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 _______
YM BIOSCIENCES INC.
(Exact name of Registrant as specified in its charter)
NOVA SCOTIA, CANADA
(Jurisdiction of incorporation or organization)
SUITE 400, BUILDING 11, 5045 ORBITER DRIVE,
MISSISSAUGA, ONTARIO, CANADA. L4W 4Y4
(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 registered
COMMON SHARES Toronto Stock Exchange (the "TSX") and
admitted to trading on the Alternative
Investment Market ("AIM") of the London
Stock Exchange plc
Securities registered or to be registered pursuant to Section 12(g) of the
Act: COMMON SHARES WITHOUT PAR VALUE
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|
Item 17 |X| Item 18 |_|
Indicate by check mark which financial statement item the registrant
has elected to follow:
TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS................................................iii
GLOSSARY OF TERMS AND PROPER NAMES..........................................v
PART I......................................................................1
ITEM 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS...............1
ITEM 2: OFFER STATISTICS AND EXPECTED TIMETABLE.............................2
ITEM 3: KEY INFORMATION.....................................................2
ITEM 4: INFORMATION ON THE COMPANY.........................................11
ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS.......................32
ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.........................36
ITEM 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.................44
ITEM 8: FINANCIAL INFORMATION.............................................45
ITEM 9: THE OFFER AND LISTING.............................................46
ITEM 10: ADDITIONAL INFORMATION...........................................47
ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........56
ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES...........57
PART II....................................................................57
PART III...................................................................57
ITEM 17: FINANCIAL STATEMENTS.............................................57
ITEM 18: FINANCIAL STATEMENTS.............................................57
ITEM 19: EXHIBITS..........................................................57
FINANCIAL STATEMENTS......................................................F-1
ii
FORWARD-LOOKING STATEMENTS
This registration statement contains or incorporates by reference
forward-looking statements. All statements other than statements of historical
fact included or incorporated by reference in this registration statement and
that address activities, events or developments that we expect or anticipate may
or will occur in the future are forward-looking statements. Forward-looking
statements contained or incorporated by reference in this registration statement
include, but are not limited to, references to:
- early stage of development
- expenditures and accumulated deficit
- pre-clinical and clinical product testing and development
- obtaining and maintaining patents and proprietary rights
- Cuban licenses and political risks, and the Cuban effect on the
Corporation's access to US capital, finance, customers and suppliers
- relationships with collaborative partners - technological changes -
competition and ability to maintain competitive position
- ability to attract and retain skilled and experienced personnel
- adequacy of product liability insurance
- maintenance of licenses
- ability to continue to identify and research licensable products
- regulatory approvals
- funding requirements and available financing
- passive foreign investment company
- in- and out-licensing of products
- business strategy
- cancer and cancer therapeutic markets
- licensing arrangements
- regulatory approvals
- nature of operations
- liquidity and capital resources
- dividend policy
- approval and completion of the Corporation's listing on the American
Stock Exchange
- exchange controls
- taxation
- effect of arrangements with subsidiaries
While these forward-looking statements, and any assumptions upon which they are
based, are made in good faith and reflect our current judgment regarding the
direction of our business, actual results may vary, sometimes materially, from
any estimates, predictions, projections, assumptions or other suggestions of
future performance herein. Undue reliance should not be placed on these
forward-looking statements, which are based upon our assumptions and are subject
to known and unknown risks and uncertainties and other factors which may cause
actual results, levels of activity and achievements to differ materially from
those estimated or projected and expressed in or implied by such statements.
Such factors include, but are not limited to:
o our early stage of development;
o our lack of revenues and history of losses;
o risks of pre-clinical and clinical testing;
o our reliance on patents and proprietary rights;
o our dependence on collaborative partners;
o rapid technological changes;
iii
o competitors with greater product development capabilities and resources;
o our lack of manufacturing experience;
o our reliance on key personnel;
o potential product liability;
o our ability to maintain licenses;
o our reliance upon licensors;
o risks associated with obtaining regulatory approval for drug products; and
o other factors, many of which are beyond our control.
We undertake no obligation to update publicly or revise any forward-looking
statements contained in this registration statement, and such statements are
expressly qualified by this cautionary statement. You should also carefully
consider the matters discussed under "Risk Factors" in this registration
statement.
TERMS OF REFERENCE
The information set forth in this registration statement is as of April 30,
2004, unless another date is indicated. All references to dollars are expressed
in Canadian funds, unless otherwise indicated. References in this registration
statement to "YM", the "Corporation", "us", "we" or "our" mean YM BioSciences
Inc. and its subsidiaries, unless otherwise specified or the context otherwise
requires.
iv
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.
Active Immunotherapy - Deliberate stimulation of the patient's own immune
response through administration of antigens with or without immunological
adjuvants. Therapeutic cancer vaccines are considered Active Specific
Immunotherapy agents because the body is stimulated to make its own antibodies
specific for the tumour cells
Adjuvant - Substance added to a vaccine to enhance its immunogenicity (i.e. its
ability to stimulate an immune response)
Affinity - Binding strength of an antibody to a target
Antisense Drug - Short spans of nucleic acid (DNA or RNA) used to disrupt the
expression of disease related genetic code
Autocrine - Used herein to describe a hormonal pathway characterized by the
production of a biologically active substance by a cell; the substance then
binds to receptors on that same cell to initiate a cellular response
Autocrine loop - A self-sustaining process built on a self-feeding positive
feedback cycle. Refers to the ability of a substance to act on the same cell
that produced it
Cancer Vaccine - Vaccines or candidate vaccines designed to treat cancer, using
pure or extracted tumour-specific antigens or using the patient's own whole
tumour cells as the source of antigens
CBQ - Centro de Bioactivos Quimicos (Center for Bioactive Chemicals), Santa
Clara, Cuba
cDNA - Cloned copies of mRNA - the essential messenger element of the genes in
the DNA that help in the coding of proteins
Chemopotentiator - A substance that enhances the activity of a chemotherapy
agent
Chimeric - A chimeric antibody consists mainly of human protein, but the portion
of the antibody that binds to the target is still mouse protein
CIM - Centro de Inmunologia Molecular (Center for Molecular Immunology), Havana,
Cuba
Cisplatin - Approved chemotherapeutic agent
c-myc - Cellular gene involved in proliferation, commonly deregulated in cancer
CTA - Clinical Trial Application - previously known as an Investigational New
Drug application which must be filed and accepted by the regulatory agency of
Health Canada before each phase of human clinical trials may begin
Cyclophosphamide - Approved chemotherapeutic agent
Cytoprotective - Having the capacity to protect cells
Cytostatic - Having capacity to arrest the growth of cells
Cytotoxic - Having capacity to kill cells
v
Cytotoxic T cell response - Killing the tumour cell by activated tumour-specific
T cells
Doxorubicin - Approved chemotherapeutic agent
E. coli - A common bacterial strain often used as a host for recombinant protein
production
Epidermal Growth Factor - A growth factor known to be involved in regulation of
epithelial cell growth
Epithelial - Derived from epithelium which is the layer of cells forming the
epidermis of the skin and the surface layer of the serous and mucous membranes
Estramustine - An approved chemotherapeutic agent
Extracellular domain (ECD) - The portion of a cell surface protein located
outside the cell
5-FU - See Fluorouracil
Fluorouracil (5-Fluorouracil, 5-FU) - Approved chemotherapeutic agent
Fusion protein - Two or more proteins genetically engineered to be produced as a
single protein
Glioma - A form of brain cancer involving the malignant transformation of a
glial cell
GMP - Good Manufacturing Practice, a set of standards used to define appropriate
manufacturing methods for pharmaceuticals and biologicals
GnRH - Gonadotrophin Releasing Hormone; controlling the circulating levels of
the sex hormones
HER-1 positive tumours - Tumours expressing/producing the EGF receptor
Hormone-refractory - Term used to indicate that a tumour is no longer responsive
to hormone therapy
Humanized - The process whereby an antibody derived from murine cells is altered
to resemble a human antibody. Humanized antibodies are less likely to cause
allergic reactions when given to humans but retain the biological activity of
the original murine form
IND - Investigational New Drug application which must be filed and accepted by
the FDA before each phase of human clinical trials may begin
Ininotecan - An approved chemotherapeutic agent
In vivo - In the living body or organism. A test performed on a living organism
Ligand - Used herein to describe a protein or peptide that binds to a particular
receptor
Metastatic - A term used to describe a cancer where tumour cells have migrated
from the primary tumour to a secondary site (e.g. from prostate to bone)
Mitoxantrone - An approved chemotherapy agent
Monoclonal antibody "Mab" - Antibodies of exceptional purity and specificity
derived from hybridoma cells (cells which are fused cells, generally MAb
produced in mice, that secrete MAbs)
Murine - Derived from mouse cells
vi
NCIC - The National Cancer Institute of Canada
Neoplastic - New and abnormal growth of tissue (neoplasm), which may be benign
or cancerous
Oncogene - A gene that induces or promotes uncontrolled cell growth
Orphan Drug - A drug aimed at treating a condition with an incidence of less
than 200,000 per year in the United States (often given a seven year market
exclusivity by the United States government)
Overall Survival - For patients who have died, overall survival was calculated
in months from the day of randomization to date of death. Otherwise, survival
was censored at the last day the patient is known alive
P64k - Outer membrane protein of N. meningitides
Passive Immunotherapy - Immunologically active material transferred into the
patient as a passive recipient. Monoclonal antibodies are considered Passive
Immunotherapy since antibodies are generated outside the body and given to the
patient
pGp - P-Glycoprotein. A pumping mechanism that removes noxious substances from
the cell.
pGp inhibitor - Inhibitor of the activity of P-Glycoprotein.
