our products
to achieve broad retail distribution of these products, which would have a
material adverse effect on our business, financial condition, and results of
operations.
We believe that our insurance coverage is consistent with that of similar
companies in our industry. Our insurance coverage limitations are:
21
- General Commercial Liability: $5,000,000
- Property All Risks: $10,000,000
- Boiler & Machinery: $10,000,000
- Directors & Officers: $7,000,000
WE USE HAZARDOUS MATERIALS THAT ARE HIGHLY REGULATED AND WE MAY BE EXPOSED TO
POTENTIAL LIABILITY IN THE EVENT OF AN ACCIDENT INVOLVING THESE MATERIALS; OUR
COMPLIANCE WITH ENVIRONMENTAL REGULATIONS COULD BE COSTLY IN THE FUTURE.
Our discovery and development processes involve the controlled use of
radioactive and hazardous materials. We are subject to Canadian federal,
provincial, and local laws and regulations governing the use, manufacture,
storage, handling and disposal of these materials and certain waste products.
The risk of accidental contamination or injury from these materials cannot be
completely eliminated. In the event of an accident of this nature, we could be
held liable for any damages that result and any liability of this kind could
exceed our resources and, if so, we may have to cease operations. We have
general liability insurance which may not be sufficient to cover the cost of any
injuries or other damage sustained in respect of these risks. Our coverage
limitations under our insurance policies are described above under "-Our
insurance may not be sufficient and we may be exposed to lawsuits and other
claims related to our product candidates in clinical studies and product
liability which could increase our expenses, harm our reputation, and keep us
from growing our business". We cannot assure you that we will not be required to
incur significant costs to comply with environmental laws and regulations in the
future, or that our operations, business, or assets will not be materially
adversely affected by current or future environmental laws or regulations.
TEVA PHARMA B.V. HAS A RIGHT OF FIRST NEGOTIATION TO OBTAIN AN EXCLUSIVE LICENSE
TO DEVELOP AND DISTRIBUTE THE NEXT FIVE INDICATIONS OF PROXINIUM(TM) FOR WHICH
WE WOULD OTHERWISE SEEK A LICENSEE.
As of March 28, 2005 Teva holds 1,402,100 of our common shares, and warrants to
acquire 1,402,100 of our common shares at a price of $2.00 per share. The
warrants expire on September 10, 2008. Until September 10, 2008, or earlier if
triggered by us, so long as Teva holds any of our common shares, we have granted
to Teva a right of first negotiation to obtain an exclusive license to develop
and distribute the next five indications of Proxinium(TM) for which we would
otherwise seek a licensee. We are obligated to notify Teva in these
circumstances and to negotiate the terms of a license agreement with Teva for 60
days from the date of our notice to Teva on an exclusive basis. If we fail to
execute and deliver a license agreement at the end of this 60 day period, we are
free to negotiate the terms of a license with any third party, provided that the
terms offered to the third party are not materially more favorable than those
offered to Teva. This right of first negotiation could constrain our ability to
negotiate a license in respect of any of the next five indications of
Proxinium(TM) for which we would otherwise seek a licensee. In addition, this
right of first negotiation could discourage potential licensees from negotiating
with us in respect of a license for any of these indications.
AS WE ARE A CANADIAN COMPANY, THERE MAY BE LIMITATIONS ON THE ENFORCEMENT OF
CERTAIN CIVIL LIABILITIES AND JUDGMENTS OBTAINED IN THE UNITED STATES AGAINST
US.
We are continued under the laws of the province of Ontario, Canada and our
assets are located outside of the United States. Almost all of our directors and
officers, as well as the expert named in this registration statement, are
residents of Canada, and all or a substantial portion of our assets and the
assets of these persons are located outside of the United States. As a result,
it may not be possible for shareholders effect service of process within the
United States upon us or those persons. Furthermore, it may not be possible for
shareholders to enforce against us or them in the United States, judgments
obtained in U.S. courts based upon the civil liability provisions of the U.S.
federal securities laws or other laws of the U.S. Therefore, it may not be
possible to enforce those actions against us, most of our directors and officers
or the expert named in this registration statement. In addition, there is doubt
as to the enforceability, in original actions in Canadian courts, of liabilities
based upon the U.S. federal securities laws.
22
RISKS RELATED TO OUR COMMON SHARES
WE HAVE CONTROLLING SHAREHOLDERS WHO CAN MAKE DECISIONS RELATING TO OUR
CORPORATE MATTERS, DETERMINE THE OUTCOME OF AN ELECTION OF DIRECTORS, AND MAKE
FUTURE SALES OF THEIR COMMON SHARES, ANY OF WHICH COULD HAVE A MATERIAL ADVERSE
EFFECT ON THE PRICE OF OUR COMMON SHARES.
As at January 1, 2005, the Dan Group, which consists of Mr. Leslie Dan, his
daughter, Ms. Andrea Dan-Hytman, and companies that they control: 1401798
Ontario Limited, Clairmark Investments Ltd., Dan Family Holdings Ltd. and ADH
Investments (1999) Inc., collectively beneficially owned 57,372,635 common
shares, or approximately 91.9% of the common shares including their presently
exercisable options and other convertible securities. Consequently, the Dan
Group is, and will continue to be, in a position to determine the outcome of
corporate actions requiring shareholder approval, including: electing a majority
of the members of our board of directors; adopting amendments to our articles of
continuance and by-laws; and approving a merger or consolidation, liquidation,
or sale of all or substantially all of our assets. The Dan Group may have
interests that differ from yours. For example, the Dan Group may decide not to
enter into a transaction in which our shareholders would receive consideration
for their common shares that is much higher than the cost of their investment in
our common shares or the then applicable market price of our common shares.
Alternatively, the Dan Group can effectively hand pick our Directors and can
ensure that, in each election, our current Directors are either re-elected or
ousted, en mass. This level of control can lead to the entrenchment of our
management.
Any member of the Dan Group could decide to sell its common shares, subject to
applicable securities laws. We do not have any control over any decision that
any member of the Dan Group may make in the future regarding its continued
ownership of our common shares. If any member of the Dan Group pledges its
common shares as security for indebtedness, any realization on this security
could result in sale of these common shares. We cannot make any prediction as to
the effect, if any, a future sale of common shares of this nature may have on
the market price of our common shares. However, sales of substantial amounts of
common shares, or the perception that these sales could occur, could adversely
affect the market price of our securities. These sales also might make it more
difficult for us to sell securities in the future at a time and at a price that
we deem appropriate.
Mr. Dan is the Chairman of our board of directors, but no member of the Dan
Group is part of the management of our company.
WE HAVE NOT PAID, AND DO NOT INTEND TO PAY, ANY CASH DIVIDENDS ON OUR COMMON
SHARES AND THEREFORE OUR SHAREHOLDERS MAY NOT BE ABLE TO RECEIVE A RETURN ON
THEIR SHARES UNLESS THEY SELL THEM.
We have never paid dividends on our common shares and we do not expect to have
the ability to pay dividends in the foreseeable future. If we generate earnings
in the future, we expect that they will be retained to finance further growth
and, when appropriate, retire debt. Our board of directors will determine if and
when dividends should be declared and paid in the future based on our financial
position and other factors relevant at the particular time. Until we pay
dividends, which we may never do, you will not be able to receive a return on
your investment in our common shares unless you sell them, which you may only be
able to do at less than the price you paid for them.
THE MARKET PRICE AND TRADING VOLUME OF OUR COMMON SHARES MAY BE VOLATILE.
The market price and trading volume of our common shares on the TSX has
experienced significant volatility and will likely continue to do so, which has
been or could be in response to numerous factors, including:
- quarterly variations in operating results;
- market conditions in the industry;
- announcements of results of testing, technological innovations or
new product candidates or products by us, or the introduction of new
products by our competitors;
- our customers or competitors, government regulations, developments
concerning proprietary rights, litigation, and public concerns as to
the safety of our product candidates;
- announcements of acquisitions;
23
- general fluctuations in the stock market;
- revenues and results of operations below the expectations of the
public market; and
- the fact that most of our common shares are held by the Dan Group,
which may affect the volatility and liquidity of our common shares
because there is a limited number of shares available for trading by
persons other than the Dan Group.
Any of these factors could result in a sharp decline in the market price of our
common shares.
Since January 1, 2003, on a post-share consolidation basis, the trading price of
our common shares has ranged from a low of $1.40 per share to a high of $4.80
per share. Price fluctuations during that period were generally in keeping with
general trends in the stock price of biotech companies generally, but our stock
price increased in the fall of 2004 in response to the announcement of positive
Phase I clinical results for Proxinium(TM).
During 2004, an average of approximately 8,236 of our shares traded per day on
the TSX, although on some trading days our shares did not trade at all. In
addition, stock markets have occasionally experienced extreme price and volume
fluctuations. Historically, the market prices for the securities of
biopharmaceutical companies, including ours, have been particularly affected by
these market fluctuations, and these effects have often been unrelated to the
operating performance of these particular companies. These broad market
fluctuations may cause a decline in the market price of our common shares.
WE MAY NOT MEET THE RELEVANT AMEX LISTING CRITERIA, OR IF WE DO, THERE COULD BE
A LIMITED MARKET FOR OUR COMMON SHARES, WHICH COULD REDUCE LIQUIDITY AND
INCREASE VOLATILITY IN OUR TRADING PRICE.
We intend to apply to list our common shares for trading on Amex, but we cannot
assure you that our application, if made, will be approved. Even in the event we
are listed on Amex, we cannot assure you that an active trading market in our
common shares in the U.S. will be established, or, if established, sustained. As
noted in "The Offer and Price History -Price History", the market price and
trading volume of our common shares on the TSX is volatile.
In the event we are listed on Amex, the market price for our common shares on
Amex could be subject to wide fluctuations. The following factors may have a
significant impact on the market price of our common shares:
- quarterly variations in operating results;
- market conditions in the industry;
- announcements of results of testing, technological innovations or
new product candidates or products by us, or the introduction of new
products by our competitors;
- our customers or competitors, government regulations, developments
concerning proprietary rights, litigation, and public concerns as to
the safety of our product candidates;
- announcements of acquisitions;
- general fluctuations in the stock market;
- revenues and results of operations below the expectations of the
public market; and
- the fact that most of our common shares are held by the Dan Group,
which may affect the volatility and liquidity of our common shares
because there is a limited number of shares available for trading by
persons other than the Dan Group.
In addition, the stock market has from time to time experienced extreme price
and volume fluctuations, which have often been unrelated to the operating
performance of particular companies.
24
THE SIGNIFICANT COSTS THAT WE WILL INCUR AS A RESULT OF BEING A PUBLIC COMPANY
IN THE UNITED STATES AND CANADA COULD ADVERSELY AFFECT OUR BUSINESS.
We intend to apply to list our common shares on Amex, and if our application is
approved, we will incur significant legal, accounting and other expenses as a
public company on both Amex and the TSX. These expenses include, among others,
costs with respect to preparing securities regulatory filings, costs in
connection with compliance with the internal control audit provisions of the
Sarbanes-Oxley Act of 2002, costs in connection with other provisions of the
Sarbanes-Oxley Act, Amex listing fees and potentially higher director and
officer insurance premiums. We currently expect our annual compliance expenses
to increase by approximately $500,000 per year upon listing on Amex. In
addition, the requirements we will face by being listing on Amex will impose
significant time demands on our management. Although it has not yet been a
problem for us, becoming subject to the reporting obligations of the Exchange
Act could make it more difficult for us to attract and retain qualified
individuals to serve on our board of directors or as executive officers.
AS A FOREIGN PRIVATE ISSUER, WE ARE SUBJECT TO DIFFERENT U.S. SECURITIES LAWS
AND RULES THAN A DOMESTIC ISSUER, WHICH MAY, AMONG OTHER THINGS, LIMIT THE
INFORMATION AVAILABLE TO HOLDERS OF OUR SECURITIES.
As a foreign private issuer, we are subject to requirements under the Securities
Act and the Securities Exchange Act of 1934, as amended, or the Exchange Act,
which are different from the requirements applicable to domestic U.S. issuers.
For example, our officers, directors, and principal stockholders are exempt from
the reporting and "short-swing" profit recovery provisions of Section 16 of the
Exchange Act and the rules thereunder with respect to their purchases and sales
of our common shares. The periodic disclosure required of foreign private
issuers is more limited than the periodic disclosure required of U.S. issuers
and therefore there may be less publicly available information about us than is
regularly published by or about U.S. public companies in the United States.
Also, we are not required to comply with Regulation FD, which restricts the
selective disclosure of material information.
ITEM 4: INFORMATION ON THE CORPORATION
A. HISTORY AND DEVELOPMENT OF THE CORPORATION.
Viventia Biotech Inc. was incorporated in the Province of British Columbia,
Canada on November 14, 1983 under the name of Illecillewaet Exploration Ltd.
From our incorporation until 1995, we underwent various name changes,
reorganization transactions and continuances in various jurisdictions. On May
22, 1987, we filed articles of amendment changing the name of the corporation
from Illecillewaet Exploration Ltd. to Wirlwind Resources Ltd. On December 12,
1991, we filed articles of amendment changing the name of Wirlwind Resources to
Spirit Resources Ltd. On July 31, 1992, we were continued in the State of
Wyoming under the name Spirit Resources Ltd. On March 3, 1993 we completed a
merger between Hygeia Delaware, incorporated on July 2, 1992, and Spirit
Resources Ltd., forming Hygeia Delaware.
On July 12, 1995, we completed a merger between Hygeia Holdings, Inc.,
incorporated on April 4, 1995 in Wyoming, and Hygeia Delaware, forming Hygeia
Holdings, Inc. (Wyoming). On July 18, 1995 we completed a merger between Hygeia
Pharmaceuticals, Inc., incorporated on October 2, 1991 in California, and Hygeia
Holdings, Inc. (Wyoming) forming Hygeia Holdings, Inc. (Wyoming).
On July 21, 1995, we were continued in the Province of British Columbia under
the name Novopharm Biotech Inc. On July 28, 1995, Novopharm Biotech Inc.
completed a business combination with the Biotech Monoclonal Division of
Novopharm Limited to acquire certain biotechnology assets of Novopharm Limited.
On August 25, 1997, we completed an amalgamation with Genesys Pharma Inc. under
the name Novopharm Biotech Inc.
On July 9, 1998, we were continued under the Business Corporations Act
(Ontario), or OBCA, under the name Novopharm Biotech Inc. Until December 31,
1999, all of our research and development activities were conducted through
Novopharm Biotech Partnership I and Novopharm Biotech Partnership II. Both
entities were partnerships between us and Novopharm Limited.
25
Partnership I was wound up effective July 31, 1998, and from then until December
31, 1999, all of our research and development activities were carried out
through Partnership II. On the expiry of that partnership agreement, Partnership
II was wound up and all remaining assets were transferred to us. Effective
January 1, 2000, all of our research and development activities were carried out
through Novopharm Biotech Inc. and we began reporting the results of our
research and development activities and operations directly through our own
financial statements. No partnership or other arrangement exists between us and
Novopharm Limited.
On September 11, 2000, we filed articles of amendment to change our name to
Viventia Biotech Inc. The name change was required as a result of the sale of
Novopharm Limited in April 2000 to Teva Pharmaceutical. Although our company was
not included in this sale, ownership of the trade name "Novopharm" was
transferred to Teva Pharmaceutical, prompting the need to change our name. As a
result of our name change, on October 17, 2000, our common shares, which had
previously traded under the symbol "NBI", began trading under the symbol "VBI"
on the TSX.
On May 7, 2004, our shareholders approved a special resolution authorizing the
consolidation of our issued and outstanding common shares on a ten (10) for one
(1) basis, and we filed articles of amendment dated May 10, 2004 to give effect
to this consolidation. On May 12, 2004, our common shares began trading on a
consolidated basis on the TSX.
Our registered and head office is located at 10 Four Seasons Place, Suite 501,
Toronto, Ontario, Canada, M9B 6H7, our phone number is (416) 291-1277, our fax
number is (416) 335-9306 and our website address is www.viventia.com. The
contents of our website are not incorporated by reference into this registration
statement. We maintain an approximately 31,100 square foot manufacturing,
laboratory, warehouse, and office facility at 147 Hamelin Street, Winnipeg,
Manitoba, Canada, R3T 3Z1. Our agent for service in the United States is Torys
LLP, 237 Park Avenue, New York, USA, 00137 3142.
From 2000 to 2002, we were primarily focused on the development of our two prior
lead product candidates, VB2-011 (formerly H11) and 4B5, while concurrently
building our core platform technologies. During 2002, we moved from a strategy
of developing only two lead products to a strategy based on the development of
multiple product candidates. You should refer to " -Business Overview -Our
Platform of Technologies" in this registration statement for a discussion of our
current product candidates and strategy.
Investments in capital assets totaled $2,355,000 during the last three full
fiscal years and through March 31, 2005. These investments consisted primarily
of plant equipment, leasehold improvements and office computer equipment.
PERIOD CAPITAL EXPENDITURES CAPITAL DISPOSITIONS
- --------------------------------- -------------------- --------------------
Three Months Ended March 31, 2005 $ 1,069,000 $ 0
Year ended December 31, 2004 $ 931,000 $ 175,000
Year ended December 31, 2003 $ 223,000 $ 6,000
Year ended December 31, 2002 $ 132,000 $ 38,000
Work on the upgrading of the Winnipeg facility was completed in May 2005.
There is no indication of any public takeover offers by third parties in respect
of our common shares or by us in respect of other companies' common shares which
have occurred during the last or current financial year.
B. BUSINESS OVERVIEW.
OVERVIEW
We are a biopharmaceutical company specializing in the discovery and development
of fully human monoclonal antibody therapies for the treatment of cancer. We
currently have a lead product candidate in Phase I clinical development,
Proxinium(TM), formerly VB4-845, for the treatment of head and neck cancer and
bladder cancer. We also have several other product candidates, one of which,
VB6-845 is in active pre-clinical development. Our platform of technologies is
based upon the isolation of human monoclonal antibodies obtained from cancer
patients and the development of those antibodies to deliver cytotoxic (cancer
killing) "payloads" to cancer cells. We believe
26
that our platform has the potential to develop safer, more potent anti-cancer
therapeutics than those that are currently available. We have a manufacturing
facility that is intended to produce multiple product candidates per year, and
that we believe will produce sufficient quantities of our Armed Antibodies(TM)
to meet our currently anticipated pre-clinical and clinical trial needs.
OUR DEVELOPMENT PLANS
PROXINIUM(TM) FOR HEAD AND NECK CANCER
Our second Phase I clinical trial, which we refer to as "Dosing Schedule 2", was
completed in March 2005. Patient enrollment was completed in January, 2005. We
intend to collate safety and efficacy data obtained from both our first Phase I
clinical trial, which we refer to as "Dosing Schedule 1", and Dosing Schedule 2
in order to establish the optimal dose schedule and drug concentration for
Proxinium(TM) treatment in this patient population. Refer to "Our Armed
Antibodies(TM) Pipeline -Proxinium(TM) -Our Lead Product Candidate
- -Proxinium(TM) for the Treatment of Head and Neck Cancer" in this registration
statement for a discussion of Dosing Schedule 1 and Dosing Schedule 2. On March
29, 2005 we reported preliminary results from an exploratory Phase I efficacy
trial using direct intratumoral injection of Proxinium(TM) as a monotherapy for
the treatment of patients with recurrent, refractory head & neck cancer.
Preliminary efficacy analysis showed that 25% of the 16 evaluable patients who
expressed the therapeutic target for Proxinium(TM) had a complete response to
therapy (complete disappearance of treated tumor); 63% had an objective response
(significant or partial shrinkage of treated tumor); and 88% had tumor growth
control (objective response or stabilization of disease). The drug was reported
to have a good safety profile and was well tolerated, consistent with previous
results. Given these results, and the recent granting of Orphan Drug designation
by the FDA, we are advancing our plans to begin our first pivotal study for
Proxinium(TM) by the end of 2005. After meeting with the FDA in March 2005, we
now have clear direction as to how to advance our clinical program for
Proxinium(TM) in the United States.
PROXINIUM(TM) FOR BLADDER CANCER
We anticipate that our Phase I clinical trial being conducted in Canada will be
completed by the end of the third quarter of 2005. If the results of this trial
are successful, we expect to submit a Phase II clinical trial protocol for
approval to the FDA and other jurisdictions by the fourth quarter of 2005. If
this application is successfully approved, we anticipate that a Phase II
clinical trial could begin by the end of the fourth quarter of 2005 and we would
attempt to complete enrollment in approximately 18 months.
VB6-845 FOR OVARIAN CANCER
We anticipate that the preclinical safety and efficacy studies for our next drug
candidate, VB6-845, for the treatment of ovarian cancer, will be completed by
the end of the second quarter of 2005. If these studies are successful, we
intend to submit a clinical trial application for approval in the third quarter
of 2005. The appropriate jurisdiction in which to conduct this clinical study,
if commenced, is under consideration.
OTHER PRODUCT CANDIDATES
We intend to continue to advance the research and development of certain other
potential product candidates in 2005, with an expectation that at least one
candidate product will enter into preclinical safety and efficacy studies by the
end of 2005. We intend to continue our discovery and screening research
throughout 2005 with a view to continuing to add to our portfolio of monoclonal
antibodies.
OUR PRODUCT DEVELOPMENT STRATEGY
Our product development strategy is based on building a discovery and
development engine to move monoclonal antibodies from discovery through
pre-clinical testing and into clinical trials. We use the immune response of
cancer patients for antibody generation and target discovery. Our product
development strategy is designed to meet two key needs in the pharmaceutical
industry:
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- the need to accelerate the introduction of new products that address
unmet medical needs more quickly than current industry norms; and
- the need to fill product development pipelines as patent protection
expires.
In order to meet these needs, we focus on three key strategic research and
development initiatives:
- Developing a Broad Antibody Portfolio. We have developed a means to
obtain anti-cancer antibodies from cancer patients and select the
most promising antibodies from those obtained to add to our
portfolio as potential development candidates. Our integrated
platforms, Hybridomics(TM), ImmunoMine(TM), and UnLock(TM),
facilitate the discovery of both human monoclonal antibodies and
their corresponding antigen targets. For a discussion of our
platforms, refer to " -Our Platform of Technologies" in this
registration statement.
- Building a Promising Product Pipeline. We are building a monoclonal
antibody product pipeline of Armed Antibodies(TM) that we believe
has therapeutic and commercial potential for the treatment of many
forms of cancer. Our approach to cancer therapy is based upon
engineering our antibodies with cytotoxic protein payloads in order
to develop safer, more potent cancer therapies than are currently
available. For a discussion of our product candidates, refer to "
-Our Armed Antibodies(TM) Pipeline" and " -Our Platform of
Technologies" in this registration statement.
- Leveraging our In-house Product Development and Manufacturing
Capabilities. Our in-house expertise and capabilities in process
development and manufacturing allow us to reduce product development
timelines by manufacturing antibodies for research and preclinical
testing and subsequently transferring production into our
fermentation suite to manufacture material intended for use in
clinical trials. This particular advantage also reduces costs
compared to contracting third party process development and
manufacturing.
OUR BUSINESS MODEL
We believe that our product development strategy identified above provides us
with multiple opportunities for value creation. Our business model has two
central elements that leverage our research and development initiatives,
capabilities and core competencies:
- ENTERING INTO SALES AND MARKETING PARTNERSHIPS. We intend to
discover and develop multiple lead product candidates and advance
them through to clinical trials. If any of our product candidates
successfully advance to and complete Phase II clinical trials, we
intend to either finance further clinical development ourselves or
enter into strategic partnerships with third parties in order to
finance further clinical development, such as Phase III clinical
trials. Ultimately, we intend to seek third parties as partners to
market, sell and distribute any of our products that may be
approved. Refer to "Risk Factors" and "Major Shareholders and
Related Party Transactions -Related Party Transactions -Teva Pharma
B.V." in this registration statement.
- OUT-LICENSING ANTIBODIES AND TECHNOLOGIES. We believe one of the
benefits of our integrated platform is that we generate more
antibodies than we are able to develop ourselves. We plan to license
to third parties those antibodies from our portfolio which we do not
intend to develop and have already entered into arrangements to do
so. In addition, we intend to out-license certain of our payload
technologies to third parties.
ABOUT MONOCLONAL ANTIBODIES
Antibodies are naturally occurring proteins produced by the B-cells of the human
immune system, and serve as an important defense against disease and infection.
Human B-cells produce millions of different types of antibodies, all with a
unique molecular structure that cause them to attach to and neutralize specific
disease targets, referred to as antigens. For example, certain antibodies seek
out and attach to viruses, bacteria, or diseased cells, making them susceptible
to destruction by the human immune system. A single B-cell produces only one
type of antibody referred to as a monoclonal antibody, and, conceptually similar
to a lock and key mechanism, each monoclonal antibody (the key) has a unique
molecular structure that directs it to a specific target antigen (the lock).
Researchers
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discovered that this antibody response could be replicated for therapeutic
benefit and this resulted in a number of approved antibody drugs.
THE EVOLUTION OF MONOCLONAL ANTIBODY TECHNOLOGY
The first generation of monoclonal antibody technology designed to replicate the
human body's defense mechanism consisted of antibodies obtained from mice
(murine) and later chimeric antibodies (derived from a combination of mouse and
human protein sequences). These early antibodies found application in the
diagnosis and treatment of certain cancers, such as non-Hodgkin's lymphoma.
These antibodies contain mouse protein sequences and, as a result, the human
immune system tends to recognize them as foreign. When this recognition occurs,
the human body quickly neutralizes and eliminates them, necessitating frequent
administration of the antibodies to have any therapeutic effect. When patients
are repeatedly treated with mouse or chimeric antibodies, they begin to produce
their own antibodies that effectively neutralize the therapeutic antibody, a
reaction referred to as a "human anti-mouse antibody", or HAMA, response. In
many cases, the HAMA response prevents the antibodies from having the desired
therapeutic effect and may cause the patient to have a potentially life
threatening allergic reaction known as anaphylaxis. Recognizing this limitation,
over the last ten years, improvements in the technology have permitted the
creation of second generation humanized antibodies, in which the mouse antibody
is engineered to appear more human than mouse to the human immune system.
Despite this development, these antibodies still frequently elicit a HAMA
response. Most recently, so-called "human" monoclonal antibodies have been
developed that may be regarded as the third generation of antibodies. These
antibodies are commonly developed according to two broad technologies: phage
display and transgenics. While these "human" antibodies theoretically contain a
higher level of human protein sequence than their corresponding humanized,
chimeric, or murine counterparts, unlike our antibodies, they are not human in
origin, but have been generated through laboratory techniques using antibodies
attached to the cell surfaces of bacterial viruses (phage display technology),
or through artificial genetic recombination of mouse genes and human genes
(transgenic technology) to produce synthetic antibodies having target
recognition and other qualities similar to that of human antibodies.
According to a 2002 industry survey by the Pharmaceutical Research and
Manufacturers of America, or PhRMA, antibodies accounted for over 20% of all
biopharmaceutical products in clinical development. There are a number of
monoclonal antibody products that are currently being marketed in the United
States for a wide range of medical disorders such as cancer, transplant
rejection, cardiovascular disease, and infectious diseases. Combined worldwide
sales of two monoclonal antibody products for the treatment of cancer,
Rituxan(R) (non-Hodgkin's lymphoma) and Herceptin(R) (breast cancer),
represented approximately US$2.0 billion in revenues in 2003. For a discussion
of other monoclonal antibody products, refer to " -Competition" in this
registration statement.
OUR APPROACH TO MONOCLONAL ANTIBODIES
We have developed an approach in the field of monoclonal antibodies that we
believe has certain distinctive competitive advantages over other technologies
and therapeutic approaches. Our integrated platform is based on two key
features:
- Isolating the Human Antibody Response to Cancer. In normal
physiology, the human immune system recognizes cancer cells as being
abnormal and produces antibodies against those cancer cells. We have
developed the means to obtain anti-cancer antibodies from cancer
patients and to select the most promising antibodies from those
obtained to add to our portfolio as potential drug development
candidates. We believe that an advantage of our fully human
monoclonal antibodies is that the human body is less likely to
respond to them as foreign (as may be the case with mouse, chimeric,
or humanized antibodies) and, as such, it is less likely to
neutralize them. In addition, our discovery and development
platforms eliminate many of the steps involved in standard
approaches to monoclonal antibody research, and, as a result, we
believe that our development timelines from antibody discovery to
the start of clinical trials may be reduced from an industry average
of over six years to less than 18 months. For a description of our
discovery and development platforms refer to " -Our Platform of
Technologies" in this registration statement.
- Delivering Potent Payloads. Our approach to cancer therapy is based
upon engineering our antibodies with cytotoxic protein payloads to
create our Armed Antibodies(TM). We have developed technologies in
29
cytotoxic protein delivery that have the potential to offer safer,
more beneficial therapies for cancer patients. Our pre-clinical and
preliminary Phase I clinical data suggest that targeted delivery of
our cytotoxic payloads may lead to fewer side effects than standard
chemotherapy due to less damaging toxicity to healthy, non-cancerous
tissue. In addition, we are developing our payloads to be more
potent than current anti-cancer drugs in order to increase their
effectiveness against tumors.
We believe the key advantages of our integrated platform of technologies are:
- Selectivity. Our ImmunoMine(TM) process selectively identifies
antibodies that react with cancerous cells. Pre-clinical data
indicate that our Armed Antibodies(TM) bind preferentially to
antigens expressed on the surface of cancer cells over normal,
healthy cells. As part of our screening program, we specifically
rule out antibodies that bind to critical normal tissues.
- Tumor-Activated Potency. Pre-clinical data suggest that our
cytotoxic protein is only activated once inside the cancer cell, and
can be at least 10,000 times more potent than current anti-cancer
drugs.
- Safety. We believe that our Armed Antibodies(TM) may be safer and
more tolerable for patients than existing anti-cancer drugs due to
their selectivity to cancer cells and their tumor-activated potency.
- Compatibility. Pre-clinical data suggest that neither our
human-generated Hybridomics(TM) monoclonal antibodies nor our
cytotoxic protein will be neutralized by the human immune system.
- Patient Benefit. Based on these key properties and advantages, we
believe that therapy using our Armed Antibodies(TM) may achieve a
more beneficial therapeutic outcome for cancer patients.
OUR ARMED ANTIBODIES(TM) PIPELINE
The following chart illustrates our current view of the stage of development of
each of our product candidates.
PRODUCT
CANDIDATE INDICATION STAGE OF DEVELOPMENT STATUS
- --------- -------------------- -------------------- ----------------------------------
Proxinium(TM) Head and neck cancer Phase I Clinical trial completed in Russia
Head and neck cancer Phase I Clinical trial completed in Brazil
Bladder cancer Phase I Actively enrolling in Canada
VB6-845 Ovarian cancer Pre-clinical Preclinical efficacy and safety
studies in progress
VB6-050 Solid tumors Pre-clinical Research
VB6-008 Solid tumors Pre-clinical Research
VB6-011 Solid tumors Pre-clinical Research
The process of the development and commercialization of biopharmaceutical
products is a lengthy one. Our products are at an early stage of development and
we cannot assure you when, if ever, they may be commercialized. For a discussion
of the regulatory process and the risks associated with the development and
commercialization of our product candidates, refer to "Biopharmaceutical
Regulatory Matters" and "Risk Factors" in this registration statement.
PROXINIUM(TM) -OUR LEAD PRODUCT CANDIDATE
Our development rationale for Proxinium(TM), formerly known as VB4-845, is
based upon pre-clinical safety and efficacy studies. Data derived from our
pre-clinical studies demonstrate that Proxinium(TM) binds to its cell surface
target and is internalized into the cell, leading to activation of its cancer
killing payload. In several mouse models, Proxinium(TM) has been shown to
shrink large tumors that have been grown in the mice, and has generated complete
tumor regressions in a significant number of these mice. Pre-clinical safety
studies conducted on 27 animals
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suggested that Proxinium(TM) therapy should be safe and well tolerated in
humans. We are currently developing Proxinium(TM) for the treatment of two
clinical indications: head and neck cancer and bladder cancer.
Proxinium(TM) for the Treatment of Head and Neck Cancer
We have chosen to develop our lead product candidate Proxinium(TM) initially
for the treatment of locally recurrent head and neck cancer. Head and neck
cancer consists of soft tissue tumors of the larynx, tongue, mouth, oral cavity,
and pharynx. Globally, head and neck cancer is the sixth most common form of
cancer. In the United States, the American Cancer Society estimated that there
would be approximately 28,260 new cases of head and neck cancer diagnosed in
2004. Only a small number of advanced head and neck tumors can be treated by
surgery or radiation therapy, and medical literature provides that single agent
chemotherapy has demonstrated a less than 10% success rate to date.
Our Phase I clinical development strategy for Proxinium(TM) for the treatment
of head and neck cancer is to test two dosing schedules, each one in a separate
clinical trial. One of these trials has already been completed in Russia and one
has completed enrollment in Brazil. These clinical trials were primarily
designed to establish the safety profile and tolerability of Proxinium(TM) in
patients with locally recurrent head and neck cancer. In addition, these studies
were intended to provide a preliminary assessment of the effectiveness of the
drug over an escalating dose range. We intend to employ a dosing schedule based
on the most effective of these two dosing schedules in a subsequent Phase II
clinical trial, which we intend to hold in North America, subject to regulatory
approval.
Our two dosing schedules are as follows:
- Dosing Schedule 1. We have recently completed the enrollment of
patients in an open-label Phase I clinical trial. This study was
performed in Russia, a country in which there is a high incidence of
head and neck cancer and was completed in just over eight months
duration. The clinical research organization we used in Russia to
conduct this clinical trial has advised us that it has previously
supervised clinical trials for other companies and the data
generated from those trials have been used to support certain New
Drug Applications, or NDAs, in the United States. Patients enrolled
in this study had advanced head and neck cancer and continuing
disease progression, and the majority had failed previous courses of
surgery, chemotherapy and/or radiotherapy. The study demonstrated
the safety and tolerability of Proxinium(TM) monotherapy over an
escalating dose range. Proxinium(TM) treatment resulted in several
independently verified clinical responses. Of the 24 patients that
were dosed in the study, 17 patients expressed the therapeutic
target for Proxinium(TM), from which 14 patients were evaluated
for their response to treatment. Of those 14 patients, two patients
experienced significant tumour regressions of their treated lesions
and four other patients experienced minor tumour regressions,
yielding an objective response rate of 43%. Four other patients had
stable disease following Proxinium(TM) treatment. Tumour growth
control (objective responses plus stable disease) was therefore
achieved in 71% of treated lesions.
- Dosing Schedule 2. We are currently testing the second dosing
schedule for Proxinium(TM)for the treatment of head and neck
cancer in a second Phase I clinical trial being carried out in five
clinical centers in Brazil, a country in which there is also a high
incidence of head and neck cancer. The clinical research
organization we are using in Brazil to conduct this clinical trial
has advised us that it has previously supervised clinical trials for
other companies in Brazil and the data generated from those trials
have been used to support certain NDAs in the United States. 20
patients have been dosed in this clinical trial and enrollment is
completed. On March 29, 2005 we reported preliminary results from an
exploratory Phase I efficacy trial using direct intratumoral
injection of Proxinium(TM) as a monotherapy for the treatment of
patients with recurrent, refractory head & neck cancer. Preliminary
efficacy analysis showed that 25% of the 16 evaluable patients who
expressed the therapeutic target for Proxinium(TM) had a complete
response to therapy (complete disappearance of treated tumor); 63%
had an objective response (significant or partial shrinkage of
treated tumor); and 88% had tumor growth control (objective response
or stabilization of disease). The drug was reported to have a good
safety profile and was well tolerated, consistent with previous
results. Given these results, and the recent granting of Orphan Drug
designation by the FDA, we are advancing our plans to begin our
first pivotal study for Proxinium(TM) by the end of 2005. After
meeting with the FDA in March 2005, we now have clear direction as
to how to advance our clinical program for Proxinium(TM) in the
United States.
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We received orphan drug designation from the FDA on February 3, 2005 for
Proxinium(TM) for the treatment of advanced, recurrent head and neck cancer.
The U.S. Orphan Drug Act provides financial, regulatory and marketing incentives
to companies to help facilitate the development and marketing of drugs for the
treatment of rare diseases or conditions that affect fewer than 200,000 patients
in the United States. Orphan drug designation entitles Viventia to various
incentives, including seven years of market exclusivity in the United States if
Proxinium(TM) receives marketing approval by the FDA.
Orphan drug status is granted to a company for a specific drug product for a
specific indication. Other drug products may receive orphan drug status for a
similar or perhaps identical indication. If this were to happen, Proxinium(TM)
would compete in the marketplace on equal terms with all drug products granted
orphan drug status for the treatment of head and neck cancer. As with all drug
products, the success of Proxinium(TM) would be based on certain factors
including: price, effectiveness and ease of administration. If we were to be
faced with this competition, particularly from other products with orphan drug
status, we believe that the economic advantages of having orphan drug status
would be reduced or eliminated.
Proxinium(TM) for the Treatment of Bladder Cancer
The American Cancer Society estimated that over 60,000 new cases of urinary
bladder cancer would be diagnosed in the United States during 2004. Based on
pre-clinical testing of Proxinium(TM) in various in vitro models of bladder
cancer, a disease in which the antigen target for Proxinium(TM) has been
amplified, we have determined that Proxinium(TM) has extremely low reactivity
with normal bladder tissue at clinically relevant doses, and, based on this
data, we believe it should be safe and well tolerated in humans. If our Phase I
clinical data are positive, we intend to develop Proxinium(TM) for the
treatment of bladder cancer patients who have failed prior standard therapies,
and for whom surgery to remove the bladder is frequently the only recommended
therapeutic option. We are not aware of any products currently approved in North
America for the treatment of this class of patient. We have received approval
from Health Canada to commence a Phase I clinical trial for the treatment of
bladder cancer, and are actively enrolling patients to this study. In the fourth
quarter of 2004, we received approval of a protocol amendment submitted to
Health Canada to increase the dose administered and we expect to enroll up to 40
patients in this study.
OUR NEXT PRODUCT CANDIDATES
VB6-845, VB6-050, VB6-008, VB6-011 for the Treatment of Solid Tumors
These pre-clinical Armed Antibodies(TM) consist of monoclonal antibodies from
our portfolio engineered with our proprietary cytotoxic protein. In our
pre-clinical testing, these antibodies have been shown to bind to distinct
antigens found on a variety of solid tumors, such as ovarian, breast, prostate,
and lung cancers. We have demonstrated that VB6-845 has effective cancer cell
killing properties in pre-clinical tests. We are currently producing
pre-clinical batches of VB6-845 in our manufacturing facility. We have initiated
animal efficacy studies and safety studies for VB6-845 for the treatment of
ovarian cancer. VB6-050, VB6-008 and VB6-011 are currently in early stage
research testing.
OUR PLATFORM OF TECHNOLOGIES
Our approach to the field of antibody therapeutics is to use the human immune
response to cancer which generates human monoclonal antibodies in response to
exposure to a corresponding antigen target on the surface of the cancer cell.
This is in contrast to the industry standard approach in the field of monoclonal
antibody research, which involves first identifying an antigen and validating
its relevance as a cancer target, and then generating antibodies against that
antigen through a variety of means. Subsequent development may involve improving
upon the properties of the antibody to enable clinical development. Our
discovery and development approach eliminates these stages and, as a result, we
believe that our development timelines from antibody discovery to the start of
clinical trials may be reduced from an industry average of over six years to
less than 18 months. This anticipated reduction in development timelines is
based on the successful integration of our technology platforms:
Hybridomics(TM), ImmunoMine(TM), UnLock(TM), and Armed Antibodies(TM).
32
Hybridomics(TM)
We have developed an antibody discovery platform that employs the human immune
response to cancer. Hybridomics(TM) is based on technology used to isolate human
antibodies obtained from cancer patients. The first step in this process is the
acquisition of clinical samples from cancer patients, from which we isolate
immune cells. These clinical samples are used to create an antibody-producing
"hybridoma" cell, formed by fusing the cancer patient's immune cells with a
second, immortalized cell. These hybridoma cells act as antibody producing
"factories" from which we isolate the human antibodies which enter our screening
process, ImmunoMine(TM).
ImmunoMine(TM)
ImmunoMine(TM) is a high-throughput screening platform that we have built to
characterize the monoclonal antibodies we have obtained from cancer patients in
order to select the most promising antibodies for their ability to deliver
cell-killing payloads selectively to cancer cells. ImmunoMine(TM) consists of a
rapid screening "funnel" that distinguishes human antibodies that react
specifically with cancer cells and not normal tissues from those that do not
have those properties. Antibodies that successfully complete our ImmunoMine(TM)
screening process are then added to our portfolio of tumor selective monoclonal
antibodies.
UnLock(TM)
We begin the UnLock(TM) antigen identification research program when a promising
antibody reaches an advanced stage of the ImmunoMine(TM) screening process.
UnLock(TM) is our protein characterization platform that we have built to
identify the antigen targets of our monoclonal antibodies and is based upon
leading-edge protein identification tools and techniques. Using the immune
response to cancer as a drug discovery approach provides us with an opportunity
to isolate antibodies that target specific antigens only found on the surface of
cancer cells. Our approach is in contrast to the industry standard approach in
monoclonal antibody research, which involves first identifying an antigen and
determining its relevance as a cancer target, and then generating antibodies
through a variety of means. The integration of our Hybridomics(TM),
ImmunoMine(TM), and UnLock(TM) platforms provides us the potential to discover
unique human monoclonal antibodies and their corresponding novel antigen
targets.
Armed Antibodies(TM)
Used alone, antibodies have the potential to recognize tumor cells but are
frequently not potent enough to provide a significant medical benefit to the
patient. An alternative use of antibodies that makes them more effective
therapeutics is to link them with cancer killing payloads. Potential payloads
include radioisotopes or small molecule cytotoxic drugs. We believe that our
Armed Antibodies(TM) platform, which is based upon engineering our antibodies
with potent, cytotoxic proteins, represents an evolution in both payload
delivery technology and protein drug manufacturing.
The human body typically recognizes cytotoxic proteins as foreign and
neutralizes them, limiting their therapeutic potential. To alleviate this
constraint, we have modified a cytotoxic protein we had previously licensed by
identifying and removing various regions of the cytotoxic protein that the human
immune system could have potentially recognized and subsequently neutralized.
Pre-clinical data indicate that this modified cytotoxic protein retains all of
its cancer killing activity but will not be recognized or neutralized by the
human immune system. We intend to engineer this protein with our monoclonal
antibodies to generate Armed Antibodies(TM) for development as potent
anti-cancer therapeutics.
OUR MANUFACTURING CAPABILITIES
According to a number of biopharmaceutical industry sources, as cited in
articles published in Red Herring, ContractPharma, Betterhumans, BusinessWeek,
Hum-Molgen and a research report published by UBS Warburg, a worldwide shortage
of biologics manufacturing facilities currently exists and is expected to
persist for some time, which has the potential to have a negative impact on the
movement of new biopharmaceutical products, both into clinical development and
into commercial sales. This is why we believe that our in-house manufacturing
capability is a valuable asset for us.
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The biopharmaceutical manufacturing infrastructure at our 31,100 square foot
facility in Winnipeg, Manitoba consists of a classified fermentation suite and
post-production processing capabilities currently dedicated to producing our
Phase I clinical trial batches and clinical trial batches for any future Phase
II clinical trials. We have fully integrated research, process development, and
manufacturing facilities, which we believe have the potential to reduce product
development timelines and increase the probability of successful scale-up for
commercialization. Our capabilities span all phases of the antibody production
process, including the production of whole antibodies, antibody fragments,
cytotoxic proteins, and Armed Antibodies(TM).
Our manufacturing facility is intended to produce multiple product candidates
per year and we believe it will produce sufficient quantities of our drug
candidates to meet our currently anticipated clinical trial needs. In addition,
we believe that our in-house production capabilities will allow us to supply our
pre-clinical, quality, and product archiving requirements. We are currently
manufacturing Proxinium(TM) in our manufacturing facility to supply materials
for our clinical trials.
INTELLECTUAL PROPERTY
Our success depends, in part, on our ability to obtain and enforce patent and
other intellectual property rights in respect of our antibody discoveries,
cytotoxic proteins, and elements of, and improvements to, our technology
platform and processes. We pursue patent coverage for our intellectual property
in countries where we believe a substantial market for our product candidates
exists. As described below, certain of our product candidates are the subject of
patents and patent applications that we have licensed from third parties.
Typically, license agreements expire on the expiration of the last patent
licensed pursuant to the agreement.
Our know-how and technology may not be patentable or we may, for strategic
business reasons, elect not to patent our know-how and technology, though they
may constitute trade secrets. To help protect our intellectual property rights,
we require all of our employees to enter into a standard confidentiality and
business ethics agreement which includes non-competition obligations. In
addition, each employee is required to sign an acknowledgement that the employee
has read and agrees to comply with our code of conduct including an
acknowledgement that all research information and inventions remain our sole and
exclusive property. Our consultants, advisors and collaborators are required to
enter into non-disclosure agreements. We cannot assure you, however, that any of
these agreements will provide meaningful protection for our trade secrets,
know-how, or other proprietary information in the event of any unauthorized use
or disclosure. For a further discussion of this risk, refer to "Risk Factors" in
this registration statement.
INTELLECTUAL PROPERTY RELATING TO OUR PRODUCT CANDIDATES
Proxinium(TM), VB6-845, VB6-050, VB6-008, and VB6-011
In January 2003, we exclusively licensed, on a worldwide basis, the rights to
certain patent applications relating to the antibody used in Proxinium(TM) and
VB6-845 from The University of Zurich, Switzerland. We are currently in the
process of negotiating a license agreement in respect of one form of the
antibody of our Proxinium(TM) product candidate. The payload used for VB6-845 is
discussed below under "-Intellectual Property Relating to Our Platform of
Technologies -Armed Antibodies(TM)".
Pursuant to the Zurich license, we have exclusively licensed, on a world-wide
basis, the rights to six patent applications related to our lead product
candidate Proxinium(TM), of which two are in the United States, one is in each
of Canada, Europe and Japan and one is an international application that relates
to the use of Proxinium(TM) in the treatment of head and neck cancer (squamous
cell carcinomas) and bladder cancer.
The Zurich license provides that we make certain milestone payments to The
University of Zurich in respect of certain stages of regulatory approval reached
by a product candidate based on this antibody. In addition, we are obligated to
pay royalties to The University of Zurich in respect of net sales of any product
generated using this antibody, less certain amounts payable to third parties.
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We have the obligations:
- to make the records related to the agreement available to The
University of Zurich for inspection and audit;
- to diligently proceed with the development, manufacture and sale of
licensed products;
- to use reasonable efforts to promote the sale of licensed products;
- to obtain all necessary government approvals for the manufacture,
use and sale of licensed products; and
- to submit reports to The University of Zurich on a regular basis.
The University of Zurich must prosecute and maintain the patents and
applications in patent rights, provided that we reimburse it for patent costs
(preparation, filing, prosecution, and maintenance). The University of Zurich
must provide us with drafts of all applications and papers it plans to file with
any patent office at least 30 days before filing, and copies of all
communications from patent offices promptly after receipt of them. We must apply
for an extension of the term of any patent in patent rights if appropriate under
the U.S. Drug Price Competition and Patent Term Restoration Act and/or European,
Japanese and other counterparts of them.
In 1994, we exclusively licensed, on a worldwide basis, the technology that we
used to generate our VB6-050, VB6-008, and VB6-011 product candidates from
McGill University. This license provides us with a fusion partner cell line that
can be used to generate hybridomas from human immune cells. We pay an annual
maintenance fee, and are obligated to pay milestone payments in respect of
certain regulatory approvals and royalties on commercialization of any products.
We intend to seek patent protection in respect of the composition of matter and
therapeutic uses of these product candidates.
As of the date of this registration statement, we had 18 patents and patent
applications relating to VB6-011 in the United States, Canada, the European
Union, and other countries, of which we have been granted five patents in the
United States, Australia, New Zealand, and Singapore. Three of these five
patents expire on May 22, 2017, one expires on May 22, 2016 and one expires on
October 22, 2017. One of our pending Australian patent applications, which is a
Divisional application to a granted patent, has been allowed, and no notice of
opposition has been received during the three month opposition period. The
expiry date for this Divisional application is May 22, 2017. In order for this
Divisional application to be granted, the granted patent from which this
Divisional application is derived will have to be surrendered. The Divisional
application will include the scope of the surrendered patent. We have the
obligation to protect and bear the cost of defending the patent rights of the
patents we own.
As of the date of this registration statement, we have one provisional patent
application related to VB6-008 and one provisional patent application related to
VB6-050, both filed in the United States.
INTELLECTUAL PROPERTY RELATING TO OUR PLATFORM OF TECHNOLOGIES
Hybridomics(TM)
The intellectual property in our Hybridomics(TM) platform is protected by the
law relating to trade secrets. We have licensed three technologies which we use
as tools to assist us in implementing this platform.
In addition to the McGill license, in June 2003 we licensed technology from The
Trustees of Columbia University in the City of New York on an exclusive basis.
This technology enables us to isolate human antibody-producing B-cells generated
by an immune response from cancer patients, and fuse them with immortal human
myeloma cells, creating antibody-producing human hybridoma cells capable of
growing continuously in culture. Consistent with industry practice, we must make
milestone payments in respect of certain stages of regulatory approval reached
by a product candidate generated by this technology, as well as royalties
calculated with respect to net sales of these products, less certain amounts
payable to third parties.
35
We have the obligations:
- to make the records related to the agreement available to the
University of Columbia for inspection and audit;
- to diligently proceed with the research and development of the
licensed products;
- to submit reports to the University of Columbia on a regular basis;
and
- not to use the name, insignia or symbols of the University of
Columbia without its prior written consent.
The University of Columbia must prepare, file, prosecute and maintain all
licensed patents in its name (and in our name in the case of joint inventorship)
under the agreement in countries designated by us. We reimburse the University
of Columbia for some expenses incurred in filing, prosecuting and maintaining
the licensed patents, and in some cases the expenses are shared equally by us
and third parties. If we do not wish to have a licensed patent application filed
or prosecuted in a particular country, the University of Columbia may file the
application or continue prosecution at its own expense.
ImmunoMine(TM) and UnLock(TM)
Our processes in respect of the ImmunoMine(TM) and Unlock(TM) technologies are
protected by the law relating to trade secrets and we anticipate seeking
intellectual property protection, to the extent possible, in respect of any
product candidates generated by these processes.
Armed Antibodies(TM)
The intellectual property rights in our Armed Antibodies(TM) platform consist of
trade secrets and third party licenses. In August of 2002, we entered into a
license agreement with Tanox, Inc., subsequently assigned by Tanox to the former
shareholders of Tanox Pharma B.V., a subsidiary of Tanox, granting us an
exclusive license to certain Tanox patents and know-how related to a patented
cytotoxic protein.
We have the obligations:
- to make the records related to the agreement available to Tanox for
inspection and audit;
- to submit reports to Tanox on a regular basis; and
- to not use the name of Tanox in any commercial or advertising
activity without written permission.
Tanox must prepare, file, prosecute, and maintain licensed patents during the
term of the agreement and will pay all associated patent costs. We reimburse
Tanox for all reasonable patent costs within 30 days after receiving a written
invoice for the costs. All licensed patents must be filed, prosecuted and
maintained in Tanox's name, and all patents on improvements must be filed,
prosecuted, and maintained in our name. We must maintain control over the
patents in a manner that preserves Tanox's rights to improvements.
In October 2002, we entered into a research agreement with Biovation Ltd. (Merck
KgaA) to further develop the cytotoxic protein licensed from Tanox. This
collaboration identified and removed regions of this cytotoxic protein to which
the human immune system would otherwise have responded. This research resulted
in a cytotoxic protein that is less likely to be neutralized by the human immune
system. In March 2004, as a result of the successful conclusion of the
collaboration, we entered into an exclusive worldwide license with Biovation
dated March 8, 2004, with respect to technology relating to methods of modifying
regions of the cytotoxic protein. Under the Biovation license, we must make
milestone payments in respect of certain stages of regulatory approval reached
by a product candidate generated by this technology, as well as royalties
calculated with respect to net sales of these products, less certain amounts
payable to third parties.
We have the obligations:
- to make records related to the agreement available to Biovation for
inspection and audit;
36
- to promote the sale of licensed products and use reasonable efforts
to meet the market demand for the licensed products;
- to submit reports to Biovation on a regular basis; and
- to maintain comprehensive general liability insurance and product
liability insurance, naming Biovation as an additional insured under
our insurance policies.
The licensor has the right, but not the obligation, to prosecute, file and
maintain any patent applications or patents relating to any licensed patent
rights under the agreement. We have the right, but not the obligation, to
prosecute, file and maintain any patent applications or patents relating to any
licensed patent rights under the agreement that claim or are otherwise directed
to certain licensed products.
These licenses include one patent that expires on June 8, 2018 and five patent
applications or provisional patent applications relating to this cytotoxic
protein, its use with antibodies or targeting agents and its therapeutic
compositions. Specifically, the license includes one patent and three patent
applications to the native form of the cytotoxic protein in the United States
(one granted and one pending), Canada and Europe, and two provisional
applications in the United States relating to modified, largely non-immunogenic
forms of the cytotoxic protein. With respect to our licensed patent, the
licensor has the right and option, but not the obligation, to litigate to
protect the patent. If the licensor does not initiate an action, we have the
right, but not the obligation, to do so. If we litigate, net recoveries are
considered net sales and subject to royalty payments.
Unless otherwise terminated in accordance with their terms, our key licenses
will expire as follows:
LICENSOR EXPIRATION DATE
- -------- ---------------
University of Zurich The license expires on March 18, 2026, the expiration date of the longest-lived patent
rights.
McGill University The license expires on the earlier of (a) ten years from the date of commercialization
of the first licensed product and (b) April 28, 2014.
Columbia University The license expires on March 18, 2018, the expiration date of the last to expire
licensed patents.
Tanox The license expires (a) on a country-by-country basis in accordance with the license
agreement, (b) ten years from the date of the first commercial sale of a particular
licensed product in countries where there is no patent protection for that licensed
product, or (c) December 21, 2025, the expiration date of the last to expire licensed
patents in countries where there is available patent protection.
Biovation The license is on a country-by-country and product-by-product basis, and expires on the
later of (a) with respect to the rights in a particular country, ten years after the
first commercial sale of a particular licensed product in that country, and (b) December
21, 2025, the expiration of the last to expire of the licensed patents.
The dates reflecting the expiration date of the longest-lived patent rights
listed above do not take into consideration the possibility that a failure to
maintain these patents, a terminal disclaimer or other future actions may affect
the actual expiration date of the patents. Pending applications may never mature
into patents, which could affect the lifespan of certain licenses. Finally,
future applications could result in the extension of the license term beyond the
dates listed above.
Each of these licenses required us to make an upfront payment to the licensor.
In addition, based on certain criteria and events, in the future, we may be
required to make milestone payments to the licensors. The chart below indicates
the amount of these upfront payments, the amount we have already paid to each
licensor in the form of milestone payments, and the aggregate amount we could be
responsible to pay to each licensor in the future.
37
McGill Up-Front Payment CDN $10,000
Milestone and Annual Payments to Date CDN $150,000
Aggregate of future Annual Payments and of
possible future milestone payments (1) CDN $300,000
University of Zurich Up-Front Payment US$50,000
Milestone Payments to Date US$0
Aggregate of possible future milestone payments US$1,000,000
Columbia University Up-Front Payment US$50,000
Milestone Payments to Date US$0
Aggregate of possible future milestone payments US$575,000
Tanox Up-Front Payment US$250,000
Milestone Payments to Date US$150,000
Aggregate of possible future milestone payments US$7,300,000
Biovation Up-Front Payment US$25,000
Milestone Payments to Date US$25,000
Aggregate of possible future milestone payments US$8,500,000
- ----------------
(1) Some of these payments will be made regardless of whether milestones are
met.
INTELLECTUAL PROPERTY RELATING TO OUR MANUFACTURING
Consistent with industry practice, our manufacturing processes are protected by
the law relating to trade secrets. In November 2001, we entered into a
non-exclusive license agreement with XOMA Ireland Ltd., under which we have
licensed a proprietary bacterial cell expression technology intended to
facilitate increases in antibody production yields. The XOMA license provides
that we pay certain milestone payments, as well as royalties in respect of net
sales of products only produced using this technology. We have the obligation to
make records related to the agreement available to XOMA for inspection. The XOMA
license expires on the later of (a) the expiration of the last patent with
patent rights and (b) November 30, 2011.
RESEARCH AND DEVELOPMENT COLLABORATIONS
In the ordinary course of business, we enter into research and development
arrangements with third parties to provide services to augment our discovery and
development research. These third party developers are typically compensated on
the basis of a fee for service, milestone payments, or royalty payments from the
future sale of the products under development, or some combination of these
factors.
In May 2003, we entered into an exclusive monoclonal antibody discovery and
screening collaboration with Affitech AS of Norway which originally expired in
September 2004 but has been extended to expire on June 30, 2005. The goal of
this research collaboration is to exploit the human immune response to cancer,
generate human antibodies suitable for development as cancer therapeutics, and
to identify the corresponding antigens for these antibodies.
COMPETITION
Product Development Candidates
The biopharmaceutical industry is intensely competitive. Many companies are
actively engaged in activities similar to ours, including the research and
development of drugs for the treatment of cancer. In particular, we consider two
companies, Seattle Genetics and Immunogen Inc., to be our closest competitors
because they employ the armed antibodies method to treat various forms of
cancer, although neither of them are using the armed antibodies method to treat
head and neck cancer or bladder cancer. A 2003 survey by PhRMA listed over 180
companies in North America performing clinical studies for the treatment of
cancer. Many of these companies are developing drugs that
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fight the disease in new ways, while some involve research on new ways to use
existing medicines. The PhRMA survey detailed nearly 400 cancer clinical trials,
including 70 for lung cancer, 49 for breast cancer, 48 for colon cancer, and 44
for prostate cancer. According to this survey, there were only five drugs in
development for the treatment of bladder cancer and 18 drugs in development for
the treatment of head and neck cancer, including our own.
Our Platform of Technologies
Our integrated platform of technologies is based on two key features: (i)
isolating the human immune response to cancer for monoclonal antibody
generation; and (ii) delivering cytotoxic protein payloads to tumors. We have
competitors in both of these areas as described below.
Monoclonal Antibody Generation
Our Hybridomics(TM) technology isolates antibodies from the human immune system
and is independent of the need for a known target antigen for antibody
generation. Unlike our antibodies, the antibodies generated by our competitors
may only be generated once an antigen target has been identified and isolated
and are not obtained from humans, although some of them are commonly referred to
as "human antibodies". Antibodies generated by our competitors fall into several
classes: murine, mouse-human chimeric, humanized, or "human". We are not aware
of any competitor companies generating fully human monoclonal antibodies.
Producers of humanized antibodies that are approved for sale in the United
States include Genentech, Inc. and Hoffmann-La Roche Ltd. (Herceptin(R)),
Genentech, Inc. (Avastin), Wyeth Inc. (Mylotarg(R)), ImClone Systems
Incorporated (Erbitux), Millennium Pharmaceuticals, Inc. and Ilex Oncology, Inc.
(Campath(R)), MedImmune, Inc. (Synagis(R)), and Centocor, Inc. (Remicade(R)).
Companies that develop products based on transgenic mouse antibodies include
Abgenix, Inc. (ABX-EGF) and Cambridge Antibody Technology Group plc and Abbott
Laboratories Limited (Humira(R)). Companies that develop products approved for
sale in the United States incorporating mouse-human chimeric antibodies include
Biogen IDEC Pharmaceuticals Inc., Genentech, Inc. and Hoffman-La Roche Ltd.
(Rituxan(R)), Centocor Inc. (ReoPro(R)), and Novartis Pharma AG (Simulect(R)).
Payload Delivery
The attachment of payloads to antibodies may make them more effective. Two of
our major competitors in the field of antibody payload development, Seattle
Genetics, Inc. and ImmunoGen, Inc., have principal payload technology based upon
small molecule cytotoxic drugs that require chemical conjugation through a
linker to attach the payload to the antibody. According to the web sites of
these companies, as of January 5, 2005, each of these two companies has three
products in clinical development, the most advanced of which are in Phase II
clinical trials. In addition, there are two radiolabelled antibodies approved
for sale in the United States, Zevalin(R)) (Biogen IDEC Pharmaceuticals Inc.)
and Bexxar(R)) (Corixa Corp. and GlaxoSmithKline plc). In contrast, our
cytotoxic protein payloads are directly linked to our antibodies and we believe
this production of the payload and antibody together lowers production costs and
enhances the stability of the linkage. In addition, our cytotoxic protein
payloads are not expected to have the problems of radioactive exposure
associated with radioisotope payload delivery.
CURRENT APPROACHES TO CANCER THERAPY
The term "cancer" encompasses a large group of diseases whose common feature is
the uncontrolled division and growth of abnormally functioning cells. These
abnormal cells can form malignant tumors that may metastasize, or spread to
adjacent tissues, by entering the blood or surrounding lymph systems to form
secondary tumors in distant parts of the body. These latter forms of metastatic
cancer are often fatal.
Cancer is a major health care problem worldwide as an estimated 10,000,000
people are diagnosed with some type of cancer annually. Despite some improvement
in survival due to advances in cancer diagnosis and therapy, cancer remains the
second leading cause of death in the United States and is predicted to surpass
heart disease as the leading cause of death by 2010. The American Cancer Society
estimates that more than 550,000 people in the United States will die from
cancer in 2004 and over 1,300,000 are expected to be diagnosed with the disease.
The
39
Canadian Cancer Society estimates that in Canada there will be approximately
140,000 new cases of cancer and more than 65,000 deaths due to cancer in 2004.
Actual 2004 figures are not yet available.
The National Institutes of Health in the United States, or NIH, estimate the
annual direct medical costs of cancer treatment in the United States to exceed
US$64 billion. Revenues in the global oncology market for chemotherapeutic
approaches to treatment are reported to be in excess of US$20 billion, and are
expected to increase to over US$45 billion by 2011. The NIH also predicts that
the overall aging in the North American population will double the prevalence of
cancer by 2050. North America, Europe and Japan are the principal markets for
cancer therapies because of their public and private healthcare payor systems.
Surgery, radiation, and chemotherapy remain the principal effective treatments
for cancer. Surgical resection can be an effective treatment for tumors that
have not spread, but many patients treated with surgery have the disease recur
at some later point. Radiation therapy is useful for the treatment of a number
of early-stage tumors, but generally has limited effectiveness for established
tumors or tumors that have spread. Chemotherapy has evolved in recent years and
in some cases has proven effective in the short-term palliation of disease as
well as in the prolongation of survival. The major limitation of chemotherapy is
the indiscriminate nature with which it can kill normal cells as well as cancer
cells. This frequently leads to a number of undesirable side effects, including
severe nausea, alopecia (hair loss), and a dramatic weakening of the immune
system. Thus, the overall clinical benefit to the patient, as measured by the
drug's effect on the cancer, must be weighed against the general and specific
toxicity that the therapy has caused. We believe that the future of cancer
therapy is in the development of therapies that act potently to attack the
tumor, but are safe and tolerable for the patient. We believe that our Armed
Antibodies(TM) approach is unique and has the potential to develop safer, more
potent anti-cancer therapeutics than those that are currently available.
BIOPHARMACEUTICAL REGULATORY MATTERS
The FDA, Health Canada and comparable regulatory agencies in foreign countries
impose substantial requirements upon the research, development, manufacture and
marketing of pharmaceutical products. Approval is required in each jurisdiction
prior to commercialization. Therapeutic monoclonal antibody products are
considered biological products and are subject to review in the United States by
the FDA's Center for Drug Evaluation and Research. We expect that Proxinium(TM),
VB6-845 and other of our human monoclonal product candidates are likely to be
reviewed for investigational study and marketing in the United States by the
Division of Monoclonal Antibodies of the newly established Office of
Biotechnology Products in the Center for Drug Evaluation and Research.
The process required by the FDA before our product candidates may be marketed in
the United States typically involves the following:
- Development of test procedures and product acceptance criteria which
meet current standards for monoclonal antibody products (ICH Q6B)
including a potency assay and adequate physicochemical
characterization of the antibody;
- Performance of preclinical laboratory and animal tests using
material substantially similar to that which we anticipate will be
used in human studies;
- Development of a manufacturing process which meets current good
manufacturing practice (cGMP) standards as appropriate for each
phase of the investigation;
- Submission of an investigational new drug application, or IND, which
must become effective before clinical trials may begin;
- Completion of adequate and well-controlled human clinical trials to
establish the safety and efficacy of the product candidate for its
intended use;
- Submission of a new drug application, or NDA; and
- Regulatory approval of the NDA, including approval of all product
labeling and advertising.
The process in other countries, including Canada, is similar.
40
Preclinical testing includes laboratory evaluation of each proposed product and
development of the chemistry, manufacturing and control of each product
candidate, as well as animal studies to assess the potential safety and
effectiveness of each product candidate. Preclinical safety tests must be
conducted in compliance with FDA good laboratory practices regulations, or GLPs,
or with similar standards in other jurisdictions. The results of the preclinical
tests, including information abut the method by which the product candidate is
believed to work in the human body, any toxic effects of the compound found in
the animal studies and how the product candidate is manufactured are submitted
to the FDA as part of an IND, or to Health Canada as part of a Clinical Trial
Application (CTA), to be reviewed prior to the commencement of human clinical
trials. The IND or CTA must also include information about how, where and by
whom the clinical studies will be conducted. If the FDA or Health Canada does
not object, an IND or CTA will become effective after 30 days, but if the
regulatory agency raises concerns, the IND/CTA sponsor and the regulatory agency
must resolve these concerns before the clinical trials can begin. Further, an
independent institutional review board, or IRB, at each medical center at which
a clinical trial will be performed must review and approve the plan for any
clinical trial before it begins.
Human clinical trials are usually conducted in three sequential phases that may
overlap. In Phase I, the drug is typically introduced into healthy human
subjects or patients to determine the initial safety profile, identify side
effects and evaluate dosage tolerance, distribution and metabolism. In Phase II,
the drug is studied in a limited patient population with the target disease to
determine preliminary efficacy and optimal dosages and to expand the safety
profile. In Phase III, larger-scale controlled trials are conducted in patients
with the target disease to provide sufficient data for the proof of efficacy and
safety required by regulatory agencies. In the case of drugs for treatment of
cancer and other life-threatening diseases, the initial human testing is often
conducted in patients rather than in healthy volunteers. Because these patients
already have the target disease, these studies may provide initial evidence of
efficacy traditionally obtained in Phase II trials, and thus these trials are
frequently referred to as Phase I/II trials.
We may not successfully complete testing of our product candidates within any
specific time period, if at all. Regulatory agencies such as the FDA and Health
Canada may impose specific standards on the evaluation of tumor response in
individual patients which may differ from those of the company or its clinical
advisors. These different standards may lead the regulatory agency to conclude
that study subjects receiving any of the Company's product candidates have had a
more modest clinical response than did the Company or its clinical advisors.
Furthermore, the FDA, Health Canada, an IRB, or we may suspend a clinical trial
at any time for various reasons, including a finding that the subjects or
patients are being exposed to an unacceptable health risk.
If successful, the results of product development, manufacturing validation,
preclinical studies and clinical studies are submitted to regulatory agencies in
each country or region as a premarketing application. The FDA may disapprove an
NDA and Health Canada may disapprove an NDS if the applicable regulatory
criteria are not satisfied or each agency may require additional clinical data.
Even if such data is submitted, each regulatory agency may ultimately decide
that the marketing application does not satisfy the criteria for approval. Once
marketing approval is granted, any regulatory agency may withdraw a product
approval if compliance with regulatory standards is not maintained or if safety
or manufacturing problems occur after the product reaches the market. The FDA
has the power to prevent or limit further marketing of a product based on the
results of its ongoing assessment of product manufacturing compliance with
cGMP's. Post-marketing studies may be required by regulators. In addition, each
regulatory agency may require testing and surveillance programs to monitor the
safety of approved products which have been commercialized.
We intend to conduct clinical trials not only in accordance with FDA Regulations
and Health Canada regulations, but also in accordance with guidelines
established by the International Committee on Harmonization (ICH). Approval of a
product by the regulatory authorities of foreign countries must be obtained
prior to the marketing of that product in those countries regardless of the
regulatory status of the product in the United States or Canada and vice versa.
Regulatory approval in Europe is obtained through the European Medicines
Evaluation Agency, but regulations governing pharmaceutical sales may vary from
country to country.
The testing and approval process requires substantial time, effort, and
financial resources. Review times depend on a number of factors including, but
not limited to, the severity of the disease being treated, the availability of
alternative treatments and the risks and benefits demonstrated in clinical
trials.
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Under the FDA Modernization Act, the FDA may facilitate the development and
expedite the review of a drug if it is intended for the treatment of a serious
or life-threatening condition and it demonstrates the potential to address unmet
medical needs for that condition. Under this "fast track" program, the FDA can,
for example, review sections of an NDA on a rolling basis before the entire
application is complete, thus beginning the review process at an earlier time.
The sponsor of a product approved under this accelerated mechanism may be
required to perform post-approval studies of clinical safety and effectiveness.
We believe that our product candidates should be qualified for fast track
status; however, we cannot guarantee that the FDA will grant any of our requests
for fast track designation, that any fast track designation would affect the
time of review, or that the FDA will approve the NDA submitted for any of our
product candidates, whether or not fast track designation is granted.
Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs
intended to treat a disease or condition that affects fewer than 200,000
individuals in the United States. An orphan drug designation must be requested
before submitting a NDA, but if granted does not convey any advantage in or
shorten the duration of the regulatory review and approval process. However, a
drug that receives an orphan drug designation and is the first product of its
kind to receive FDA approval for a particular indication will be entitled to a
seven-year exclusive marketing period in the United States for that indication.
We have obtained orphan drug designation in the United States for our
Proxinium(TM) product candidate. Although obtaining FDA approval to market a
product with orphan drug exclusivity can be advantageous, it does not prevent
the marketing of another different drug for the same clinical purpose and it may
not provide us with a material commercial advantage.
Satisfaction of FDA requirements or similar requirements of other regulatory
agencies typically takes several years and the actual time required may vary
substantially, based upon the type, complexity and novelty of the product or
disease. Government regulation may delay or prevent marketing of our product
candidates for a considerable period of time and impose costly procedural
requirements upon our activities. We cannot be certain that the FDA or any other
regulatory agency will grant approvals for our product candidates on a timely
basis, if at all. Success in early stage clinical trials does not assure success
in later stage clinical trials. Data obtained from clinical activities is not
always conclusive and may be susceptible to varying interpretations that could
delay, limit or prevent regulatory approval. Even if a product candidate
receives regulatory approval, the approval may be significantly limited to
specific diseases and dosages. Further, even after regulatory approval is
obtained, later discovery of previously unknown problems with a product may
result in restrictions on the product or even complete withdrawal of the product
from the market.
Any products manufactured or distributed pursuant to FDA approvals are subject
to continuing regulation by the FDA, including record keeping requirements and
reporting of adverse experiences with the drug. Drug manufacturers and their
subcontractors are required to register their establishments with the FDA and
are subject to periodic inspections for compliance with regulations and
guidelines including those relating to good manufacturing practices, or GMPs. We
cannot be certain that we or our suppliers will be able to comply with the GMPs
and other FDA or other agency regulatory requirements.
The policies of the FDA, Health Canada and other regulatory agencies may change,
and additional government regulations may be enacted which could prevent or
delay approval of our product candidates. We cannot predict the likelihood,
nature or extent of adverse governmental regulation which might arise from
future legislative or administrative action, either in the United States, in
Canada or in other countries.
C. ORGANIZATIONAL STRUCTURE.
We currently have no significant subsidiaries.
D. PROPERTY, PLANTS AND EQUIPMENT.
FACILITIES
Our registered and head office, located at 10 Four Seasons Place, Suite 501,
Toronto, Ontario, consists of approximately 8,300 square feet of office space at
an estimated net annual rent of $103,575 for 2005. The lease expires on December
31, 2005.
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We also lease an approximately 31,100 square foot manufacturing, laboratory, and
office facility at 147 Hamelin Street in Winnipeg, Manitoba at an estimated net
annual rent of $189,225 for 2005. The Winnipeg facility is leased from an
affiliate of Mr. Leslie Dan. The lease expires on June 30, 2008.
EQUIPMENT AND OTHER PROPERTY
As at December 31, 2004, we owned tangible fixed assets with a net book value of
approximately $3,053,000 and gross book value of approximately $8,497,000,
consisting primarily of research equipment, leasehold improvements computer
hardware and software and office equipment and fixtures.
ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following is Management's Discussion and Analysis ("MD&A") of Viventia
Biotech Inc.'s financial condition, results of operations, and changes in cash
flow for the three months ended March 31, 2005 and for the fiscal years ended
December 31, 2004 and 2003. This discussion should be read in conjunction with
our audited annual financial statements and the related notes included, the
three months ended March 31, 2004 and for the years ended December 31, 2004 and
2003. The financial statements have been prepared by management in accordance
with Canadian GAAP. These accounting principles differ in certain respects from
U.S. GAAP. The differences as they affect our financial statements are set out
in Note 20 to the financial statements.
OVERVIEW
We are a biopharmaceutical company specializing in the discovery and development
of fully human monoclonal antibody therapies for the treatment of cancer. We
currently have a lead product candidate in Phase I clinical development,
Proxinium(TM), formerly VB4-845, for the treatment of head and neck cancer, and
for bladder cancer. We also have several other product candidates, one of which,
VB6-845 is in active pre-clinical development. Our platform of technologies is
based upon the isolation of human monoclonal antibodies obtained from cancer
patients and the development of those antibodies to deliver cytotoxic (cancer
killing) "payloads" to cancer cells. We believe that our platform has the
potential to develop safer, more potent anti-cancer therapeutics than those that
are currently available. We have a manufacturing facility that is intended to
produce multiple product candidates per year, and that we believe will produce
sufficient quantities of our Armed Antibodies(TM) to meet our currently
anticipated pre-clinical and clinical trial needs. We have not derived any
revenues to date from the sale of products. Future profitability will depend on
our ability to bring products to market in a timely manner, obtaining necessary
regulatory approvals and entering into suitable licensing or partnering
arrangements to commercialize our products.
From 2000 to 2002 we were primarily focused on the development of our two prior
lead product candidates, VB2-011 (formerly H11) and 4B5, while concurrently
building our core platform technologies. During 2002, we moved from a strategy
of developing two lead products to a strategy based on the development of
multiple product candidates by utilizing our target discovery, identification
and antibody development programs Hybridomics(TM), UnLock(TM), ImmunoMine(TM),
and Armed Antibodies(TM).
During the three months ended March 31, 2005, we received three bridge financing
loans from one of our principal shareholders, Mr. Leslie Dan. On February 17,
2005, we received a bridge financing loan from Mr. Dan in the amount of
$500,000, on March 1, 2005, we received a bridge financing loan from Mr. Dan in
the amount of $1,500,000,and on March 23, 2005 we received a bridge financing
loan from Mr. Dan in the amount of $2,600,000. Subsequent to March 31, 2005, on
April 28, 2005 we received a bridge loan from Mr. Dan in the amount of
$1,500,000. These loans bear interest at 4.5% per annum and are payable on
demand. For additional information with respect to the financial assistance we
have received, see notes 1, 6, 7, 8 and 19 to the 2004 Audited Annual Financial
Statements.