P. haemolytica - A bacterium causing respiratory disease in cattle and sheep
Phosphorylation - Addition/donation of a phosphate group to a particular amino
acid which can lead to tumour growth
Prednisone - An approved standard anti-inflammatory
Resection - The process of tumour removal
Taxol - An approved chemotherapeutic agent
Taxotere - An approved chemotherapeutic agent
TGF(alpha) - Transforming growth factor alpha
Th 1 - T helper cell type 1 (generally involved in stimulating a cell-mediated
immune response)
Therapeutic vaccine - An approach to the treatment of cancer utilizing "active
immunotherapy"
Titers - Term used to express levels of circulating antibodies
vii
Tyrosine kinase - An enzyme that undergoes phosphorylation and that
phosphorylates other molecules at the tyrosine amino acid
Upregulation - Increased production of an RNA transcript or a protein by a cell
Vinylfuran - A chemical polymer
Yttrium 90 - A radioisotope used in the treatment of disease
viii
PART I
ITEM 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
A. DIRECTORS AND SENIOR MANAGEMENT.
Name
Directors Position Business Address
- ---------------------------------- ---------------------------------- ---------------------------------------------
David G.P. Allan Chairman, Chief Executive YM BioSciences Inc.
Officer and Director Suite 400, Building 11, 5045 Orbiter Drive
Mississauga, Ontario, Canada, L4W 4Y4
Thomas I.A. Allen Director Ogilvy Renault, Toronto
Royal Trust Tower, TD Centre
77 King Street West
Toronto, Ontario, Canada, M5K 1H1
Mark Entwistle Director Societas Consulting Inc.
933 Marguerite Avenue,
Suite Five
Ottawa, Ontario, Canada, K1K 3T6
John Friedman Director Easton Hunt Capital Partners L.P.
641 Lexington Avenue, 21st Floor
New York, NY 10022
Henry Friesen Director Genome Canada
150 Metcalfe Street, Suite 2100
Ottawa, Ontario, Canada, K2P 1P1
Julius Vida Director Vida International Pharmaceutical
Consultants
27 Sachem Road
Greenwich, CT, USA, 06830
Gilbert Wenzel Director Quisisana AG
Krummackerstrasse 10
CH-8700 Kusnacht, Switzerland
Tryon M. Williams Director CellStop International Limited
1166 Alberni Street, Suite 1405,
Vancouver, B.C., Canada, V6E 3Z3
Officers and Management
David G.P. Allan Chairman, Chief Executive YM BioSciences Inc.
Officer and Director Suite 400, Building 11, 5045 Orbiter Drive
Mississauga, Ontario, Canada, L4W 4Y4
Paul M. Keane Director, Medical Affairs YM BioSciences Inc.
Suite 400, Building 11, 5045 Orbiter Drive
Mississauga, Ontario, Canada, L4W 4Y4
1
Name
Directors Position Business Address
- ---------------------------------- ---------------------------------- ---------------------------------------------
Vincent Salvatori Executive Vice President YM BioSciences Inc.
Suite 400, Building 11, 5045 Orbiter Drive
Mississauga, Ontario, Canada. L4W 4Y4
Len Vernon Director, Finance and YM BioSciences Inc.
Administration and Secretary Suite 400, Building 11, 5045 Orbiter Drive
Mississauga, Ontario, Canada, L4W 4Y4
B. ADVISERS.
Our principal bankers are Royal Bank of Canada, of 6880 Financial Drive,
Mississauga, Ontario, L5N 7Y5.
Our legal advisors in Canada are (1) Heenan Blaikie LLP, of Toronto, Ontario;
Torys LLP, of Toronto, Ontario with respect to licensing and intellectual
property; and (3) Dimock Stratton Clarizio LLP, of Toronto, Ontario with respect
to patents.
Our U.S. securities counsel is Torys LLP, of New York, New York.
The registrar and transfer agent for the Corporation's common shares is CIBC
Mellon Trust Company at its principal offices in Toronto, Canada.
C. AUDITORS.
Our auditors since September 1995 have been KPMG LLP, Yonge Corporate Centre,
4100 Yonge Street, Suite 200, Toronto, Ontario, M2P 2H3.
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 consolidated financial
statements for the years ended June 30, 2003, 2002, 2001, 2000, 1999 and the
unaudited interim consolidated financial statements for the periods ended
December 31, 2003 and 2002. The consolidated financial statements have been
prepared in accordance with Canadian generally accepted accounting principles,
(GAAP) and are in Canadian dollars.
Consolidated Statements of Operations Data
Six months Six months
ended ended Year Ended Year Ended Year Ended
Dec. 31, 2003 Dec. 31, 2002 June 30, 2003 June 30, 2002 June 30, 2001
------------- ------------- ------------- ------------- -------------
Interest income $ 104,762 $ 137,195 $ 273,232 $ 154,112 $ 645,742
General and administrative expenses 1,180,425 923,703 1,877,509 1,864,289 1,805,204
Licensing and product development expenses 889,423 2,249,667 3,965,385 4,729,216 6,294,981
Loss on marketable securities -- -1,137,103 -1,812,158 -- --
Loss for the period ($1,965,086) ($4,173,278) ($7,381,820) ($6,439,393) ($7,454,443)
Basic and diluted loss per common share ($ 0.11) ($ 0.32) ($ 0.56) ($ 0.50) ($ 0.58)
Year Ended Year Ended
June 30, 2000 June 30, 1999
------------- -------------
Interest income $ 387,236 $ 292,814
General and administrative expenses 1,422,765 1,196,481
Licensing and product development expenses 3,462,148 2,532,727
Loss on marketable securities -- --
Loss for the period ($4,497,677) ($3,436,394)
Basic and diluted loss per common share ($ 0.44) ($ 0.38)
2
Basic and diluted loss per common share ($0.11) ($0.32) ($0.56) ($0.50) ($0.58) ($0.44) ($0.38)
Consolidated Balance Sheet Data
as at as at as at as at as at as at
Dec. 31, 2003 June 30, 2003 June 30, 2002 June 30, 2001 June 30, 2000 June 30, 1999
------------- ------------- ------------- ------------- ------------- -------------
Cash and short-term deposits $22,808,239 $7,675,466 $12,707,522 $8,142,888 $14,646,424 $4,109,934
Total assets 23,697,242 8,649,842 13,577,482 8,448,593 15,283,640 4,247,836
Current Liabilities 502,197 322,583 374,386 538,211 368,815 277,191
Shareholders equity $23,195,045 $8,327,259 $13,203,096 $7,910,382 $14,914,825 $3,970,645
CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES:
The consolidated financial statements have been prepared in accordance with
Canadian generally accepted accounting principles, (GAAP). The principles
conform in all material respects with US GAAP except as described in note 10 to
the consolidated Financial Statements in Item 18. For all the years presented,
the selected financial data are prepared in accordance with Canadian GAAP. The
differences between the line items as determined under Canadian GAAP and those
as determined under US GAAP are not significant except that, under US GAAP:
a) Comprehensive income (loss) for the period ended December 31, 2003 under US
GAAP would be ($1,317,693), $647,393 less than the net loss of ($1,965,086)
shown above because US GAAP requires the recognition of unrealized gains on
marketable securities classified as trading securities.
b) Licensing and product development expenses would be greater than shown
above, offset by a credit in income tax expense, because US GAAP requires
investment tax credits to be credited to income tax expense, whereas
Canadian GAAP requires the amounts accounted for as a reduction of
development costs. The amounts are as follows:
Six months ended Years ended June 30,
December 31,
2003 2002 2003 2002 2001
$73,440 $25,287 $110,563 $91,597 $368,665
3
CURRENCY EXCHANGE RATES
All references to dollars are expressed in Canadian funds, unless otherwise
indicated. On May 13, 2004 the exchange rate for the conversion of U.S. dollars
into Canadian dollars was Cdn.$1.00 = U.S.$0.7159 and certain amounts stated
herein reflect such 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.
High Low
October 31, 2003 0.7670 0.7418
November 30, 2003 0.7708 0.7486
December 31, 2003 0.7738 0.7464
January 31, 2004 0.7879 0.7497
February 31, 2004 0.7632 0.7440
March 31, 2004 0.7646 0.7621
Year Ended Average Rate
June 30, 1999 0.6616
June 30, 2000 0.6791
June 30, 2001 0.6580
June 30, 2002 0.6379
June 30, 2003 0.6637
B. CAPITALIZATION AND INDEBTEDNESS.
The Corporation has no long-term liabilities. The following table sets forth the
capitalization of the Corporation as at March 23, 2004:
Long-term liabilities 0
Share capital
Common Shares (500,000,000 authorized without nominal or par
value; 28,183,152 outstanding as at March 23, 2004) $58,807,212
Class A non-voting commons shares (500,000,000 authorized
without nominal or par value; no outstanding as at March 23, 2004) $0
Class A preferred shares (500,000,000 authorized without
nominal or par value; no outstanding as at March 23, 2004) $0
Class B preferred shares (500,000,000 authorized, issuable in series,
without nominal or par value; no outstanding as at March 23, 2004) $0
Share purchase warrants $2,922,343
Deficit ($40,525,221)
Contributed surplus $26,215
Total stockholders' equity $21,230,549
Total capitalization $21,230,549
C. REASONS FOR THE OFFER AND USE OF PROCEEDS.
Not applicable.