The Company has significant losses over the past five years, and accumulated
losses at March 31, 2005 were $99,618,000. We had a negative working capital at
March 31, 2005 of approximately $6,664,000 and at December 31, 2004 negative net
working capital of approximately $364,000. Without an additional source of
financing we will
43
have inadequate funds to continue our existing corporate, administrative and
operational functions. There is substantial doubt about our ability to continue
as a going concern.
At December 31, 2004 and December 31, 2003, we had a negative net working
capital of approximately $364,000 and $1,054,000, respectively. Without an
additional source of funding we will have inadequate funds to continue our
existing corporate, administrative and operational functions for the coming
year. There is substantial doubt about our ability to continue as a going
concern. At December 31, 2004 we had cash reserves of $2,715,000 compared to
$247,000 at December 31, 2003. Substantially all of the financing we have
received during the past two years has been received from the Dan Group. During
the year ended December 31, 2003, we received three bridge financing loans from
an entity affiliated with one of our principal shareholders, Mr. Leslie Dan. On
September 2, 2003, we received a bridge financing loan from an entity affiliated
with Mr. Dan in the amount of $500,000, which was non-interest bearing and was
repaid in October 2003. On November 27 and December 15, 2003, we also received
bridge financing loans from the same entity in the amounts of $500,000, and
$1,000,000, respectively. During the year ended December 31, 2004, we received
thirteen bridge finance loans amounting to $11,900,000. These loans bear
interest at 4.5% per annum and are payable upon demand. On November 3, 2004 we
closed a private placement of secured convertible debentures with the Dan Group.
Under the terms of the agreement the Dan Group converted $8,900,000 plus accrued
interest of $246,711 on the bridge loans into secured convertible debentures and
invested an additional $14,000,000 in secured convertible debentures. The
resulting convertible debentures in an aggregate principal amount of $23,146,711
are secured by a first charge over all assets of the Company and will bear
interest at the rate of 4.5% per annum compounded annually. Subsequent to
December 31, 2004 we received five bridge financing loans from Mr. Leslie Dan
and an entity entirely owned by him in the aggregate amount of $7,600,000. These
loans bear interest at 4.5% per annum and are payable upon demand. For details
see Notes 6, 7 and 19 of the financial statements and note 9 to the first
quarter 2005 financial statements.
A. RESULTS OF OPERATIONS
We have incurred operating losses since inception. We have not derived any
revenues to date from the sale of products. Future profitability will depend on
our ability to obtain sufficient financing, obtain necessary regulatory
approvals, enter into suitable licensing or partnership agreements to
commercialize our product candidates, and bring products to market in a timely
manner. We had 29,206,115 common shares issued and outstanding on December 31,
2004.
COMPARISON OF PERIODS ENDED MARCH 31, 2005 AND 2004
Our total research and development and operating expenditures for the quarter
ended March 31, 2005 increased by $1,142,000 or 41.3% to $3,908,000 compared to
expenditures of $2,766,000 in the quarter ended March 31, 2004.
Research activities were $1,767,000 for the quarter ended March 31, 2005
compared to $1,256,000 for the quarter ended March 31, 2004. Costs associated
with the clinical trials amounted to $573,000 in the quarter an increase of
83.7% from the $312,000 in 2004. The increase is a result of continuation of
Phase I Clinical Trials on Proxinium(TM) for the treatment of head and neck
cancer in Brazil in 2004 and the start up Phase I clinical trials in Canada
using Proxinium(TM) for the treatment of bladder cancer. Contracted research
costs with Affitech AS, Biovation and a number of university research
agreements, decreased by $390,000. Preclinical costs decreased $224,000 as more
product candidates advanced into clinical studies. Material costs increased
$458,000 as a result of increased production and manufacturing costs related to
processing higher volumes of product for clinical and research purposes.
Salaries and benefits costs increased by $354,000 or 31.1% from $1,137,000 for
the quarter ended March 31, 2004, compared to $1,491,000 for the quarter ended
March 31, 2005. This is primarily attributable to increased numbers of personnel
by 35%. Salaries increased by $348,000 and employee health benefits increased by
$45,000.
Occupancy costs were $240,000 for the quarter ended March 31, 2005 compared to
$207,000 for the quarter ended March 31, 2004, an increase of 15.9%. This
increase is attributable to increased maintenance and operating costs due to the
expansion of our operations at our Winnipeg facility.
44
Other operating costs amounted to $388,000 for the quarter ended March 31, 2005
compared to $144,000 for the quarter ended March 31, 2004, an increase of
169.4%. This increase is primarily related to increased travel costs to monitor
the clinical trials in Russia and Brazil and travel to our Winnipeg facility and
increased operating costs related to higher production and manufacturing
activities for processing higher volumes of product for clinical and research
purposes
Our general and administrative expenditures amounted to $858,000 for the quarter
ended March 31, 2005 compared to $335,000 for the quarter ended March 31, 2004,
an increase of $523,000 or 156.1%. The increase in general and administrative
expenditure is primarily related to additional professional costs due to
regulatory requirements in connection with our intention to seek a U.S. listing.
Recruiting costs and other administrative operating costs increased $39,000 as a
result of the increased staff levels. Increases also were incurred in training
$61,000, reference materials $33,000 and office supplies $16,000.
Amortization of deferred financing expense amounted to $28,000 for the quarter
ended March 31, 2005, compared to $12,000 for the quarter ended March 31, 2004.
Stock based compensation amounted to $162,000 for the quarter ended March 31,
2005, compared to $13,000 for the quarter ended March 31, 2004 as a result of
the granting of options in August 2004 and March 2005. For the purpose of
measuring and expensing compensation cost, the fair value of the option is
amortized to income over the option's vesting period on a straight-line basis.
Interest expense to related parties amounted to $287,000 for the quarter ended
March 31, 2005 compared to $137,000 for the quarter ended March 31, 2004. The
increase in interest expense is attributable to the receipt of the bridge
financing loans and to the convertible debentures issued in November 2004.
For the three months ended March 31, 2005, miscellaneous income consisted of the
$16,000 representing a proportionate share of a U.S. $100,000 one time access
fee paid as part of an agreement whereby exclusive rights were provided to a
third party to evaluate a specific collection of the Company's anti cancer
monoclonal antibodies. The $100,000 is being amortized over the two year period
of exclusivity.
SUMMARY OF QUARTERLY RESULTS
QUARTERLY INFORMATION
QUARTER ENDED
------------------------------------------------- -------------------------
2005 2004 2003
MAR-31 DEC-31 SEP-30 JUN-30 MAR-31 DEC-31 SEP-30 JUN-30
------ ------ ------ ------ ------ ------ ------ ------
Net Loss................................. (5,446) (5,716) (3,792) (4,316) (3,348) (3,426) (3,455) (2,970)
Loss per share (1)................... (0.19) (0.20) (0.13) (0.15) (0.12) (0.12) (0.12) (0.11)
Total Assets............................. 7,040 6,839 3,025 3,708 2,722 2,739 4,425 4,662
Bridge Financing Loans................... 4,600 _ 12,400 7,900 4,200 1,500 500 _
Total long-term financial liabilities
(including current portion thereof)..... 29,186 24,706 4,000 4,000 4,000 4,000 4,000 4,000
Notes:
(1) Quarterly loss per share may not, in the aggregate, equal annual loss per
share numbers due to rounding.
(2) Loss per share amounts prior to May 7, 2004 have been retroactively adjusted
to give effect to the consolidation of the Company's issued and outstanding
shares.
(3) Subsequent to March 31, 2005 we received two separate $1,500,000 bridge
financings loan from Mr. Leslie Dan and an entity controlled by Mr. Dan.
45
COMPARISON OF YEARS ENDED DECEMBER 31, 2004 AND 2003
We reported a net loss of $17,172,000 or $0.59 for the year ended December 31,
2004 compared to a net loss of $12,778,000 or $0.45 per share for the year ended
December 31, 2003.
Our total research and development and operating expenditures for 2004 increased
by $2,069,000 or 19.3% to $12,777,000 compared to expenditures of $10,708,000 in
2003. Research related activities were $5,522,000 for the year ended December
31, 2004 compared to $4,752,000 for the year ended December 31, 2003. Costs
associated with the clinical trials amounted to $1,953,000 in 2004 an increase
of 580% from the $337,000 in 2003. The increase is a result of commencement of
Phase I Clinical Trials on Proxinium(TM) for the treatment of Head and Neck
cancer in Russia and Brazil in 2004 and the costs associated with the start up
Phase I clinical trials in Canada using Proxinium(TM) for the treatment of
bladder cancer. Contracted research costs with Affitech AS, Biovation and a
number of university research agreements, decreased by $1,667,000. Preclinical
costs increased $142,000 as more product candidates advanced into preclinical
studies. Material costs and legal fees for patents increased $524,000 and
$61,000 respectively, as expected with the increased clinical and preclinical
costs. License costs were reduced by an amount of $133,000.
The increase in salaries and benefits of $1,025,000 or 22.5% from $4,551,000 for
the year ended December 31, 2003, compared to $5,576,000 for the year ended
December 31, 2004, is attributable to $813,000 in severance costs related to the
reorganization in January, 2004. Dr. Anthony Schincariol our former President
and CEO resigned from his position on January 7, 2005. A total of $528,100 of
the severance costs was payable to Dr. Schincariol pursuant to the terms of his
resignation agreement. Salary increases of $49,900, related employee health
benefits increases of $62,000, and incentive bonus accruals increases of
$158,000 accounted for the remainder of the overall increase in salaries and
benefits.
Occupancy costs were $805,000 for the year ended December 31, 2004 compared to
$789,000 for the year ended December 31, 2003, an increase of 2.0%. This
increase is attributable to the leasing of additional space at our Winnipeg
manufacturing facility along with additional maintenance costs.
Other operating costs amounted to $787,000 for the year ended December 31, 2004
compared to $529,000 for the year ended December 31, 2003 an increase of
$258,000 or 48.8%. This increase is primarily related to increased travel costs
to monitor the Phase I clinical trials in Russia and Brazil and travel to our
Winnipeg facility, as well as travel costs related to our proposed public
offering, which was withdrawn in August of 2004. To a lesser extent operating
costs also increased because of higher production and manufacturing costs
related to processing higher volumes of product for clinical and research
purposes
Our general and administrative expenditures amounted to $1,498,000 for the year
ended December 31, 2004 compared to $1,079,000 for the year ended December 31,
2003, an increase of $419,000 or 38.8%. Professional legal fees increased by
$134,000 primarily as a result of the cost of two Special Shareholders' meetings
held in 2004 and costs associated with professional and legal services.
Recruiting costs and other administrative operating costs increased $56,000 as a
result of the increased staff levels. Costs associated with Investor Relations
increased $52,000 as a result of a Special Meeting of Shareholders related to
the consolidation of shares in May 2004 and the approval of the convertible
debenture in October, 2004. Freight and courier costs also increased in the
amount of $101,000, primarily as a result of the cost of shipping clinical
supplies to sites in Russia and Brazil. Training and conferences expenditures
decreased by $94,000 when compared to 2003.
Amortization of deferred financing expense decreased by $40,000 for the year,
representing the final amortization related to the deferred costs pertaining to
the convertible debenture in 2002.
Interest expense to related parties amounted to $801,000 for the year ended
December 31, 2004 compared to $435,000 for the year ended December 31, 2003. The
increase is attributable to interest on the bridge financing loans in 2004.
46
For the year ended December 31, 2004, miscellaneous income consisted of the
$61,000 gain on the disposition of capital assets, interest income of $19,000
and a proportionate share of a U.S. $100,000 one time access fee paid as part of
an agreement whereby exclusive rights were provided to a third party to evaluate
a specific collection of the Company's anti cancer monoclonal antibodies. The
$100,000 is being amortized over the two year period of exclusivity.
COMPARISON OF YEARS ENDED DECEMBER 31, 2003 AND 2002
We reported a net loss of $12,778,000 or $0.45 for the year ended December 31,
2003 compared to a net loss of $12,269,000 or $0.62 for the year ended December
31, 2002.
Our total research and development and operating expenditures for 2003 increased
by $816,000 or 8.2% to $10,708,000 compared to expenditures of $9,892,000 in
2002. Research related activities were $4,752,000 for the year ended December
31, 2003 compared to $4,307,000 for the year ended December 31, 2002. Contracted
research costs with Affitech AS, Biovation and a number of university research
agreements, along with clinical trial agreements and preclinical studies
accounted for the increase in research costs. These increases were partially
offset by reduced intellectual property legal costs and reduced license fees.
Overall research costs are expected to increase in the future as more product
candidates are moved through pre-clinical and clinical testing.
The increase in salaries and benefits amounting to $285,000 or 6.7% from
$4,266,000 for the year ended December 31, 2002, compared to $4,551,000 for the
year ended December 31, 2003, is attributable to addition of a Manager,
Regulatory Affairs and the payout of severance costs. Annual salary increments,
corresponding increased costs for employee health benefits also accounted for a
portion of the increase.
Occupancy costs were $789,000 for the year ended December 31, 2003 compared to
$664,000 for the year ended December 31, 2002, an increase of $125,000 or 18.8%.
This increase is attributable to the leasing of additional space at our Winnipeg
manufacturing facility along with additional utility and maintenance costs.
Utility costs decreased $6,000 as a result of reduced common area costs from the
landlord.
Other operating costs were $529,000 for the year ended December 31, 2003
compared to $607,000 for the year ended December 31, 2002. The decrease was the
result of reduced equipment lease costs, equipment maintenance costs and
insurance costs amounting to $185,000. This reduction was partially offset by
increased clinical and research activities.
Our general and administrative expenditures amounted to $1,079,000 for the year
ended December 31, 2003 compared to $1,408,000 for the year ended December 31,
2002, a reduction of $329,000 or 23.4%. Decreases in investor relations costs,
legal and audit costs, capital taxes and foreign exchange gains accounted for
the overall reduction.
Amortization of deferred financing expense increased by $47,000 for the year,
representing a full year of amortization, whereas the previous year accounted
for only a portion of the year.
Interest expense amounted to $435,000 for the year ended December 31, 2003
compared to $338,000 for the year ended December 31, 2002. The increase is
attributable to a full year of interest expense relating to the convertible
debentures we issued in June 2002, whereas the debenture interest expense for
2002 was incurred for only a portion of the year.
Miscellaneous income consists of interest income of $78,000 for the year ended
December 31, 2003 compared to $55,000 for the year ended December 31, 2002. The
increase in interest income is a result of higher average cash balances on hand
in 2003.
During the year ended December 31, 2003, the Canadian Institute of Chartered
Accountants amended its pronouncement relating to stock-based compensation,
requiring companies to measure and expense all equity instruments awarded to
employees. In accordance with this pronouncement, we prospectively adopted the
new recommendation. Consequently, we applied a fair value based method to
expense employee stock options awarded
47
since January 1, 2003. We did not issue any stock options during the year ended
December 31, 2002 to require the presentation of pro forma net loss for that
year. For additional information, refer to Notes 3 and 12[b] to the financial
statements.
B. LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2005, we had cash and cash equivalents of approximately $2,038,000.
Without additional funding, the Company will have inadequate funds to continue
its existing corporate, administrative and operational functions for the
remainder of the year. Since January 1, 2000, we have financed substantially all
of our operations through the sale of equity securities, bridge loan financing
from Mr. Leslie Dan or entities affiliated with Mr. Dan, and the issuance of
secured convertible debentures to Mr. Leslie Dan and Ms. Andrea Dan-Hytman, our
two principal shareholders. Mr. Leslie Dan and Ms. Andrea Dan-Hytman who own or
control other companies that collectively own 82.8% of our outstanding common
shares at December 31, 2004. Mr. Dan is also the Chair of our board of
directors. During the three months ended March 31, 2005, the Company received
three bridge financing loans from Mr. Dan. On February 17, 2005 the Company
received a bridge financing loan in the amount of $500,000 on March 1, 2005, the
Company received a bridge financing loan in the amount of $1,500,000 and on
March 23, 2005 the Company received a bridge financing loan in the amount of
$2,600,000. Subsequent to March 31, 2005 on April 28, and May 15, 2005 we
received two bridge loans from Mr. Dan and an entity controlled by Mr. Dan, in
the amount of $1,500,000, each bearing interest at 4.5% per annum and are
payable on demand.
The Company continues to seek additional sources of funding to finance
operations into the future. In the event that the Company is unable to secure
additional financing, there would be doubt about the ability of the Company to
continue as a going concern. There can be no assurance that additional financing
will be available on acceptable terms, if at all. If adequate funds are not
available, the Company may be required to reduce the scope of, or eliminate one
or more of its research and development programs, or may be required to
significantly scale back or cease operations.
At December 31, 2004, we had cash and cash equivalents of approximately
$2,715,000. Since January 1, 2000, we have financed substantially all of our
operations through the sale of equity securities to the Dan Group, bridge loan
financing from the Dan Group and the issuance of secured convertible debentures
to the Dan Group and through the approximately $2,657,000 equity financing made
by Teva in 2003. Our two principal shareholders are Mr. Leslie Dan and Ms.
Andrea Dan-Hytman who own or control other companies that collectively
beneficially owned or controlled 82.8% of our common shares at December 31,
2004. Mr. Dan is also the Chair of our board of directors. From January 16, 2004
to October 4, 2004, we have received bridge-financing loans in the aggregate of
$11,900,000 from the Dan Group. The loans bear interest at 4.5% per annum and
were repayable on demand. On November 3, 2004 we closed a private placement of
secured convertible debentures with the Dan Group . Under the terms of the
agreement the Dan Group converted $8,900,000 plus accrued interest of $246,711
on the bridge loans into secured convertible debentures and invested an
additional $14,000,000 in secured convertible debentures. The resulting
convertible debentures in an aggregate principal amount of $23,146,711 are
secured by a first charge over all assets of the Company and will bear interest
at the rate of 4.5% per annum compounded annually. The remaining principal
amount of $4,500,000 plus accrued interest of $40,007 hereon was repaid with the
proceeds of the private placement, discussed above. Subsequent to December 31,
2004 we received three bridge financing loans from Mr. Leslie Dan and an entity
owned by him in the aggregate amount of $4,600,000. These loans bear an interest
rate of 4.5% per annum and are payable upon demand. For additional information
with respect to the financial assistance we have received, refer to Notes 6, 7,
8, and 19 and to the financial statements in the financial statements.
Financing activities in 2004 provided net cash of $18,973,000 by means of the
bridge-financing loans described above and cash proceeds from the issuance of a
convertible debenture in November 2004 compared to $4,085,000 in 2003 and
$15,750,000 in 2002. Cash provided from an equity financing in December of 2002
combined with funds from the equity financing in September 2003 were sufficient
to fund operations through out 2003. Cash used in operating activities increased
to $15,847,000 in 2004 compared to $12,005,000 in 2003 and $11,319,000 in
2002.The increases in both years is attributable to increased research
activities and to the commencement of Phase I Clinical Trials on Proxinium for
the treatment of Head and Neck cancer in Russia and Brazil. Cash used in
investing activities increased to $658,000 from $218,000 in 2003 as a result of
capital equipment and leasehold expenditures necessary to expand and upgrade the
manufacturing infrastructure at our manufacturing and research facility in
Winnipeg.
48
On August 16, 2004, we withdrew our previously announced Canadian public
offering of units due to market conditions and entered into a non-binding term
sheet with the Dan Group in respect of a private placement financing. Under the
terms of the agreement, the Dan Group agreed to convert $8,900,000 (plus accrued
interest) of then outstanding unsecured demand bridge financing loans into
secured convertible debentures and to invest an additional $14,000,000 in
secured convertible debentures. This private placement closed on November 3,
2004. For additional information in respect of the private placement, refer to
Note 7 to the financial statements. We continue to seek additional sources of
funding to finance operations into the future. In the event that we are unable
to secure additional financing, there would be substantial doubt about our
ability to continue as a going concern. There can be no assurance that
additional financing will be available on acceptable terms, if at all. If
adequate funds are not available, we may be required to reduce the scope of, or
eliminate one or more of our research and development programs, or may be
required to significantly scale back or cease operations.
We enter into research, development and license arrangements with various
parties in the ordinary course of business. These arrangements are in respect of
various research services that are being provided to us and that enable us to
utilize know-how and technology. The arrangements require compensation to be
paid by us, typically by a combination of the following methods: fees comprising
amounts due initially upon entering into the arrangements as well as additional
amounts due either on specified timelines or for defined services to be
provided; milestone payments that are dependent on products developed under the
arrangements proceeding towards specified plans of clinical trials and
commercial development; and royalty payments calculated as a percentage of net
sales commencing upon commercial sales of any product candidates developed as a
result of such know-how or technology.
As at December 31, 2004, our commitments under the above arrangements for the
next five years and thereafter were as follows:
COMMITMENTS
YEAR -------------------------
- ---- (in thousands of dollars)
2005 257
2006 100
2007 100
2008 100
2009 and annually thereafter 100
---
657
===
The amounts above are principally comprised of fee-related committed research
and license payments and potential milestone payments due in 2004. Other
milestone and royalty-related amounts that may become due under the various
arrangements are dependent on, among other factors, products identified as
investigational new drugs, clinical trials, regulatory approvals and ultimately
the successful development of a new drug, the outcome and timing of which are
uncertain.
Amounts due pursuant to the various agreements for milestone payments will be
accrued once the occurrence of a milestone is likely. Amounts due, as royalty
payments will be accrued as commercial revenues from the product are earned.
Certain potential milestone payments related to the commencement or completion
of Phase II and Phase III clinical studies as well as the submission and receipt
of regulatory approval for the various products employing the technologies are
described in aggregate below. These potential payments are based on the
achievement of the various milestones and as such the timing of the achievement
of the milestones is contingent on many factors. The obligation to pay various
milestones will depend on our ability to complete the required clinical
programs, obtain necessary regulatory approvals and enter into suitable
licensing or partnering arrangements to commercialize our products as well as
our ability to obtain sufficient funding.
49
To date we have paid an aggregate total of approximately US $ 680,000 in upfront
and maintenance fees for our key licenses.
Potential aggregate milestones payable up to and upon receipt of regulatory
approval are as follows:
University of Zurich US $1,000,000.
McGill University CDN $300,000.
Columbia University US $575,000.
Tanox US $7,300,000.
Biovation US $8,500,000.
The Company periodically enters into research agreements or strategic alliances
with third parties that include indemnification provisions that are 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 third party
intellectual property claims or damages arising from these transactions. In some
cases, the maximum potential amount of future payments that could be required
under these indemnification provisions is unlimited. These indemnification
provisions generally survive termination of the underlying agreement. The nature
of the intellectual property 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
accompanying financial statements with respect to these indemnification
obligations.
As at December 31, 2004, the Company's future minimum commitments under
operating leases for premises for the next four years are as follows:
COMMITMENTS
YEAR -------------------------
- ---- (in thousands of dollars)
2005 292
2006 196
2007 203
2008 102
---
793
===
Certain premises, the commitments for which are included in the above table, are
leased from an affiliate of Leslie Dan at an annual rent of $185,100 for 2005.
For the years 2006 to 2008 all amounts are due to an affiliate of Leslie Dan.
The lease expires on June 30, 2008
The following is a schedule of minimum payments for assets under capital lease.
COMMITMENTS
YEAR -------------------------
- ---- (in thousands of dollars)
2005 71
2006 65
2007 35
---
171
Less: interest 19
Less: current portion 59
---
Long term portion 93
===
50
The capital lease for computer equipment expires May, 2006; and interest is paid
on the outstanding balance at 9.125% per annum. The capital lease for the
protein fractional system expires June, 2007, and interest is paid on the
outstanding balance at 8.859% per annum. The capital lease for the motorized
microscope September, 2007 and interest is paid on the outstanding balance at
10.422% per annum. The commitments for these capital leases are included in the
above table. On January 7, 2004, our former President and Chief Executive
Officer resigned. Pursuant to the resignation agreement with us, the total
severance benefits that are to be paid out in 2005 totals $137,500. As at
December 31, 2004, a total amount of approximately $390,600 has been paid
pursuant to this agreement.
On November 3, 2004, Leslie Dan in his personal capacity obtained $1,600,000 in
financing which was provided to the Company to further expand its Winnipeg
research facility. The loan bears interest at a rate of 5.0% per annum,
repayable in blended monthly payments of $41,165 and matures in November 2007.
The Company has agreed to repay this amount directly to the third party lending
institution.
At December 31, 2004, the Company's commitments under the above arrangements for
the next three years are as follows:
COMMITMENTS
YEAR -------------------------
- ---- (in thousands of dollars)
2005 509
2006 535
2007 515
-----
1,559
=====
CAPITAL RESOURCES
During the quarter ended March 31, 2005, we increased capital assets and
leaseholds in our Winnipeg facility by $1,069,000.
On November 3, 2004 we completed the private placement whereby the Dan Group
invested $14,000,000 in secured convertible debentures and converted $8,900,000
(plus accrued interest of $246,711 as of November 3, 2004) of the outstanding
unsecured demand bridge financing loans into secured convertible debentures. The
resulting convertible debentures in an aggregate principal amount of $23,146,711
were secured by a first charge over all of our assets and bear interest at the
rate of 4.5% per annum, compounded annually. The debentures mature two years
from the date of issuance, when both interest and principal will be payable. The
principal amount of the debentures is convertible at the option of the holder at
any time into units at a price of $1.50 per unit. Each unit will be comprised of
one common share and one half of a common share purchase warrant. Each whole
common share purchase warrant will enable the holder to purchase an additional
common share at an exercise price of $2.00 per common share at any time for a
period of four years from the date of issuance. We used the proceeds of the
private placement to repay the following indebtedness together with accrued
interest thereon: (a) existing convertible secured debentures issued to members
of the Dan Group on June 20, 2002 (with an aggregate principal amount of
$4,000,000 and accrued interest of $241,251 as of November 3, 2004), and (b)
other unsecured demand bridge financing loans made by members of the Dan Group
(with an aggregate principal amount of $4,500,000 and accrued interest of
$40,007 as of November 3, 2004) for net proceeds of $5,218,742.
On October 4, 2004, we received an additional bridge financing loan in the
amount of $1,000,000 from the Dan Group. The loan bears interest at 4.5% per
annum and is repayable on demand.
On September 10, 2003, we completed a private equity placement with Teva for
approximately $2,804,000 less issuance costs of $147,000. Under the terms of
this transaction, Teva purchased 1,402,100 units issued by us at a
51
price of $2.00 per unit. The unit price was based on the closing price of our
common shares on the TSX on August 21, 2003. Each unit consists of one of our
common shares and one common share purchase warrant at an exercise price of
$2.00. The warrants expire on September 10, 2008.
On February 10, 2003, we repaid, to a company controlled by Mr. Dan, $2,000,000
plus accrued interest of $24,000 of the convertible debentures previously issued
on June 20, 2002. In connection with this repayment, Mr. Dan reinvested
$2,000,000 less issue costs of $89,000 in the form of a private equity placement
for 1,111,111 units, with each unit consisting of one of our common shares and
one common share purchase warrant at an exercise price of $1.80 per common
share.
On December 17, 2002, we completed a private equity placement with Mr. Dan and
1533686 Ontario Limited, a company related to Mr. Dan, for $10,000,000, less
issue costs of $109,147. Under the terms of the transaction, we issued 7,142,857
units at a price of $1.40 per unit. Each unit is comprised of one of our common
shares and one common share purchase warrant. Each common share purchase warrant
entitles the holder to purchase one common share at an exercise price of $1.40
per common share until December 17, 2007.
On June 20, 2002, we completed a private placement and issued three secured
convertible debentures for gross aggregate proceeds of $6,000,000, less issue
costs of $141,288. The debentures were issued to companies within the Dan Group
and to a party related to Mr. Dan. The debentures were collateralized by a
charge over all of our assets, bore interest at 10% per annum compounded and
payable quarterly, and were to mature on May 31, 2004. During 2003 we repaid
$2,000,000 plus accrued interest of $24,000 of the $6,000,000 convertible
debentures. The remaining debentures were convertible in the aggregate into
1,538,461 units at the option of the holder at any time or automatically upon
the completion of equity financing of $10,000,000 or greater. Each unit was
comprised of one of our common shares and one purchase warrant. Each common
share purchase warrant entitled the holder to purchase one common share at an
exercise price of $2.60 per common share, at any time prior to June 20, 2007.
The debentures were repaid following completion of our November 3, 2004 private
placement.
RESEARCH AND DEVELOPMENT BUDGET
Our Research and Development programs are described in the "Our Armed Antibodies
Pipeline" on page 29 of this 20F. It provides a status of our various projects.
The following provides financial analysis to be read in conjunction with "Our
Development Plans Section".
PROXINIUM(TM) FOR THE TREATMENT OF HEAD AND NECK CANCER:
Our Phase I clinical trial program commenced in 2003 at a cost of $1,153,000. In
2004, the first dosing schedule using Proxinium was completed in Russia and the
second, more aggressive dosing schedule commenced in Brazil. Costs related to
these programs were $2,274,000 in 2004 and are estimated to be $5,350,000 in
2005, $6,120,000 in 2006 and estimated to be $4,750,000 in order to advance the
program to completion of Phase II clinical trials in North America by the end of
2007. It is not possible to predict the outcomes of these trials or to estimate
costs or time to complete Phase III clinical trials until the outcome of this
program is known.
PROXINIUM(TM) FOR THE TREATMENT OF BLADDER CANCER:
We commenced our project with Proxinium(TM) for the treatment of bladder cancer
in 2004 at a cost of $625,000. By the fourth quarter of 2004 we received
approval of an amended protocol from Health Canada to commence a Phase I
clinical trial on up to 40 patients in Canada. Enrolment has commenced and the
study is expected to complete enrolment by the end of 2005 at an estimated cost
of $2,300,000. Once Phase I data is analyzed and if found to be appropriate we
estimate that it will cost at least an additional $5,000,000 in 2006 and at
least an additional $5,150,000 n 2007 to advance Proxinium(TM) for the treatment
of bladder cancer through Phase II clinical trials in that time period.
OUR NEXT PRODUCT CANDIDATE:
Our Hybridomics(TM) and ImmunoMine(TM) development and screening program were
designed to identify potential Armed Antibodies(TM) drug candidates. We
commenced this process in 2003 at a cost of $1,690,000. In 2004 we continued to
screen and identify multiple antibodies selected by our program and selected a
number of candidates to enter preclinical testing as possible Armed
Antibodies(TM). The program has identified VB6-845 and three other candidates,
which have all entered into various levels of preclinical testing in 2004. The
costs associated with this
52
program in 2004 were $1,595,000. Animal efficacy studies and safety studies for
VB6-845 for the treatment of ovarian cancer have commenced, we estimate that the
cost to advance VB6-845 through these studies and if appropriate into Phase I
studies as well as advancing the other Armed Antibodies(TM) candidates through
the various early stages of research and testing is estimated to be $6,145,000
in 2005 and $7,100,000 in 2006 and $5,800,000 in 2008.
The chart below details our total Research and Development costs for 2003 and
2004:
2003 2004
DESCRIPTION: EXPENDITURES EXPENDITURES
Proxinium for the treatment of H&N cancer $ 1,153 $ 2,274
Proxinium for the treatment of Bladder cancer $ 0 $ 625
Our next product candidate $ 1,690 $ 1,595
All other research expenditures $ 1,909 $ 1,028
------------ ------------
Total R&D expenditures as per Financial Statements $ 4,752 $ 5,522
============ ============
All figures in $000's CDN
RESEARCH AND DEVELOPMENT ACTIVITIES BY THEIR NATURE, PRECLUDE DEFINITIVE
STATEMENTS AS TO THE TIME REQUIRED AND COST INVOLVED IN REACHING CERTAIN
OBJECTIVES, THEREFORE THE ACTUAL COSTS MAY VARY SIGNIFICANTLY FROM THE ESTIMATES
SET FORTH ABOVE.
DESCRIPTION OF SHARE CAPITAL
We are authorized to issue an unlimited number of preferred shares, issuable in
series, and an unlimited number of common shares. As of March 31, 2005, we had
29,206,115 common shares and no preferred shares issued or outstanding. In
addition, as at March 31, 2005, we had 11,447,113 common share purchase warrants
and 1,862,792 options to purchase common shares outstanding, each of which
entitles the holder to acquire one of our common shares at varying exercise
prices.
As at December 31, 2004, we had 29,206,115 common shares and no preferred shares
issued or outstanding. In addition, as at December 31, 2004, we had 11,447,113
common share purchase warrants and 1,455,737 options to purchase common shares
outstanding, each of which entitles the holder to acquire one of our common
shares at varying exercise prices.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with Canadian GAAP
requires management to make estimates and assumptions. These estimates and
assumptions affect the reported amounts of assets, liabilities and expenses and
disclosure of contingent assets and liabilities at the date of the financial
statements. A change in facts or circumstances could significantly affect the
results of operations and financial position. Discussed below are those policies
that we believe are critical and require the use of judgment in their
application.
INTANGIBLE ASSETS - LICENSED TECHNOLOGY
In the year ended December 2001, we acquired a non-exclusive license from a
third party, to use its technology to reduce future development costs in return
for total payments of $396,000. We are amortizing this technology over its
estimated useful life of five years. We test the intangible assets for
impairment on an ongoing basis, to verify that the carrying value is
appropriate.
53
CAPITAL ASSETS
Property, plant, equipment and other assets are stated at cost. Amortization is
determined using methods and annual rates which are expected to reflect their
economic and useful life. Assets are tested for impairment each time changes of
events or situation indicate that the carrying value of an asset may not be
recoverable.
COMMITMENTS
We enter into research, development and license arrangements with various
parties in the ordinary course of business. The arrangements require
compensation to be paid typically by combination of initial up front payments,
milestone payments dependent on the certain advancements and royalty payments,
commencing upon commercial sales of any products developed as a result of the
license or technology. Amounts included in our financial statements are
principally comprised of fee-related committed research and license payments,
and potential milestone payments in 2004. Other milestone and royalty related
amounts that may become due under the various arrangements are dependent on
other factors, including clinical trials, regulatory approvals and the
successful development of a new product, the outcome and timing of which is
uncertain.
STOCK BASED COMPENSATION
In December 2003, the amended CICA Handbook, section 3870 - Stock Based
Compensation and Other Stock Based Payments required companies to measure and
expense all equity instruments awarded to employees. We adopted the new
recommendation prospectively. Consequently, we have applied fair value based
method to expense stock options awarded since January 1, 2003 using the
Black-Scholes option pricing model. The model estimates the fair value of fully
transferable options, without vesting restrictions, which significantly differs
from our stock option awards. These models also require four highly subjective
assumptions including future stock price volatility and expected time until
exercise, which greatly affects the calculated values.
RECENT ACCOUNTING DEVELOPMENTS
ACCOUNTING GUIDELINE 15, CONSOLIDATION OF VARIABLE INTEREST ENTITIES
This guideline comes into effect for interim periods beginning on or after
November 1, 2004. The purpose of the guideline is to provide guidance for
determining when an enterprise includes the assets, liabilities and results of
activities of a variable interest entity in its consolidated financial
statements. We believe the adoption of this guideline will not have a
significant impact on our financial statements.
CICA 1530, COMPREHENSIVE INCOME
This new section will set the standards for the reporting and display of
comprehensive income. Comprehensive income is defined as the change in equity
(net assets) of an enterprise during a period from transactions and other events
and circumstances from non-owner sources. It includes all changes in equity
during a period, except those resulting from investments by owners and
distributions to owners.
A statement of comprehensive income would be included in a full set of financial
statements for both interim and annual periods. The new statement would present
net income and each component to be recognized in other comprehensive income.
These components would include, for example, exchange gains and losses arising
on translation of the financial statements of self-sustaining foreign
operations, which are currently included in a separate component of
shareholders' equity. We believe the adoption of this guideline will not have a
significant impact on our financial statements.
CICA SECTION 3865, HEDGES
CICA 3865 sets standards on when and how hedge accounting may be applied. As
compared with AcG-13, Hedging Relationships, this new Section further restricts
which hedging relationships qualify for hedge accounting. For perfectly
effective hedges, all three treatments result in the recognition of offsetting
changes in earnings in the same
54
period. For hedges that are not perfectly effective, the ineffective portion of
the change in fair value of derivatives would be included in earnings in the
period of the change. The accounting treatments proposed in this Re-Exposure
Draft are expected to result in changes from current practice under Canadian
GAAP. We believe the adoption of this guideline will not have a significant
impact on our financial statements.
CICA SECTION 3855, FINANCIAL INSTRUMENTS - RECOGNITION AND MEASUREMENT
This section was approved by the Accounting Standard Board in December 2004 and
is subject to written ballot. This section introduces requirements to recognize
and measure all financial instruments on a basis similar to that in the FASB
Statement No. 115, Accounting for Certain Investments in Debt and Equity
Securities. An entity would recognize a financial asset or financial liability
only when the entity becomes a party to the contractual provisions of the
financial instrument. Financial assets and financial liabilities would, with
certain exceptions, be initially measured at fair value. For financial assets
and financial liabilities not classified as held for trading, the initial value
recorded would include transaction costs that are directly attributable to the
acquisition or issuance of the financial asset or liability. After initial
recognition, the measurement of financial assets would vary depending on the
category of the asset: financial assets held for trading, held-to-maturity
investments, loans and receivables, and available-for-sale financial assets. We
believe the adoption of this guideline will not have a significant impact on our
financial statements.
RISKS AND UNCERTAINTIES
The following describe certain risks, events and uncertainties that we face as a
biopharmaceutical company. For a more comprehensive discussion of these and
other risks, refer to the Company's most recent filed Annual Information Form
available at www.sedar.com.
We are a biopharmaceutical company specializing in the discovery and development
of fully monoclonal antibody therapies for the treatment of cancer. It is not
expected that these product development efforts will generate significant
revenues for several years.