4
RISK FACTORS
An investment in the Common Shares is speculative and involves a high degree of
risk. Prospective investors should carefully consider, together with other
matters referred to in this registration statement, the following risk factors.
If any event arising from these risks occurs, our business, prospects, financial
condition, results of operations and cash flows could be materially adversely
affected.
Early Stage of Development
The Corporation was founded in 1994 and none of the licensed products have
received regulatory approval for sale in any of the jurisdictions covered by the
licenses. Accordingly, the Corporation has not generated any revenues from the
commercialization of its licensed products. A significant commitment of
resources to conduct clinical trials and additional development will be required
to commercialize most of the licensed products. There can be no assurance that
the licensed products will meet applicable regulatory standards, be capable of
being produced in commercial quantities at reasonable cost or be successfully
marketed, or that the investment made by the Corporation in the
commercialization of the licensed products will be recovered through sales,
license fees or related royalties.
Lack of Revenues and History of Losses
The Corporation has not received any revenues from the commercialization of its
licensed products and, since incorporation and up to December 31, 2003, has an
accumulated deficit of $38.5 million. The Corporation expects expenditures and
the accumulated deficit to increase as it proceeds with its commercialization
programs until such time as any sales, license fees and royalty payments
generate sufficient revenues to fund its continuing operations.
Risks of Pre-Clinical and Clinical Testing
The Corporation is not able to predict the results of pre-clinical and clinical
testing of drug products, including the Corporation's licensed products. It is
not possible to predict, based on studies or testing in laboratory conditions or
in animals, whether a drug product will prove to be safe or effective in humans.
In addition, success in one stage of testing is not necessarily an indication
that the particular drug product will succeed in later stages of testing and
development. There can be no assurance that the pre-clinical or clinical testing
of the Corporation's licensed products will yield satisfactory results that will
enable the Corporation to progress toward commercialization of such products.
Unsatisfactory results may cause the Corporation or its licensors or other
partners to reduce or abandon future testing or commercialization of particular
drug products, and this may have a material adverse effect on the Corporation's
business, financial condition and results of operations.
Patents and Proprietary Rights
The Corporation's success will depend, in part, on the ability of the
Corporation and its licensors to obtain patents, maintain trade secrets
protection, and operate without infringing on the proprietary rights of third
parties or having third parties circumvent the Corporation's rights. Certain
licensors and the institutions that they represent, and in certain cases, the
Corporation on behalf of the licensors and the institutions that they represent,
have filed and are actively pursuing certain applications for Canadian and
foreign patents. The patent position of pharmaceutical and biotechnology firms
is uncertain and involves complex legal and financial questions for which, in
some cases, important legal principles are largely unresolved. There can be no
assurance that the patent applications made in respect of the licensed products
will result in the issuance of patents, that the licensors or the institutions
that they represent will develop additional proprietary products that are
patentable, that any patent issued to the licensors or the Corporation will
provide the Corporation with any competitive advantages, that the patents of
others will not impede the ability of the Corporation to do business or that
third parties will not be able to circumvent the patents obtained in respect of
the licensed products. The cost to the Corporation of obtaining and maintaining
patents is high. Furthermore, there can be no assurance that others will not
independently develop similar products which duplicate any of the licensed
products, or, if patents are issued, design around the patent for the product.
There can be no assurance that processes or products of the Corporation's
licensors or the Corporation do not or will not infringe upon the patents of
5
third parties, or that the scope of patents issued to the Corporation's
licensors or the Corporation will successfully prevent third parties from
developing similar and competitive products.
The Corporation is aware of US patent #5,770,195 granted to Genentech, Inc., for
the anti-cancer use of EGFr MAbs in combination with a cytotoxic agent. The
Corporation is also aware of US patents granted to others in this field. In
April 2001 Rorer International (Overseas) ("Rorer") was issued the US patent
#6,217,866 which includes claims to any antibody targeting the EGFr administered
with any anti-neoplastic agent. A counterpart patent has been granted in Europe.
The Corporation has filed an opposition to the grant of the European patent. The
Corporation believes that the Rorer patents are licensed to ImClone Systems Inc.
("ImClone"). In addition, the Corporation is aware of a separate series of
national patent applications filed by ImClone, and represented by EP1080113,
claiming the anti-cancer use of radiation in combination with any inhibitor of
any receptor tyrosine kinase that is involved in the genesis of tumours. ImClone
is also reported to have filed a PCT application covering the use of EGFr MAbs
to treat patients having tumours that do not respond to treatment with
conventional therapies. The Corporation is also challenging ImClone's claims in
respect of the radiation-related patent applications by filing additional prior
art at the relevant national patent offices. The outcome of these challenges
cannot be predicted, and there can be no assurance that the Corporation will
succeed in challenging the validity or scope of patent claims by ImClone or any
other patent applicant. The Corporation is also aware of US patent #6,303,123
owned by Aphton Corporation relating to the use of GnRH immunogenic conjugates
to treat GnRH-dependent diseases, including prostatic hypertrophy, and is
developing a strategy for addressing this patent should it prove relevant to the
Corporation's commercial activities with Norelin.
There can be no assurance that litigation or other proceedings will not be
commenced seeking to challenge patent protection or patent applications of the
Corporation's licensors, or that any such challenges will not be successful. The
cost of litigation to uphold the validity and prevent infringement of patents
related to the Corporation's licensed drug products may be significant. In
addition, it is possible that others may claim rights in YM's licensed drug
products, patents or patent applications. These other persons could bring legal
actions against the Corporation, its licensors or its customers or licensees
claiming damages and seeking to enjoin them from using, manufacturing and
marketing the affected products or processes. If any such action were
successful, in addition to any potential liability for damages, the Corporation
could be required to obtain a license in order to continue to develop, use,
license or market the affected product or process. There can be no assurance
that the Corporation would prevail in any such action or that any required
license would be made available or, if available, would be available on
acceptable terms.
There may be risks related to certain of the Corporation's licenses for drug
products originating from Cuba. Cuba is a socialist country and, under the
current patent law, ownership of the inventions of the Cuban inventors for which
patent applications have been filed rests with the State.
Much of the Corporation's know-how and technology may not be patentable, though
they may constitute trade secrets. There can be no assurance, however, that the
Corporation will be able to meaningfully protect its trade secrets. To help
protect its rights, the Corporation requires employees, consultants, advisors
and collaborators to enter into confidentiality agreements. There can be no
assurance that these agreements will provide meaningful protection for the
Corporation's trade secrets, know-how or other proprietary information in the
event of any unauthorized use or disclosure.
Further, the Corporation's business may be adversely affected by competitors who
independently develop competing technologies, especially if no patents are
obtained or only narrow patents are obtained in respect of the licensed
products.
THE CORPORATION'S POTENTIAL INVOLVEMENT IN INTELLECTUAL PROPERTY LITIGATION
COULD NEGATIVELY AFFECT THE CORPORATION'S BUSINESS
The Corporation's future success and competitive position depend in part upon
the Corporation's ability to maintain its intellectual property portfolio. There
can be no assurance that any patents will be issued on any existing or future
patent applications. Even if such patents are issued, there can be no assurance
that any patents issued to or licensed to the Corporation will not be
6
challenged. The Corporation's ability to establish and maintain a competitive
position may be achieved in part by prosecuting claims against others who the
Corporation believes are infringing the Corporation's rights and by defending
claims brought by others who believe that it is infringing their rights. In
addition, enforcement of the Corporation's patents in foreign jurisdictions will
depend on the laws procedures in those jurisdictions. Even if such claims are
found to be invalid, the Corporation's involvement in intellectual property
litigation would likely have a material adverse effect on its business, results
of operations and prospects. The Corporation's involvement in intellectual
property litigation could result in significant expense to it, adversely affect
the use or licensing of related intellectual property and divert the efforts of
the Corporation's valuable technical and management personnel from their
principal responsibilities, whether or not such litigation is resolved in the
Corporation's favor.
Dependence on Collaborative Partners
The Corporation has negotiated or is in the process of negotiating collaborative
arrangements with biopharmaceutical companies, scientific and academic
institutions and hospitals, or scientists affiliated with those institutions,
and is in the process of negotiating with corporate partners in connection with
development, pre-clinical testing, clinical testing, manufacturing, marketing
and commercialization of licensed products. The Corporation's strategy is to
establish and maintain such collaborative arrangements in order to assist the
Corporation with clinical and pre-clinical development, regulatory approvals and
developing additional regulatory and marketing information. In addition, the
Corporation generally plans to negotiate out-licensing agreements with selected
manufacturers and marketers. There can be no assurance that the Corporation will
be successful in maintaining its relationships with collaborative or corporate
partners or in negotiating additional collaborative or out-licensing
arrangements on terms acceptable to the Corporation or that any such
collaborative arrangements will be successful. In addition, there can be no
assurance that any arrangements between the Corporation and its collaborative
partners will prevent others from entering into arrangements with such entities
for the development or commercialization of similar products or that the
collaborators will not be pursuing alternative technologies or developing
products either on their own or in collaboration with others, including the
Corporation's competitors. If the Corporation does not establish sufficient
collaborative and out-licensing arrangements, it could encounter delays in
product introductions or could find that the development, manufacture or sale of
its licensed products could be materially adversely affected.
Rapid Technological Change
The biotechnology and pharmaceutical industries are subject to rapid and
substantial technological change. There can be no assurance that developments by
others will not render the Corporation's licensed products non-competitive or
that the Corporation or its licensors will be able to keep pace with
technological developments. Competitors have developed technologies that could
be the basis for competitive products. Some of those products may have an
entirely different approach or means of accomplishing the desired therapeutic
effect than the Corporation's licensed products and may be more effective or
less costly than the Corporation's licensed products. In addition, other forms
of medical treatment may offer competition to the licensed products. The impact
of these factors could have a material adverse effect on the Corporation's
business, financial condition and results of operations.