We face a number of challenges in successfully developing our products to the
commercialization stage. All are in pre-clinical or early Phase I/II clinical
testing. Some biotech products do not successfully complete Phase I testing;
some products complete Phase I testing but do not successfully complete Phase II
level testing. At this stage, it is impossible to establish whether completion
of the clinical trials process and ultimate commercialization is truly feasible.
We are also dependent on outside suppliers for source materials and clinical
testing.
An inherent business risk for all biotechnology companies without products in
the market is the availability of funding for continuing and future product
development activities. To date, we have been able to obtain sufficient funding
to support operations. Substantial additional financing will be required to fund
operations over the long term and take our products candidates through to full
commercialization. We are pursuing additional funding sources, but can offer no
assurance that we will be successful. There is a going concern note in our
financial statements. We must raise money from investors to fund our operations.
If we are unable to fund our operations, we will cease doing business. Since
January 2000, our principal shareholder Mr. Leslie Dan and entities affiliated
with him have financed substantially all of our operations. If he ceases to
provide additional financing and we are unable to raise money from third
parties, we will cease operations.
Other potentially significant factors that may affect the ultimate commercial
success of our products include: the impact of an increasingly changing and
competitive environment in the market place; the ability to obtain and protect
our patents and intellectual property for our products and technologies and that
our patents will not be challenged; the ability to secure and maintain corporate
partnerships and alliances necessary for the development and commercialization
of our products an technologies; the ability to obtain regulatory approvals for
our products in numerous international jurisdictions; the availability of
product liability insurance; the performance of key personnel; and the impact of
foreign currency fluctuations on our operating results as some of our expenses
are paid in $US and other foreign currencies.
55
FORWARD LOOKING STATEMENTS
Certain statements included in this management's discussion and analysis
constitute forward looking statements. When we use the words "anticipate",
"believe", "plan", "estimate", "expect", "intend", "will", "may", "should" and
similar expressions, as they relate to us or our management, they are intended
to identify forward looking statements. These forward looking statements are not
historical facts but reflect our current expectations concerning future results
and events. We caution readers that these forward looking statements are subject
to a number of risks and uncertainties that could cause actual results or events
to differ materially from current expectations. Certain of the risks and
uncertainties are discussed above. The risk factors described herein are not
necessarily all of the important factors that could cause actual results to
differ materially from those expressed in our forward looking statements.
ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.
NAME POSITION PERIOD SERVED AGE
- ---------------------------- -------------------------------------------------- ---------------- ---
Martin Barkin(1)(2)(3) Director Since June 1996 58
John J. Borer, III(2)(4) Director Since June 2000 47
Michael Byrne(5) Chief Financial Officer and Corporate Secretary - 54
Michael Cross Chief Operating Officer - 40
Leslie L. Dan(1) Chair of the Board of Directors Since July 1995 75
Dimitri Fitsialos Executive Director, Clinical Development - 40
Nick Glover(1) President and Chief Executive Officer and Director Since June 2004 36
Glen MacDonald Vice President, Research - 46
Murray S. Palay(2)(4))(6) Director Since August 1997 50
Louis Siminovitch Director Since March 2000 84
Mark Wainberg(3) Director Since August 1997 59
- ------------
NOTES:
(1) Current member of the Executive Committee.
(2) Current member of the Audit Committee.
(3) Current member of the Compensation Committee.
(4) Current member of the Corporate Governance Committee.
(5) Mr. Michael Byrne was the Chief Financial Officer of Hyal Pharmaceutical
Corporation in August 1999 at the time a receiver and manager was appointed
to hold its assets.
(6) Mr. Murray Palay was named as a defendant in a civil suit as a director of
a privately owned Canadian company Westsun International Inc. by a
terminated employee of a subsidiary who brought an action against the
parent company and its former officers and directors, alleging breach of
fiduciary duty to him as an employee, breach of trust and conversion of his
earned commission. On November 5, 2003, the Ontario Superior Court of
Justice dismissed all claims of wrongdoing by the directors but found
liability against the directors for unpaid wages. The judgment is currently
under appeal.
Except as disclosed below, each of our directors, officers and other employees
listed above has been engaged for more than five years in his present principal
occupation or in other capacities with the company or organization (or
predecessor thereof) in which he currently holds his principal occupation. The
information provided below has been provided to us by the individuals themselves
and has not been independently verified by us.
BACKGROUND OF DIRECTORS, OFFICERS AND EMPLOYEES
Martin Barkin, MD, FRCSC, MA. Dr. Martin Barkin is a director of our company.
Dr. Barkin has been President and Chief Executive Officer and a Director of
Draxis Health Inc., a pharmaceutical company, since May 1992. He has been a
practicing physician, Professor and Chief of Urologic Surgery, and Chief
Executive Officer of Sunnybrook Health Sciences Center. He has also been Deputy
Minister of Health for the Province of Ontario, Head
56
of Health Care Consulting for KPMG Canada, Chair of the board of directors of
the Sunnybrook and Women's College Health Sciences Center.
John J. Borer, III, BA, JD. Mr. John Borer is a director of our company. Mr.
Borer has been President and Senior Managing Director of Rodman & Renshaw LLC,
an investment bank, since 1998. Prior to his positions with Rodman & Renshaw,
Mr. Borer was Senior Vice President and Investment Manager in the New Business
Development office of Security Pacific Business Credit Inc.
Michael A. Byrne, BA, CGA. Mr. Michael Byrne has been our Chief Financial
Officer and Corporate Secretary since January 2000. Mr. Byrne has over twenty
years of senior management and executive experience in the biotechnology and
pharmaceutical industries. Prior to joining us, Mr. Byrne was the Vice
President, Finance and Chief Financial Officer of Hyal Pharmaceutical
Corporation.
Michael Cross, Ph.D., MBA, M.Sc. Dr. Michael Cross has been our Chief Operating
Officer since February 2004. Prior to joining us, he was Managing Director of
Southpaw B.I., a large cGMP contract manufacturing organization, from January
2003 to January 2004. Prior to this, Dr. Cross was with MDS Proteomics Inc. from
January 2000 to January 2003, most recently as Vice President, where he was
responsible for various financial, operational, and business development
activities. From May 1996 until January 2000, he was a partner with MDS Capital
Corp., an international venture capital fund which invests in the health and
sciences industries, where he was responsible for new investment, operations and
merger and acquisition activities.
Leslie L. Dan, CM, B.Sc.Phm., MBA. Mr. Leslie Dan is the Chair of our board of
directors. Mr. Dan is also the Chair of the board of directors and founder of
Novopharm Limited which is now a wholly-owned subsidiary of Teva
Pharmaceuticals. Mr. Dan has been the Chair of Novopharm since January 1990. Mr.
Dan sits on the Board of Governors of Mount Sinai Hospital, Toronto. Mr. Dan is
a director of Teva Pharmaceuticals and Draxis and the Chair of the board of
directors of Human Serum Production and Medicine Manufacturing Co. Ltd. in
Hungary.
Dimitri Fitsialos, B.Sc. Mr. Dimitri Fitsialos is our Executive Director,
Clinical Development. Mr. Fitsialos has been our Executive Director, Clinical
Development since July 2004. He joined our company as Director of Clinical
Development in January 2003. Prior to that time, Mr. Fitsialos was Director
Clinical Development and Regulatory Affairs at Lorus Therapeutics from
1998-2001. He has been responsible for over 20 clinical trials in various
therapeutic areas including oncology, hematology, transplantation, infectious
disease, CNS, psychiatry and dermatology.
Nick Glover, Ph.D. Dr. Nick Glover is our President and Chief Executive Officer
and a director of our company. Prior to his appointment as President and Chief
Executive Officer in January 2004, Dr. Glover had served as our Vice President,
Corporate Development and Product Operations since September 2001. Dr. Glover
joined us in September 2000 and has had responsibility for all aspects of our
business development, including financing, corporate partnering, and strategic
orientation. Prior to joining us, Dr. Glover was with MDS Capital Corp. as an
Investment Manager, where his responsibilities included sourcing, negotiating,
and completing venture capital investments in the biotechnology sector.
Glen MacDonald, Ph.D. Dr. Glen MacDonald joined us in July 1997 and has been our
Vice President, Research since January 2004. Dr. MacDonald was a Senior Research
Scientist from 1997 until April 2002 and our Director of Research from May 2002
until December 2003. Prior to joining us, Dr. MacDonald held a Manitoba Cancer
Treatment Research Foundation Fellowship and served as a Post-Doctoral Fellow at
the University of Manitoba Cancer Treatment Research Foundation. Dr. MacDonald
holds a Ph.D. in the field of immunology from the University of Manitoba. Dr.
MacDonald's scientific background is extensive having published in the areas of
monoclonal antibodies, graft-versus-host disease, lupus, and apoptosis.
Murray S. Palay, B. Comm., LL.B., T.E.P. Mr. Murray Palay is a director of our
company. Mr. Palay is the Managing Director of Quadrant Asset Management,, and
was Managing Director, Assante Asset Management Ltd., an investment management
firm, from July 2000 through December 2004. Mr. Palay's previous role from 1993
to June 2000, was Vice President, Corporate Finance, coordinating the Wealth
Planning Group for Loring Ward Investment Counsel Ltd. (now Assante Asset
Management Ltd.) in providing business consulting, succession, estate planning,
and international tax and estate planning. He currently sits on the boards of
directors of public and private
57
companies, including CCI Entertainment Ltd., Optima Strategy Master Limited
Partnership, and Sun Mortgage Corporation.
Louis Siminovitch, B.Sc., Ph.D., D.Sc. Dr. Louis Siminovitch is a director of
our company. Dr. Siminovitch has been University Professor Emeritus at the
University of Toronto since 1985. Since 1994, Dr. Siminovitch has also been
Director Emeritus of the Samuel Lunenfeld Research Institute, an organization
that he has been involved in since its creation in 1983. Dr. Siminovitch is an
advisor and genomics consultant to numerous cancer centers and research
institutes in Canada and the United States, as well as to the Province of
Ontario. He was made both an Officer, in 1980, and Companion, in 1989, of the
Order of Canada. In 1999, Dr. Siminovitch was elected as a Foreign Member of the
National Academy of Sciences of the United States.
Mark Wainberg, B.Sc., Ph.D. Dr. Mark Wainberg is a director of our company. Dr.
Wainberg has served as Professor and Director of the McGill University AIDS
Center since 1989. He has been Director of Research at the Jewish General
Hospital in Montreal since 2000, as well as Professor of Medicine and of
Microbiology and Immunology at McGill University in Montreal, Canada, since
1987. Dr. Wainberg is a past-President of the International AIDS Society and is
an internationally recognized scientist in the field of HIV/AIDS.
B. COMPENSATION.
COMPENSATION OF DIRECTORS
Outside directors (i.e., directors who are not officers and are not associated
or affiliated with the Dan Group) are paid an annual fee of $15,000, a fee of
$500 per meeting by telephone, and $1,000 per meeting attended in person. The
Chair is paid an annual fee of $50,000. Committee chairs are paid $1,500 per
meeting. Directors are entitled to receive stock option grants pursuant to our
2001 stock option plan and are entitled to be reimbursed for expenses incurred
to attend meetings. During the fiscal year ended December 31, 2003, there were a
total of 9,000 stock options granted to directors. Those options have an
exercise price of $2.00 and expire on June 19, 2010.
For a description of all of the options held by directors as of January 1, 2005,
refer to "-Share Ownership of Directors and Executive Officers -Stock Options
Outstanding" in this registration statement.
As of January 1, 2005, our directors had been granted a total of 678,000 options
to acquire common shares, representing 46.6% of the total outstanding options.
As of January 1, 2005, only 552,000 of these options remain outstanding,
representing 38.2% of the total outstanding options. These numbers exclude the
170,000 options granted to Dr. Schincariol related to his performance as
President and Chief Executive Officer.
As at January 1, 2005 the number of options held by our non-executive directors,
including our Chairman, is 222,000, and our President and Chief Executive
Officer held 330,000 options.
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
Compensation of our executive officers and senior management for the year ended
December 31, 2003 consisted of three elements: (i) base salaries, (ii) bonuses,
and (iii) share options under our stock option plan. During the year ended
December 31, 2004, the aggregate cash compensation paid or payable by us to our
executive officers was $841,524.
The following table provides all compensation earned during each of the last
three fiscal years by our Chief Executive Officer, our former Chief Executive
Officer and our other most highly compensated executive officers who served as
executive officers at the end of the fiscal year ended December 31, 2004, which
we refer to collectively, as the "Named Executive Officers".
58
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
-------------------------------------
AWARDS
ANNUAL COMPENSATION SECURITIES PAYOUTS
-------------------------------------- UNDER ----------------------
OTHER ANNUAL OPTIONS/SARS LTIP ALL OTHER
SALARY BONUS COMPENSATION(5) GRANTED PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($) ($)
- --------------------------- ---- ------- ------ --------------- ------------ ------- ------------
Nick Glover 2004 282,307 48,800 - 300,000 - -
President and Chief 2003 190,000 50,160 - 5,000 - -
Executive Officer(1) 2002 167,200 47,340 - - - -
Anthony Schincariol 2004 - - - - - 390,600
Former President and 2003 275,000 75,000 - 20,000 - -
Chief Executive Officer(2) 2002 225,000 67,500 - - - -
Michael Byrne 2004 181,730 25,000 - 100,000 - -
Chief Financial Officer 2003 165,000 46,260 - 5,000 - -
and Corporate Secretary 2002 154,200 45,840 - - - -
Michael Cross 2004 162,692 - - 100,000 - -
Chief Operating Officer(3) 2003 - - - - - -
2002 - - - - - -
Glen MacDonald 2004 132,595 8,400 - 75,000 - -
Vice President, Research(4) 2003 105,000 21,375 - 4,917 - -
2002 95,000 19,750 - - - -
- ------------
NOTES:
(1) Nick Glover was appointed President and Chief Executive Officer on January
7, 2004. His salary for 2002 and 2003 reflects compensation for his role
as Vice President, Corporate Development during that time.
(2) Anthony Schincariol resigned as our President and Chief Executive Officer
on January 7, 2004. The figure under "All Other Compensation" for 2004
represents compensation paid to Dr. Schincariol in 2004 pursuant to his
resignation agreement. For additional details, refer to "-Termination of
Employment, Change in Responsibilities, and Employment Contracts" in this
registration statement.
(3) Michael Cross has been our Chief Operating Officer since February 2004. As
a result, his compensation for fiscal 2004 reflects approximately 11
months salary.
(4) Glen MacDonald was not appointed as an executive officer until January
2004. As a result, his compensation disclosed in this chart was not earned
as an executive officer, but was earned during fiscal 2003 as our Director
of Research and during fiscal 2002 as Director of Research for nine months
and Senior Research Scientist for three months.
(5) Perquisites and other personal benefits do not exceed $20,000.
59
STOCK OPTION INCENTIVE COMPENSATION
The following tables provide details of stock options granted to the Named
Executive Officers during the year ended December 31, 2004 pursuant to our stock
option plan.
OPTION/SAR GRANTS DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR
MARKET VALUE OF
% OF TOTAL SECURITIES
OPTIONS UNDERLYING
GRANTED TO OPTIONS ON THE
SECURITIES UNDER EMPLOYEES IN EXERCISE OR DATE
OPTIONS/SARS FINANCIAL BASE OF THE EXPIRATION
NAME GRANTED YEAR PRICE(1) GRANT DATE
- ----------------------------- ---------------- ------------ ------------ --------------- -------------
(#) (%) ($/SECURITY) ($/SECURITY)
Nick Glover.................. 300,000 24.0% 1.56 1.56 Aug. 12, 2014
Anthony Schincariol.......... - - - - -
Michael Byrne................ 100,000 8.0% 1.56 1.56 Aug. 12, 2014
Michael Cross................ 100,000 8.0% 1.56 1.56 Aug. 12, 2014
Glen MacDonald............... 75,000 6.0% 1.56 1.56 Aug. 12, 2014
- ------------
NOTE:
(1) The exercise price of these options is the closing price of our common
shares on the TSX on the day immediately preceding their issuance.
AGGREGATED OPTION/SAR EXERCISES DURING THE MOST RECENTLY COMPLETED
FINANCIAL YEAR AND FINANCIAL YEAR-END OPTION/SAR VALUES
The following table provides details of stock options exercised by the Named
Executive Officers during the year ended December 31, 2004.
SECURITIES UNEXERCISED VALUE OF UNEXERCISED IN-
ACQUIRED AGGREGATE OPTIONS/SARS AT FY - THE-MONEY OPTIONS/SARS
ON VALUE END AT FY - END ($)
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------------ ---------- --------- ------------------------- -------------------------
(#) ($) (#) ($)/($)
Nick Glover................... 0 0 57,500 272,500 56,450 364,050
Anthony Schincariol........... 0 0 0 0 0 0
Michael Byrne................. 0 0 42,500 92,500 49,650 122,850
Michael Cross 0 0 10,000 90,000 13,400 120,600
Glen MacDonald................ 0 0 21,958 69,959 20,663 92,663
EQUITY COMPENSATION PLANS
The following table provides the number of common shares authorized for issuance
under all compensation plans as of December 31, 2004.
SHARES AUTHORIZED UNDER STOCK OPTION PLANS AS OF DECEMBER 31, 2004
NUMBER OF NUMBER OF COMMON
COMMON SHARES SHARES REMAINING
TO BE ISSUED UPON WEIGHTED AVERAGE AVAILABLE FOR
EXERCISE OF EXERCISE PRICE OF ISSUANCE UNDER
OUTSTANDING OUTSTANDING EQUITY
PLAN CATEGORY OPTIONS OPTIONS COMPENSATION PLANS
- ------------------------------------------------------------ ----------------- ----------------- ------------------
(#) ($) (#)
Equity compensation plans approved by shareholders.......... 1,455,767 1.82 1,178,833
Equity compensation plans not approved by shareholders...... __ __ __
60
TERMINATION OF EMPLOYMENT, CHANGE IN RESPONSIBILITIES, AND EMPLOYMENT CONTRACTS
As a result of Dr. Glover's appointment as President and Chief Executive Officer
on January 7, 2004, we entered into a revised employment agreement with him. Dr.
Glover's agreement provides for the payment of a signing bonus of $20,000,
salary of $275,000 per year and a car allowance, as well as a bonus to be paid
and up to 300,000 stock options to be granted at the discretion of the board of
directors. Among other terms and subject to certain conditions, Dr. Glover's
employment may be terminated by Dr. Glover on three months' written notice or by
us without prior notice for reasons of just cause or disability. We may also
terminate the agreement without cause. If we terminate the agreement without
cause, we will pay to Dr. Glover an amount equal to the salary that he was being
paid for a severance period of eighteen months, plus a pro rata portion of any
bonus to which he was entitled payable at the board's discretion. The amount of
the salary and bonus payable to Dr. Glover will be reduced in the last six
months of the severance period by any amounts he earns from another employer or
business activity. Dr. Glover will also be entitled to receive up to $10,000 to
cover costs associated with career relocation and outplacement services. The
agreement includes confidentiality, assignment of intellectual property, and
non-competition and non-solicitation provisions.
In January 2000, Mr. Michael Byrne entered into an agreement of employment with
us. On October 14, 2004, we entered into a revised employment agreement with
him. Mr. Byrne's agreement provides for the payment of a salary of $175,000 per
year and a car allowance, as well as a bonus to be paid and stock options to be
granted at the discretion of the board of directors. Among other terms and
subject to certain conditions, Mr. Byrne's employment may be terminated by him
on one month's written notice or by us without prior notice for reasons of just
cause or disability. We may also terminate the agreement without cause. If we
terminate the agreement without cause, we will pay to Mr. Byrne an amount equal
to the salary that he was being paid for a severance period of twelve months,
plus a pro rata portion of any bonus to which he was entitled, payable at the
board's discretion. In addition, the severance period will be extended by one
month for each additional year of employment completed commencing January 1,
2004. Mr. Byrne will also be entitled to receive up to $10,000 to cover costs
associated with career relocation and outplacement services. The agreement
includes confidentiality, assignment of intellectual property, and
non-competition and non-solicitation provisions.
On February 9, 2004, we entered into an employment agreement with Dr. Michael
Cross in his role as Chief Operating Officer. We entered into a revised
employment agreement with him effective December 13, 2004. Dr. Cross' agreement
provides for the payment of a salary of $180,000 per year and a car allowance,
as well as a bonus to be paid, and stock options to be granted at the discretion
of the board of directors. Among other terms and subject to certain conditions,
Dr. Cross' employment may be terminated by him on three months' written notice
or by us without prior notice for reasons of just cause or disability. We may
also terminate the agreement without cause. If we terminate the agreement
without cause, we will pay to Dr. Cross an amount equal to the salary that he
was being paid for a severance period of twelve months, plus a pro rata portion
of any bonus to which he was entitled, payable at the board's discretion. In
addition, the severance period will be extended by one month for each additional
year of employment completed commencing February 9, 2004. Dr. Cross will also be
entitled to receive up to $10,000 to cover costs associated with career
relocation and outplacement services. The agreement includes confidentiality,
assignment of intellectual property, and non-competition and non-solicitation
provisions.
On October 12, 2004, we entered into an employment agreement with Dr. Glen
MacDonald. The agreement provides for the payment of a salary of $130,000 per
year and a car allowance, as well as a bonus to be paid, and stock options to be
granted at the discretion of the board of directors. Among other terms and
subject to certain conditions, Dr. MacDonald's employment may be terminated by
him on three month's written notice or by us without prior notice for reasons of
just cause or disability. We may also terminate the agreement without cause. If
we terminate the agreement without cause, we will pay to Dr. MacDonald an amount
equal to the salary that he was being paid for a severance period of twelve
months, plus a pro rata portion of any bonus to which he was entitled, payable
at the board's discretion. In addition, the severance period will be extended by
one month for each additional year of employment completed commencing January 1,
2004. Dr. MacDonald will also be entitled to receive up to $10,000 to cover
costs associated with career relocation and outplacement services. The agreement
includes confidentiality, assignment of intellectual property, and
non-competition and non-solicitation provisions.
61
On November 17, 2004, we entered into an employment agreement with Mr. Dimitri
Fitsialos. The agreement provides for the payment of a salary of $125,000 per
year, as well as a bonus to be paid, and stock options to be granted at the
discretion of the board of directors. Among other terms and subject to certain
conditions, Mr. Fitsialos's employment may be terminated by him on three month's
written notice or by us without prior notice for reasons of just cause or
disability. We may also terminate the agreement without cause. If we terminate
the agreement without cause, we will pay to Mr. Fitsialos an amount equal to the
salary that he was being paid for a severance period of six months plus a pro
rata portion of any bonus to which he was entitled, payable at the board's
discretion. In addition the severance period will be extended by one month for
each additional year of employment completed commencing January 1, 2004. Mr.
Fitsialos will also be entitled to receive up to $10,000 to cover costs
associated with career relocation and outplacement services. The agreement
includes confidentiality, assignment of intellectual property, and
non-competition and non-solicitation provisions.
Dr. Anthony Schincariol resigned from his position as President and Chief
Executive Officer on January 7, 2004. As part of Dr. Schincariol's resignation
agreement, he will receive $412,500, less any amounts he receives in respect of
any employment or other business income he earns in the period from January 7,
2005 to July 6, 2005, plus $80,000 and certain other benefits.
C. BOARD PRACTICES.
All directors hold office until the next annual general meeting of our
shareholders or until they resign or are removed from office in accordance with
our articles of continuation.
No director has a service contract with us other than Dr. Nick Glover, who has
an employment contract with us in respect of his position as President and Chief
Executive Officer. Each director has formally consented to serve as a director
and has signed a confidentially agreement with us.
From time to time our board appoints, and empowers, committees to carry out
specific functions on behalf of the board. The following describes the current
committees of the board and their members.
AUDIT COMMITTEE
Our audit committee supervises the audit of our financial records and the
adequacy and effectiveness of our policies and procedures concerning our
financial reporting, internal accounting, financial controls, management
information and risk management. Our audit committee:
- evaluates the qualifications, independence and performance of the
independent auditors;
- determines the engagement of the independent auditors;
- monitors the rotation of partners of the independent auditors on our
engagement team as required by law;
- oversees selection and changes to accounting policies and
establishes policies;
- reviews our financial statements and Management's Discussion and
Analysis contained in all reports to the Canadian securities
regulatory authorities and the SEC;
- reviews our critical accounting policies and estimates;
- review all related-party transactions;
- reviews any written communications between our independent auditors
and management;
- discusses with management and our independent auditors the results
of the annual audit and the review of our quarterly financial
statements; and
- pre-approves the retention of the independent auditors to perform
any proposed permissible non-audit services.
The audit committee is currently composed of three directors (Messrs. Barkin,
Borer, and Palay).
62
COMPENSATION COMMITTEE
Our compensation committee reviews and recommends policy relating to
compensation and benefits of our officers and employees, including reviewing and
approving corporate goals and objective relevant to compensation of our Chief
Executive Officer and other senior officers, evaluating the performance of these
officers in light of those goals and objectives, and setting compensation of
these officers based on these evaluations. The compensation committee also
administers the issuance of stock options and other awards under our stock plan.
The compensation committee is currently composed of two directors (Messrs.
Barkin and Wainberg).
CORPORATE GOVERNANCE COMMITTEE
Our corporate governance committee provides our board with advice and
recommendations relating to corporate governance in general, including all
matters relating to the stewardship role of the board in respect of the
management of the corporation, the board's size and composition, the board's
compensation and any procedures that may be necessary to allow the board to
function independently of management.
The corporate governance committee is currently composed of two directors
(Messrs. Borer and Palay).
EXECUTIVE COMMITTEE
During the intervals between meetings of the board of directors, the executive
committee exercises all the powers of the board of directors in respect of the
management and direction of our business and affairs, except for those powers
specified in our articles or by statute to be exercised by the full board of
directors.
The executive committee is currently composed of three directors (Messrs.
Barkin, Dan, and Glover).
D. EMPLOYEES.
As of December 31, 2004, we had 68 staff members. Of our total employees,
approximately 27% are engaged in antibody discovery and development,
approximately 44% are engaged in clinical, manufacturing and quality operations,
and the balance is engaged in other activities such as finance, intellectual
property, administration, and investor relations. None of our employees are
covered by a collective bargaining agreement, we have not experienced any work
stoppages, and we consider our relationship with our employees to be good.
As of December 31, 2003 and 2002, we had 59 and 58 staff members, respectively.
E. SHARE OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS.
The following chart provides the common share and option ownership of our
executive officers and directors as of May 17, 2005.
NUMBER OF SHARES
NAME OF OFFICER OR BENEFICIALLY PERCENTAGE OF NUMBER OF
DIRECTOR OWNED(1) COMMON SHARES OPTIONS EXERCISE PRICE EXPIRY DATE
- ------------------ ---------------- ------------- --------- -------------- -----------
(#) (%) (#) ($)
Martin Barkin 5,375 0.02% 30,000 1.56 Aug 12-11
1,500 2.00 Jun 19-10
4,500 2.20 Nov 20-08
John J. Borer, III 11,875 0.05% 30,000 1.56 Aug 12-11
1,500 2.00 Jun 19-10
4,500 2.20 Nov 20-08
6,500 3.30 Jun 17-06
Leslie Dan 35,002,413(2) 56.1% 1,500 2.00 Jun 19-10
4,500 2.20 Nov 20-08
Murray S. Palay 17,375(3) 0.07% 30,000 1.56 Aug 12-11
63
NUMBER OF SHARES
NAME OF OFFICER OR BENEFICIALLY PERCENTAGE OF NUMBER OF
DIRECTOR OWNED(1) COMMON SHARES OPTIONS EXERCISE PRICE EXPIRY DATE
- ------------------ ---------------- ------------- --------- -------------- -----------
(#) (%) (#) ($)
1,500 2.00 Jun 19-10
4,500 2.20 Nov 20-08
Louis Siminovitch 5,375 0.02% 30,000 1.56 Aug 12-11
1,500 2.00 Jun 19-10
4,500 2.20 Nov 20-08
Mark Wainberg 5,375 0.02% 30,000 1.56 Aug 12-11
1,500 2.00 Jun 19-10
4,500 2.20 Nov 20-08
Michael Byrne 32,917 0.21% 25,000 3.310 Mar 21-12
100,000 1.56 Aug 12-14
5,000 2.00 Jun 19-10
20,000 2.20 Nov 20-08
Michael Cross 10,000 0.04% 30,000 3.31 Mar 21-12
100,000 1.56 Aug 12-14
Nick Glover 57,917 0.22% 100,000 3.31 Mar 21-12
300,000 1.56 Aug 12-14
5,000 2.00 Jun 19-10
20,000 2.20 Nov 20-08
5,000 4.0 Nov 15-05
Glen MacDonald 22,868(4) 0.09% 30,000 3.31 Mar 21-12
75,000 1.56 Aug 12-14
4,917 2.00 Jun 19-10
12,000 2.20 Nov 20-08
- ------------
NOTES:
(1) Beneficial ownership is determined as required in Form 20-F including
common shares subject to presently exercisable options or options
exercisable within 60 days of March 13, 2005.
(2) Includes 18,580,115 common shares which Mr. Dan or entities controlled by
him have a right to acquire on the conversion of outstanding convertible
securities and exercise of all outstanding warrants, other than options,
and 5,375 common shares that Mr. Dan has a right to acquire pursuant to the
exercise of options presently exercisable. Mr Dan's holdings include
944,001 shares held by 1401798 Ont. Ltd. and 1,111,111 shares held by
Clairmark Investments Ltd. Mr. Dan controls 1401798 Ont. Ltd. and Clairmark
Investments LTD.
(3) Includes 5,375 common shares that Mr. Palay has a right to acquire pursuant
to the exercise of options presently exercisable.
(4) Includes 22,368 common shares that Mr. MacDonald has a right to acquire
pursuant to the exercise of options presently exercisable.
STOCK OPTION PLAN
EQUITY COMPENSATION PLANS
Our 1996 share option plan was approved by shareholders on December 16, 1996
with 493,337 common shares reserved for issuance. We issued options under the
1996 plan until June 2001, but no further grants of options may be made under
the 1996 plan. The term of options granted under the 1996 plan were generally
five years but do not exceed ten years. The vesting period for these options is
generally three years with 1/3 vesting at the end of each year, subject to the
discretion of our board of directors. Options that have been granted pursuant to
the 1996 plan will continue to be governed by the 1996 plan until they are
exercised, cancelled, forfeited, and/or expired. Options that have been granted
pursuant to the 1996 plan are non-transferable. As of May 17, there were 11,500
options to purchase common shares outstanding under the 1996 plan.
During the fiscal year ended December 31, 2001, our shareholders approved the
establishment of our 2001 stock option plan. At our special meeting of
shareholders held on May 7, 2004 in addition to our shareholders approving
64
our share consolidation, our shareholders approved an increase in the number of
common shares reserved for issuance pursuant to the 2001 plan from 600,000 to
2,600,000, an increase of 2,000,000 common shares.
As of May 17, 2005, 2,092,100 options have been granted under the 2001 plan and
1,808,542 of the issued options remain outstanding. Under the 2001 plan:
(i) the number of common shares reserved for issuance to employees
and directors will not exceed 10% of the number of common shares
issued and outstanding at any time;
(ii) the number of common shares that may be issued to any one
employee and/or director and their associates, within a one-year
period, cannot exceed 5% of the shares issued and outstanding;
and
(iii) the number of common shares reserved for issuance to any one
person cannot exceed 5% of the number of common shares issued and
outstanding.
Options can be granted to any person who is a director, officer, or employee of
us or any subsidiary or affiliate, or any person who has been engaged to provide
services to us or our affiliates. Options granted pursuant to the 2001 plan are
non-transferable. The term of any options may not exceed 10 years. The vesting
period for options granted pursuant to the 2001 plan is determined by our board
of directors but is generally three years with 1/12 vesting at the end of each
quarter. The exercise price for the common shares is based on the trading price
for the common shares on the last trading day before the date of grant of the
options.
Although the number of common shares initially reserved for issuance pursuant to
the 1996 plan was 493,337, the number of options to acquire shares that have
been exercised to date is 17,282. As of May 17, 2005, the number of outstanding
options to acquire common shares pursuant to the 1996 plan was 11,500 and as
indicated above, no further grants of options may be made pursuant to this plan.
If these options expire, are cancelled, or are otherwise forfeited, they will
not be available for reissuance. As of May 17, 2005, the aggregate number of
common shares issued pursuant to the 1996 plan, the number of common shares
reserved for issuance pursuant to stock options currently outstanding under the
1996 plan, plus the 2,600,000 common shares reserved for issuance under the 2001
plan equals 2,628,782 common shares representing 9.0% of the total number of
common shares issued and outstanding as of January 1, 2005.
STOCK OPTIONS OUTSTANDING
The following chart provides, as at May 17, 2005, information regarding
outstanding options to purchase our common shares issued pursuant to our 2001
plan and our 1996 plan. For a discussion of our outstanding warrants and other
convertible securities, refer to Item 7: "Major Shareholders and Related Party
Transactions" in this registration statement.
DESIGNATION AND
NUMBER OF MARKET PRICE
SECURITIES UNDER EXERCISE AT DATE OF EXPIRY
CLASS OF OPTIONEE OPTION PRICE GRANT DATE
- ---------------------------------------------------------------- ---------------- ------------ ------------ --------
(#) ($/SECURITY) ($/SECURITY)
All of our executive officers and past executive officers (4
individuals in the aggregate)................................. 575,000 1.56 1.56 08/12/14
14,917 2.00 2.00 06/19/10
52,000 2.20 2.20 11/20/08
5,000 4.00 4.00 11/15/05
185,000 3.31 3.31 03/21/12
All of our directors and past directors who are not also
executive officers (6 individuals in the aggregate)........... 150,000 1.56 1.56 08/12/11
9,000 2.00 2.00 06/19/10
27,000 2.20 2.20 11/20/08
6,500 3.30 3.30 06/17/06
All of our other employees or past employees.................... 453,000 1.56 1.56 08/12/11
65
DESIGNATION AND
NUMBER OF MARKET PRICE
SECURITIES UNDER EXERCISE AT DATE OF EXPIRY
CLASS OF OPTIONEE OPTION PRICE GRANT DATE
- ---------------------------------------------------------------- ---------------- ------------ ------------ --------
(#) ($/SECURITY) ($/SECURITY)
30,975 2.00 2.00 06/19/10
8,000 2.00 2.00 08/27/10
42,650 2.20 2.20 11/20/08
261,000 3.31 3.31 03/21/12
Total Options................................................... 1,820,042
ITEM 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. MAJOR SHAREHOLDERS.
We are controlled by Leslie Dan and Andrea Dan-Hytman who, through securities
beneficially owned by the Dan Group, control or exercise control over 91.9% of
our common shares including their presently exercisable options and other
convertible securities. The Dan Group consists of Mr. Dan, Ms. Dan-Hytman and
companies that they control: 1401798 Ontario Limited, Clairmark Investments
Ltd., Dan Family Holdings Ltd. and ADH Investments (1999) Inc.
To the knowledge of our directors and senior officers, as at May 17, 2005 the
only persons or corporations that beneficially owned, directly or indirectly, or
exercised control or direction over shares carrying more than 5% of the voting
rights attached to our outstanding shares are provided in the table below.
NAME OF BENEFICIAL NUMBER OF COMMON SHARES
SHAREHOLDER BENEFICIALLY OWNED PERCENTAGE OF COMMON SHARES(3)
- -------------------------------------- ----------------------- ------------------------------
Leslie Dan............................ 35,002,413(1) 56.1%
Andrea Dan-Hytman..................... 22,370,346(2) 35.8%
TOTAL................................. 57,372,759 91.9%
- ------------
NOTES:
(1) Includes 18,580,115 common shares which Mr. Dan or entities controlled by
him have a right to acquire on the conversion of outstanding convertible
securities other than options, and 5,250 common shares that Mr. Dan has a
right to acquire pursuant to the exercise of options presently
exercisable; These 18,580,115 common shares include 944,001 common shares
held by 1401798 Ont. Ltd. and 1,111,111 common shares held by Clairmark
Investments Ltd. and 1,111,111 common shares that Clairmark has the right
to acquire on the exercise of outstanding warrants. Mr. Dan controls
1401798 Ont. Ltd. and Clairmark Investments Ltd.
(2) Includes: 4,187,308 common shares held by ADH Investments (1999) Inc. and
10,562,569 common shares that ADH Investments (1999) Inc. has the right to
acquire on the conversion of outstanding convertible debentures; and
3,571,429 common shares held by 1533686 Ontario Limited and 4,049,040
common shares that 1533686 Ontario Limited has the right to acquire on the
exercise of outstanding warrants. Ms. Dan-Hytman controls ADH Investments
(1999) Inc. and 1533686 Ontario Limited.
(3) Including the Dan Group's presently exercisable options and other
convertible securities. For a summary of the Dan Group's equity and debt
interests in our company and a discussion of the changes in those
interests over the past three fiscal years, refer to "-Related Party
Transactions" in this registration statement. Our major shareholders do
not have different voting rights than the other shareholders.
As of February 28, 2005, 704,104 of our common shares were held in the United
States by 85 shareholders of record.
66
B. RELATED PARTY TRANSACTIONS.
THE DAN GROUP
As of January 1, 2005, through securities beneficially owned by the Dan Group,
Mr. Dan and Ms. Dan-Hytman control or exercise control approximately 91.9% of
our common shares including their presently exercisable options and other
convertible securities. Refer to "-Major Shareholders" in this registration
statement for more detailed information. Our total indebtedness to the Dan Group
as of May 17, 2005 was $30,746,711, not including accrued interest.
On August 24, 2001, we completed a private equity placement with our then
significant shareholder DFH, which was controlled by Mr. Dan, for net proceeds
of $5,848,767. Under the terms of the transaction, DFH purchased 1,791,045 units
issued by us at a price of $3.35 per unit. Each unit consisted of one common
share and one common share purchase warrant. Each common share purchase warrant
entitles the holder thereof to purchase one common share at an exercise price of
$3.35 per common share until August 24, 2006. These warrants are beneficially
owned by Leslie Dan.