Competition
Technological competition from pharmaceutical companies, biotechnology companies
and universities is intense and is expected to increase. Many competitors and
potential competitors of the Corporation have substantially greater product
development capabilities and financial, scientific, marketing and human
resources than the Corporation. Other companies may succeed in commercializing
products earlier than the Corporation is able to commercialize its licensed
products or in developing products that are more effective than the licensed
products. While the Corporation will seek to expand its technological
capabilities in order to remain competitive, there can be no assurance that
research and development by others will not render products licensed by the
Corporation obsolete or uncompetitive or result in treatments or cures superior
to the licensed products, or that the licensed products will be preferred to any
existing or newly developed technologies.
7
Manufacturing
The Corporation has not commercially launched any of the licensed products and
has no manufacturing experience. To be successful, the licensed products must be
manufactured in commercial quantities in compliance with regulatory requirements
and at acceptable costs. The Corporation does not have and does not intend to
acquire facilities for the production of the licensed products although it may
invest in the ownership of production facilities if appropriate opportunities
are available. In some cases, the Corporation's licensed products are expected
to be manufactured by the relevant licensor or a related party. In particular,
under applicable license arrangements, CIMAB has the right, subject to certain
terms and conditions, to supply the licensed drug substances (namely, TheraCIM,
Radio TheraCIM, TGF(alpha) Vaccine and HER-1 Vaccine) to any sub-licensees.
There can be no assurance that such entities will be able to develop adequate
manufacturing capabilities for commercial scale quantities. Alternatively, the
Corporation or its licensor may contract with third parties to manufacture the
licensed products. There can be no assurance, however, that the Corporation or
its licensor will be able to reach satisfactory arrangements with any of such
parties or that such arrangements will be successful. All manufacturing
facilities must comply with applicable regulations in their jurisdiction or
where products are to be sold. In addition, production of the licensed products
may require raw materials for which the sources and amount of supply are
limited. An inability to obtain adequate supplies of such raw materials could
significantly delay the development, regulatory approval and marketing of the
Corporation's licensed products.
Reliance on Key Personnel
The Corporation is dependent on certain members of its management and scientific
staff, the loss of services of one or more of whom could adversely affect the
Corporation. Currently, the Corporation does not have employment agreements with
any of its management or scientific staff. In addition, the Corporation's
ability to manage growth effectively will require it to continue to implement
and improve its management systems and to recruit and train new employees.
Although the Corporation has done so in the past and expects to be able to do so
in the future, there can be no assurance that the Corporation will be able to
successfully attract and retain skilled and experienced personnel.
Potential Product Liability
Human therapeutic products involve an inherent risk of product liability claims
and associated adverse publicity. The Corporation currently maintains clinical
trial liability insurance with an ultimate net loss value of up to $5 million
per claim and policy aggregate of $10 million. The Corporation currently has no
other product liability insurance and there can be no assurance that it will be
able to obtain or maintain product liability insurance on acceptable terms or
with adequate coverage against potential liabilities. Such insurance is
expensive, difficult to obtain and may not be available in the future on
acceptable terms, or at all. An inability to obtain sufficient insurance
coverage on reasonable terms or to otherwise protect against potential product
liability claims could prevent or inhibit the commercialization of the licensed
products. A product liability claim brought against the Corporation, or a
product withdrawal, could have a material adverse effect upon the Corporation
and its financial condition.
Ability to Maintain the Licenses
The Corporation has obtained its rights to the licensed products under license
agreements from various third party licensors. The Corporation is dependent upon
the licenses for its rights to the licensed products and commercialization of
the licensed products. While the Corporation believes it is in compliance with
its obligations under the licenses, certain licenses may be terminated or
converted to non-exclusive licenses by the licensors if there is a breach of the
terms of the licenses. There can be no assurance that the licenses are
enforceable or will not be terminated or converted. The termination or
conversion of the licenses or the inability of the Corporation to enforce its
rights under the licenses would have a material adverse effect on the
Corporation. Terms of the licenses which management considers material to the
undertaking of the Corporation are the subject of signed license agreements.
Terms of certain remaining licenses are to be determined at a later date.
8
Although the Corporation's current licenses are governed by the laws of Ontario,
their enforcement may necessitate pursuing legal proceedings and obtaining
orders in other jurisdictions, including the United States and the Republic of
Cuba. There can be no assurance that a court judgement or order obtained in one
jurisdiction will be enforceable in another. In addition, as described under
"Business of the Corporation - Licensing Arrangements", the Corporation has a
number of license agreements with CIMAB, a Cuban company responsible for
commercializing products developed at CIM and the product licensed from CBQ. As
is the case in many developing states, the commercial legal environment in Cuba
is in a formative stage and may be subject to greater political risk. It is
possible that the Corporation may not be able to enforce its legal rights in
Cuba or against Cuban entities to the same extent as it would in a country with
a more developed commercial and legal system. Termination of the Corporation's
license arrangements or difficulties in enforcement of such arrangements may
have a material adverse effect on the Corporation's business, operations and
financial condition.
Reliance Upon the Licensors
The Corporation does not conduct its own basic research with respect to the
identification of new products. Instead, the Corporation relies upon research
and development work conducted by others as a primary source for new products.
While the Corporation expects that it will be able to continue to identify
licensable products or research suitable for licensing and commercialization by
the Corporation, there can be no assurance that this will occur.
Risks Associated With Obtaining Regulatory Approval for Drug Products
Securing regulatory approval for the manufacture and sale of human therapeutic
products in Canada and the Corporation's other territories is a long and costly
process that is governed by a variety of statutes and regulations in those
countries. These laws require controlled research and testing of products,
government review and approval of a submission containing pre-clinical and
clinical data establishing the safety and efficacy of the product for each use
sought, approval of manufacturing facilities including adherence to GMP during
production and storage, and control of marketing activities, including
advertising and labelling.
The Corporation's licensed products will require additional development, certain
confirmatory and clinical testing and investment of significant funds to
progress toward commercialization. There can be no assurance that the licensed
products will be successfully commercialized. The process of completing clinical
testing and obtaining regulatory approval is likely to take a number of years
for most of the licensed products and require the expenditure of substantial
resources. Any failure to obtain, or a delay in obtaining, such approvals could
adversely affect the Corporation thereby adversely affecting operations.
Further, there can be no assurance that the Corporation's licensed products will
prove to be safe and effective in clinical trials under the standards of the
regulations in the Corporation's territories or receive applicable regulatory
approvals from applicable regulatory bodies.
Changes in Government Regulation
The Corporation has, or has had, licenses with, or clinical trials at, various
academic organizations, hospitals and companies in Canada, Cuba, Italy, the
United States and the United Kingdom and depends upon the validity of its
licenses and access to the data from the timely completion of clinical research
in those jurisdictions. Any changes in the drug development regulatory
environment or shifts in political attitudes of a government are beyond the
control of the Corporation and may adversely affect its business. The business
of the Corporation may also be affected in varying degrees by such factors as
government regulations with respect to intellectual property, regulation or
export controls. Such changes remain beyond the control of the Corporation and
the effect of any such changes cannot be predicted.
Country Risks
The Corporation conducts it business internationally. The Corporation currently
licenses products and technologies from sources in Canada and Cuba. The
Corporation intends to, and may, license products from sources in other
jurisdictions. The Corporation conducts clinical trials in Canada, Cuba, the
United Kingdom and the United States and intends to, and may, conduct clinical
trials in other jurisdictions. There can be no assurance that any sovereign
government, including Canada's, will not establish laws or regulations that will
9
not be deleterious to the interests of the Corporation. There is no assurance
that the Corporation, as a foreign corporation, will continue to have access to
the regulatory agencies in Cuba, the United Kingdom, and the United States, and
there can be no assurance that the Corporation will be able to enforce its
licenses in foreign jurisdictions. Governments have, from time to time,
established foreign exchange controls which could have a material adverse effect
on the Corporation and its financial condition and results of operations. In
addition, the value of the Corporation's licenses will depend upon no punitive
or prohibitive legislation in respect of biological materials.
The Corporation has licensed products from two academic institutes in Cuba. The
United States has maintained an embargo against Cuba, administered by the Office
of Foreign Assets Control of the US Department of the Treasury ("Treasury"). The
laws and regulations establishing the embargo have been amended from time to
time, most recently by the passage of the Cuban Liberty and Democratic
Solidarity Act (the "Helms-Burton Bill"). The embargo applies to almost all
transactions involving Cuba or Cuban enterprises, and it bars from such
transactions any US persons unless such persons obtain specific licenses from
Treasury authorizing their participation in the transactions. There is Canadian
legislation (the Foreign Extraterritorial Measures Act) which provides generally
that judgments against Canadian companies under the Helms-Burton Bill will not
be enforced in Canada. The US embargo could have the effect of limiting the
Corporation's access to US capital, US finance, US customers and US suppliers.
In particular, the Corporation's products licensed from Cuban sources, including
TheraCIM, RadioTheraCIM, the TGF(alpha) Vaccine, the HER-1 Vaccine and the G-1
anti-microbial product, are likely to be prohibited from sale in the United
States unless the Office of Foreign Assets Control of Treasury issues a license
or the embargo is lifted.