On June 20, 2002, we completed a private placement and issued three secured
convertible debentures for gross aggregate proceeds of $6,000,000, less issue
costs of $141,288. The debentures were issued to companies within the Dan Group
and to a party related to Mr. Dan, and were repaid in part on February 10, 2003.
The remainder was repaid following the completion of the November 3, 2004
private placement.
On May 13 and October 31, 2002, we received bridge financing loans from an
entity affiliated with Mr. Dan in the amounts of $800,000 and $2,000,000,
respectively. The $800,000 loan was non-interest bearing and the $2,000,000 loan
bore interest at a rate of 4.5% per annum. These loans were repaid during the
year 2002 and the total interest paid on these loans was $11,589.
On December 17, 2002, we completed a private equity placement with Mr. Dan and
1533686 Ontario Limited, a company related to Mr. Dan, for $10,000,000, less
issue costs of $109,147. Under the terms of the transaction, we issued 7,142,857
units at a price of $1.40 per unit. Each unit is comprised of one common share
and one common share purchase warrant. Each common share purchase warrant
entitles the holder to purchase one common share at an exercise price of $1.40
per common share until December 17, 2007.
On February 10, 2003, we repaid, to a company controlled by Mr. Dan, the
$2,000,000 principal amount, plus accrued interest of $24,000 of one of the
convertible debentures previously issued on June 20, 2002. In connection with
this repayment, Mr. Dan reinvested $2,000,000, less issue costs of $89,000, in
the form of a private equity placement for 1,111,111 units, with each unit
consisting of one common share and one common share purchase warrant at an
exercise price of $1.80 per share. The warrants expire on February 10, 2008.
On September 2, 2003, we received a bridge financing loan from an entity
affiliated with Mr. Dan in the amount of $500,000, which was non-interest
bearing and was repaid in October 2003. From November 27, 2003 until November 3,
2004, we received bridge financing loans in the total principal amount of
$13,400,000 from the Dan Group. A total principal amount of $8,900,000 of these
loans, plus accrued interest of $246,711 thereon, were converted into
convertible debentures as part of the private placement with the Dan Group that
closed on November 3, 2004. The remaining principal amount of $4,500,000, plus
accrued interest of $40,007 thereon, was repaid with the proceeds of that
private placement.
At a special meeting of shareholders held October 20, 2004, shareholders other
than the Dan Group and affiliates, associates or insiders of the Dan Group
considered and approved the entering into of a private placement with the Dan
Group. Pursuant to the private placement on November 3, 2004, we issued to Ms.
Dan-Hytman, or her nominee, a secured convertible debenture with the principal
amount of $10,562,568, consideration for which included the conversion of
certain of the bridge loans discussed above into the convertible debenture and
cash consideration of $2,000,000. We also issued to Mr. Dan, or his nominee, a
secured convertible debenture with the principal amount of $12,584,143, with
consideration including the conversion of the remaining bridge loans discussed
above into the convertible debenture and cash consideration of $12,000,000.
67
These debentures are secured by a first charge over all of our assets and will
bear interest at the rate of 4.5% per annum, compounded annually. The
convertible debentures will mature on November 3, 2006, when both interest and
principal will be payable. The principal amount of the convertible debentures is
convertible at the option of the holder at any time into units at a price of
$1.50 per unit. Each unit will be comprised of one common share and one half of
a common share purchase warrant. Each whole common share purchase warrant
enables the holder to purchase an additional common share at an exercise price
of $2.00 per common share at any time for a period of four years from the date
of issuance. The conversion price of any accrued interest on the convertible
debentures will be equal to the ten-day weighted average trading price of our
common shares on the TSX for the ten consecutive trading days prior to
conversion, less the maximum discount permitted by the TSX.
The convertible debentures include customary representations, warranties and
covenants regarding our company. The events of default under the convertible
debentures which would permit the holders to demand immediate payment of
principal and interest, include: (i) our failure to perform its obligations
under the convertible debentures; (ii) our breach of any representations and
warranties we made in the convertible debentures; (iii) our ceasing or
threatening to cease to carry on business in the normal course; (iv) if a
secured party realizes its security over our assets in excess of $150,000; (v)
if a stock exchange issues an order to cease, suspend or prohibit trading of our
shares which continues for longer than two weeks; (vi) if we are in default of
any covenant or obligation in excess of $150,000; (vii) if we fail to pay a debt
to any creditor in excess of $250,000 and this failure continues after any
applicable grace period; (viii) if we default under another debenture; (ix) if
an event occurs that would have a material adverse effect on our operations; (x)
if we default under any of our material contracts and do not cure this default
within the prescribed time; (xi) if we receive a final judgment against us
requiring a payment in excess of $150,000; (xii) if a court adjudges us bankrupt
or insolvent; (xiii) if we become bankrupt or insolvent; or (xiv) if we undergo
a change of control.
In addition to repaying the principal amount of $4,500,000 of bridge financing
loans plus accrued interest of $40,006.85 thereon, we used the proceeds of the
convertible debentures issued on November 3, 2004 to repay the indebtedness owed
under the convertible debentures existing at that time (with an aggregate
principal amount of $4,000,000 and accrued interest of $241,250.82).
Mr. Dan currently holds a convertible debenture in the principal amount of
$12,584,143 and Ms. Dan-Hytman currently holds a convertible debenture in the
principal amount of $10,562,568. Other than the $1,558,835 principal amount of
the loan to Mr. Dan outstanding described below, we have no other indebtedness
to Mr. Dan, Ms. Dan-Hytman or their respective nominees.
We lease a 31,100 square foot manufacturing, laboratory, and office facility at
147 Hamelin Street in Winnipeg, Manitoba at an estimated net annual rent of
$181,600 for 2004. This facility is leased Almad Investments Limited, which is
jointly owned by Mr. Dan and Ms. Andrea Dan-Hytman, his daughter. The lease,
which was amended effective February 1, 2004, expires on June 30, 2008 and is on
market terms.
On November 3, 2004, Mr. Dan loaned us $1,600,000 in order to finance capital
expenditures in respect of our Winnipeg facility. The loan bears interest at a
rate of 5.0% annually and we are repaying the loan on a monthly basis. As at
December 10, 2004, we had $1,558,835 outstanding.
On March 21, 2005, our board of directors approved an additional bridge
financing loan of $2,600,000 from Clairmark Investments, an entity owned by Mr.
Dan.
On May 10, 2005, our board of directors approved two additional bridge financing
loans of $1,500,000 and $1,500,000 from Clairmark investments, an entity wholly
owned by Mr. Dan, and from Mr. Dan, which were funded on April 28, 2005 and May
12, 2005 to the Company
TEVA PHARMA B.V.
On September 10, 2003, we completed a private equity placement of 1,402,100
units at a price of $2.00 per unit with Teva for gross proceeds of approximately
$2,804,000, less issuance costs of $147,000. Each unit consists of one of our
common shares and one common share purchase warrant. Each common share purchase
warrant entitles the
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holder to purchase one common share at an exercise price of $2.00 per common
share until September 10, 2008. Our chairman and principal shareholder, Mr. Dan,
is a director of Teva Pharmaceutical. Teva is an indirect, wholly-owned
subsidiary of Teva Pharmaceutical.
As part of the September 10, 2003 private equity placement, Teva received the
right to purchase that number of our securities issued pursuant to any future
offering in order to maintain its ownership level in our company on a
fully-diluted basis, calculated immediately prior to a offering. Teva's current
ownership level in us on a fully-diluted basis (not including the exercise of
outstanding options) is 4.4%.
In addition, until September 10, 2008 or earlier if triggered by us, as long as
Teva holds any of our common shares, we have granted to Teva a right of first
negotiation to obtain an exclusive license to develop and distribute the next
five indications of Proxinium(TM) for which we would otherwise seek a licensee.
We are obligated to notify Teva in these circumstances and to negotiate the
terms of a license agreement with Teva for 60 days on an exclusive basis. If we
fail to execute and deliver a license agreement at the end of this 60 day
period, we are free to negotiate the terms of a license with any third party,
provided that the terms offered to the third party are not materially more
favorable than those offered to Teva.
C. INTERESTS OF EXPERTS AND COUNSEL.
Not applicable.
ITEM 8: FINANCIAL INFORMATION
A. FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION.
Audited annual financial statements including balance sheets, statements of loss
and deficit and statements of cash flows, for the fiscal years ended December
31, 2004, 2003 and 2002, together with the notes to those statements and the
report thereon of the independent registered public accounting firm dated March
4, 2005, except as to Note 19, which is as at March 23, 2005, and interim
financial statements for the quarter ended March 31, 2005 and March 31, 2004 are
contained under Item 18: "Financial Statements" below.
LEGAL OR ARBITRATION PROCEEDINGS
In September 2001, First Monitor Canada Inc. commenced an action in the Ontario
Superior Court of Justice against us and seven other parties in connection with
an alleged breach of a distribution agreement between First Monitor and
Novopharm. First Monitor claimed that Leslie Dan, acting on behalf of Viventia,
induced Novopharm to breach its agreement with First Monitor and that we were
unjustly enriched as a result of the breach. First Monitor sought damages in the
amount of $20,000,000, special damages, an accounting of profits, interest and
costs.
We denied the claim against us and consider the action to be without merit. A
statement of defense reflecting this position has been served on our behalf.
First Monitor's action was dismissed as abandoned on January 4, 2005. Although
First Monitor could attempt to revive the action, we are not aware that it has
taken any steps to do so.
In the normal course of business, we may become involved in various claims and
legal proceedings. Except as disclosed above, we are not aware of any material
existing or pending legal proceedings against us.
DIVIDEND POLICY
We have never paid dividends on our common shares and we do not expect to pay
dividends in the foreseeable future. If we generate earnings in the future, we
expect that our earnings will be retained to finance further growth and, when
appropriate, retire debt. Our board of directors will determine if and when
dividends should be declared and paid in the future based on our financial
position at the relevant time.
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B. SIGNIFICANT CHANGES.
Other than as discussed in this registration statement (including the financial
statements and the notes thereto), there have been no significant changes in our
business since December 31, 2004.
ITEM 9: THE OFFER AND LISTING
A. OFFER AND LISTING DETAILS.
We have been listed on the TSX since December 20, 1996. Initially, our common
shares were listed under the symbol "NBI", but since October 17, 2000, our
common shares have been under the symbol "VBI".
PRICE HISTORY
The following tables provide the high and low prices as reported by the TSX and
the average daily trading volumes for our securities for each of the indicated
periods. THE HIGH AND LOW SALES PRICES PER COMMON SHARE AND AVERAGE DAILY
TRADING VOLUME FOR PERIODS PRIOR TO MAY 12, 2004 DO NOT REFLECT THE
CONSOLIDATION OF OUR ISSUED AND OUTSTANDING COMMON SHARES ON A TEN (10) OLD FOR
ONE (1) NEW COMMON SHARE BASIS. On May 12, 2004, our common shares began trading
on a consolidated basis on the TSX.
Annual high-low price history for previous five full fiscal years:
FISCAL YEAR ENDED HIGH LOW VOLUME
- ----------------- ---- --- ------
($) ($)
December 31, 2000 1.90 0.27 124,498
December 31, 2001 0.54 0.15 16,658
December 31, 2002 0.40 0.13 16,353
December 31, 2003 0.40 0.14 18,591
December 31, 2004 4.80 1.40 36,324
Quarterly high-low price history for previous two full fiscal years:
QUARTER ENDED HIGH LOW VOLUME
- -------------------- ---- --- ------
($) ($)
March 31, 2003 0.25 0.14 10,767
June 30, 2003 0.25 0.15 21,542
September 30, 2003 0.30 0.19 21,075
December 31, 2003 0.25 0.18 20,627
March 31, 2004 0.50 0.19 80,906
June 30, 2004 2.59 1.41 49,149
September 30, 2004 2.75 1.40 5,302
December 31, 2004 4.80 2.21 10,991
Monthly high-low price history for previous six months:
MONTH HIGH LOW VOLUME
- -------------- ---- --- ------
($) ($)
August 2004 1.75 1.50 3,834
September 2004 2.75 1.60 9,209
October 2004 4.00 2.21 10,577
November 2004 4.80 3.20 18,435
December 2004 3.75 2.88 3,587
January 2005 3.65 2.60 3,985
DESCRIPTION OF SECURITIES
The securities being registered pursuant to this registration statement are our
common shares, without par value.
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B. PLAN OF DISTRIBUTION.
Not applicable.
C. MARKETS.
Our common shares have traded on the TSX since October 17, 2000 under the symbol
"VBI", and were, prior to that time, traded on the TSX under the symbol "NBI".
We are intending to apply to list the common shares for trading on Amex. We
expect our listing to be completed during the second quarter of fiscal 2005,
however, there can be no assurance that our application will be approved. Even
in the event we are listed on Amex, there can be no assurance that an active
trading market in our shares in the U.S. will be established and/or if
established sustained.
D. SELLING SHAREHOLDERS.
Not applicable.
E. DILUTION.
Not applicable.
F. EXPENSES OF THE ISSUE.
Not applicable.
ITEM 10: ADDITIONAL INFORMATION
A. SHARE CAPITAL.
We are authorized to issue an unlimited number of preferred shares, issuable in
series, and an unlimited number of common shares. As at January 1, 2005, we had
29,206,115 common shares and no preferred shares issued or outstanding.
THE COMMON SHARES
As of January 1, 2003, we had 26,673,252 common shares issued and outstanding,
and as of December 31, 2003, we had 29,186,465 common shares issued and
outstanding. There were no common shares issued during 2003 pursuant to the
exercise of options under the 1996 Plan and 2001 Plan, 1,111,111 common shares
were issued as a result of a private placement with our Chairman Leslie Dan in
February 2003 and 1,402,100 common shares issued as a result of a private
placement with Teva in September 2003. Refer to "Major Shareholders and Related
Party Transactions - Related Party Transactions" in this registration statement.
At our special meeting of shareholders held on May 7, 2004, our shareholders
approved a special resolution authorizing the consolidation of our issued and
outstanding common shares on the basis of ten (10) old common shares for one (1)
new common share. On May 12, 2004, our common shares began trading on a
consolidated basis on the TSX.
The holders of common shares are entitled to one vote for each share held at all
meetings of our shareholders (other than meetings at which only holders of
another class or series of shares are entitled to vote). Subject to the prior
rights of the holders of our preferred shares, the holders of common shares are
entitled to receive any dividend declared by our board of directors and to
receive our remaining property upon dissolution.
The following table is a reconciliation of our issued share capital from January
1, 2002 to January 1, 2005:
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ISSUED AND OUTSTANDING COMMON STOCK VBI
OUTSTANDING COMMON SHARES VALUE OUTSTANDING COMMON SHARES
AS AT, (PRE-CONSOLIDATION) (IN THOUSANDS) (POST-CONSOLIDATION)
- ----------------------------- ------------------------- -------------- -------------------------
(#) ($) (#)
January 1, 2002 195,303,946 50,556 19,530,395
Issued pursuant to Private Placement 71,428,570 9,891 7,142,857
Issued on exercise of options - - -
January 1, 2003 266,732,516 60,447 26,673,252
Issued pursuant to Private Placement 11,111,111 1,160 1,111,111
Issued pursuant to Private Placement 14,021,000 1,613 1,402,100
Issued on exercise of options - - -
January 1, 2004 291,864,627 63,220 29,186,465
Issued on exercise of options 196,500 42 19,650
January 1, 2005 292,061,127 63,262 29,206,115
OUTSTANDING OPTIONS, WARRANTS AND CONVERTIBLE DEBENTURES
As at May 17, 2005, we had 1,820,042 options outstanding. Refer to "Directors,
Senior Management and Employees - Share Ownership of Directors and Executive
Officers - Stock Option Plan" and "Directors, Senior Management and Employees -
Share Ownership of Directors and Executive Officers - Stock Options Outstanding"
in this registration statement for a more detailed summary of our outstanding
stock options and a description of our 1996 and 2001 stock option plans.
As at January 1, 2005, we had 11,447,113 common share purchase warrants and two
convertible debentures outstanding. There are 11,447,113 common shares issuable
on exercise of the warrants, and 23,146,711 common shares issuable on conversion
of the principal amount of the convertible debentures and the exercise of the
warrants issuable thereunder. As of March 31, 2005, there was $602,132 in
accrued interest owing on the convertible debentures, which would be convertible
into common shares at a conversion price equal to the ten-day weighted average
trading price of our common shares on the TSX for the ten consecutive trading
days prior to conversion, less the maximum permitted discount. Refer to "Major
Shareholders and Related Party Transactions -Related Party Transactions" for a
description of the outstanding common share purchase warrants and convertible
debentures.
As part of the September 10, 2003 private placement, Teva received the right to
purchase that number of our securities issued pursuant to any future offering in
order to maintain its ownership level in us on a fully-diluted basis, calculated
immediately prior to a offering. Teva's current ownership level in us on a
fully-diluted basis (not including the exercise of outstanding options) is 4.4%.
B. ARTICLES OF CONTINUANCE.
On July 9, 1998, we were continued under the OBCA under the name Novopharm
Biotech Inc. On September 11, 2000, we filed articles of amendment to change our
name to Viventia Biotech Inc. On May 7, 2004, our shareholders approved a
special resolution authorizing the consolidation of our issued and outstanding
common shares on a ten (10) old for one (1) new basis, and we filed articles of
amendment dated May 10, 2004 to give effect to this consolidation.
Our Ontario corporation number is 5268330. Our articles of continuance provide
in section 8 that there are no restrictions on the business that we may carry on
or on the powers that we may exercise. These provisions of our articles of
continuance have not been amended or revoked.
DIRECTORS
Our by-laws provide that a director or officer who is a party to, or who is a
director or officer of or has a material interest in, any person who is a party
to a material contract or
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transaction or proposed material contract or transaction with us shall disclose
the nature and extent of his interest in the time and manner provided by the
OBCA. The OBCA provides that, if applicable, a director shall disclose his
interest in writing to us, or request to have entered in the minutes of meeting
of directors the nature and extent of his or her interest. A director who has a
material interest a contract or transaction shall not vote on any resolution to
approve the contract or transaction unless the contract or transaction is:
(a) an arrangement by way of security for money lent to or obligations
undertaken by the director for the benefit of us or an affiliate;
(b) one relating primarily to his or her remuneration as one of our
directors, officers, employees or agents;
(c) one for indemnity or insurance of directors; and
(d) one with an affiliate.
Neither our articles of continuance nor our by-laws limit the directors' power,
in the absence of a independent quorum, to vote compensation to themselves or
any members of their body. Our by-laws provide that the directors shall be paid
remuneration as the directors may from time to time by resolution determine. A
simple majority of the number of directors or a greater number as may be fixed
by the directors or shareholders shall constitute a quorum for the transaction
of business at any meeting of directors.
Neither our articles of continuance nor our by-laws address the borrowing powers
of the directors.
Our by-laws provide that no person is qualified to be a director unless he or
she is at least 18 years of age and that a majority of the directors must be
Canadian residents. There is no mandatory retirement age for directors and there
is no requirement that the directors hold any shares in us to qualify as
directors.
THE COMMON SHARES AND PREFERRED SHARES
The holders of common shares are entitled to one vote for each common share held
at all meetings of our shareholders except meetings at which only holders of the
preferred shares as a class or the holders of one or more series of preferred
shares are entitled to vote. Subject to the prior rights of the holders of our
preferred shares, the holders of common shares shall be entitled to receive any
dividend declared by our board of directors and to receive our remaining
property upon dissolution.
The preferred shares are issuable in series from time to time. Before the issue
of preferred shares of any series, our directors shall fix the number of shares
that will form such series and shall determine the designation, rights,
privileges, restrictions, and conditions to be attached to the preferred shares
of such series, the whole subject to the filing of articles of amendment giving
a description of such series.
The preferred shares of each series shall rank equally with the preferred shares
of every other series with respect to dividends and the return of capital in the
event of our liquidation, dissolution or winding-up, and shall be entitled to a
preference over the common shares and any other shares ranking junior to the
preferred shares with respect to priority in the payment of dividends and in the
distribution of assets in the event of our liquidation, dissolution or
winding-up, whether voluntary or involuntary, or any other distribution of our
assets among our shareholders for the purpose of winding up our affairs. If any
cumulative dividends, whether or not declared, or declared non-cumulative
dividends or amounts payable on a return of a capital in the event of
liquidation, dissolution or winding-up are not paid in full in respect of any
series of the preferred shares, the preferred shares of all series shall
participate rateably in respect of those dividends in accordance with the sums
that would be payable on our preferred shares if all those dividends were
declared and paid in full, and in respect of a return of capital, in accordance
with the sums that would be payable on that return if all those sums so payable
were paid in full; provided, however that if there are insufficient assets to
satisfy in full all those claims, the claims of the holders of the preferred
shares with respect to return of capital shall be paid first and any assets
remaining after the payment would be applied towards the payment of claims in
respect of dividends. The preferred shares of any series may be given any other
preferences not inconsistent with the rights, privileges, restrictions and
conditions attached to the preferred shares as a class over the common shares
and any other shares junior to the preferred shares as may be determined for a
particular series of preferred shares.
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Except as set out below, or as required by law, or unless provision is made in
our articles relating to any series of preferred shares that a particular series
is entitled to vote, the holders of the preferred shares as a class will not be
entitled to receive notice of, to attend or to vote at any meetings of our
shareholders; provided, however, that the holders of preferred shares shall be
entitled to notice of meetings of shareholders called for the purpose of
authorizing our dissolution or the sale, lease or exchange of all or
substantially all of our property other than in the ordinary course of our
business.
Provisions as to modification, amendment or variation of the rights attached to
the common shares and preferred shares are contained in the OBCA. Generally
speaking, substantive changes to the rights attached to the common shares or
preferred shares as a class or of a series of preferred shares will require the
approval of the holders of the shares of such class or series, as the case may
be, voting separately, by special resolution (at least two-thirds of the votes
cast).
Our articles of continuance also specify that rights, privileges, restrictions
and conditions attached to the preferred shares as a class may be added to,
changed or removed but only with the approval of the holders of the preferred
shares given as specified below. The approval of the holders of the preferred
shares may be given in any manner required by law, subject to a minimum
requirement that a particular approval must be given by resolution signed by all
the holders of the preferred shares or passed by the affirmative vote of at
least two-thirds of the votes cast at a meeting of the holders of the preferred
shares in order to (1) add to, change or remove any right privilege, restriction
or condition attaching to the preferred shares as a class or (2) in respect of
any other matter requiring the consent of the holders of the preferred shares.
The formalities to be observed with respect to such meeting (including with
respect to notice, adjournment, quorum, conduct of the meeting) are prescribed
by our by-laws and the OBCA. On every poll taken at every meeting of the holders
of preferred shares as a class or at any joint meeting of the holders of two or
more series of preferred shares, each holder of preferred shares entitled to
vote has one vote in respect of each $1.00 of the issue price of each preferred
share held.
Directors do not stand for reelection at staggered intervals. There are no
redemption provisions or sinking fund provisions attached to any common shares
or preferred shares. Holders of common shares or preferred shares are not liable
to further capital calls by us.
There are no provisions discriminating against any existing or prospective
holder of common shares or preferred shares as a result of that shareholder
owning a substantial number of shares, other than pursuant to the take-over bid
rules contained in the provincial securities laws to which we are subject.
LIMITATIONS ON RIGHTS TO OWN SECURITIES, CHANGE IN CONTROL PROVISIONS AND
SIGNIFICANT SHAREHOLDERS
There are no limitations on the rights to own securities contained in our
articles of continuance or by-laws. For a discussion of the restrictions on the
rights of non-Canadians to hold or vote our common shares, refer to the
discussion of the Investment Canada Act, or ICA, under the heading "Additional
Information - Exchange Controls" in this registration statement.
There are no provisions of our articles or bylaws that would have an effect of
delaying, deferring or preventing a change in control of us and that would
operate only with respect to a merger, acquisition or corporate restructuring
involving us.
There are no provisions in our by-laws governing the ownership threshold above
which shareholder ownership must be disclosed by any shareholder. Under
provincial securities laws, to which we are subject, however, shareholder
ownership must be disclosed by any shareholder who owns more than 10% of our
common shares.
SHAREHOLDER MEETINGS
Under our by-laws, the directors have the power to convene annual and special
meetings of our shareholders and to set the record date for those meetings in
order to determine the shareholders of record entitled to receive notice of and
to vote at such meetings. Annual meetings must be held each year, not more than
15 months after the preceding
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annual meeting. Special meetings may be held at any time. Meetings may also be
requisitioned by shareholders or a court in certain circumstances. The only
persons entitled to be present at a meeting of shareholders are those entitled
to vote at the meeting, the directors, the auditor and other persons who are
entitled or required under any provision of the OBCA or our articles or by-laws
to attend a meeting of our shareholders. Any other person may be admitted only
on the invitation of the chairman of the meeting or with the consent of the
meeting.
INSPECTION OF BOOKS AND RECORDS
The OBCA permits shareholders and creditors of a corporation, their agents and
legal representatives to examine the records of the corporation, including
articles, by-laws, unanimous shareholder agreements, minutes of meetings and
resolutions of shareholders, register of directors, securities register,
accounting records and records containing minutes of meetings and resolutions of
directors, during the usual business hours of the corporation, and permits them
to take extracts of those documents free of charge. If a corporation is an
"offering corporation", any other person may also do so upon payment of a
reasonable fee. A shareholder of a corporation is entitled, upon request and
without charge, to one copy of the articles and by-laws, and any unanimous
shareholder agreement of the corporation.
The OBCA permits shareholders and creditors of a corporation, their agents and
legal representatives and, where the corporation is an offering corporation, any
other person, to require the corporation or its transfer agent to provide a
basic list setting out the names of the shareholders of the corporation, the
number of shares of each class and series owned by each shareholder and the
address of each shareholder, all as shown on the records of the corporation.
Furthermore, those persons can demand the provision of supplemental lists
setting out any changes from the basic list. The requirement for a corporation
to provide these lists applies only after the payment of a reasonable fee and
the sending to the corporation or its transfer agent a statutory declaration
setting out, among other things, the name and address of the applicant, whether
the applicant is a shareholder, creditor or any other person, and stating that
the lists will be used only in connection with an effort to influence the voting
by shareholders of the corporation, an offer to acquire shares of the
corporation or any other matter relating to the affairs of the corporation.
ACTIONS WITHOUT A MEETING - SHAREHOLDERS
Under the OBCA and our by-laws, subject to certain exceptions, written
resolutions signed by all shareholders of a corporation who would be entitled to
vote on a particular matter are permitted.
SPECIAL MEETINGS
Under the OBCA, the holders of at least 5 percent of the issued shares of a
corporation with voting rights may request that the directors call a meeting of
shareholders. The requisition must state the business to be transacted at the
meeting and must be sent to the registered office of the corporation.
SHAREHOLDER DERIVATIVE SUITS
Under the OBCA, upon application to a court, a derivative action may be brought
by a present or former registered holder or beneficial owner of a security of a
corporation or any of its affiliates, by a director or an officer or a former
director or officer of a corporation or of any of its affiliates, or by any
other person who, in the discretion of the court, is a proper person to bring an
action of this nature.
A derivative action may only proceed if:
- the complainant has given fourteen days' notice to the directors of
the corporation or its subsidiary of its intention to apply to the
court to bring the action;
- the directors of the corporation or its subsidiary do not bring,
diligently prosecute or defend or discontinue the action;
- the complainant is acting in good faith; and
75
- it appears to be in the interests of the corporation or its
subsidiary that the action be brought, prosecuted, defended or
discontinued.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The OBCA requires that every director and officer of a corporation, in
exercising his or her powers and discharging his or her duties:
act honestly and in good faith with a view to the best interests of the
corporation; and
- exercise the care, diligence and skill that a reasonably prudent
person would exercise in comparable circumstances.
The OBCA permits a corporation to indemnify any of its directors and officers,
former directors and officers and persons who act or acted at the corporation's
request as a director or officer of another body corporate of which the
corporation is or was a shareholder or creditor, against all costs, charges and
expenses, including amounts paid to settle an action or satisfy a judgment,
reasonably incurred by the person in connection with any civil, criminal or
administrative action or proceeding to which he or she is made a party by reason
of being or having been a director or officer of the corporation or body
corporate, if:
- he or she acted honestly and in good faith with a view to the best
interests of the corporation; and
- in the case of a criminal or administrative action or proceeding
that is enforced by a monetary penalty, he or she had reasonable
grounds for believing that his or her conduct was lawful.
The OBCA also permits a corporation, with court approval, to indemnify a person
referred to above in connection with an action by or on behalf of the
corporation or a body corporate to procure a judgment in its favor, to which the
person is made a party by reason of being or having been a director or an
officer of the corporation or body corporate, against all costs, charges and
expenses reasonably incurred by the person in connection with the action if he
or she fulfills the two bulleted conditions set out above.
A corporation may purchase and maintain insurance for the benefit of any person
referred to above against any liability incurred by the person:
- in his or her capacity as a director or officer of the corporation,
except where the liability relates to the person's failure to act
honestly and in good faith with a view to the best interests of the
corporation; or
- in his or her capacity as a director or officer of another body
corporate where the person acts or acted in that capacity at the
corporation's request, except where the liability relates to the
person's failure to act honestly and in good faith with a view to
the best interest of the body corporate.
Our by-laws provide that we will indemnify a director or officer, former
director or officer or person who acts or acted at our request as a director or
officer of a body corporate of which we are or were a shareholder or creditor,
to the extent permitted by the OBCA. Our by-laws also provide that we may
purchase and maintain insurance for the benefit of any of these people to the
extent permitted by the OBCA.
ANTI-TAKEOVER PROVISIONS
In Canada, takeovers are regulated in provincial securities legislation and
policies. Shareholders rights plans are permissible, so long as they comply with
provincial securities legislation and are reviewed by the relevant provincial
securities commissions.
Under our articles of continuance, we are authorized to issue an unlimited
number of preferred shares, which may be issued in series from time to time.
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Our by-laws provide that subject to law and our articles of continuance, we may
issue common shares or preferred shares at any time, to any person and for the
consideration as our directors determine. However, under the OBCA we may not
issue any shares until the shares are fully paid.
C. MATERIAL CONTRACTS.
Except for contracts entered into in the ordinary course of business, the only
material contracts which we entered into prior to the date hereof as follows:
1. Convertible Secured Debenture in the amount of $12,584,142.47 issued by us
in connection with the private placement to Leslie Dan, dated November 3,
2004. For details of the material terms of the convertible debentures,
refer to Item 7: "Major Shareholders and Related Party Transactions -
Related Party Transactions - The Dan Group" in this registration
statement.
2. Convertible Secured Debenture in the amount of $5,000,000 issued by us in
connection with the private placement to ADH Investments (1999) Inc.,
dated November 3, 2004. For details of the material terms of the
convertible debentures, refer to Item 7: "Major Shareholders and Related
Party Transactions - Related Party Transactions - The Dan Group" in this
registration statement.
3. Convertible Secured Debenture in the amount of $5,562,568.49 issued by us
in connection with the private placement to ADH Investments (1999) Inc.,
dated November 3, 2004. For details of the material terms of the
convertible debentures, refer to Item 7: "Major Shareholders and Related
Party Transactions - Related Party Transactions - The Dan Group" in this
registration statement.
4. Warrant Certificate granted by us in connection with the private placement
to Leslie Dan, dated November 3, 2004. For details of the material terms
of the warrants, refer to Item 7: "Major Shareholders and Related Party
Transactions - Related Party Transactions - The Dan Group" in this
registration statement.
5. Warrant Certificate granted by us in connection with the private placement
to ADH Investments (1999) Inc., dated November 3, 2004. For details of the
material terms of the warrants, refer to Item 7: "Major Shareholders and
Related Party Transactions - Related Party Transactions - The Dan Group"
in this registration statement.
6. Payment and Security Share Agreement between Leslie Dan, ADH Investments
(1999) Inc. and us, dated November 3, 2004. Under the Payment and Security
Share Agreement between Leslie Dan, ADH Investments (1999) Inc. and us,
dated November 3, 2004, all payments received in respect of the
obligations in connection with the convertible secured debenture issued by
us to Mr. Dan in the principal amount of $12,584,143 and the convertible
secured debenture issued by us to ADH Investments (1999) Inc. in the
amount of $10,562,568 shall be shared between Mr. Dan and ADH Investments
(1999) Inc., referred to as the secured parties, in accordance with their
pro rata shares (i.e., the ratio determined at the particular time of the
amount of the debenture obligations in favor of a secured party to the
total amount of the debenture obligations) immediately prior to the
payment. If any secured party receives any amount in respect of any
debenture obligation that is greater that its pro rata share it shall
purchase the amount of the debenture of the other secured party that would
result in the secured party each having received its pro rata share of the
payment. All security interests held by the secured parties for the
payment and performance of any debenture obligations shall rank pari passu
and equally. If an event of default other than an insolvency event (all
these events are defined in the debentures) occurs, a secured party shall
first give the other secured party at least seven days prior written
notice before it takes any action to enforce any of its rights and
remedies. In a case of this nature the non-enforcing secured party shall
be entitled to purchase the debenture obligations owing to the enforcing
secured party and its security interest under the debenture upon providing
written notice to the enforcing secured party at any time prior to the
expiration of the seven day period, whereupon a binding agreement of
purchase and sale between the non-enforcing secured party and the
enforcing secured party shall be deemed to have been created.
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7. Employment Agreement between Dr. Nick Glover and us, dated January 7,
2004. Refer to Item 6: "Directors, Senior Management and Employees -
Compensation - Termination of Employment, Change in Responsibilities, and
Employment" in this registration statement.
8. Employment Agreement between Mr. Michael Byrne and us, dated October 14,
2004. Refer to Item 6: "Directors, Senior Management and Employees -
Compensation - Termination of Employment, Change in Responsibilities, and
Employment" in this registration statement.
9. Employment Agreement between Dr. Michael Cross and us, dated December 13,
2004. Refer to Item 6: "Directors, Senior Management and Employees -
Compensation - Termination of Employment, Change in Responsibilities, and
Employment" in this registration statement.
10. Employment Agreement between Dr. Glen MacDonald and us, dated October 12,
2004. Refer to Item 6: "Directors, Senior Management and Employees -
Compensation - Termination of Employment, Change in Responsibilities, and
Employment" in this registration statement.
11. Employment Agreement between Mr. Dimtri Fitsialos and us, dated November
17, 2004. Refer to Item 6: "Directors, Senior Management and Employees -
Compensation - Termination of Employment, Change in Responsibilities, and
Employment" in this registration statement.
12. Exclusive License Agreement between Biovation Limited and us, dated March
8, 2004. Refer to Item 4: "Information on the Corporation - Business
Overview - Intellectual Property - Intellectual Property Relating to Our
Platform of Technologies" in this registration statement.
13. Exclusive License Option Agreement between the Trustees of Columbia
University in the City of New York and us, dated June 23, 2003. Refer to
Item 4: "Information on the Corporation - Business Overview - Intellectual
Property - Intellectual Property Relating to Our Platform of Technologies"
in this registration statement.
14. Amendment Number 1 to the Exclusive License Agreement between the Trustees
of Columbia University in the City of New York and us, dated December 19,
2003. Refer to Item 4: "Information on the Corporation - Business Overview
- Intellectual Property - Intellectual Property Relating to Our Platform
of Technologies" in this registration statement.
15. License Agreement between McGill University and Novopharm Limited, dated
April 28, 1994. Refer to Item 4: "Information on the Corporation -
Business Overview - Intellectual Property - Intellectual Property Relating
to Our Product Candidate" in this registration statement.
16. License Agreement between Tanox, Inc. and us, dated August 20, 2002. Refer
to Item 4: "Information on the Corporation - Business Overview -
Intellectual Property - Intellectual Property Relating to Our Platform of
Technologies" in this registration statement.
17. License Agreement between University of Zurich and us, dated January 9,
2003. Refer to Item 4: "Information on the Corporation - Business Overview
- Intellectual Property - Intellectual Property Relating to Our Product
Candidate" in this registration statement.
18. Non-exclusive License Agreement between XOMA Ireland Limited and us, dated
November 30, 2001. Refer to Item 4: "Information on the Corporation -
Business Overview - Intellectual Property - Intellectual Property Relating
to Our Manufacturing" in this registration statement.
19. Property Lease between Almad Investments Limited and us, dated January 26,
2004. Refer to Item 4: "Information on the Corporation - Business Overview
- Facilities" in this registration statement.
78
20. Net Office Lease between Fana Burnhamthorpe Corp. and us, dated November
20, 2000. Refer to Item 4: "Information on the Corporation in this
registration statement Business Overview - Facilities" in this
registration statement.
21. Subscription Agreement, dated September 3, 2003, between Teva Pharma B.V.
and Viventia Biotech Inc. Refer to "Interest of Management and Others in
Material Transactions -- The Dan Group".
22. Demand Promissory Note, dated February 17, 2005, in favor of Mr. Leslie
Dan. Refer to "Interest of Management and Others in Material Transactions
-- The Dan Group".
23. Demand Promissory Note, dated March 1, 2005, in favor of Mr. Leslie Dan.
Refer to "Interest of Management and Others in Material Transactions --
The Dan Group".
24. Demand Promissory Note, dated March 23, 2005, in favor of Clairmark
Investments, an entity owned by Mr. Leslie Dan. Refer to "Interest of
Management and Others in Material Transactions -- The Dan Group".
25. Demand Promissory Note, dated April 28, 2005, in favor of Clairmark
Investments, an entity owned by Mr. Leslie Dan.
26. Demand Promissory Note, dated May 12, 2005, in favor of Mr. Leslie Dan.
27. Demand Promissory Note, dated May 12, 2005, in favor of Clairmark
Investments, an entity owned by Mr. Leslie Dan.