The Helms-Burton Bill authorizes private lawsuits for damages against anyone who
"traffics" in property confiscated, without compensation, by the Government of
Cuba from persons who at the time were, or have since become, nationals of the
United States. The Corporation does not own any property in Cuba and, to the
best of the Corporation's knowledge, and based upon the advice of the Cuban
government, none of the properties of the scientific centers of the licensors
from where the licensed products were developed and are or may be manufactured
was confiscated by the Government of Cuba from persons who at the time were, or
have since become, nationals of the United States. However, there can be no
assurance that the Corporation's understanding in this regard is correct. The
Corporation does not intend to traffic in confiscated property.
Passive Foreign Investment Company
The Corporation may be deemed to be a "Passive Foreign Investment Company". See
"Item 10 - United States Federal Income Tax Considerations - U.S. Holders". As a
result, a U.S. Holder of the Corporation's Common Shares could be subject to
increased tax liability, possibly including an interest charge, upon the sale or
other disposition of the U.S. Holder's Common Shares or upon the receipt of
"excess distributions".
Need for Future Capital and Uncertainty of Additional Funding
The Corporation may require additional funding for the commercialization of the
licensed products, and it will require additional funds if new products are
licensed and put into development. To the extent that the Corporation is unable
to fund such expenditures from sales, license fees and royalties, it may be
necessary to access either the public markets or private financings whenever
conditions permit. In addition, the Corporation has no established bank
financing arrangements and there can be no assurance that the Corporation will
be able to establish such arrangements on satisfactory terms. Such financing, if
required and completed, may have a dilutive effect on the holdings of persons
who hold Common Shares. There is no assurance that such financing will be
available if required, or that it will be available on favourable terms.
Possible Volatility of Share Price
The trading price of the Corporation's Common Shares, as with many emerging
biopharmaceutical companies, is likely to be highly volatile. Factors such as
the efficacy of the Corporation's products or the products of the Corporation's
10
competitors, announcements of technological innovations by the Corporation or
its competitors, governmental regulations, developments in patents or other
proprietary rights of the Corporation, its licensors or its competitors,
litigation, fluctuations in the Corporation's operating results, market
conditions for biopharmaceutical stocks and general market and economic
conditions could have a significant impact on the future trading price of the
Common Shares.
International Taxation
Given the intended international scope of its operations, the Corporation may be
subject to taxation by more than one country.
ITEM 4: INFORMATION ON THE COMPANY
A. HISTORY AND DEVELOPMENT OF THE COMPANY.
YM BioSciences Inc. was incorporated under the laws of Ontario on August 17,
1994 and on December 11, 2001 it continued into the Province of Nova Scotia
under the Nova Scotia Companies Act. The head office and principal place of
business of the Corporation is Suite 400, Building 11, 5045 Orbitor Drive,
Mississauga, Ontario, Canada, L4W 4Y4, telephone number (905) 629-9761. The
registered office of YM BioSciences is 1959 Upper Water Street, Suite 800,
Halifax, Nova Scotia, Canada, B3J 2X2.
The Corporation was founded in 1994 to acquire rights to develop drug products.
The Corporation is principally focused on cancer therapeutics.
In 1995 the Corporation secured its first drug licenses and its initial
financing. The Corporation initially licensed a range of drug products at
various stages of assessment and development, including certain of the
Corporation's current anti-cancer products and its anti-microbial product. In
1998, the Corporation determined to concentrate on anti-cancer products, while
retaining its interest in anti-microbials. The Corporation has used funds raised
in its initial financing and subsequent financings in 1997, 1999, 2000, 2002 and
2003 to advance certain of its licensed drug products through clinical trials in
Canada, the United States of America and Europe, and to expand its portfolio of
anti-cancer products by licensing additional drug products in later stages of
development. In addition, the Corporation licensed certain drug products that
were in pre-clinical development for which it is participating in development
costs. See "Business of the Corporation - Products in Clinical Development" and
"- Products in Pre-Clinical Development".
Investments in capital assets totaled $90,447 during the last three full fiscal
years and the subsequent six month period ended December 31, 2003. Such
investments consisted primarily of leasehold improvements and office computer
equipment.
Capital Expenditures Capital Dispositions
------------------------------------------------ -------------------------- -------------------------------
Six-month period ended December 31, 2003 $3,724 $0
Year ended June 30, 2003 $2,361 $0
Year ended June 30, 2002 $2,808 $0
Year ended June 30, 2001 $81,554 $0
There are no principal capital expenditures and divestitures currently in
progress.
There is no indication of any public takeover offers by third parties in respect
of the YM's shares or by YM in respect of other companies' shares which have
occurred during the last and current financial year.
11
B. BUSINESS OVERVIEW.
Overview
The Corporation is a biopharmaceutical company engaged in the development of
drugs primarily for the treatment of cancer. YM in-licenses substances designed
for use in anti-cancer therapy in order to advance them along the regulatory and
clinical pathways toward commercial approval. The Corporation's licenses
generally cover the major market countries of the developed world (including
Canada, the United States of America, Japan and Western Europe) or are
world-wide. The Corporation uses its expertise to manage and perform what it
believes are the most critical aspects of the drug development process which
include the design and conduct of clinical trials, the development and execution
of strategies for the protection and maintenance of intellectual property rights
and the interaction with drug regulatory authorities internationally. YM
concentrates on drug development and does not engage in drug discovery, avoiding
the significant investment of time and capital that is generally required before
a compound is identified and brought to clinical trials. YM both conducts and
out-sources clinical trials and out-sources the manufacture of clinical
materials to third parties.
The Corporation's current portfolio of products in clinical development includes
three anti-cancer agents (a small molecule, a vaccine and a monoclonal antibody)
in a number of formulations targeting seven different tumours and/or stages of
cancer. The Corporation also has licensed rights to two additional anti-cancer
immunotherapies in pre-clinical development. The Corporation intends to license
the rights to manufacture and market its drug products to other pharmaceutical
companies in exchange for license fees and royalty payments and to continue to
seek other in-licensing opportunities in pursuing its business strategy. The
Corporation does not currently intend to manufacture or market products although
it may, if the opportunity is available on terms that are considered attractive,
participate in ownership of manufacturing facilities or retain marketing or
co-development rights to specific drugs.
Business Strategy
The Corporation is principally focused on development of drugs for the treatment
of cancer. YM's strategy is to license rights to promising drug products,
further develop those products by conducting and managing clinical research and
trials and progressing the products toward regulatory approval, and sub-license
or out-license rights to manufacture and/or market resulting drug products to
other pharmaceutical firms in exchange for royalties and license fees. The
Corporation seeks to use its product development capabilities to bridge
discoveries and research from scientific/academic institutions or other
biopharmaceutical companies, on the one hand, with commercial manufacturing and
marketing of biopharmaceutical products, on the other hand.
The main elements of the Corporation's business strategy are described below:
Identification of Product Candidates. The Corporation directly performs
scientific evaluation and market assessment of biopharmaceutical drug products
and research developed by scientific/academic institutions and other
biopharmaceutical companies. As part of this process, the Corporation evaluates
the related scientific research and pre-clinical and clinical research, if any,
and the intellectual property rights in such products and research, with a view
to determining the therapeutic and commercial potential of the applicable
product candidates.
In-Licensing. Upon identifying a promising biopharmaceutical drug product, the
Corporation seeks to negotiate a license to the rights for the product from the
holder of those rights, the developer or researcher. The terms of such licenses
vary, but generally the Corporation's goal is to secure licenses that permit it
to engage in further development, clinical trials, intellectual property
protection (on behalf of the licensor or otherwise) and further licensing of
manufacturing and marketing rights to any resulting drug products. This process
of securing license rights to drug products is commonly known as "in-licensing".
Further Development. Upon in-licensing a drug, the Corporation's strategy is to
apply its skills and expertise to progress the products toward regulatory
approval and commercial production and sale in major markets. These activities
include implementing intellectual property protection and registration
12
strategies, performing or having performed for it, pre-clinical research and
testing, the formulating or reformulating of drug products, making regulatory
submissions, performing or managing clinical trials in target jurisdictions, and
undertaking or managing the collection, collation and interpretation of clinical
and field data and the submission of such data to the relevant drug regulatory
authorities in compliance with applicable protocols and standards.
Out-Licensing. The Corporation generally plans to further license manufacturing
and marketing rights to its licensed drug products to other pharmaceutical
firms. This is commonly known as "out-licensing". Under the Corporation's
business model, licensees would be expected, to the extent necessary, to
participate in the remaining clinical development required to obtain final
regulatory approval for the product. The Corporation expects that out-licensing
would result in a pharmaceutical company or other licensee marketing or
manufacturing the product in return for licensing fees in addition to royalties
on any sales of the product. Management believes this model is consistent with
current biotechnology and pharmaceutical industry licensing practices. In
addition, although out-licensing is a primary strategy of the Corporation, the
Corporation may retain co-development or marketing rights to particular drug
products or territories. To date, the Corporation has out-licensed one of its
products in certain European countries, and has entered into an
agreement-in-principle to permit the licensor of its two anti-cancer
pre-clinical products to license those products to a third-party, subject to
certain government and corporate approvals. See "Licensing
Arrangements-Out-Licensing".
The Corporation actively searches for new product opportunities using the
relationships of its management and advisory team and continuous monitoring of
the academic and biotechnology environment in cancer treatment developments. The
Corporation's staff analyses and evaluates opportunities and continuously
reviews them. In addition, the Corporation has existing rights of first refusal
in certain of its existing license agreements for certain additional products
and extensions to existing products. The Corporation intends to seek other
in-licensing opportunities in pursuing its business strategy.
Cancer and Cancer Therapeutic Market
Worldwide, an estimated 10 million people are diagnosed with some type of cancer
annually. In North America, where the incidence is approximately 1.25 million
cases per year, cancer is the second leading cause of disease-related death,
behind cardiovascular disease which it is predicted to surpass in the next few
years. The principal reasons for this projection appear to be the aging
population in more developed countries, environmental issues related to
industrial development, and improvements in the treatment of cardiovascular
disease. North America, Europe and Japan are the principal markets for cancer
therapies because of the established healthcare and payor systems.
The principal types of cancer in the United States, accounting for approximately
55% of the incidence of all cancers, based on management analysis, are prostate
(16%), breast (14%), lung (14%) and colorectal (11%). These four types of cancer
are also responsible for the highest combined mortality, accounting for
approximately 50% of all cancer deaths in the United States. Bladder, ovarian,
brain and oral cancer, as well as lymphoma, leukemia and melanoma account for
the majority of the balance of cancer deaths. The incidence of a particular
cancer varies greatly between continents, principally because of diet and habit.
For instance, the incidence of prostate cancer appears to be significantly
higher in the United States than in Europe.
Surgery, radiation and chemotherapy remain the principal effective treatments
for cancer. Although there is an ongoing debate about the value of
chemotherapeutics with regards to prolongation of life, their palliative value
has resulted in significant improvements in quality of life for cancer
sufferers. In addition, although the reason is not clearly understood, current
cancer drugs are effective in only a subpopulation of individuals with the same
disease. Notwithstanding this, revenues in the global oncology market were
reported to be approximately US$20 billion in 2003, and are expected to increase
to over US$45 billion by 2011. The use of cancer therapies is forecast to
increase as diagnostics methods improve (as already demonstrated in prostate
cancer) and, particularly, as more effective treatments are developed.
13
Numerous new approaches to cancer are currently in clinical trials. As targets
become validated and technologies improve, research is beginning to yield
therapeutic approaches that appear to be more effective than existing ones.
Monoclonal antibodies were first described in 1978, and are now beginning to
yield commercially viable therapeutic products, such as Rituxan(R), the first
monoclonal treatment for cancer, approved by the United States Department of
Health and Human Services Food and Drug Administration ("FDA") in 1998. The
Corporation is aware of only four monoclonal antibodies approved in the United
States for the treatment of cancer, Rituxan(R), Campath(R), Herceptin(R) and
Mylotarg(R) although many more are in development. A second approach to cancer
treatment, therapeutic cancer vaccines, has been under development for many
years, and the first such vaccine, Melacine(R), was approved in 1999 in Canada.
PRODUCTS IN CLINICAL DEVELOPMENT
The Corporation has an interest in three anti-cancer agents (a small molecule, a
vaccine and a monoclonal antibody) in a number of formulations targeting seven
different tumours and/or stages of cancer. The Corporation has also licensed
rights to two additional anti-cancer immunotherapies in pre-clinical
development. A number of these involve newer approaches to the treatment of
cancer and include two formulations of a monoclonal antibody, TheraCIM and
RadioTheraCIM, and an anti-cancer therapeutic vaccine, Norelin, currently in
clinical development as well as two anti-cancer therapeutic vaccines, HER-1 and
TGF(alpha), in preclinical development. The Corporation's lead product,
tesmilifene, is a chemical that enhances the activity of known
chemotherapeutics. The Corporation's drug products target some of the most
common cancer indications, including breast and prostate (early-stage as well as
metastatic disease). YM is also pursuing several smaller cancer indications
including head-and-neck cancer, brain cancers and certain indications with
orphan drug designations. The successful development of most of the
Corporation's drugs in the initial indications would suggest that they could
continue to be developed in multiple indications.
Tesmilifene
Background:
Tesmilifene is a small molecule anti-cancer drug with multiple modes of action
that enhances the activity of traditional chemotherapy agents. Its chemical
designation is N,N-diethyl-2[4-phenylmethyl)] ethanamine hydrochloride. It has
demonstrated synergistic effects with anthracyclines in late-stage clinical
trials and with taxanes, 5-FU and platins in earlier-stage clinical and
pre-clinical studies.
Clinical Experience and Development Plans:
Tesmilifene has been administered to more than 460 cancer patients and
demonstrated to be well tolerated. The product has been approved by either or
both of the FDA and the Canadian drug regulatory agency of the Therapeutic
Products Directorate, Health Canada ("Health Canada") for use in numerous
clinical trials including:
a) Phase I/II study of tesmilifene alone and in combination with
doxorubicin in patients with metastatic breast cancer;
b) Phase I/II study of tesmilifene in combination with various
anti-neoplastic agents;
c) Phase I/ II study of tesmilifene in combination with
cyclophosphamide in patients with hormone-refractory prostate
cancer;
d) Phase II trial of tesmilifene plus doxorubicin in patients with
metastatic breast cancer;
e) Phase II pilot study of mitoxantrone/prednisone plus tesmilifene in
patients with symptomatic
hormone-refractory metastatic prostate cancer;
f) Phase II combination study of tesmilifene with doxorubicin and taxol
in advanced breast cancer;
g) Randomized Phase III trial of tesmilifene plus doxorubicin in
patients with metastatic breast cancer;
h) Phase II combination study of tesmilifene with various taxanes in
first-line metastatic breast cancer;
and
i) Randomized Phase III trial of tesmilifene plus epirubicin and
cyclophosphamide in patients with metastatic breast cancer.
14
In October, 2003 the FDA provided clearance to the Corporation to initiate a
Phase III trial, the design and endpoints of which were subject to a positive
review by the FDA in March, 2003 under a process known as Special Protocol
Assessment ("SPA"). An SPA is intended to provide official evaluation of, and
agreement with, a protocol and endpoints to form the basis of a new drug
application. In November, 2003 the Corporation received approval, from the FDA
to apply an "adaptive design" to the pivotal trial for which the SPA had
approved the protocol. This adaptive design, which in the case of YM's pivotal
trial provides for "sequential analysis", permits the independent Data
Monitoring Board ("DMB") to review the status of the patients in the trial and
to conclude, at any point during the trial, whether the trial should be stopped
because of sufficient evidence of the effect of tesmilifene; continued for the
purpose of increasing the numbers of the patients in the trial; or stopped
because of the absence of any effect (futility) of the drug in patients with
metastatic breast cancer. This sequential analysis can be applied at any point
during the trial. The FDA has advised the Corporation that the first interim
analysis of the data generated under this process may take place after 192
deaths have occurred in the patient population of the trial. Sequential analysis
differs significantly from the classical trial design which requires enrollment
of the full number of patients contemplated in the original protocol prior to
which no review of the patients may take place except with a considerable
statistical penalty being paid by the sponsor for the trial results. Under a
sequential analysis a positive outcome would permit shortened time to approval,
and thus to market. This shortened time period would also have the effect of
"patient sparing" so that in the event of success no patients continue in the
control arm and in the event of futility no additional patients are enrolled.
The Corporation has initiated the above-mentioned international Phase III trial
of tesmilifene in metastatic breast cancer in 700 patients. The FDA has agreed
that the trial may be stopped after 192 patient events (deaths) have been
recorded provided that certain results have been achieved, as determined by the
DMB.
As of the date of this registration statement, the Corporation has contracted
with Pharm-Olam International, Ltd., a clinical research organization ("CRO"),
to conduct this Phase III trial internationally.
The SouthWest Oncology Group, a US National Cancer Institute-supported cancer
clinical trials cooperative group, has advised the Corporation that it proposes
to undertake a randomized Phase II trial in which tesmilifene is to be combined
with mitoxantrone (Novantrone(R))/prednisone and compared to results in patients
to be treated with taxotere/estramustine/calcitriol for advanced, metastatic,
hormone-refractory prostate cancer.
The Corporation has completed a US/Canadian Phase II trial of tesmilifene in 29
patients in combination with mitoxantrone (Novantrone(R))/prednisone for the
treatment of metastatic, hormone-refractory prostate cancer. Preliminary results
from this trial were presented at the annual meeting of the American Society of
Clinical Oncology ("ASCO") in May 2002. Those data demonstrated a response rate
(greater than 70%) in patients and suggested that tesmilifene increased the
efficacy of mitoxantrone/predisone compared with mitoxantrone/prednisone in
historical controls, as determined by objective pain reduction and decreased PSA
levels. Objective pain reduction is measured using a specific pain-related
questionnaire and by discontinuance or reduction of treatment with analgesics.
Results of the trial have been published in a major oncology journal.
The National Cancer Institute of Canada ("NCIC") and Bristol-Myers Squibb
Company ("BMS"), the then-licensee of tesmilifene, designed and conducted a
global, open-label, randomized Phase III study of tesmilifene/doxorubicin versus
doxorubicin alone in metastatic breast cancer with tumour response and
progression-free-survival as primary endpoints and overall survival as a
secondary endpoint. A planned interim analysis failed to demonstrate improvement
in tumour response and progression-free-survival and BMS terminated all clinical
development. However, the 305 patients then enrolled in the study were followed
by NCIC for overall survival. At the 2001 ASCO meeting, two years after the
decision by BMS to terminate development, the NCIC reported that an increase in
overall survival of greater than 50% was seen in those patients who had received
the tesmilifene/doxorubicin combination compared with patients receiving
doxorubicin alone (23.6 months vs. 15.6 months; p<0.03, as adjusted). Results of
the trial have been published in a major oncology journal.