In the ordinary course of our business, we enter into research development
agreements with third parties to provide services to augment our discovery and
development research. These agreements, where relevant, are described in this
registration statement under the heading "Information on the Corporation -
Business Overview - Intellectual Property - Research and Development
Collaborations."
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 our common shares, other
than withholding tax requirements. For a discussion of withholding tax
requirements, refer to "Taxation - United States Federal Income Tax
Considerations" and " - Taxation -Canadian Federal Income Taxation" in this
registration statement.
There is no limitation imposed by Canadian law or other constituent documents on
the right of a non-resident to hold or vote our common shares, other than as
provided in the ICA. The following discussion summarizes the principal features
of the ICA for a non-Canadian who proposes to acquire voting shares or interests
or all or substantially all of the assets of a Canadian business or to establish
a new Canadian business. This description of the ICA is only a general overview
and should not be relied upon as a substitute for independent advice from an
investor's own advisor, and it does not anticipate statutory or regulatory
amendments related thereto.
The ICA applies to all acquisitions of control by a non-Canadian of a Canadian
business or establishment by a non-Canadian of a new Canadian business.
"Non-Canadian" for the purposes of the ICA is defined as an individual,
government, government agency or entity that is not Canadian. Generally,
Canadians are Canadian citizens, permanent residents of Canada, governments in
Canada and their agencies, and Canadian controlled corporations, partnerships,
trusts and joint ventures. Generally, one of two statutory obligations may apply
to a proposed investment or acquisition: (i) a notification; or (ii) an
application for review. An acquisition is subject to review where the
non-Canadian is a WTO investor (i.e., an investor from a country that is a
member of the World Trade Organization), that investor is making a direct
acquisition of the Canadian business and the assets of the Canadian business for
2004 exceed $237,000,000. In the context of an indirect acquisition, a review
will generally only be required where the asset value associated with the
Canadian business(es) represents greater than 50 per cent of the asset value of
the transaction. Otherwise, transactions of this nature are generally not to be
subject to review under the ICA.
79
It should be noted that if the Canadian business being acquired is engaged in a
"sensitive sector", defined in the ICA to be financial services, culture,
transportation services and uranium production, then lower thresholds apply for
notification namely, $5,000,000 for direct acquisitions and $50,000,000 for
indirect acquisitions. If an investment is subject to review under the ICA, the
investor must demonstrate to the Minister responsible for the administration of
the ICA that the investment is likely to be of net benefit to Canada in light of
the several factors enumerated under the ICA.
With respect to us, a non-Canadian would acquire control of us for the purposes
of the ICA if the non-Canadian acquired a majority of our common shares. The
acquisition of less than a majority but one third or more of our common shares
would be presumed to be an acquisition of control of us unless it could be
established that, following the acquisition, we were not controlled in fact by
the acquirer through the ownership of these common shares.
Certain transactions relating to our common shares would be exempt from the ICA,
including:
(a) acquisition of our common shares by a person in the ordinary course of that
person's business as a trader or dealer in securities;
(b) acquisition of control of us in connection with the realization of security
granted for a loan or other financial assistance and not for a purpose related
to the provisions of the ICA; and
(c) acquisition of control of us by reason of an amalgamation, merger,
consolidation or corporate reorganization following which the ultimate direct or
indirect control in fact of us, through the ownership of common shares, remained
unchanged.
E. TAXATION.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
This section summarizes the material United States federal income tax
consequences to "U.S. Holders" (as defined below) of the purchase, ownership and
disposition of our common shares. This section assumes that you hold your common
shares as capital assets within the meaning of Section 1221 of the Internal
Revenue Code of 1986, as amended, the "Code", for United States federal income
tax purposes and assumes that the Company is not a "controlled foreign
corporation" for United States federal income tax purposes. In addition, this
discussion does not address the tax consequences arising under the tax laws of
any state, locality or foreign jurisdiction. Furthermore, this section does not
purport to be a complete analysis of all of the potential United States federal
income tax considerations that may be relevant to particular holders of our
common shares in light of their particular circumstances nor does it deal with
all United States federal income tax consequences applicable to holders subject
to special tax rules, including banks, brokers, dealers in securities or
currencies, traders in securities that elect to use a mark-to-market method of
accounting for their securities holdings, tax-exempt entities, insurance
companies, persons liable for alternative minimum tax, persons that actually or
constructively own 10 percent or more of our common shares, persons that hold
common shares as part of a straddle or a hedging, constructive sale, synthetic
security, conversion or other integrated transaction, pass-through entities
(e.g., partnerships), persons whose functional currency is not the United States
dollar, financial institutions, expatriates or former long-term residents of the
United States, individual retirement accounts or other tax-deferred accounts,
real estate investment trusts, or regulated investment companies.
If any entity that is classified as a partnership for United States federal
income tax purposes holds common shares, the tax treatment of its partners will
generally depend upon the status of the partner and the activities of the
partnership. Partnerships and other entities that are classified as partnerships
for federal income tax purposes and persons holding common shares through a
partnership or other entity classified as a partnership for federal income tax
purposes are urged to consult their tax advisors.
This section is based on the Code, existing and proposed Treasury regulations
thereunder, published rulings, court decisions and administrative
interpretations, all as currently in effect. These laws are subject to change,
repeal or
80
revocation possibly on a retroactive basis so as to result in federal income tax
consequences different from those discussed below.
For purposes of this discussion, you are a "U.S. Holder" if you are a beneficial
owner of common shares and you are for United States federal income tax purposes
(i) a citizen or resident of the United States, (ii) a corporation or other
entity taxable as a corporation created or organized under the laws of the
United States or any political subdivision thereof, (iii) an estate whose income
is subject to United States federal income tax regardless of its source, or (iv)
a trust (a) if a United States court can exercise primary supervision over the
trust's administration and one or more United States persons are authorized to
control all substantial decisions of the trust or (b) that has a valid election
in effect under applicable Treasury Regulations to be treated as a United States
person.
U.S. HOLDERS
DISTRIBUTIONS
Subject to the passive foreign investment company rules discussed below, if you
are a U.S. Holder, you must include in your gross income as ordinary income the
gross amount of any dividend paid by us out of our current or accumulated
earnings and profits (as determined for United States federal income tax
purposes), including the amount of any Canadian taxes withheld from this
dividend. We do not maintain calculations of our earnings and profits under
United States federal income tax principles. If you are a United States resident
entitled to benefits under the Canada-United States Income Tax Convention,
dividends on our common shares generally will be subject to Canadian withholding
tax at the rate of 15 percent. You must include the dividend in income when you
receive the dividend, actually or constructively. The dividend will not be
eligible for the dividends-received deduction generally allowed to United States
corporations in respect of dividends received from other United States
corporations. Distributions in excess of our current and accumulated earnings
and profits (as determined for United States federal income tax purposes),
including the amount of any Canadian taxes withheld from this distribution, will
be treated as a non-taxable return of capital to the extent of your basis in the
common shares and afterwards as a capital gain. Under current law, certain
dividends received by individuals are taxed at lower rates than items of
ordinary income. If you are a non-corporate U.S. Holder, dividends paid to you
through 2008 may be subject to United States federal income tax at lower rates
than other types of ordinary income, generally 15 percent-provided certain
holding period and other requirements are satisfied. These requirements include
(a) that we not be classified as a "passive foreign investment company", which
is commonly known by the acronym PFIC, and (b) that you not treat the dividend
as "investment income" for purposes of the investment interest deduction rules.
As discussed below under "Passive Foreign Investment Company", we believe that
we may be a PFIC. U.S. Holders should consult their own tax advisors regarding
the application of these rules.
In the case of a dividend paid in Canadian dollars, the amount of the dividend
generally will equal the United States dollar value of the Canadian dollars
distributed, determined by reference to the spot currency exchange rate on the
date of your receipt of the dividend, and you will realize separate foreign
currency gain or loss to the extent that gain or loss arises on the actual
disposition of foreign currency received. Any foreign currency gain or loss
generally will be treated as ordinary income or loss.
Dividends received by a U.S. Holder with respect to common shares will be
treated as foreign source income. Any Canadian tax withheld with respect to
distributions made on the common shares may, subject to certain limitations, be
claimed as a foreign tax credit against a U.S. Holder's United States federal
income tax liability or may be claimed as a deduction for United States federal
income tax purposes. The rules relating to foreign tax credits are extremely
complex and the availability of a foreign tax credit depends on numerous
factors. You should consult your own tax advisors concerning the application of
the United States foreign tax credit rules to your particular situation.
SALE OR EXCHANGE
Subject to the discussion below under "Passive Foreign Investment Company", if
you are a U.S. Holder and you sell or otherwise dispose of your common shares,
you will generally recognize capital gain or loss for United States federal
income tax purposes equal to the difference between the United States dollar
value of the amount that you realize and your adjusted tax basis, determined in
United States dollars, in your common shares. Your adjusted tax
81
basis in our common shares will generally be the cost to you of these shares.
Capital gain of a non-corporate U.S. Holder is generally taxed at a maximum rate
of 15 percent if the property has been held more than one year. The
deductibility of capital losses is subject to limitations. The gain or loss will
generally be gain or loss from sources within the United States for foreign tax
credit limitation purposes.
PASSIVE FOREIGN INVESTMENT COMPANY
The Code contains special rules for the taxation of U.S. Holders who own shares
in a "passive foreign investment company", referred to as a "PFIC". A PFIC is a
non-U.S. company that meets an income test and/or an asset test. The income test
is met if 75% or more of the company's gross income is "passive income"
(generally, dividends, interest, rents, royalties, and gains from the
disposition of assets producing passive income) in any taxable year. The asset
test is met if at least 50% of the average value of a company's assets produce,
or are held for the production of, passive income. Based on our current income,
assets and activities, we believe that we may be a PFIC.
If we are a PFIC, then, in the absence of the elections described below, you may
be subject to increased tax liability and an interest charge with respect to
gain recognized on the sale of your common shares and upon the receipt of
certain "excess distributions" made in respect of your common shares. Generally,
the special tax and interest charges are determined as follows: (i) the gain or
excess distribution (which is treated as ordinary income) is allocated ratably
over the days in your holding period for the common shares, (ii) the amounts
allocated to years before the current year are taxed at the highest ordinary
income rates in effect for those years, and (iii) underpayment interest is
charged as if these amounts were actually taxed in the prior years but the tax
had not been paid.
As an alternative to the foregoing rules, if our common shares constitute
"marketable stock" under applicable Treasury regulations, you may make a
mark-to-market election to include in income each year as ordinary income an
amount equal to the increase in value of your common shares for that year or to
claim a deduction for any decrease in value (but only to the extent of previous
mark-to-market gains). We expect that our common shares will be treated as
marketable stock for these purposes but no assurance can be given.
Alternatively, if we comply with certain information reporting requirements, you
may elect to treat the Company as a "qualified electing fund", referred to as a
"QEF", in which case you would be required to include in income each year your
pro rata share of our ordinary earnings and net capital gains, whether or not
distributed. However, we do not currently intend to provide the information
necessary to permit a U.S. Holder to make the QEF election.
The PFIC rules are complex. U.S. Holders should consult with their tax advisors
regarding the U.S. federal income tax consequences under the PFIC rules the
potential application to their situation.
BACKUP WITHHOLDING TAX
Backup withholding tax at a rate of 28% may apply to payments of dividends and
to payments of proceeds of the sale or other disposition of common shares within
the United States by a non-corporate U.S. Holder, if the holder fails to furnish
a correct taxpayer identification number or otherwise fails to comply with
applicable requirements of the backup withholding tax rules. Backup withholding
tax is not an additional tax and amounts so withheld may be refunded or credited
against a U.S. Holder's United States federal income tax liability, provided
that correct information is provided to the Internal Revenue Service.
CANADIAN FEDERAL INCOME TAXATION
The following discussion summarizes the principal Canadian federal income tax
considerations generally applicable to a person, referred to as an "Investor",
who acquires one or more common shares pursuant to this registration statement,
and who at all material times for the purposes of the Income Tax Act (Canada),
referred to as the "Canadian Act", deals at arm's length with us, is not
affiliated with us, holds all common shares solely as capital property, is a
non-resident of Canada, and does not, and is not deemed to, use or hold any
common share in, or in the course of, carrying on business in Canada. It is
assumed that the common shares will, at all material times, be listed on a stock
exchange that is prescribed for the purposes of the Canadian Act.
82
This summary is based on the current provisions of the Canadian Act, including
the regulations thereunder, and the Canada-United States Income Tax Convention
(1980), referred to as the "Treaty", as amended. This summary takes into account
all specific proposals to amend the Canadian Act and the regulations thereunder
publicly announced by the government of Canada prior to the date hereof, and our
understanding of the current published administrative and assessing practices of
the Canada Customs and Revenue Agency. It is assumed that all these amendments
will be enacted substantially as currently proposed, and that there will be no
other material change to any of these laws or practices, although no assurances
can be given in these respects. Except to the extent otherwise expressly set out
herein, this summary does not take into account any provincial, territorial, or
foreign income tax law or treaty.
This summary is not, and is not to be construed as, tax advice to any particular
Investor. Each prospective and current Investor is urged to obtain independent
advice as to the Canadian income tax consequences of an investment in common
shares applicable to the Investor's particular circumstances.
An Investor generally will not be subject to tax pursuant to the Canadian Act on
any capital gain realized by the Investor on a disposition of a common share
unless the common share constitutes "taxable Canadian property" to the Investor
for purposes of the Canadian Act and the Investor is not eligible for relief
pursuant to an applicable bilateral tax treaty. A common share that is disposed
of by an Investor will not constitute taxable Canadian property of the Investor
provided that the common share is listed on a stock exchange that is prescribed
for the purposes of the Canadian Act (the TSX is so prescribed), and that
neither the Investor, nor one or more persons with whom the Investor did not
deal at arm's length, alone or together, at any time in the five years
immediately preceding the disposition, owned 25% or more of the issued shares of
any class or series of our capital stock. In addition, the Treaty generally will
exempt an Investor who is a resident of the United States for the purposes of
the Treaty, and who would otherwise be liable to pay Canadian income tax in
respect of any capital gain realized by the Investor on the disposition of a
common share, from that liability provided that the value of the common share is
not derived principally from real property (including resource property)
situated in Canada, or that the Investor does not have, and has not had within
the 12-month period proceeding the disposition, a "permanent establishment" or
"fixed base", as those terms are defined for the purposes of the Treaty,
available to the Investor in Canada. The Treaty may not be available to a
non-resident investor that is a U.S. LLC or certain other pass-through vehicles,
which are not subject to tax in the United States.
Any dividend on a common share, including a stock dividend, paid or credited, or
deemed under the Canadian Act to be paid or credited, by us to an Investor, will
generally be subject to Canadian withholding tax at the rate of 25% on the gross
amount of the dividend, or any lesser rates as may be available under an
applicable income tax treaty. Pursuant to the Treaty, the rate of withholding
tax applicable to a dividend paid on a common share to an Investor who is a
resident of the United States for the purposes of the Treaty will be reduced to
5% if the beneficial owner of the dividend is a company that owns at least 10%
of our voting stock, and in any other case will be reduced to 15%, of the gross
amount of the dividend. It is the position of the Canada Customs and Revenue
Agency that United States limited liability companies generally do not qualify
as residents of the United States under the Treaty, and therefore Treaty
reductions are not available to these Investors. We will be required to withhold
the tax from the dividend, and remit the tax directly to the Canada Customs and
Revenue Agency for the account of the Investor.
F. DIVIDENDS AND PAYING AGENTS.
We have not paid any dividends since our incorporation. We will consider paying
dividends in future as our operational circumstances may permit having regard
to, among other things, our earnings, cash flow and financial requirements. It
is the current policy of our board of directors to retain any earnings to
finance our business plan.
G. STATEMENT BY EXPERTS.
Ernst and Young LLP, independent registered public accounting firm, have audited
the consolidated balance sheets of Viventia Biotech Inc. as at December 31, 2004
and 2003 and the statements of loss and deficit and cash flows for each of the
years in the three-year period ended December 31, 2004, as set forth in their
report thereon appearing elsewhere herein. We have included our consolidated
financial statements in this registration statement in reliance of Ernst & Young
LLP's report, given on their authority as experts in accounting and auditing.
83
H. DOCUMENTS ON DISPLAY.
Copies of all filings made with the Securities and Exchange Commission can be
obtained from www.sec.gov. Copies of all documents filed with the securities
commissions in Canada can be obtained from the website located at www.sedar.com.
Our documents may be viewed at our head office located at 10 Four Seasons Place,
Suite 501, Toronto, Ontario, Canada, M9B 6H7, our phone number is (416)
291-1277, our fax number is (416) 335-9306 and our website address is
www.viventia.com. The contents of our website are not incorporate by reference
into this registration statement.
I. SUBSIDIARY INFORMATION.
Not applicable.
ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As at March 31, 2005, we had U.S. $45,434 in U.S. currency in cash reserves. To
date, we have not engaged in any foreign currency hedging activity nor have we
formally monitored the fluctuation of U.S. dollars with regard to our U.S.
dollar expenditures. We do not currently engage in activities in order to hedge
interest rate risk, commodity price risk or other relevant market risks.
ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
84
PART II
Not applicable.
85
PART III
ITEM 13: FINANCIAL STATEMENTS
Not applicable.
ITEM 14: FINANCIAL STATEMENTS
See pages F-1 to F-39 of this registration statement on Form 20-F.
ITEM 15: EXHIBITS
The following documents are filed as part of this registration statement on Form
20-F as exhibits:
EXHIBIT DESCRIPTION
1.1 Articles of continuance dated July 9, 1998.
1.2 Articles of amendment dated September 11, 2000.
1.3 Articles of amendment dated May 10, 2004.
1.4 By-law No. 1 and By-law No. 2.
2.1 1996 Stock Option Plan.
2.2 2001 Stock Option Plan.
3.1* Convertible Secured Debenture in the amount of $12,584,142.47 issued
by Viventia Biotech Inc. in connection with the private placement to
Leslie Dan dated November 3, 2004.
3.2* Convertible Secured Debenture in the amount of $5,000,000 issued by
Viventia Biotech Inc. in connection with the private placement to
ADH Investments (1999) Inc. dated November 3, 2004.
3.3* Convertible Secured Debenture in the amount of $5,562,568.49 issued
by Viventia Biotech Inc. in connection with the private placement to
ADH Investments (1999) Inc. dated November 3, 2004.
3.4 Warrant Certificate granted by Viventia Biotech Inc. in connection
with the private placement to Leslie Dan dated November 3, 2004.
3.5 Warrant Certificate granted by Viventia Biotech Inc. in connection
with the private placement to ADH Investments (1999) Inc. dated
November 3, 2004.
3.6 Payment and Security Share Agreement between Leslie Dan, ADH
Investments (1999) Inc. and Viventia Biotech Inc., dated November 3,
2004.
3.7 Employment Agreement between Dr. Nick Glover and Viventia Biotech
Inc. dated January 7, 2004.
3.8 Employment Agreement between Mr. Michael Byrne and Viventia Biotech
Inc. dated October 14, 2004.
3.9 Employment Agreement between Mr. Michael Cross and Viventia Biotech
Inc. dated December 13, 2004.
3.10 Employment Agreement between Dr. Glen MacDonald and Viventia Biotech
Inc. dated October 12, 2004.
3.11 Employment Agreement between Mr. Dimitri Fitsialos and Viventia
Biotech Inc. dated November 17, 2004.
3.12* Exclusive License Agreement between Biovation Limited and Viventia
Biotech Inc., dated March 8, 2004.
3.13* Exclusive License Option Agreement between the Trustees of Columbia
University in the City of New York and Viventia Biotech Inc., dated
June 23, 2003.
86
3.14* Amendment Number 1 to the Exclusive License Agreement between the
Trustees of Columbia University in the City of New York and Viventia
Biotech Inc., dated December 19, 2003.
3.15* License Agreement between McGill University and Novopharm Limited,
dated April 28, 1994.
3.16* License Agreement between Tanox, Inc. and Viventia Biotech Inc.,
dated August 20, 2002.
3.17* License Agreement between University of Zurich and Viventia Biotech
Inc., dated January 9, 2003.
3.18* Non-exclusive License Agreement between XOMA Ireland Limited and
Viventia Biotech Inc., dated November 30, 2001.
3.19 Property Lease between Almad Investments Limited and Viventia
Biotech Inc., dated January 26, 2004.
3.20 Net Office Lease between Fana Burnhamthorpe Corp. and Viventia
Biotech Inc., dated November 20, 2000.
3.21* Subscription Agreement, dated September 3, 2003, between Teva Pharma
B.V. and Viventia Biotech Inc.
3.22 Demand Promissory Note, dated February 17, 2005, in favor of Mr.
Leslie Dan.
3.23 Demand Promissory Note, dated March 1, 2005, in favor of Mr. Leslie
Dan.
3.24 Demand Promissory Note, dated March 23, 2005, in favor of Clairmark
Investments, an entity owned by Mr. Leslie Dan
3.25 Demand Promissory Note, dated April 28, 2005, in favor of Clairmark
Investments, an entity owned by Mr. Leslie Dan.
3.26 Demand Promissory Note, dated May 12, 2005, in favor of Mr. Leslie
Dan.
3.27 Demand Promissory Note, dated May 12, 2005 in favor of Clairmark
Investments, an entity owned by Mr. Leslie Dan.
14.1 Consent of Ernst & Young LLP.
- ---------------
*Confidential Treatment Requested
87
Financial Statements
VIVENTIA BIOTECH INC.
The First Quarter Ended March 31, 2005
F-1
BALANCE SHEETS
(in thousands of Canadian dollars)
(unaudited)
As at
MARCH 31, 2005 DECEMBER 31, 2004
-------------- -----------------
$ $
ASSETS
Current
Cash and cash equivalents 2,038 2,715
Short-term investments 52 52
Miscellaneous receivables 193 144
Prepaid expenses, deposits and supplies 441 500
------- -------
TOTAL CURRENT ASSETS 2,724 3,411
------- -------
Deferred financing expenses, net 178 201
Licensed technology, net 152 174
Capital assets, net 3,986 3,053
------- -------
7,040 6,839
------- -------
LIABILITIES
Accounts payable and accrued liabilities 4,136 3,137
Current portion of capital lease obligations 72 59
Current portion of deferred income 63 70
Current portion of term loan due to related parties 517 509
Bridge financing loans due to related parties (note 6) 4,600 -
------- -------
TOTAL CURRENT LIABILITIES 9,388 3,775
------- -------
Capital lease obligation 101 93
Deferred income 21 29
Term loan due to related party 922 1,050
Convertible debentures due to related parties 23,147 23,147
------- -------
TOTAL LIABILITIES 33,579 28,094
------- -------
SHAREHOLDERS' DEFICIENCY
Capital stock 63,262 63,262
Contributed surplus 9,817 9,655
Deficit (99,618) (94,172)
------- -------
TOTAL SHAREHOLDERS' DEFICIENCY (26,539) (21,255)
------- -------
7,040 6,839
======= =======
F-2
Statements of Loss and Deficit
(in thousands of Canadian dollars, except per share data)
(unaudited)
Three months ended
MARCH 31, 2005 MARCH 31, 2004
-------------- -----------------
$ $
EXPENSES
Research and development activities:
Research activities 1,767 1,256
Salaries and benefits 1,491 1,137
Occupancy 240 207
Other operating expenses 388 144
Amortization of licensed technology 22 22
------- -------
3,908 2,766
General and administrative 858 335
Amortization of capital assets 222 87
Amortization of deferred financing expenses 28 12
Stock-based compensation expense 162 13
Interest expense 287 137
------- -------
Loss before the undernoted (5,465) (3,350)
------- -------
Miscellaneous Income 19 2
------- -------
NET LOSS FOR THE PERIOD (5,446) (3,348)
Deficit - Beginning of period (94,172) (77,000)
------- -------
DEFICIT - END OF PERIOD (99,618) (80,348)
======= =======
BASIC AND DILUTED LOSS PER COMMON SHARE (0.19) (0.11)
======= =======
F-3
Statements of Cash Flows
(in thousands of Canadian dollars)
(unaudited)
Three months ended
MARCH 31, 2005 MARCH 31, 2004
-------------- -----------------
$ $
Operating Activities
Net loss for the period (5,446) (3,348)
Add items not affecting cash:
Amortization of capital assets 222 87
Amortization of licensed technology 22 22
Amortization of deferred financing costs 23 12
Recognized deferred revenue on license technology (16) -
Stock-based compensation 162 14
Loss on sale of capital assets - 1
Changes in non-cash working capital balances related to operations
Miscellaneous receivables (49) (15)
Prepaid expenses, deposits and supplies 60 90
Accounts payable and accrued liabilities 230 617
------- -------
CASH USED IN OPERATING ACTIVITIES (4,792) (2,520)
------- -------
INVESTING ACTIVITIES
Proceeds on sale of capital assets - 2
Purchase of capital assets (385) (58)
------- -------
CASH USED IN INVESTING ACTIVITIES (385) (56)
------- -------
FINANCING ACTIVITIES
Common share issuance costs - (370)
Repayment of term loan to related parties (120) -
Capital lease obligations 20 -
Proceeds on bridge financing loans from related parties 4,600 2,700
------- -------
CASH PROVIDED BY FINANCING ACTIVITIES 4,500 2,330
------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (677) (246)
CASH AND CASH EQUIVALENTS, beginning of period 2,715 298
------- -------
CASH AND CASH EQUIVALENTS, end of period 2,038 52
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION, INTEREST PAID 24 137
======= =======
F-4
Notes to Financial Statements
1. NATURE OF OPERATIONS
Viventia Biotech Inc. [the "Company"] was continued in 1995 under the
British Columbia Companies Act as Novopharm Biotech Inc. In 1998 the
Company was continued under the Business Corporations Act (Ontario). The
Company changed its name from Novopharm Biotech Inc. to Viventia Biotech
Inc. on September 11, 2000. The Company is engaged in discovery and
development of fully human monoclonal antibody therapies for the treatment
of cancer.
The Company's two principal shareholders are Leslie Dan, Chairman of the
Board of Directors, and Andrea Dan-Hytman [collectively the Dan Group],
who own or directly control other companies that collectively own 82.8% of
the Company as at March 31, 2005. Substantially all of the financing
received by the Company during the past three fiscal years has been
received from these shareholders [notes 6 and 7].
The Company's success is dependent, in large part, on completing product
development, obtaining regulatory approvals and commercializing or
entering into agreements with third parties to commercialize product
candidates. The successful completion of these activities is necessary to
allow the Company to continue research and development activities and the
commercialization of its products. It is not possible to predict either
the outcome of future research and development programs or the Company's
ability to fund these programs going forward.
The Company has had significant losses over the past four years. At March
31, 2005, the Company has a negative net working capital of approximately
$6,664,000 and without an additional source of funding it will have
inadequate funds to continue its existing corporate, administrative and
operational functions for the coming year and therefore there is
substantial doubt about the ability of the Company to continue as a going
concern.
These financial statements have been prepared on a going concern basis,
which assumes the Company will be able to realize its assets and discharge
its liabilities in the normal course of business for the foreseeable
future. These financial statements do not include adjustments that would
be necessary should the Company be unable to continue as a going concern.
Management plans to raise additional funds from the private or public
placement of additional securities and from the principal shareholder. The
Company cannot assure that such additional financing will be available or
even if available, that it will be available on acceptable terms.
On May 7, 2004, the Company held a special meeting of shareholders at
which the shareholders approved a special resolution authorizing the
consolidation of the Company's issued and outstanding common shares on a
ten [old] for one [new] basis. The shareholders also approved an increase
in the number of shares reserved for issuance pursuant to the terms of the
Company's stock option plan from 600,000 to 2,600,000 common shares after
giving effect to the above-mentioned consolidation.
F-5
Accordingly, the number of common shares, warrants, and stock options have
been retroactively adjusted to reflect the resolution.
2. INTERIM STATEMENTS
The accompanying unaudited financial statements are prepared in accordance
with Canadian generally accepted accounting principles for interim
financial statements and do not include all the information required for
complete financial statements. They are consistent with the policies
outlined in the Company's audited financial statements for the year ended
December 31, 2004. The interim financial statements and related notes
should be read in conjunction with the Company's audited financial
statements for the year ended December 31, 2004. When necessary, the
financial statements include amounts based on informed estimates and best
judgements of management. The results of operations for the interim
periods reported are not necessarily indicative of results to be expected
for the year.
3. LOSS PER COMMON SHARE
Loss per common share is computed using the weighted average number of
common shares outstanding during the period of 29,206,115. Fully diluted
loss per share has not been presented, as the calculation is
anti-dilutive.
4. SHARE CAPITAL
AUTHORIZED AND ISSUED SHARE CAPITAL
(a) The Company has authorized an unlimited number of common shares and an
unlimited number of preferred shares. The common shares issued and
outstanding as of March 31, 2005 and December 31, 2004 were
29,206,115.
(b) At March 31, 2005 the Company had 1,862,792 options to purchase common
shares at a weighted average excise price of $2.18 per share. No
options were excised and 446,000 options were granted during the first
quarter of 2005. The Company has a total of 11,447,113 warrants to
purchase common shares outstanding. No warrants were issued or
exercised during the first quarter of 2005.
5. STOCK BASED COMPENSATION
F-6
The Company accounts for stock options in accordance with the amended
Canadian Institute of Chartered Accountant Handbook section 3870,
Stock-based compensation and other stock-based payments" ("CICA 3870")
which requires that all stock-based compensation awards be accounted for
at fair value. For the purpose of measuring and expensing compensation
cost, the fair value of the options is amortized to income over the
option's vesting period on a straight-line basis.
For the three months ended March 31, 2005 the Company issued 446,000
(March 31, 2004 - nil) stock options. The fair value of each option was
estimated to be $2.35 using the following assumptions:
Expected option life 7 years
Volatility 72.6%
Risk-free interest rate 4.33%
Dividend yield nil
6. BRIDGE FINANCING LOANS
During the three months ended March 31, 2005, the Company received three
bridge financing loans Leslie Dan. On February 17, 2005, the Company
received a bridge financing loan in the amount of $500,000, on March 1,
2005, the Company received a bridge financing loan in the amount of
$1,500,000, and on March 23, 2005 the Company received a bridge financing
loan in the amount of $2,600,000. These loans bear interest at 4.5% per
annum and are payable upon demand.
7. FINANCIAL INSTRUMENTS
The Company financial instruments recognized in the balance sheets consist
of cash and cash equivalents, miscellaneous receivables and accounts
payables and received liabilities. The carrying value of these financial
instruments approximate their fair values due to their short-term nature.
The carrying value of the convertible debentures and bridge financing
loans approximates fair market value based on current expected borrowing
rates from the same or similar parties.
8. STATEMENT OF CASH FLOWS
Excluded from the Statements of Cash Flow for the period ended March 31,
2005 are capital asset additions of $754,000 which is included in accounts
payable and accrued liabilities.
9. SUBSEQUENT EVENT
On April 28, 2005, the Company received a bridge financing loan from
Leslie Dan in the amount of $1,500,000 bearing interest at 4.5% per annum
and it is payable on demand.
10. COMPARATIVE FIGURES
The comparative financial statements have been reclassified from
statements previously presented to conform to the presentation of the
current year financial statements.
F-7
Financial Statements
VIVENTIA BIOTECH INC.
December 31, 2004 and 2003
F-8
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
VIVENTIA BIOTECH INC.
We have audited the balance sheets of Viventia Biotech Inc. as at December 31,
2004 and 2003 and the statements of loss and deficit and cash flows for each of
the years in the three-year period ended December 31, 2004. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards and with the standards of the Public Company Accounting Oversight
Board [United States]. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. We were not engaged to perform an audit of the Company's
internal control over financial reporting. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 2004, and
2003 and the results of its operations and its cash flows for each of the years
in the three-year period ended December 31, 2004 in accordance with Canadian
generally accepted accounting principles.
Toronto, Canada,
March 4, 2005. [except for note 19, /s/ Ernst and Young LLP
which is as at March 23, 2005] Chartered Accountants
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA - U.S.
REPORTING DIFFERENCE
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph [following the opinion paragraph] when the financial
statements are affected by conditions and events that cast substantial doubt on
the Company's ability to continue as a going concern, such as those described in
note 1 to the financial statements. Our report to the Shareholders dated March
4, 2005, except for note 19, which is as at March 23, 2005, is expressed in
accordance with Canadian reporting standards which do not permit a reference to
such events when they are adequately disclosed in the financial statements.
Toronto, Canada, /s/ Ernst and Young LLP
March 4, 2005. Chartered Accountants
F-9
VIVENTIA BIOTECH INC.
BALANCE SHEETS
[in thousands of Canadian dollars]
[See note 1 - Nature of operations and going concern assumption]
As at December 31
2004 2003
$ $
------- -------
ASSETS [note 7]
CURRENT
Cash and cash equivalents 2,715 247
Short-term investments 52 51
Miscellaneous receivables 144 50
Prepaid expenses, deposits and supplies 500 313
------- -------
TOTAL CURRENT ASSETS 3,411 661
------- -------
Deferred financing expenses [net of accumulated
amortization of $159 [2003 - $82] [note 10] 201 24
Licensed technology [net of accumulated amortization
of $222 [2003 - $135] [note 4] 174 261
Capital assets, net [note 5] 3,053 1,793
------- -------
6,839 2,739
======= =======
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT
Accounts payable and accrued liabilities [note 9] 3,137 1,706
Current portion of capital lease obligations [note 15[c]] 59 9
Current portion of term loan due to related party [note 8] 509 --
Current portion of deferred income [note 14] 70 --
------- -------
TOTAL CURRENT LIABILITIES 3,775 1,715
------- -------
Capital lease obligations [note 15[c]] 93 8
Deferred income [note 14] 29 --
Term loan due to related party [note 8] 1,050 --
Bridge financing loans due to related parties [notes 6 and 7] -- 1,500
Convertible debentures due to related parties [note 7] 23,147 4,000
------- -------
TOTAL LIABILITIES 28,094 7,223
------- -------
Commitments and contingencies [notes 15 and 19]
SHAREHOLDERS' DEFICIENCY
Capital stock [note 11] 63,262 63,220
Contributed surplus [notes 11 and 12] 9,655 9,296
Deficit (94,172) (77,000)
------- -------
TOTAL SHAREHOLDERS' DEFICIENCY (21,255) (4,484)
------- -------
6,839 2,739
======= =======
See accompanying notes
On behalf of the Board:
Director Director
F-10
VIVENTIA BIOTECH INC.
STATEMENTS OF LOSS AND DEFICIT
[in thousands of Canadian dollars, except per share information]
Year ended December 31
2004 2003 2002
---------- ---------- ----------
$ $ $
EXPENSES
Research and development activities
Salaries and benefits 5,576 4,551 4,266
Research activities 5,522 4,752 4,307
Occupancy 805 789 664
Other operating costs 787 529 607
Amortization of licensed
technology [note 4] 87 87 48
---------- ---------- ----------
12,777 10,708 9,892
General and administrative [note 9] 1,498 1,079 1,408
Amortization of capital assets 441 524 651
Amortization of deferred financing expenses 42 82 35
Stock-based compensation expense [note 12[b]] 359 28 --
Interest expense on amounts due to
related parties [notes 6 and 7] 801 435 338
---------- ---------- ----------
15,918 12,856 12,324
---------- ---------- ----------
Loss before the undernoted (15,918) (12,856) (12,324)
Write-off of deferred financing expenses [note 10] (1,361) -- --
Miscellaneous income [notes 5 and 14] 107 78 55
---------- ---------- ----------
NET LOSS FOR THE YEAR (17,172) (12,778) (12,269)
Deficit, beginning of period (77,000) (64,222) (51,953)
---------- ---------- ----------
DEFICIT, END OF YEAR (94,172) (77,000) (64,222)
========== ========== ==========
BASIC AND DILUTED LOSS PER
COMMON SHARE $ (0.59) $ (0.45) $ (0.62)
========== ========== ==========
BASIC AND DILUTED WEIGHTED AVERAGE
NUMBER OF COMMON SHARES
OUTSTANDING [000's] [notes 1, 2 and 11] 29,188 28,090 19,804
========== ========== ==========
See accompanying notes
F-11
VIVENTIA BIOTECH INC.
STATEMENTS OF CASH FLOWS
[in thousands of Canadian dollars]
Year ended December 31
2004 2003 2002
$ $ $
------- ------- -------
OPERATING ACTIVITIES
Net loss for the year (17,172) (12,778) (12,269)
Add (deduct) items not affecting cash
Amortization of deferred financing expenses 42 82 35
Amortization of licensed technology [note 4] 87 87 48
Amortization of capital assets 441 524 651
Loss (gain) on sale of capital assets (61) (2) 26
Stock-based compensation 359 28 --
------- ------- -------
(16,304) (12,059) (11,509)
Changes in non-cash working capital balances
related to operations
Miscellaneous receivables (94) 2 32
Prepaid expenses, deposits and supplies (187) (103) (2)
Accounts payable and accrued liabilities 738 155 160
------- ------- -------
CASH USED IN OPERATING ACTIVITIES (15,847) (12,005) (11,319)
------- ------- -------
INVESTING ACTIVITIES
Purchase of capital assets (931) (223) (132)
Proceeds on sale of capital assets 175 6 38
Purchase of short-term investments (52) (51) (50)
Proceeds on maturity of short-term investments 51 50 500
Deferred income 99 -- --
Purchase of licensed technology [note 4] -- -- (156)
------- ------- -------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (658) (218) 200
------- ------- -------
FINANCING ACTIVITIES
Proceeds on issuance of common shares [note 11] 42 4,804 10,000
Common share issuance costs [note 11] -- (236) (109)
Proceeds on bridge financing loans from related parties [note 6] 11,900 2,000 2,800
Repayment of bridge financing loans to related parties [note 6] (4,253) (500) (2,800)
Repayment of convertible debenture to related parties [note 7] (4,000) (2,000) --
Proceeds on issuance of convertible
debentures from related parties [note 7] 14,000 -- 6,000
Convertible debentures issuance costs [note 7] (219) -- (141)
Proceeds from term loan from related party [note 8] 1,600 -- --
Repayment of term loan to related party [note 8] (41) -- --
Capital lease obligations (56) 17 --
------- ------- -------
CASH PROVIDED BY FINANCING ACTIVITIES 18,973 4,085 15,750
------- ------- -------
NET INCREASE (DECREASE) IN CASH DURING THE YEAR 2,468 (8,138) 4,631
Cash and cash equivalents, beginning of year 247 8,385 3,754
------- ------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR 2,715 247 8,385
======= ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid 554 431 338
Income taxes paid -- -- --
======= ======= =======
See accompanying notes
F-12
VIVENTIA BIOTECH INC.