15
Manufacturing:
Tesmilifene is a small molecule that is inexpensive and simple to manufacture
through a two-step chemical process. The tesmilifene active drug substance is
currently manufactured at Fabbrica Italiana Sintetici in Italy and is formulated
into final drug product by Chesapeake Biological Laboratories Inc. in the United
States. Both of these suppliers operate facilities meeting GMP standards. The
Corporation has not at this time engaged in detailed discussions regarding
commercial scale manufacturing of tesmilifene, however, the Corporation believes
that numerous fine chemical manufacturers worldwide would be able to manufacture
this compound at commercial scale.
Intellectual Property:
Aspects of tesmilifene, including its anti-cancer uses, are the subject of
patents that have issued in the United States, Europe, Japan, Canada and
Australia. Tesmilifene's cytoprotective end-use is the subject of other patents
granted or pending in major markets. In addition, the drug's use in combination
with doxorubicin to treat breast cancer is the subject of a recent patent
application in the United States. The Corporation has obtained its rights to
such patents principally under a license agreement with University of Manitoba
and CancerCare Manitoba and also by assignment from its consultant, Vincent
Research & Consulting Inc. See "- Licensing Arrangements".
Competitive Position:
The primary competition for tesmilifene is other enhancers of standard
chemotherapies and possibly the market reduction for those chemotherapies from
the introduction of new drugs for tesmilifene's target conditions. Competition
appears to be principally from antisense drugs and pGp inhibitors.
Avastin from Genentech Inc. is being developed as an inhibitor of vascular
endothelial growth factor (VEGF) and its activity, while a different approach,
could be competitive with tesmilifene.
Antisense drugs (including Genasense from Genta Incorporated, GTI 2501 from
Lorus Therapeutics Inc. and ISIS 2503 from ISIS Pharmaceuticals) have the
potential to become competitive for tesmilifene as chemopotentiators.
To the knowledge of the Corporation only one pGp inhibitor, Zosuquidar-LY335979
from Eli Lilly and Company, continues in clinical development.
The development of new drugs for metastatic breast cancer could reduce the size
of the market for currently used chemotherapeutics which tesmilifene is
demonstrated to enhance. To the knowledge of the Corporation there are more than
300 Phase III studies in metastatic breast cancer currently underway.
TheraCIM and RadioTheraCIM
Background:
TheraCIM, targeting the EGFr, is a humanized MAb. The EGFr is present at high
concentrations on the surface of many cancer cells and it is postulated that the
binding of ligands to this receptor is important in the continuing growth of
cancer cells. TheraCIM blocks this binding resulting in the potential for direct
inhibition of cell growth or, possibly, cell destruction by the immune system.
Improved tumour responses have been reported when MAbs are combined with other
anti-cancer treatments.
16
The Corporation's EGFr MAb is being developed in the following formulations:
--------------------- ------------------- -------------------------------------------------------
TheraCIM Naked Administered in combination with conventional
Antibody radiation therapy.
--------------------- ------------------- -------------------------------------------------------
RadioTheraCIM Radiolabelled For local injection directly into
tumour resection Antibody cavities, such as in the
treatment of brain cancers.
--------------------- ------------------- -------------------------------------------------------
The discussion below on Manufacturing and Competitive Position refers to
TheraCIM.
Clinical Experience - TheraCIM:
In fiscal 2004, the Corporation plans to undertake a randomized Phase II trial
in head-and-neck cancer. Further, the Corporation understands that certain new
trials will be initiated in Europe by the Corporation's licensee in 2004.
The Corporation has also been advised that recruitment for a randomized Phase
III, 84 patient study in head-and-neck cancer with TheraCIM together with
radiation being conducted by the Corporation's licensor, CIM is ongoing and a
CIM-sponsored single-arm Phase II glioma study of the drug with radiation is
also ongoing.
In the first quarter of calendar 2003, the Corporation completed recruitment for
its Phase II clinical trial of TheraCIM in patients with locally advanced
head-and-neck cancer. Twenty-four fully evaluable patients were recruited in
five sites across Canada. The side effects seen to date in this study appear to
be less severe than those previously noted with the current standard-of-care,
chemoradiation, with no apparent loss of effectiveness of the combination
therapy. TheraCIM appears to sensitize tumours to the degree that patients
receiving the antibody appear to have in excess of twice the response rate to
radiation than that reported for patients receiving radiation alone.
A previous Phase I/II trial for which recruitment was completed in the third
quarter of calendar 2002 and conducted by the Corporation's licensor, resulted
in 24 fully evaluable patients receiving TheraCIM with radiation. This trial
demonstrated a significant benefit compared to radiation alone (greater than 60%
complete response compared to approximately 30% complete response expected from
radiation alone).
In July 2001, YM BioSciences received approval from Health Canada, to initiate a
Phase I/II study of TheraCIM hR3 in conjunction with radiotherapy in patients
with brain cancer resulting from metastases from non-small-cell lung cancer. YM
has postponed implementing this trial while it evaluates the results of trials
of competitive approaches to treatment of this condition.
Clinical Experience - RadioTheraCIM:
In May 2003, data were presented at ASCO, the American Society of Clinical
Oncology annual meeting, of an investigator-led trial utilizing an
Yttrium-90-labeled version of TheraCIM in 45 patients, post-excision, with
glioma. It was concluded that this method is feasible and warrants further
study. Since the trial is physician-sponsored, neither the Corporation nor CIM,
the supplier of the RadioTheraCIM, control the conduct of the trial.
Manufacturing:
The current manufacturing processes for TheraCIM are not able to produce
sufficient material to satisfy long-term requirements. Currently, the
Corporation's licensor manufactures the product. Product from this plant has
been approved for use in a clinical trial in Canada. The plant operates
according to GMP principles and its cGMP compliance status has been reviewed on
behalf of the Corporation by industry experts. However, the facility has not
17
been inspected by a non-Cuban regulatory agency and the Corporation recognizes
that the manufacturing facility has to meet GMP standards in order to supply
product for more advanced clinical trials. Consequently, in 1999, the
Corporation entered into a collaboration with the Biotechnology Research
Institute ("BRI") of the National Science and Engineering Research Council of
Canada ("NSERC") in order to fund the development of a manufacturing process to
produce clinical grade material on a commercial scale. This collaboration
yielded promising results, and the Corporation is currently working to develop a
validated commercial scale manufacturing process and generate data required to
satisfy applicable regulatory requirements.
The Corporation's license agreement for TheraCIM contemplates manufacturing of
the product by CIMAB S.A ("CIMAB"), or a supplier contracted by CIMAB. Should
CIMAB agree to alternative manufacturing arrangements, such as a sub-licensee of
CIMYM manufacturing the product, the loss of manufacturing benefits to CIMAB may
be reflected in a lower license fee and royalty payable to CIMYM than if
manufacturing remains with CIMAB.
Intellectual Property:
Aspects of TheraCIM, including claims to the antibody and its formulation, are
the subject of patents that have issued in the United States and Canada and a
patent application that has been granted in Europe. In addition, the combination
of any EGF-based passive immunization (such as TheraCIM) together with any
EGF-based active immunization is the subject of Patent Cooperation Treaty
("PCT") and United States patent applications. The Corporation has obtained its
rights to such patents under a license agreement with CIMAB, the company
responsible for the commercialization of products developed at CIM and CBQ. See
"- Licensing Arrangements".
The Corporation is aware of US patent #5,770,195 granted to Genentech, Inc., for
the anti-cancer use of EGFr MAbs in combination with a cytotoxic agent. The
Corporation is also aware of US patents granted to others in this field. In
April 2001, Rorer International (Overseas) ("Rorer") was issued the US patent
#6,217,866 which includes claims to any antibody targeting the EGFr administered
with any anti-neoplastic agent. A counterpart patent has been granted in Europe.
The Corporation has filed an opposition to the grant of the European patent. The
Corporation believes that the Rorer patents are licensed to ImClone Systems Inc.
("ImClone"). In addition, the Corporation is aware of a separate series of
national patent applications filed by ImClone, and represented by EP1080113,
claiming the anti-cancer use of radiation in combination with any inhibitor of
any receptor tyrosine kinase that is involved in the genesis of tumours. ImClone
is also reported to have filed a PCT application covering the use of EGFr MAbs
to treat patients having tumours that do not respond to treatment with
conventional therapies. The Corporation is also challenging ImClone's claims in
respect of the radiation-related patent applications by filing additional prior
art at the relevant national patent offices. The outcome of these challenges
cannot be predicted, and there can be no assurance that the Corporation will
succeed in challenging the validity or scope of patent claims by ImClone or any
other patent applicant. The Corporation has not incurred material expenses in
connection with the challenges to ImClone's radiation-related patent
application. See "Risk Factors - Patents and Proprietary Rights".
The manufacturing of TheraCIM may fall within the scope of process patents owned
by Protein Design Labs Inc., Genentech, Inc., and the Medical Research Council
of the United Kingdom. Management is aware that some of these process patents
are currently being challenged by companies other than YM. In the event any of
the applicable process patents are upheld, management believes it will be able
to obtain licenses under such patents on commercially reasonable terms, though
there can be no assurance thereof.
Competitive Position:
To the knowledge of the Corporation, other companies that are involved in the
development of monoclonal antibody cancer therapeutics directly related to the
Corporations efforts include Abgenix Inc./Amgen, Genmab A/S, ImClone/BMS, and
Merck KGaA. The Corporation understands that OSI Pharmaceuticals, Inc. ("OSI")
in concert with Genentech and Roche and AstraZeneca PLC ("AstraZeneca") has
small molecules designed to target the tyrosine kinase domains of EGF receptors.