NOTES TO FINANCIAL STATEMENTS
[tabular amounts in thousands of Canadian dollars, except per share information]
December 31, 2004 and 2003
1. NATURE OF OPERATIONS AND GOING CONCERN ASSUMPTION
Viventia Biotech Inc. [the "Company"] was continued in 1995 under the British
Columbia Companies Act as Novopharm Biotech Inc. In 1998 the Company was
continued under the Business Corporations Act (Ontario). The Company changed its
name from Novopharm Biotech Inc. to Viventia Biotech Inc. on September 11, 2000.
The Company is engaged in discovery and development of fully human monoclonal
antibody therapies for the treatment of cancer.
The Company's two principal shareholders are Leslie Dan, Chairman of the Board
of Directors, and Andrea Dan-Hytman [collectively the "Dan Group"], who own or
directly control other companies that collectively own 82.8% of the Company as
at December 31, 2004. Substantially all of the financing received by the Company
during the past three fiscal years has been received from these shareholders
[notes 6, 7, 8, 11 and 19].
The Company's success is dependent, in large part, on completing product
development, obtaining regulatory approvals and commercializing or entering into
agreements with third parties to commercialize product candidates. The
successful completion of these activities is necessary to allow the Company to
continue research and development activities and the commercialization of its
products. It is not possible to predict either the outcome of future research
and development programs or the Company's ability to fund these programs going
forward.
The Company has had significant losses over the past five years. At December 31,
2004, the Company has negative net working capital of approximately $364,000 and
without an additional source of funding it will have inadequate funds to
continue its existing corporate, administrative and operational functions for
the coming year. There is substantial doubt about the ability of the Company to
continue as a going concern.
These financial statements have been prepared on a going concern basis, which
assumes the Company will be able to realize its assets and discharge its
liabilities in the normal course of business for the foreseeable future. These
financial statements do not include adjustments that would be necessary should
the Company be unable to continue as a going concern.
Management plans to raise additional funds from the private or public placement
of additional securities and the principal shareholder. The Company cannot
assure that such additional financing will be available or, even if it is
available, that it will be available on acceptable terms.
On May 7, 2004, the Company held a special meeting of shareholders at which the
shareholders approved a special resolution authorizing the consolidation of the
Company's issued and outstanding common shares on a ten [old] for one [new]
basis. The shareholders also approved an increase in the number of shares
reserved for issuance pursuant to the terms of the Company's stock option plan
[note 12[a]] from 600,000 to 2,600,000 common shares after giving effect to the
F-13
VIVENTIA BIOTECH INC.
NOTES TO FINANCIAL STATEMENTS
[tabular amounts in thousands of Canadian dollars, except per share information]
December 31, 2004 and 2003
above-mentioned consolidation. Accordingly, the number of common shares,
warrants, and stock options have been retroactively adjusted to reflect the
resolution.
F-14
VIVENTIA BIOTECH INC.
NOTES TO FINANCIAL STATEMENTS
[tabular amounts in thousands of Canadian dollars, except per share information]
December 31, 2004 and 2003
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared by management in accordance with
Canadian generally accepted accounting principles ["GAAP"]. With respect to the
financial statements of the Company, the significant differences between
Canadian and United States GAAP ["U.S. GAAP"] are described and reconciled in
note 20. The significant accounting policies are as follows:
The significant accounting policies are as follows:
USE OF ESTIMATES
The preparation of financial statements in conformity with Canadian GAAP
requires management to make estimates and assumptions. These estimates and
assumptions affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand, cash balances and highly
liquid short-term deposits with original maturity dates of less than 90 days at
the date of purchase with financial institutions.
DEFERRED FINANCING EXPENSES
Deferred financing expenses, comprised primarily of legal costs, represent costs
related to the issuance of the Company's convertible debentures. Amortization of
deferred financing expenses is provided over the term of the convertible
debentures.
LICENSED TECHNOLOGY
Licensed technology represents proven technology that the Company has
in-licensed from other companies for the purpose of applying the technology in
its research operations. Licensed technology is stated at cost less accumulated
amortization. Amortization is provided on a straight-line basis over its
estimated useful life of five years.
F-15
VIVENTIA BIOTECH INC.
NOTES TO FINANCIAL STATEMENTS
[tabular amounts in thousands of Canadian dollars, except per share information]
December 31, 2004 and 2003
CAPITAL ASSETS
Capital assets are stated at cost less accumulated amortization. Amortization is
provided on a straight-line basis at rates designed to amortize the cost of
capital assets over their estimated useful lives as follows:
Office equipment, furniture and fixtures 10 years
Computer hardware and software 3 years
Research equipment 10 years
Leasehold improvements Over the term of the related lease
RESEARCH AND DEVELOPMENT COSTS
Research costs are expensed as incurred. Development costs are expensed as
incurred unless these costs meet the criteria under Canadian GAAP for deferral
and amortization. To date, no such costs have been deferred.
Research costs consist of salaries and benefits of employees whose activities
relate to research and development, employees who provide support for the
Company's ongoing research and development activities, research supplies, rent
associated with the Company's research facility and amortization of licensed
technology used in connection with the Company's research and development
activities.
INCOME TAXES
The Company applies the asset and liability method of accounting for income
taxes. Under this method, future tax assets and liabilities are determined based
on the differences between the financial reporting and income tax bases of
assets and liabilities and are measured using the substantively enacted tax
rates and laws that are expected to be in effect when the differences are
expected to reverse. Valuation allowances are established when necessary to
reduce future income tax assets when it is more likely than not that a portion
of the future income tax asset will not be realized.
FINANCIAL INSTRUMENTS
The Company's financial instruments recognized in the balance sheets consist of
cash and cash equivalents, miscellaneous receivables and accounts payable and
accrued liabilities. The carrying values of these financial instruments
approximate their fair values due to their short-term nature. The carrying value
of the convertible debentures and bridge financing loans approximates fair
market value based on current expected borrowing rates from the same or similar
parties.
F-16
VIVENTIA BIOTECH INC.
NOTES TO FINANCIAL STATEMENTS
[tabular amounts in thousands of Canadian dollars, except per share information]
December 31, 2004 and 2003
STOCK OPTION PLANS
The Company has two stock-based compensation plans, which are described in note
12. Prior to January 1, 2003, no compensation expense was recognized for the
plans when stock or stock options were issued to employees, officers and
directors. During the fourth quarter of 2003, the Company adopted the fair value
method of accounting for stock-based compensation plans. The Company has
selected the prospective method of adoption; accordingly, results from prior
years have not been restated [note 3].
Stock options and warrants awarded to non-employees are accounted for using the
fair value method and expensed as the service or product is received.
Consideration paid on the exercise of stock options and warrants is credited to
capital stock.
LOSS PER COMMON SHARE
Diluted loss per common share reflects the dilution that would occur if
outstanding stock options and warrants were exercised or converted into common
shares using the treasury stock method. The inclusion of the Company's stock
options and warrants in the computation of diluted loss per share would have an
anti-dilutive effect on loss per common share and, therefore, options and
warrants are excluded from the computation. Consequently, there is no difference
between basic loss per common share and diluted loss per common share.
Excluded from the weighted average diluted number of common shares are the
potential dilutive effect of stock options, warrants and convertible debentures
as follows:
YEAR ENDED
DECEMBER 31,
--------------------
2004 2003 2002
$ $ $
----- ----- ----
[000's]
Stock options 402 - -
Warrants 3,163 1,145 766
===== ===== ====
3. CHANGE IN ACCOUNTING POLICY
During the year ended December 31, 2003, The Canadian Institute of Chartered
Accountants ["CICA"] amended its pronouncement relating to stock-based
compensation, requiring companies to measure and expense all equity instruments
awarded to employees. In accordance with this pronouncement, the Company
prospectively adopted the new recommendation. Consequently, the Company has
applied a fair value based method to expense employee stock options awarded
since
F-17
VIVENTIA BIOTECH INC.
NOTES TO FINANCIAL STATEMENTS
[tabular amounts in thousands of Canadian dollars, except per share information]
December 31, 2004 and 2003
January 1, 2003. The Company did not issue any stock options during the year
ended December 31, 2002 to require the presentation of pro forma net loss for
that year.
4. LICENSED TECHNOLOGY
During the year ended December 31, 2001, the Company acquired a non-exclusive
licence from a third party to use its technology to reduce future research and
development costs in return for a deposit of $240,000. No amortization was
recognized in 2001 as the licensed technology was not available for use. During
the year ended December 31, 2002, the Company made an additional payment of
$156,000 for this technology, which the Company implemented in its operations.
The Company is also required under the terms of its licence agreement to make
certain milestone payments and royalty payments [note 15].
5. CAPITAL ASSETS
Capital assets consist of the following:
DECEMBER 31, 2004
-------------------------------
NET
ACCUMULATED BOOK
COST AMORTIZATION VALUE
$ $ $
------ ------------ -----
Office equipment, furniture and fixtures 232 141 91
Office equipment under capital lease 23 12 11
Computer hardware and software 824 677 147
Research equipment 5,102 3,214 1,888
Research equipment under capital lease 193 24 169
Leasehold improvements 2,123 1,376 747
----- ----- -----
8,497 5,444 3,053
===== ===== =====
F-18
VIVENTIA BIOTECH INC.
NOTES TO FINANCIAL STATEMENTS
[tabular amounts in thousands of Canadian dollars, except per share information]
December 31, 2004 and 2003
DECEMBER 31, 2003
-------------------------------
NET
ACCUMULATED BOOK
COST AMORTIZATION VALUE
$ $ $
----- ------------ -----
Office equipment, furniture and fixtures 213 123 90
Office equipment under capital lease 21 4 17
Computer hardware and software 748 613 135
Research equipment 4,947 3,406 1,541
Leasehold improvements 1,353 1,343 10
----- ----- -----
7,282 5,489 1,793
===== ===== =====
In April and May 2004, the Company disposed of four bioreactors and two
fermentors from the Winnipeg facility for gross proceeds of approximately
$175,000, resulting in a gain on disposition of approximately $61,000. The
equipment was no longer required in the Company's manufacturing process.
6. BRIDGE FINANCING LOANS DUE TO RELATED PARTIES
During the year ended December 31, 2004, the Company received bridge financing
loans of $11,900,000 from its principal shareholder, Leslie Dan, and the Dan
Group. The loans bore interest at the rate of 4.5% per annum and were repayable
on demand. On November 3, 2004, $8,900,000 [plus accrued interest of $246,711]
were converted into two secured convertible debentures maturing in November 2006
and $4,500,000 of bridge financing [plus accrued interest of $40,007] was repaid
from the proceeds of the secured convertible debentures also maturing in 2006
[note 7]. Accordingly, the outstanding amount of bridge financing loans as at
December 31, 2003 is excluded from current liabilities.
During the year ended December 31, 2003, the Company received three bridge
financing loans from its principal shareholder in the amounts of $500,000 on
September 2, 2003, $500,000 on November 27, 2003 and $1,000,000 on December 15,
2003. The $500,000 loan advanced on September 2, 2003 was non-interest bearing
and was repaid during the year. The remaining $500,000 and $1,000,000 loans bore
interest at 4.5% per annum and were repaid from the proceeds of the secured
convertible debentures [note 7] on November 3, 2004.
F-19
VIVENTIA BIOTECH INC.
NOTES TO FINANCIAL STATEMENTS
[tabular amounts in thousands of Canadian dollars, except per share information]
December 31, 2004 and 2003
7. CONVERTIBLE DEBENTURES DUE TO RELATED PARTIES
On November 3, 2004, the Company closed a private placement of secured
convertible debentures [the "Private Placement"] with the Dan Group. In
accordance with the terms of the Private Placement, the Dan Group invested
$14,000,000 in secured convertible debentures and converted $8,900,000 [plus
accrued interest of $246,711 as of November 3, 2004] of the outstanding
unsecured demand bridge financing loans into secured convertible debentures. The
resulting convertible debentures in an aggregate principal amount of $23,146,711
are collateralized by a first charge over all of the assets of the Company and
bear interest at the rate of 4.5% per annum, compounded annually. The debentures
will mature two years from the date of issuance, when both interest and
principal will be payable. The principal amount of the debentures will be
convertible at the option of the holder at any time into units at a price of
$1.50 per unit. Each unit will be comprised of one common share of the Company
and one half of a common share purchase warrant. Each whole common share
purchase warrant will enable the holder to purchase an additional common share
at an exercise price of $2.00 per common share at any time for a period of four
years from the date of issuance. The conversion price of any accrued interest on
the debentures into units will be equal to the ten-day weighted average trading
price of the Company's common shares for the ten consecutive trading days prior
to conversion. If the remaining debentures and common share purchase warrants
were converted, 23,146,711 common shares would be issued, representing
approximately 79% of the current issued and outstanding common shares of the
Company.
The Company used the proceeds of the Private Placement to repay the following
indebtedness together with accrued interest thereon: [a] existing convertible
secured debentures issued to members of the Dan Group on June 20, 2002 [with an
aggregate principal amount of $4,000,000 and accrued interest of $241,251 as of
November 3, 2004], and [b] other unsecured demand bridge financing loans made by
members of the Dan Group [with an aggregate principal amount of $4,500,000 and
accrued interest of $40,007 as of November 3, 2004]. The Company will use the
balance of the proceeds, after payment of the amounts listed above and payment
of issue costs related to the Private Placement, to advance its business plan.
During the year ended December 31, 2003, the Company repaid $2,000,000, which
boar interest at 10% per annum, plus accrued interest of $24,000, of convertible
debentures.
F-20
VIVENTIA BIOTECH INC.
NOTES TO FINANCIAL STATEMENTS
[tabular amounts in thousands of Canadian dollars, except per share information]
December 31, 2004 and 2003
8. TERM LOAN
On November 3, 2004, Leslie Dan in his personal capacity obtained $1,600,000 in
financing which was provided to the Company to further expand its Winnipeg
research facility. The loan bears interest at a rate of 5.0% per annum,
repayable in blended monthly payments of $41,165, and matures in November 2007.
The Company has agreed to repay this amount directly to the third-party lending
institution.
At December 31, 2004, the Company's commitments under the above arrangements for
the next three years are as follows:
$
-----
2005 509
2006 535
2007 515
-----
1,559
=====
9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
On January 8, 2004, the Company announced the resignation of its President and
Chief Executive Officer. For the year ended December 31, 2004, the Company has
incurred related severance charges of $790,000. The amount has been included
within salaries and benefits expense on the Company's statements of loss and
deficit for the year ended December 31, 2004. As at December 31, 2004, $652,000
of the charges have been paid and the outstanding balance of $138,000 related to
these charges is included in accounts payable and accrued liabilities.
10. WRITE-OFF OF DEFERRED FINANCING EXPENSE
The write-off of deferred financing expense of $1,361,000 for the year ended
December 31, 2004, comprised primarily of professional fees, represented the
costs associated with the propose public offering of the Company's common shares
and warrants which was withdrawn in August 2004.
F-21
VIVENTIA BIOTECH INC.
NOTES TO FINANCIAL STATEMENTS
[tabular amounts in thousands of Canadian dollars, except per share information]
December 31, 2004 and 2003
11. CAPITAL STOCK
As stated in note 1, the number of common shares, warrants and stock options
have been retroactively adjusted to reflect the share consolidation authorized
on May 7, 2004.
[A] PREFERRED AND COMMON SHARES
PREFERRED SHARES
The Company has authorized an unlimited number of preferred shares. The
preferred shares may be issued at any time or from time to time in one or
more series. As at December 31, 2004 and 2003, there were no preferred
shares issued or outstanding.
COMMON SHARES
The Company has authorized an unlimited number of common shares. Common
shareholders are entitled to one vote per common share held. Subject to
the prior rights of the holders of preferred shares, the holders of common
shares are entitled to receive any dividend declared by the Company's
Board of Directors and to receive the remaining property of the Company
upon dissolution.
ISSUED
COMMON SHARES
--------------------
# $
------ ------
[000's]
BALANCE, DECEMBER 31, 2002 26,673 60,447
Shares issued on private placement, net [i] 1,111 1,160
Shares issued on private placement, net [ii] 1,402 1,613
------ ------
BALANCE, DECEMBER 31, 2003 29,186 63,220
Issued on exercise of options 20 42
------ ------
BALANCE, DECEMBER 31, 2004 29,206 63,262
====== ======
[i] On February 10, 2003, the Company repaid $2,000,000 plus accrued
interest of $24,000 on the $6,000,000 convertible debentures to a
company controlled by one of the principal shareholders [note 7]. In
connection with this repayment, the principal shareholder reinvested
$2,000,000 less issuance costs of $89,000 [net $1,911,000] in the
form of a private equity placement for 1,111,111 units with each
unit consisting of one common share of the Company and one common
share purchase warrant at an exercise price of $1.80 per share. The
unit price is based on the closing price of the Company's common
F-22
VIVENTIA BIOTECH INC.
NOTES TO FINANCIAL STATEMENTS
[tabular amounts in thousands of Canadian dollars, except per share information]
December 31, 2004 and 2003
shares on the Toronto Stock Exchange on January 14, 2003. The
warrants expire on February 10, 2008.
[ii] On September 10, 2003, the Company completed a private equity
placement with a wholly-owned subsidiary of Teva Pharmaceutical
Industries Limited ["Teva"] for approximately $2,804,000 less
issuance costs of $147,000 [net $2,657,000]. Under the terms of this
transaction, Teva purchased 1,402,000 units issued by the Company at
a price of $2.00 per unit. The unit price is based on the closing
price of the Company's common shares on the Toronto Stock Exchange
on August 21, 2003. Each unit consists of one common share of the
Company and one common share purchase warrant at an exercise price
of $2.00. The warrants expire on September 10, 2008.
In accordance with CICA Handbook Section 3860, "Financial
Instruments - Disclosure and Presentation", the net proceeds of
$2,657,000 were bifurcated between capital stock [$1,613,000] and
warrants [$1,044,000] on a pro rata allocation basis, based on fair
value. The fair value of the warrants has been included within
contributed surplus. The fair value of the common share component of
the unit was based on the $2.00 closing price of the Company's
common shares as stated above [note 11[b]].
[B] WARRANTS
A summary of the warrants issued and outstanding at December 31, 2003 and
2004 and the changes since December 31, 2002 is presented as follows:
WEIGHTED
AVERAGE WARRANTS
EXERCISE PRICE OUTSTANDING
$ #
-------------- ----------
[000's]
BALANCE, DECEMBER 31, 2002 1.90 10,466
Granted 1.90 2,513
Expired 2.70 (1,532)
---- ------
BALANCE, DECEMBER 31, 2003 AND 2004 1.82 11,447
==== ======
F-23
VIVENTIA BIOTECH INC.
NOTES TO FINANCIAL STATEMENTS
[tabular amounts in thousands of Canadian dollars, except per share information]
December 31, 2004 and 2003
As at December 31, 2003 and 2004, warrants outstanding to purchase common
shares were as follows:
WARRANTS
OUTSTANDING
TERMS OF WARRANTS #
- ------------------------------------------------------------------ ------------
[000's]
Expire August 24, 2006 at $3.35 per share 1,791
Expire December 17, 2007 at $1.40 per share 7,143
Expire February 10, 2008 at $1.80 per share [note 11[a][i]] 1,111
Expire September 10, 2008 at $2.00 per share [note 11[a][ii]] 1,402
------
11,447
======
As at December 31, 2003 and 2004, none of the above-mentioned purchase
warrants had been exercised.
The proceeds from the each of the private placement has been allocated
between capital stock and contributed surplus based on the estimated fair
value of the warrants. The warrants were fair valued using the
Black-Scholes option pricing model with the following assumptions for each
of the issuances.
Risk-free
Fair Expected interest
value volatility rate
----- ---------- ---------
August 24, 2001 $1.90 81% 4.6%
December 17, 2002 $0.90 80% 3.0%
February 10, 2003 $1.00 80% 2.9%
September 10, 2003 $0.74 78% 4.5%
----- -- ---
The expected life of the warrant and the dividend yield for each of the above
transaction was 5 years and nil, respectively.
F-24
VIVENTIA BIOTECH INC.
NOTES TO FINANCIAL STATEMENTS
[tabular amounts in thousands of Canadian dollars, except per share information]
December 31, 2004 and 2003
nil
12. STOCK OPTIONS AND STOCK-BASED COMPENSATION
[A] STOCK OPTIONS
During the year ended December 31, 2001, the shareholders approved the
establishment of the 2001 Share Incentive Plan [the "Plan"]. Under the
Plan, the number of common shares reserved for issuance to employees and
directors will not exceed 10% of the number of common shares issued and
outstanding at any time; the number of common shares that may be issued to
any one employee and/or director and their associates, within a one-year
period, cannot exceed 5% of the outstanding issue; and, the number of
common shares reserved for issuance to any one person cannot exceed 5% of
the number of common shares outstanding. The options can be granted to any
person who is a director, officer or employee of the Company or any of its
subsidiaries or affiliates, or any person that has been engaged to provide
services for the Company or its affiliates. The term of options granted
shall generally be seven years, but will not exceed 10 years. The vesting
period for these options is generally three years with 1/12 vesting at the
end of each quarter. The subscription price for the common shares will be
based on the trading price for the common shares on the last trading day
before the date of grant of the options or a more representative fair
market price, as determined by the Board of Directors. The maximum
aggregate number of common shares that are reserved for issuance under the
Plan is 2,600,000.
The Company's original share option plan [the "1996 Plan"] was approved by
shareholders of the Company on December 16, 1996 with 493,337 common
shares reserved for issuance. The total number of common shares reserved
for issuance under both the 1996 Plan and the Plan is 1,093,337,
representing 3.75% of the total issued and outstanding common shares of
the Company as at December 31, 2004. No further grants of options will be
made under the 1996 Plan. The term of options granted under the 1996 Plan
shall generally be five years but will not exceed 10 years. The vesting
period for these options is five years with 1/5 vesting at the end of each
year. Options that have been granted pursuant to the 1996 Plan will
continue to be governed by the 1996 Plan until they are exercised,
cancelled, or forfeited and/or expired.
As a result of the amalgamation with Genesys Pharma Inc. ["GPI"] in 1997,
all outstanding GPI options were exchanged for the Company's options
according to a conversion ratio of 1:1.6. In total, 136,043 options held
by GPI employees were converted into 217,669 options of the Company. These
options were not issued pursuant to the terms of the Plan and are in
addition to the maximum number of common shares reserved for issuance
under the Plan.
F-25
VIVENTIA BIOTECH INC.
NOTES TO FINANCIAL STATEMENTS
[tabular amounts in thousands of Canadian dollars, except per share information]
December 31, 2004 and 2003
A summary of the options issued and outstanding at December 31, 2004 and
the changes since December 31, 2002 is presented as follows:
WEIGHTED
AVERAGE
OPTIONS EXERCISE
OUTSTANDING PRICE
# $
----------- --------
BALANCE, DECEMBER 31, 2002 437,340 3.50
Granted 114,275 2.00
Forfeited or expired (105,823) 3.34
--------- ----
BALANCE, DECEMBER 31, 2003 445,792 3.10
Granted 1,247,000 1.56
Forfeited or expired (217,375) 2.96
Exercised (19,650) 2.17
--------- ----
BALANCE, DECEMBER 31, 2004 1,455,767 1.82
========= ====
The following table summarizes information about stock options outstanding
at December 31, 2004:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ ------------------------
RANGE WEIGHTED WEIGHTED WEIGHTED
OF AVERAGE AVERAGE AVERAGE
EXERCISE OPTIONS REMAINING EXERCISE OPTIONS EXERCISE
PRICE OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
$ # [years] $ # $
- --------- ----------- ---------------- -------- ----------- --------
1.56-2.00 1,277,892 7.9 1.58 89,446 1.72
2.01-4.00 135,125 3.7 2.32 135,125 2.32
7.50 42,750 0.3 7.50 42,750 7.50
--------- --- ---- ------- ----
1,455,767 7.3 1.82 267,321 2.95
========== === ==== ======= ====
[b] STOCK-BASED COMPENSATION
Effective January 1, 2003, the Company began prospectively recording
compensation expense for awards granted to employees. During the years
ended December 31, 2003 and 2004, 114,275 and 1,247,000 options were
granted to employees, respectively. Amounts of $28,334 and $359,046 were
recorded as an expense and credited to contributed surplus in 2003 and
2004, respectively for the fair value of stock options granted to
employees determined using
F-26
VIVENTIA BIOTECH INC.
NOTES TO FINANCIAL STATEMENTS
[tabular amounts in thousands of Canadian dollars, except per share information]
December 31, 2004 and 2003
the Black-Scholes option pricing model. No options were granted to
non-employees. Consideration paid on the exercise of stock options and
warrants is credited to capital stock.
The fair value of the options issued was estimated using the Black-Scholes
option pricing model with the following assumptions:
YEAR ENDED
DECEMBER 31,
------------------------
2004 2003 2002
------- ------- ----
Expected volatility 72% 73% -
Risk-free interest rate 3.9% 3.9% -
Expected option life 7 YEARS 7 years -
======= ======= =
Dividend yield assumption used for all years presented was nil.
The estimated weighted average fair value of the options granted was $1.40
and $1.30 for the years ended December 31, 2003 and 2004, respectively.
Pro forma disclosure is calculated using the Black-Scholes option pricing
model. The Black-Scholes option pricing model estimated the fair value of
freely tradable, fully transferable options without vesting restrictions,
which significantly differ from the Company's stock option awards. These
models also require four highly subjective assumptions, including future
stock price volatility and expected time until exercise, which greatly
affect the calculated values. Accordingly, management believes that these
models do not necessarily provide a reliable single measure of the fair
value of the Company's stock option awards.
The Company did not issue any stock options during the year ended December
31, 2002, therefore, pro forma net loss for the year ended December 31,
2002 and pro forma net loss per common share is consistent with those
reported for that period.
F-27
VIVENTIA BIOTECH INC.
NOTES TO FINANCIAL STATEMENTS
[tabular amounts in thousands of Canadian dollars, except per share information]
December 31, 2004 and 2003
13. INCOME TAXES
The tax effects of temporary differences and net operating losses that give rise
to future tax assets are as follows:
2004 2003
$ $
------- -------
FUTURE TAX ASSETS
Non-capital losses carried forward 11,996 8,412
Research and development expenditures 6,833 5,169
Net non-refundable investment tax credits 5,230 4,081
Net capital losses carried forward 621 617
Carrying value of capital assets in excess of tax basis 1,250 914
Financing costs 199 161
------- -------
TOTAL FUTURE TAX ASSETS 26,129 19,354
------- -------
Less valuation allowance (26,129) (19,354)
------- -------
NET FUTURE TAX ASSETS - -
======= =======
At December 31, 2004, the Company's deductible temporary differences for which
no related income tax assets have been recognized are as follows:
[a] The Company has accumulated non-capital losses for income tax purposes of
approximately $32,472,000, which can be carried forward to reduce future
Canadian taxable income.
[b] The Company has approximately $17,779,000 in Canadian scientific research
and development expenditures which can be carried forward indefinitely to
reduce future years' taxable income.
[c] The Company has non-refundable investment tax credits of $5,230,000 that
can be carried forward and may be applied against future years' income
taxes payable.
[d] Net capital loss carryforwards of $3,364,000, which may be used to reduce
future years' capital gains, can be carried forward indefinitely.
F-28
VIVENTIA BIOTECH INC.
NOTES TO FINANCIAL STATEMENTS
[tabular amounts in thousands of Canadian dollars, except per share information]
December 31, 2004 and 2003
The non-capital losses and investment tax credits which cannot be carried
forward indefinitely expire as follows:
NON-CAPITAL INVESTMENT TAX
LOSSES CREDITS
$ $
----------- --------------
2005 - 107
2006 - -
2007 3,146 -
2008 3,846 14
2009 6,810 -
2010 8,410 920
2011 10,260 910
2012 - 828
2013 - 1,030
2014 - 1,421
------ -----
32,472 5,230
====== =====
14. MISCELLANEOUS INCOME
For the year ended December 31, 2004, miscellaneous income consisted of the
$61,000 gain on the disposition of capital assets [note 5], interest income of
$19,000 and a proportionate share of a U.S. $100,000 one-time access fee paid as
part of an agreement whereby exclusive rights were provided to a third-party to
evaluate a specific collection of the Company's anti cancer monoclonal
antibodies. The U.S.$100,000 is being amortized over the two year period of
exclusivity.
15. COMMITMENTS AND CONTINGENCIES
[a] The Company enters into research, development and licence
arrangements with various parties in the ordinary course of
business. These arrangements outline various research services that
are being provided to the Company and enable it to utilize know-how
and technology. The arrangements require compensation to be paid by
the Company, typically by a combination of the following methods:
[i] Fees comprising amounts due initially upon entering into the
arrangements as well as additional amounts due either on
specified timelines or defined services to be provided.
[ii] Milestone payments that are dependent on products developed
under the arrangements proceeding towards specified plans of
clinical trials and commercial development.
F-29
VIVENTIA BIOTECH INC.
NOTES TO FINANCIAL STATEMENTS
[tabular amounts in thousands of Canadian dollars, except per share information]
December 31, 2004 and 2003
[iii] Royalty payments calculated as a percentage of net sales
commencing upon commercial sales of products developed.
At December 31, 2004, the Company's commitments under the above
arrangements for the next five years are as follows:
$
---
2005 257
2006 100
2007 100
2008 100
2009 100
---
657
===
The amounts above are principally comprised of fee-related committed
research and licence payments and potential milestone payments due
in 2005. Other milestone and royalty-related amounts that may become
due under the various arrangements are dependent on, among other
factors, products identified as investigational new drugs, clinical
trials, regulatory approvals and ultimately the successful
development of a new drug, the outcome and timing of which is
uncertain.
Amounts due per the various agreements for milestone payments are
accrued once the occurrence of a milestone is likely. Amounts due as
royalty payments will be accrued as commercial revenues from the
product are earned.
The Company periodically enters into research agreements or
strategic alliances with third parties that include indemnification
provisions that are 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 third party
intellectual property claims or damages arising from these
transactions. In some cases, the maximum potential amount of future
payments that could be required under these indemnification
provisions is unlimited. These indemnification provisions generally
survive termination of the underlying agreement. The nature of the
intellectual property 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 is
not aware of any claims for each of the periods presented;
accordingly, no amount has been accrued in the accompanying
financial statements with respect to these indemnification
obligations.
F-30
VIVENTIA BIOTECH INC.
NOTES TO FINANCIAL STATEMENTS
[tabular amounts in thousands of Canadian dollars, except per share information]
December 31, 2004 and 2003
[b] The Company's future minimum commitments under operating leases for
the next four years are as follows:
$
---
2005 292
2006 196
2007 203
2008 102
---
793
===
Certain premises, the commitments for which are included in the
above table, are leased from an affiliate of Leslie Dan at an annual
rent of $185,100 for 2005. For the years 2006 to 2008, all amounts
are due to an affiliate of Leslie Dan.. The lease expires on June
30, 2008.
[c] The following is a schedule of minimum payments for assets under
capital lease:
$
---
2005 71
2006 65
2007 35
---
171
Less interest 19
Less current portion 59
---
Long term portion 93
===
[d] In September 2001, an action was commenced by First Monitor Canada
Inc. ["First Monitor"] against the Company and seven other parties
in connection with an alleged breach of a distribution agreement
between First Monitor and Novopharm Limited ["Novopharm"]. First
Monitor is seeking damages in the amount of $20,000,000. On January
4, 2005 First Monitor's action was dismissed as abandoned by the
courts.
[e] During the ordinary course of business activities, the Company may
be contingently liable for litigation and a party to claims.
Management believes that adequate provisions have been made in the
accounts where required. Although it is not possible to estimate the
extent of potential costs and losses, if any, management believes
that the ultimate resolution of such contingencies will not have an
adverse effect on the financial position of the Company.
F-31
VIVENTIA BIOTECH INC.
NOTES TO FINANCIAL STATEMENTS
[tabular amounts in thousands of Canadian dollars, except per share information]
December 31, 2004 and 2003
16. SEGMENTED INFORMATION
The Company operates in a single industry and is engaged in biopharmaceutical
research and development activities primarily carried out in Canada.
All of the Company's assets are located in Canada.
17. STATEMENT OF CASH FLOWS
For the year ended December 31, 2004, excluded from the statement of cash flows
are the following items:
$
-----
Conversion of bridge financing loan and related interest [note 7] 9,147
Increase in accounts payable related to capital assets purchases 693
-----
18. COMPARATIVE FINANCIAL STATEMENTS
The comparative financial statements have been reclassified from statements
previously presented to conform to the presentation of the 2004 financial
statements.
19. SUBSEQUENT EVENTS
For the period from February 17 to March 23, 2005 the Company received bridge
financing loans of $500,000, $1,500,000 and $2,600,000 respectively, from its
principal shareholders, the Dan.Group The loans bear interest at 4.5% per annum
and are repayable on demand.
F-32
VIVENTIA BIOTECH INC.
NOTES TO FINANCIAL STATEMENTS
[tabular amounts in thousands of Canadian dollars, except per share information]
December 31, 2004 and 2003
20. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The Company prepares its financial statements in accordance with Canadian GAAP,
which differ in certain material respects from U.S. GAAP. The material
differences as they apply to the Company's financial statements are as follows:
If U.S. GAAP were followed, the effects on the statements of loss and deficit
would be as follows:
YEAR ENDED
DECEMBER 31,
--------------------------------------
2004 2003 2002
$ $ $
-------- -------- --------
Net loss for the year, Canadian GAAP (17,172) (12,778) (12,269)
ADJUSTMENTS
Licensed technology [a] -- -- (156)
Amortization of licensed technology [a] 87 87 48
Stock-based compensation [b] 359 28 --
------- ------- -------
NET LOSS AND COMPREHENSIVE LOSS
FOR THE YEAR [U.S. GAAP] [c] (16,726) (12,663) (12,377)
======= ======= =======
BASIC AND DILUTED LOSS PER COMMON
SHARE [U.S. GAAP] $ (0.57) $ (0.45) $ (0.62)
======= ======= =======
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
Basic and diluted [000's] 29,188 28,090 19,804
======= ======= =======
F-33
VIVENTIA BIOTECH INC.
NOTES TO FINANCIAL STATEMENTS
[tabular amounts in thousands of Canadian dollars, except per share information]
December 31, 2004 and 2003
Balance sheet items, which would vary under U.S. GAAP, are as follows:
YEAR ENDED
DECEMBER 31,
-------------------------
2004 2003
$ $
--------- ---------
ASSETS
Licensed technology -- --
======== ========
SHAREHOLDERS' DEFICIENCY
Capital stock 110,573 110,531
Additional paid-in-capital 21,175 21,175
Deficit accumulated during the development stage (153,177) (136,451)
-------- --------
(21,429) (4,745)
======== ========
A reconciliation of the Company's capital stock between Canadian GAAP and U.S.
GAAP is as follow:
YEAR ENDED
DECEMBER 31,
2004 2003
$ $
-------- --------
CAPITAL STOCK, CANADIAN GAAP 63,262 63,220
Common shares issued in exchange for assets [note 20 [e][3][iv]] 11,277 11,277
Incremental value attributed to common shares issued on
conversion of interest in Partnership I [note 20 [e][3][v-vi]] 41,181 41,181
Fair value of warrants issued in private placements
[notes 11[a][ii] and notes 20[e][3][vii],[ix] and [x] (5,147) (5,147)
------- -------
Capital stock, U.S GAAP 110,573 110,531
======= =======
F-34
VIVENTIA BIOTECH INC.
NOTES TO FINANCIAL STATEMENTS
[tabular amounts in thousands of Canadian dollars, except per share information]
December 31, 2004 and 2003
A reconciliation of the Company's contributed surplus/additional paid-in capital
between Canadian GAAP and U.S. GAAP is as follow:
YEAR ENDED
DECEMBER 31,
2004 2003
$ $
------ ------
CONTRIBUTED SURPLUS, CANADIAN GAAP 9,655 9,296
Amortization of stock option compensation (387) (28)
Fair value of warrants issued to Novopharm in
regards to Partnership I and II [note 20 [e][3][ii-v]] 1,940 1,940
Acquisition of GPI [note 20 [e][3][iv]] 4,820 4,820
Value of warrants issued in connection with private
placement [note 20 [e][3][vii]] 5,147 5,147
------ ------
Additional paid-in capital, U.S GAAP 21,175 21,175
====== ======
A reconciliation of the Company's deficit between Canadian GAAP and U.S. GAAP is
as follow:
YEAR ENDED
DECEMBER 31,
2004 2003
$ $
--------- ---------
DEFICIT, CANADIAN GAAP (94,172) (77,000)
Consolidation of Partnerships I and II (42,461) (41,952)
Write off of acquired research and development (15,762) (16,358)
Write down of assets (1,169) (1,169)
Stock-based compensation expense 387 28
-------- --------
Deficit accumulated during the development stage, U.S GAAP (153,177) (136,451)
======== ========
F-35
VIVENTIA BIOTECH INC.
NOTES TO FINANCIAL STATEMENTS
[tabular amounts in thousands of Canadian dollars, except per share information]
December 31, 2004 and 2003
If U.S. GAAP were followed, the effects on the statements of cash flows would be
as follows:
YEAR ENDED
DECEMBER 31,
-----------------------------------------
2004 2003 2002
$ $ $
-------- -------- --------
OPERATING ACTIVITIES
Balance under Canadian GAAP (15,847) (12,005) (11,319)
Purchase of licensed technology [a] (87) (87) (156)
------- ------- -------
BALANCE UNDER U.S. GAAP (15,934) (12,092) (11,475)
======= ======= =======
INVESTING ACTIVITIES
Balance under Canadian GAAP (658) (197) 200
Purchase of licensed technology [a] 87 87 156
------- ------- -------
BALANCE UNDER U.S. GAAP (571) (110) 356
======= ======= =======
Cash provided by financing activities under Canadian GAAP of $18,973, $4,085 and
$15,750 for the years ended December 31, 2004, 2003 and 2002, respectively,
remain unchanged for U.S. GAAP purposes.
[a] Acquired research and development and licensed technology
Under U.S. GAAP, the Company's acquired and licensed technology is
considered in-process research and development and is immediately expensed
upon acquisition in accordance with Statement of Financial Accounting
Standard ["FAS"] No. 2, "Accounting for Research and Development Costs"
["FAS 2"]. The Company's acquired technology does not have an alternative
future use given its specialized nature and therefore is expensed
immediately upon acquisition. Under Canadian GAAP, the acquired technology
is considered to be an intangible asset which is amortized over its
expected useful life and reviewed for impairment.
[b] Fixed stock options granted to employees
Accounting Principles Board Opinion ["APB"] No. 25, "Accounting for Stock
Issued to Employees" ["APB 25"] requires the Company to recognize
compensation expense relating to the intrinsic value of the options when
the market price of the underlying stock is greater than the exercise
price of the Company's employee stock options on the grant date. Under
Canadian GAAP, in accordance with Section 3870, the Company was not
required to record compensation expense for stock options granted to
employees until January 1, 2004. However, the Company elected to begin
accounting for the grant of stock options at fair value and recognize
related compensation costs in 2003.
F-36
VIVENTIA BIOTECH INC.
NOTES TO FINANCIAL STATEMENTS
[tabular amounts in thousands of Canadian dollars, except per share information]
December 31, 2004 and 2003
Under U.S. GAAP, for stock options awarded to employees, pro forma
disclosure of net loss and loss per share is provided below as if these
awards were accounted for using the fair value method.
[c] Pro forma stock-based compensation disclosures
In accordance with Section 3870 of the CICA Handbook, under Canadian GAAP,
stock options and warrants awarded to non-employees in 2002 are accounted
for using the fair value method. Accordingly, the Company recognized
stock-based compensation expense of $359 and $28 for the years ended
December 31, 2004 and 2003, respectively.
Under U.S. GAAP, the method of accounting for stock options is dependent
upon who the option is issued to and whether the option is fixed or based
on certain performance criteria. The Company follows APB 25 for awards
issued to employees and FAS No. 123, "Accounting for Stock-Based
Compensation" ["FAS 123"] for awards issued to non-employees. Accounting
differences under Canadian GAAP and U.S. GAAP for stock options are
described below.
FAS 123 requires pro forma disclosures of net loss and loss per share, as
if the fair value method, as opposed to the intrinsic value based method,
of accounting for employee stock options had been applied.
The following table presents the Company's net loss and loss per share on
a pro forma basis using the fair value method as determined by using the
Black-Scholes option pricing model:
YEAR ENDED
DECEMBER 31,
--------------------------------------
2004 2003 2002
$ $ $
-------- -------- --------
Net loss for the year
U.S. GAAP - as reported (16,726) (12,663) (12,377)
Pro forma stock-based
compensation expense (510) (179) (167)
------- ------- -------
NET LOSS FOR THE YEAR
U.S. GAAP - PRO FORMA (17,236) (12,842) (12,544)
======= ======= =======
BASIC AND FULLY DILUTED LOSS PER SHARE
As reported $ (0.58) $ (0.45) $ (0.62)
Pro forma $ (0.59) $ (0.46) $ (0.63)
======= ======= =======
F-37
VIVENTIA BIOTECH INC.
NOTES TO FINANCIAL STATEMENTS
[tabular amounts in thousands of Canadian dollars, except per share information]
December 31, 2004 and 2003
The assumptions used to calculate the fair value of stock compensation
expense using the Black-Scholes option pricing model are noted in note
12[b].
No stock options were issued during the year ended December 31, 2002.
The Black-Scholes option pricing model, used by the Company to calculate
option values, as well as other accepted option valuation models were
developed to estimate fair value of freely tradable, fully transferable
options without vesting restrictions, which significantly differ from the
Company's stock option awards. These models also require highly subjective
assumptions, including future stock price volatility and expected time
until exercise, which greatly affect the calculated values. Accordingly,
management believes that these models do not necessarily provide a
reliable single measure of the fair value of the Company's stock option
awards.
[d] Comprehensive income
FAS 130, "Reporting Comprehensive Income" establishes standards for the
reporting and display of comprehensive income and its components in
general purpose financial statements. Comprehensive income is defined as
the change in net assets of a business enterprise during a period from
transactions and other events and circumstances from non-owner sources,
and includes all changes in equity during a period. For the periods
presented, the Company did not have any material transaction that would
otherwise have had an impact on comprehensive income. As such, net loss
for the year under U.S. GAAP is consistent with comprehensive income.
[e] Development-stage disclosures
Since inception, the Company has not had significant revenue from
operations. Accordingly, in accordance with FAS No. 7, "Accounting and
Reporting by Development Stage Enterprise" ["FAS 7"], the Company is
considered to be a development stage enterprise under U.S. GAAP.
F-38
VIVENTIA BIOTECH INC.
NOTES TO FINANCIAL STATEMENTS
[tabular amounts in thousands of Canadian dollars, except per share information]
December 31, 2004 and 2003
FAS 7 requires development-stage companies to disclose, in addition to the
same basic financial statements as presented in these financial
statements, the following information:
[1] Statement of net loss:
CUMULATIVE FROM
INCEPTION ON
JULY 28, 1995 TO
DECEMBER 31, 2004
-----------------
EXPENSES
Research and development activities
Salaries and benefits 37,703
Research activities 28,886
Occupancy 5,965
Other operating costs 11,000
Write-off of acquired research and development 45,546
--------
129,100
General and administrative 12,551
Amortization of capital assets 5,687
Amortization of deferred financing expenses 160
Write-off of deferred financing expenses 1,360
Interest expense on amounts due to related parties 1,597
Write-off of other assets 3,364
Financing costs 660
--------
154,479
--------
Cumulative loss before the undernoted (154,479)
Miscellaneous income 1,302
--------
Cumulative net loss from inception (153,177)
========
[2] Statement of cash flows:
CUMULATIVE FROM
INCEPTION ON
JULY 28, 1995 TO
SEPTEMBER 30, 2004
------------------
Cash used in operating activities (96,558)
Cash used in investing activities (10,616)
Cash provided by financing activities 109,889
-------
2,715
=======
F-39
VIVENTIA BIOTECH INC.
NOTES TO FINANCIAL STATEMENTS
[tabular amounts in thousands of Canadian dollars, except per share information]
December 31, 2004 and 2003
[3] The following represents the Company's cumulative statement of
shareholders' equity (deficiency) determined in accordance with U.S.
GAAP from inception:
ADDITIONAL
EXCHANGEABLE PAID-IN
COMMON SHARES SHARES CAPITAL DEFICIT TOTAL
# $ $ $ $ $
------- ----- ------------ ---------- -------- -------
[000's]
BALANCE JULY 28, 1995 -- -- -- -- -- --
July 28, 1995 [Hygeia Holding, Inc.] [i and ii] 1,364 3,682 -- -- -- 3,682
Issued in exchange for assets [i] 2,173 2,056 -- -- -- 2,056
Issued in exchange for loan and interest thereon [i] 585 1,581 -- -- -- 1,581
Issued for services [i] 75 7 -- -- -- 7
Issued for cash [i] 726 1,960 -- -- -- 1,960
Net loss for the period [ii] -- -- -- -- (9,809) (9,809)
Partnership I [ii]
Issuance of warrants to Novopharm -- -- -- 1,054 -- 1,054
Issuance of exchangeable shares to Novopharm -- -- 2,034 -- -- 2,034
----- ----- ------ ------ ------- ------
BALANCE, DECEMBER 31, 1995 4,923 9,286 2,034 1,054 (9,809) 2,565
Net loss for the year [ii] -- -- -- -- (8,300) (8,300)
Stock options exercised during the year [iii] 11 74 -- -- -- 74
Partnership I [iii]
Issuance of warrants to Novopharm -- -- -- 1,795 -- 1,795
Issuance of exchangeable shares to Novopharm -- -- 6,629 -- -- 6,629
Conversion of warrants to exchangeable shares -- -- 1,622 (1,622) -- --
----- ----- ------ ------ ------- ------
BALANCE, DECEMBER 31, 1996 4,934 9,360 10,285 1,227 (18,109) 2,763
F-26
VIVENTIA BIOTECH INC.
NOTES TO FINANCIAL STATEMENTS
[tabular amounts in thousands of Canadian dollars, except per share information]
December 31, 2004 and 2003
ADDITIONAL
EXCHANGEABLE PAID-IN
COMMON SHARES SHARES CAPITAL DEFICIT TOTAL
# $ $ $ $ $
------- ------- ------------ ---------- -------- -------
[000's]
BALANCE, DECEMBER 31, 1996 [CONT'D] 4,934 9,360 10,285 1,227 (18,109) 2,763
Net loss for the year [ii] -- -- -- -- (51,160) (51,160)
Stock options exercised during the year [iv] 24 162 -- -- -- 162
Warrants exercised during the year [iv] 70 405 -- -- -- 405
Partnership I [iv]
Issuance of exchangeable shares to Novopharm -- -- 7,336 -- -- 7,336
Issuance of warrants to Novopharm -- -- -- 2,162 -- 2,162
Conversion of warrants to exchangeable shares -- -- 1,622 (1,622) -- --
Partnership II - Issuance of exchangeable shares to Novopharm [iv] -- -- 2,039 -- -- 2,039
Acquisition of GPI [iv]:
Issuance of stock options -- -- -- 2,347 -- 2,347
Issuance of warrants -- -- -- 2,473 -- 2,473
Transaction costs -- (1,092) -- -- -- (1,092)
Common shares issued in exchange for assets [iv] 2,014 34,236 -- -- -- 34,236
------ ------ ------ ------ ------- ------
BALANCE DECEMBER 31, 1997 7,042 43,071 21,282 6,587 (69,269) 1,671
F-27
VIVENTIA BIOTECH INC.
NOTES TO FINANCIAL STATEMENTS
[tabular amounts in thousands of Canadian dollars, except per share information]
December 31, 2004 and 2003
ADDITIONAL
EXCHANGEABLE PAID-IN
COMMON SHARES SHARES CAPITAL DEFICIT TOTAL
# $ $ $ $ $
------- ------- ------------ ---------- -------- --------
[000's]
BALANCE DECEMBER 31, 1997 [CONT'D] 7,042 43,071 21,282 6,587 (69,269) 1,671
Net loss for the year [ii] -- -- -- -- (13,843) (13,843)
Stock options exercised during the year [v] 1 8 -- -- -- 8
Warrants exercised during the year [v] 5 25 -- -- -- 25
Partnership I [v]
Issuance of exchangeable shares to Novopharm -- -- 5,355 -- -- 5,355
Issuance of warrants to Novopharm -- -- -- 1,135 -- 1,135
Conversion of warrants to exchangeable shares -- -- 1,622 (1,622) -- --
Partnership II - Issuance of exchangeable shares to Novopharm [v] -- -- 8,231 -- -- 8,231
Common shares issued on conversion of interest in Partnership I [v] 6,085 26,220 (26,220) -- -- --
Common shares issued on conversion of advances [v] 169 1,120 -- -- -- 1,120
Warrants issued with respect to Partnership II [v] -- -- -- 660 -- 660
Transaction costs [v] -- (88) -- -- -- (88)
Common shares issued on conversion of interest in Partnership II [v] 494 5,858 (5,858) -- -- --
------ ------ ------- ------ ------- ------
BALANCE, DECEMBER 31, 1998 13,796 76,214 4,412 6,760 (83,112) 4,274
Net loss for the year [ii] -- -- -- -- (9,030) (9,030)
Partnership II - Issuance of exchangeable shares [vi] -- -- 10,588 -- -- 10,588
Common shares issued on conversion of interest in Partnerships [vi] 1,744 15,000 (15,000) -- -- --
------ ------ ------- ------ ------- ------
BALANCE, DECEMBER 31, 1999 15,540 91,214 -- 6,760 (92,142) 5,832
F-28
VIVENTIA BIOTECH INC.
NOTES TO FINANCIAL STATEMENTS
[tabular amounts in thousands of Canadian dollars, except per share information]
December 31, 2004 and 2003
ADDITIONAL
EXCHANGEABLE PAID-IN
COMMON SHARES SHARES CAPITAL DEFICIT TOTAL
# $ $ $ $ $
------- ------- ------------ ---------- ------- --------
[000's]
BALANCE, DECEMBER 31, 1999 [CONT'D] 15,540 91,214 -- 6,760 (92,142) 5,832
Net loss for the year -- -- -- -- (9,129) (9,129)
Stock options exercised during the year [vii] 50 384 -- -- -- 384
Common shares issued for cash in private placement [vii] 2,149 10,252 -- 2,788 -- 13,040
------ ------- ------- ------ -------- -------
BALANCE, DECEMBER 31, 2000 17,739 101,850 -- 9,548 (101,271) 10,127
Net loss for the year -- -- -- -- (10,140) (10,140)
Stock options issued for cash in private placement [viii] 1,791 2,446 -- 3,403 -- 5,849
------ ------- ------- ------ -------- -------
BALANCE, DECEMBER 31, 2001 19,530 104,296 -- 12,951 (111,411) 5,836
Net loss for the year -- -- -- -- (12,377) (12,377)
Common shares issued for cash in private placement [ix] 7,143 3,462 -- 6,429 -- 9,891
------ ------- ------- ------ -------- -------
BALANCE, DECEMBER 31, 2002 26,673 107,758 -- 19,380 (123,788) 3,350
Net loss for the year -- -- -- -- (12,663) (12,663)
Common shares issued for cash in private
placement [notes 11[a][i] and [x]] 1,111 1,160 -- 751 -- 1,911
Common shares issued for cash in private placement [note 11 [a][ii]] 1,402 1,613 -- 1,044 -- 2,657
------ ------- ------- ------ -------- -------
BALANCE, DECEMBER 31, 2003 29,186 110,531 -- 21,175 (136,451) (4,745)
Common shares issued on exercise of options 20 42 -- -- 42
Net loss for the year -- -- -- -- (16,726) (16,726)
------ ------- ------- ------ -------- -------
BALANCE, DECEMBER 31, 2004 29,206 110,573 -- 21,175 (153,177) (21,429)
F-29
VIVENTIA BIOTECH INC.
NOTES TO FINANCIAL STATEMENTS
[tabular amounts in thousands of Canadian dollars, except per share information]
December 31, 2004 and 2003
F-30
[i] Effective July 28, 1995, the Company completed a reorganization which
included a reverse takeover of Hygeia. Prior to the reverse takeover,
Hygeia had 1,363,665 common shares outstanding. Also effective July 28,
1995, the Company issued 2,172,630 common shares to Novopharm as a result
of: a contribution of certain assets with a carrying value of $2,056,000.
The Company also issued 585,463 common shares to settle a loan and the
interest there on of $1,581,000, and $725,926 common shares for cash
proceeds of $1,960,000. As a result of these transactions, Novopharm
acquired control of the Company.
As part of the Hygeia reverse takeover, the Company issued 75,000 common
shares for performance by certain Hygeia directors and officers valued at
approximately $7,000.
For Canadian GAAP purposes, the acquisition of Hygeia, was accounted for
in accordance with Emerging Issues Committee 10, Reverse Takeover
Accounting and CICA Handbook Section 1580, "Business Combinations" ["CICA
1580"]. CICA 1580 requires the fair value of acquisitions that were
purchased through the issuance of common shares be determined on the date
of acquisition. For U.S. GAAP purposes, the acquisition of Hygeia was
accounted for in accordance APB No. 16, "Business Combinations" ["APB 16"]
and Emerging Issues Tasks Force ["EIFT"] 99-12, "Determination of the
Measurement Date for the Market Price of Acquirer Securities Issued in a
Purchase Business Combination" ["EITF 99-12"]. Under APB 16 and EITF
99-12, the fair value of the share consideration is required to be
determined on the date the terms of the acquisition are agreed to and
announced which differed from the date of acquisition. The Company has
determined that for purpose of the Hygeia acquisition, the fair value of
the share consideration issued, for Canadian GAAP purposes, was consistent
with the fair value determined for U.S. GAAP purposes due to the short
period and limited trading activity between the announcement date and
closing date.
[ii] Research Partnerships
During the period from July 28, 1995 to December 31, 1999, the Company
performed its research and development activities through two partnerships
with Novopharm. One partnership operated for the period from July 28, 1995
to July 31, 1998 ["Partnership I"] and the second partnership operated for
the period from June 30, 1997 to December 31, 1999 ["Partnership II"],
collectively the Partnerships. For Canadian GAAP purposes these
Partnerships were accounted for in accordance with CICA 3040, "Long-term
Investments". Based on the partnership and collaboration agreements, the
Company's assets were initially contributed to the Partnerships and all
the Company's research was carried out in the Partnership until December
31, 1999. Under Canadian GAAP, since the Partnerships losses were
allocated to the Novopharm, the Company's financial statements did not
reflect any research activities for the periods that the Partnerships
existed. The Company's assets contributed initially were considered to be
"Investment in Partnerships" and were carried at cost.
For U.S. GAAP purposes, the Company determined the Partnerships to be
Special Purpose Entities ("SPE") as the Partnerships were created to
accomplish a narrow and well-defined objective. Furthermore, it was always
contemplated through the partnership agreements that: the Partnerships
would have a limited duration; the Company would ultimately retain the
intellectual property being developed by the Partnerships; and that
Novopharm's partnership interest would be converted into Company shares.
Accordingly, for U.S. GAAP purposes, the Company accounted for the
Partnerships in accordance with EITF D-14, "Transactions involving
Special-Purpose Entities" ["EITF D-14"]. EITF D-14 requires the party
which ultimately retains virtually all of the substantive risks and
rewards of the assets or the debt of the SPE account for the SPE using the
consolidation method of accounting for investment. Accordingly, the
Company has consolidated for U.S. GAAP purposes, the Partnerships'
financial results for the period from July 28, 1995 to December 31, 1999
in accordance with EITF D-14.
During the year Novopharm provided funding of $3,088,000 to Partnership I,
which resulted in exchangeable shares valued at $2,034,000 and warrants
valued at $1,054,000.
Under U.S. GAAP Concepts Statement 6 ["Concept No. 6"], it was determined
that Novopharm was effectively receiving exchangeable shares for funding
up to $6,000,000 per annum and warrants for any
F-30
excess funding up to $4,000,000 per annum. The exercise price for the
exchangeable shares and warrants was $2.70 per share. The fair value of
each warrant issued was determined to be $1.40 using the Black-Scholes
model with the following assumptions:
Expected volatility 71%
Risk-free interest rate 6.1%
Expected option life 3 years
Dividend yield nil
As the minimum funding received by the Company through the Partnerships
was effectively equivalent to the receipt of equity and warrants, the
funds were allocated to exchangeable shares and warrants on a pro-rata
basis based on their relative fair values. On an annual basis, funding in
excess of the minimum was considered to be an exercise of warrants into
exchangeable shares based on the relationship of the excess funding over
the $6,000,000 minimum to the maximum excess of $4,000,000.
[iii] During the year ended December 31, 1996, the Company issued 10,682 common
shares pursuant the exercise of stock options for cash proceeds of
approximately $74,000.
During the year Novopharm provided funding of $8,424,000 to Partnership I,
which resulted in exchangeable shares valued at $6,629,000 and warrants
valued at $1,795,000. Based on the level of funding in excess of the
minimum annual commitment, $1,622,000 of warrants have been deemed to be
exercised and converted into exchangeable shares.
Consistent with the treatment of exchangeable shares and warrants for
funding received during the period ended December 31, 1995, the funding
received during the year ended December 31, 1996 was accounted for in
accordance with Concept No. 6 using the following assumptions:
Expected volatility 71%
Risk-free interest rate 6.1%
Expected option life 3 years
Dividend yield nil
[iv] During the year ended December 31, 1997, the Company issued 24,100 common
shares pursuant to the exercise of stock options for cash proceeds of
approximately $162,000, and 70,200 common shares pursuant to the exercise
of warrants for cash proceeds of approximately $405,000.
During the year Novopharm provided funding of $9,498,000 to Partnership I,
which resulted in exchangeable shares valued at $7,336,000 and warrants
valued at $2,162,000. Based on the level of funding in excess of the
minimum annual commitment, $1,622,000 of warrants have been deemed to be
exercised and converted into exchangeable shares. In addition, Novopharm
contributed $2,039,000 to Partnership II which resulted in exchangeable
shares valued at $2,039,000.
The exchangeable shares and warrants were accounted for in accordance with
Concept No. 6 using the following assumptions:
Expected volatility 71%
Risk-free interest rate 6.1%
Expected option life 3 years
Dividend yield nil
Acquisition of Genesys Pharm Inc.
Effective August 25, 1997, the Company completed an amalgamation with GPI.
Pursuant to the terms of the amalgamation, the Company issued 2,013,899
common shares to the shareholders of GPI. The
F-31
transaction was treated as an acquisition of GPI. Transaction costs of
approximately $1,092,000 relating to the amalgamation were incurred during
the year.
For Canadian GAAP purposes, the acquisition of GPI was accounted for in
accordance with CICA 1580 which required the fair value of acquisitions
that were purchased through the issuance of common shares be determined on
the date of acquisition using an average share price before and after the
date of acquisition. For U.S. GAAP purposes, the acquisition of GPI was
accounted for in accordance with APB 16 and EITF 99-12. Under APB 16 and
EITF 99-12, the fair value of the share consideration is required to be
determined on the date of announcement which differed from the date of
acquisition. For Canadian GAAP purposes, the Company determined the fair
value of the share consideration to be approximately $22,959,000 based on
an acquisition date of August 25, 1997. For U.S. GAAP purposes, the
Company determined the fair value of the share consideration to be
approximately $34,236,000 based on an announcement date of April 15, 1997.
The difference between the fair value calculated for U.S. GAAP purposes
and Canadian GAAP of $11,277,000 was allocated to acquired research and
development technology. This resulted in an immediate write off to income
under U.S. GAAP of $34,236,000 less tangible assets acquired of $814,000
for total acquired research and development technology of $33,422,000.
In addition, the Company assumed GPI's outstanding stock options and
warrants of 136,043 and 160,524, respectively and exchanged them for
217,669 and 256,839 of the Company's stock options and warrants,
respectively, in connection with this acquisition. For U.S. GAAP purposes,
in accordance with APB 16 and FAS 123 such financial instruments must be
accounted for at fair value. The Company estimated the fair value of these
financial instruments using the Black-Scholes option pricing model. The
fair values of these items were taken into consideration for the purpose
of determining the purchase price of GPI. The amount of $2,347,000 and
$2,473,000 for options and warrants, respectively, was charged to
additional paid-in capital with a corresponding adjustment to acquired
research and development. The fair value of these options and warrants
were determined using the following assumptions:
Expected volatility 55 %
Risk-free interest rate 4.5%
Expected option life 1 year
Dividend yield nil
[v] During the year ended December 31, 1998, the Company issued 1,200 common
shares pursuant to the exercise of stock options for cash proceeds of
approximately $8,000, and 4,900 common shares pursuant to the exercise of
warrants for cash proceeds of $25,000.
During the year Novopharm provided funding of $6,490,000 to Partnership I,
which resulted in exchangeable shares valued at $5,355,000 and warrants
valued at $1,135,000. Based on the level of funding in excess of the
minimum commitment, $1,622,000 of warrants have been deemed to be
exercised and converted into exchangeable shares.
For U.S. GAAP purposes, pursuant to the wind-up and conversion of
Partnership I and the agreement to increase the conversion price further
described below, on July 31, 1998, 6,084,653 common shares fair valued at
$26,220,000 were issued to Novopharm in exchange for their exchangeable
shares.
During 1998, Novopharm provided funding to Partnership II of $3,819,000 to
July 31, 1998 and $4,412,000 during the balance of the year, which
resulted in exchangeable shares valued at $8,231,000. Pursuant to the
terms of the initial funding agreement for Partnership II as described
below. Novopharm effectively converted their exchangeable shares received
based on the funding to July 31, 1998 into 494,455 common shares of the
Company valued at approximately $5,858,000.
For Canadian GAAP purpose, the issuance of common shares of 6,084,653 and
494,455 related to the wind-up and conversion of Partnership I and partial
conversion of Partnership II was valued at approximately $3,918,000 and
420,000, respectively.
F-32
The Company issued 169,117 common shares at the then market price of $6.60
per common share, in settlement of advances from Novopharm in the amount
of approximately $1,120,000. Additional transaction costs of approximately
$88,000 were incurred during the year relating to the acquisition of GPI
which occurred in the prior year.
In consideration for the agreement by Novopharm to provide funding to
Partnership I described in [ii] above, to a minimum annual contribution of
$6,000,000 for a period of three years, Novopharm was effectively entitled
to convert their partnership contributions into common shares of the
Company at the price of $2.70 per share, to a maximum of $10,000,000 per
annum.
In 1998, Novopharm agreed to change the conversion right from $2.70 to
$4.90 per common shares. For agreeing to this change Novopharm was granted
800,000 warrants exercisable until July 24, 2003 into common shares of the
Company, if the Company filed a new drugs submission with the United
States Food and Drug Administration or Health Canada within five years.
For purpose of U.S. GAAP, the fair value of the 800,000 warrants
exercisable until July 24, 2003 were ascribed a nominal fair value given
the high degree of risk of the conditions required for their exercise
being met.
F-33
Novopharm was also committed to fund Partnership II. For the period from
June 30, 1997 to July 31, 1998 Novopharm committed $4,500,000 for which
Novopharm was effectively entitled to convert their Partnership II
contributions into exchangeable shares at the market value at the time of
funding. These exchangeable shares could be converted into a maximum of
494,455 common shares. For the period from August 1, 1998 to December 31,
1999, Novopharm committed to fund Partnership II with a minimum capital
contribution of $15,000,000. Novopharm was effectively entitled to convert
its contributions to Partnership II, into common shares of the Company at
the price of $8.60 per share. In addition, as part of this funding
arrangement, the Company issued 1,200,000 warrants, exercisable at $12.00
per share, expiring on December 31, 1999. For U.S. GAAP purposes, in
accordance with Concept No. 6, these warrants were fair valued at
approximately $660,000 using the following assumptions:
Expected volatility 55 %
Risk-free interest rate 4.5%
Expected option life 1 year
Dividend yield nil
[vi] During the year ended December 31, 1999, Novopharm contributed $10,588,000
to Partnership II in exchange for exchangeable shares of the Company. On
December 31, 1999, the Company issued 1,744,186 common shares pursuant to
the wind-up of Partnership II and the conversion of Novopharm's
exchangeable shares relating to their contribution to partnership II from
August 31, 1998 to December 31, 1999. The common shares issued to
Novopharm in exchange for the exchangeable shares were valued under US
GAAP as described in note 20[3][v] at $15,000,000.
[vii] On April 17, 2000, the Company arranged an equity private placement with
Dan Family Holdings Ltd. ["DFH"] for 684,932 units at an issue price of
$7.30 per unit. Each unit consisted of one common share and one-half
common share purchase warrant. On October 12, 2000, the Company arranged
an equity private placement with DFH and Mr. Leslie Dan for 1,250,000 and
214,286 units respectively at an issue price of $5.60 per unit. Each unit
consisted of one common share of the Company and one-half common share
purchase warrant. As a result of these private placements 2,149,217 common
shares and 1,074,608 common share purchase warrants were issued for cash
proceeds of $13,040,338 net of costs of $159,662. With respect to the
common share purchase warrants, 342,466 were exercisable until April 17,
2001 at $7.30 and until April 17, 2002 at $15.00 and 732,142 common share
purchase warrants were exercisable until October 12, 2003 at $5.60 per
share.
F-34
In accordance with FAS 123, the fair value of these warrants of $2,788,000
was determined using the Black-Scholes pricing model with the following
assumptions:
APRIL 17, OCTOBER 12,
2000 2000
--------- -----------
Expected volatility 106% 91%
Risk-free interest rate 6.4% 5.9%
Expected option life 2 years 3 years
Dividend yield for each placement was nil.
During the year ended December 31, 2000, the Company issued 50,049 common
shares pursuant to the exercise of stock options for cash proceeds of
approximately $384,000.
During the year ended December 31, 2004, the Company issued 19,650 common
shares pursuant to the exercise of stock options for cash proceeds of
approximately $42,000.
[viii] On August 24, 2001, the Company completed a private equity placement with
DFH for $6,000,000 net of issuance costs of $151,233 [net $5,848,767].
Under the terms of the transaction, DFH purchased 1,791,045 units issued
by the Company at a price of $3.35 per unit. The unit price is based on
the closing price of the Company's common shares on the Toronto Stock
Exchange on July 25, 2001. Each unit is comprised of one common share of
the Company and one common share purchase warrant. Each common share
purchase warrant entitles the holder to purchase one common share of the
Company at an exercise price of $3.35 per share until August 24, 2006.
In accordance with FAS 123, the fair value of these warrants of $3,403,000
(approximately $1.90 per warrant) was determined using the Black-Scholes
pricing model with the following assumptions:
Expected volatility 81%
Risk-free interest rate 4.6%
Expected option life 5 years
Dividend yield nil
[ix] On December 17, 2002, the Company completed a private equity placement
with Leslie Dan and 1533686 Ontario Limited, a company related to Leslie
Dan, for $10,000,000, net of issuance costs of $109,147 [net $9,890,853].
Under the terms of the transaction, the Company issued 7,142,857 units at
a price of $1.40 per unit. The unit price is based on the closing price of
the Company's common shares on the Toronto Stock Exchange on December 17,
2002. Each unit is comprised of one common share of the Company and one
common share purchase warrant. Each common share purchase warrant entitles
the holder to purchase one common share of the Company at an exercise
price of $1.40 per share until December 17, 2007.
In accordance with FAS 123, the fair value of these warrants of $6,429,000
(approximately $0.90 per warrant) was determined using the Black-Scholes
pricing model with the following assumptions:
Expected volatility 80%
Risk-free interest rate 3.0%
Expected option life 5 years
Dividend yield nil
[x] In accordance with FAS 123, the fair value of these warrants issued in
connection with the February 10, 2003 private placement [note 11[a][i]],
was estimated to be $1,111,000 (approximately $1.00 per warrant) using the
Black-Scholes pricing model with the following assumptions:
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Expected volatility 80%
Risk-free interest rate 2.9%
Expected option life 5 years
Dividend yield nil
[f] Additional balance sheet information
Accounts payable and accrued liabilities consisted primarily of the
following:
2004 2003
$ $
----- -----
Trade payables 1,780 601
Accrued interest 171 4
Accrued professional fees 61 59
Accrued wages and bonuses 773 515
Accrued financing costs 72 -----
Accrued clinical costs 77 131
Accrued financial reporting costs 120 120
Other accrued liabilities [i] 83 276
----- -----
3,137 1,706
===== =====
[i] Other accrued liabilities primarily consisted of operating costs.
In accordance with Canadian GAAP, the Company's cash and cash
equivalents and short-term investments are carried at the lower of
cost or market based on quoted market prices. Under U.S. GAAP, these
investments would have been classified as held-to-maturity and would
be recorded at amortized cost. There is no significant difference
between cost under Canadian GAAP and amortized cost under U.S. GAAP.
Accrued interest is included in the short-term investments balance,
which approximates fair value.
[g] Recent accounting developments
In December 2002, FASB issued FAS No. 123(R) "Share-Based Payment " ["FAS
123(R)"]. FAS 123(R) amends certain provisions of FAS 123 to with respect
to the method of accounting for stock options. Specifically FAS 123(R)
eliminates the option to apply the intrinsic method of accounting for
stock options with pro forma disclosure for each reported period for stock
options given to employee. FAS 123(R) requires companies to fair value all
stock option grants and the amortization of the fair value must be
included in the determination of a company's financial results. FAS 123(R)
is effective for the first interim or annual period beginning after June
15, 2005. The Company has not yet determined the method of adoption or the
effect of adopting SFAS No. 123(R), and it has not determined whether the
adoption will result in amounts that are similar to the current pro forma
disclosures under SFAS No. 123.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets - An Amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions" ["SFAS 153"]. SFAS 153 eliminates the exception from fair
value measurement for nonmonetary exchanges of similar productive assets
and replaces it with an exception for exchanges that do not have
commercial substance. SFAS 153 specifies that a nonmonetary exchange has
commercial substance if the future cash flows of the entity are expected
to change significantly as a result of the exchange. SFAS 153 is effective
for non-monetary transactions occurring in fiscal periods beginning after
June 15, 2005. Accordingly, the Company is required to adopt SFAS No. 153
beginning January 1, 2006. The Company does not expect SFAS 152 to have a
material impact on the Company's financial position or results of
operations.
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SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing
on Form 20-F and that it has duly caused and authorized the undersigned to sign
this registration statement on its behalf.
VIVENTIA BIOTECH INC.
By: /s/ Dr. Nick Glover
-------------------------------------
Dr. Nick Glover
Date: June 10, 2005 President and Chief Executive Officer
F-37
EXHIBIT INDEX
EXHIBIT DESCRIPTION
1.1 Articles of continuance dated July 9, 1998.
1.2 Articles of amendment dated September 11, 2000.
1.3 Articles of amendment dated May 10, 2004.
1.4 By-law No. 1 and By-law No. 2.
2.1 1996 Stock Option Plan.
2.2 2001 Stock Option Plan.
3.1* Convertible Secured Debenture in the amount of $12,584,142.47 issued
by Viventia Biotech Inc. in connection with the private placement to
Leslie Dan dated November 3, 2004.
3.2* Convertible Secured Debenture in the amount of $5,000,000 issued by
Viventia Biotech Inc. in connection with the private placement to
ADH Investments (1999) Inc. dated November 3, 2004.
3.3* Convertible Secured Debenture in the amount of $5,562,568.49 issued
by Viventia Biotech Inc. in connection with the private placement to
ADH Investments (1999) Inc. dated November 3, 2004.
3.4 Warrant Certificate granted by Viventia Biotech Inc. in connection
with the private placement to Leslie Dan dated November 3, 2004.
3.5 Warrant Certificate granted by Viventia Biotech Inc. in connection
with the private placement to ADH Investments (1999) Inc. dated
November 3, 2004.
3.6 Payment and Security Share Agreement between Leslie Dan, ADH
Investments (1999) Inc. and Viventia Biotech Inc., dated November 3,
2004.
3.7 Employment Agreement between Dr. Nick Glover and Viventia Biotech
Inc. dated January 7, 2004.
3.8 Employment Agreement between Mr. Michael Byrne and Viventia Biotech
Inc. dated October 14, 2004.
3.9 Employment Agreement between Mr. Michael Cross and Viventia Biotech
Inc. dated December 13, 2004.
3.10 Employment Agreement between Dr. Glen MacDonald and Viventia Biotech
Inc. dated October 12, 2004.
3.11 Employment Agreement between Mr. Dimitri Fitsialos and Viventia
Biotech Inc. dated November 17, 2004.
3.12* Exclusive License Agreement between Biovation Limited and Viventia
Biotech Inc., dated March 8, 2004.
3.13* Exclusive License Option Agreement between the Trustees of Columbia
University in the City of New York and Viventia Biotech Inc., dated
June 23, 2003.
3.14* Amendment Number 1 to the Exclusive License Agreement between the
Trustees of Columbia University in the City of New York and Viventia
Biotech Inc., dated December 19, 2003.
3.15* License Agreement between McGill University and Novopharm Limited,
dated April 28, 1994.
3.16* License Agreement between Tanox, Inc. and Viventia Biotech Inc.,
dated August 20, 2002.
3.17* License Agreement between University of Zurich and Viventia Biotech
Inc., dated January 9, 2003.
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3.18* Non-exclusive License Agreement between XOMA Ireland Limited and
Viventia Biotech Inc., dated November 30, 2001.
3.19 Property Lease between Almad Investments Limited and Viventia
Biotech Inc., dated January 26, 2004.
3.20 Net Office Lease between Fana Burnhamthorpe Corp. and Viventia
Biotech Inc., dated November 20, 2000.
3.21* Subscription Agreement, dated September 3, 2003, between Teva Pharma
B.V. and Viventia Biotech Inc.
3.22 Demand Promissory Note, dated February 17, 2005, in favor of Mr.
Leslie Dan.
3.23 Demand Promissory Note, dated March 1, 2005, in favor of Mr. Leslie
Dan.
3.24 Demand Promissory Note, dated March 23, 2005, in favor of Clairmark
Investments, an entity owned by Mr. Leslie Dan.
3.25 Demand Promissory Note, dated April 28, 2005, in favor of Clairmark
Investments, an entity owned by Mr. Leslie Dan.
3.26 Demand Promissory Note, dated May 12, 2005, in favor of Mr. Leslie
Dan.
3.27 Demand Promissory Note, dated May 12, 2005, in favor of Clairmark
Investments, an entity owned by Mr. Leslie Dan.
14.1 Consent of Ernst & Young LLP.
- ----------
* Confidential Treatment Requested.
F-39