Iressa(R) has been approved in twenty countries, including Japan and the USA for
third line monotherapy of NSCLC. OSI reported that it has positive survival data
in a phase III monotherapy study in treatment refractory NSCLC. Tarceva(TM) is
18
under a rolling NDA submission in the USA for NSCLC. Erbitux(R) is approved in
the USA and Switzerland for metastatic colorectal cancer in combination
with irinotecan in the irinotecan-refractory patients. Erbitux(R) is under
review by other regulatory agencies including EMEA the European regulatory
agency.
OSI's product, TarcevaTM, is reported to be in co-development with
F.Hoffmann-LaRoche Ltd. and Genentech, Inc. and is reported to be in numerous
trials in various indications including Phase III registration studies. See "-
Competition".
Norelin TM
Background:
Originally developed by Biostar Inc. ("Biostar"), NorelinTM is an active
specific immunotherapy agent that harnesses the immune system to block the
activity of the master hormone GnRH, which controls the production of both male
and female sex hormones. These hormones bind to receptors in malignant cancer
cells and promote the growth and spread of cancer. By eliciting an antibody
response to GnRH, NorelinTM is designed to block GnRH from reaching its
receptors in the pituitary gland, thus reducing the amount of sex hormones in
circulation and thus reducing their effect on tumour growth. NorelinTM consists
of an adjuvant combined with the immunogen, the drug substance IPS-21, a
proprietary carrier protein that is a non-toxic fragment of P. haemolytica,
flanked by eight copies of GnRH on both ends. Extensive testing by Biostar of
IPS-21 and product formulations has been carried out in numerous domestic and
laboratory species, using a range of adjuvants and doses. In pre-clinical
testing, NorelinTM has been effective in inducing an antibody response to GnRH,
which in turn reduced sex hormones to sterilization levels in the pre-clinical
animal models assessed. In addition, a significant anti-tumour effect has been
demonstrated in several animal models.
Clinical Experience:
In 2002, YM obtained a Clinical Trial Application approval from Health Canada
for Norelin(TM) and a safety and immunogenicity study in patients with
hormone-sensitive prostate cancer was initiated in the third quarter of calendar
2002. Patient enrolment for this trial was completed in January 2003 and
preliminary results, released in June 2003, indicated that the vaccine was well
tolerated and preliminary evidence of immune response was demonstrated in 50% of
patients. The data demonstrated biological effect (decreased circulating levels
of testosterone) in a number of patients. The presence of biological effect has
encouraged the Corporation to pursue the further clinical development of this
product in the immediate future.
Manufacturing:
Unlike MAbs, NorelinTM can be produced in a bacterial host such as E. coli.
Numerous production facilities are available in North America and elsewhere. The
drug substance was manufactured for Biostar by Diosynth Inc., located in North
Carolina, USA, and the current drug product has been manufactured under cGMP
conditions by the University of Iowa's Pharmaceutical Services Division, located
in Iowa, USA. The Corporation is also aware of US patent #6,303,123 owned by
Aphton Corporation relating to the use of GnRH immunogenic conjugates to treat
GnRH-dependent diseases, including prostatic hypertrophy, and is developing a
strategy for addressing this patent should it prove relevant to the
Corporation's commercial activities with Norelin.
Intellectual Property:
Aspects of NorelinTM, including claims to the fusion protein, its synthesis and
its formulation, are the subject of patents that have issued in the United
States, and patent applications are pending in a number of other major markets.
The Corporation has obtained its rights to such patents under a license
agreement with Biostar. See "- Licensing Arrangements".
19
Competitive Position:
Although the Corporation is aware of numerous products in development for
prostate cancer, the Corporation is aware of only three competing products in
the GnRH vaccine field. Of the four products in development (including the
Corporation's product), to the knowledge of the Corporation, a product by Aphton
Corporation appears to be the most advanced, having reportedly completed Phase I
testing and having reportedly commenced Phase II testing. The Corporation
believes that the competitive vaccines are based on chemical synthesis and/or
classical conjugation techniques, unlike NorelinTM which is produced in a
bacterial host. As a result, the Corporation believes those competitive vaccines
are complex mixtures of proteins that would be expected to be more difficult and
expensive to produce than NorelinTM.
These vaccine products will seek to compete with existing treatments. Two
existing products designed to induce chemical castration in the treatment of
prostate cancer have been approved for marketing and in use for a number of
years. These products, Lupron by TAP Pharmaceuticals and Zoladex by AstraZeneca,
have a strong market presence.
PRODUCTS IN PRE-CLINICAL DEVELOPMENT
TGFa Cancer Vaccine
Background:
Human epidermal growth factors and their receptors are known to play an
important role in both normal cell proliferation and in neoplastic growth. The
EGFr is overexpressed in many human epithelial malignancies, including breast,
bladder, ovarian, colon, lung, brain and esophageal cancer. In some tumours,
EGFr overexpression is an indicator of a poor clinical prognosis. There are a
number of ligands (proteins or peptides produced in the human body) that can
bind to the EGFr and are postulated to promote cancer growth. These include EGF,
TGFa, amphiregulin, heparin-binding EGF-like growth factor and betacellulin.
Rationale:
The most common ligand for the EGFr in human tissues is TGFa, which is often
overexpressed in human epithelial malignancies. With this ligand, the EGFr forms
a well-defined autocrine loop and there are numerous reports demonstrating the
influence of the TGFa/EGFr system in human tumours. Increased production in the
body of either EGFr or TGFa have been identified as early events in the
progression of head-and-neck cancers. The autocrine loop EGFr/TGFa has also been
found to be very important for the growth of human renal carcinoma cells.
Furthermore, studies with both brain tumour cell lines and primary tumour
tissues suggest that the TGFa and the EGFr function as an important autocrine
loop in supporting proliferation of brain tumours. The relationship between TGFa
and oncogenes is also established. One example is the relationship between TGFa
and the oncogene c-myc. Overexpression of these genes is demonstrated in human
cancers, suggesting that their interaction may be a critical step in malignant
growth. Taken as a whole, these studies suggest that overexpression of EGFr and
its ligand TGFa is frequent in human tumours.
Intellectual Property:
Aspectsof the TGFa Vaccine, including claims for vaccines containing
TGFa, are the subject of patent applications that have been filed in all major
markets including the United States. The TGFa Vaccine would also fall under the
scope of the passive/active immunization claims described in connection with
TheraCIM, above. The Corporation has obtained its rights to such patent
applications under a license agreement with CIMAB. See "- Licensing
Arrangements". The Corporation is party to an agreement in principle with CIMAB
and CancerVax Corporation that would involve CIMAB granting a license for TGFa
and HER-1 directly to certain subsidiaries of CancerVax Corporation
20
and suspension of the Corporation's license for TGF(alpha) and HER-1, in return
for certain payments. See "- Licensing Arrangements - Out-Licensing".
Current Status:
A TGFa/P64k fusion protein has been produced in E. coli and semi-purified.
Immunized mice have mounted an anti-TGFa antibody response. A murine tumour
model depending on TGFa expression for in vivo growth is currently under
development.
HER-1 Based Cancer Vaccine
Background:
As described above, the EGF/EGFr system is an attractive target for cancer
therapy. The EGFr is overexpressed in many malignant tumours of epithelial
origin, such as breast, bladder, ovarian, colon, lung, brain and esophageal
cancer. EGFr expression in human breast tumours has been correlated with a poor
prognosis. Furthermore it has been demonstrated that expression of EGFr in
breast tumour metastases is frequently elevated compared to the primary tumour,
which suggests the involvement of EGFr in the metastatic process, though there
can be no assurance thereof.
Although several MAbs against the EGFr, both naked and those associated with
drugs, toxins or radioisotopes, are being evaluated for cancer immunotherapy,
active specific immunotherapy with the EGFr itself has not, to the knowledge of
the Corporation, been tested.
Rationale:
The HER-1 Vaccine project is aimed at developing a cancer vaccine composed of
the extracellular domain of the human EGFr, presented in a Th1-pattern-inducing
vehicle. An antibody response would block the interaction between EGFr and its
ligands, provoking a cytostatic effect, but tumour shrinkage could also be
induced by a cytotoxic T cell ("CTL") response.
Intellectual Property:
Aspects of the HER-1 Vaccine, including claims for vaccines containing HER-1,
are the subject of patent applications that have been filed in the major markets
including the United States. The HER-1 Vaccine would also fall under the scope
of the passive/active immunization claims described in connection with TheraCIM,
above. The Corporation has obtained its rights to such patent applications under
a license agreement with CIMAB. See "- Licensing Arrangements". The Corporation
is party to an agreement in principle with CIMAB and CancerVax Corporation that
would involve CIMAB granting a license for TGF(alpha) and HER-1 directly to
certain subsidiaries of CancerVax Corporation and suspension of the
Corporation's license for TGF(alpha) and HER-1, in return for certain payments.
(See "- Licensing Arrangements - Out-Licensing").
Current Status:
In the product, the cDNAs encoding the extra-cellular domain ("ECD") of the
human and murine EGFr have been cloned into expression vectors, and stable cell
lines secreting these ECDs appear to have been established. Mice were immunized
with the ECD of the murine EGFr in different immunogenic preparations. Specific
T cell proliferation and antibody titers above 1/1000 were obtained without
severe toxicity. Pre-clinical tumour challenge experiments are ongoing.
21
G-1 Vinylfuran
Background:
G-1, a vinylfuran, is the lead compound in a family of anti-microbial agents.
The properties of this molecule and related structures could result in a range
of therapeutic products for bacterial and fungal infections affecting various
systems of the body.
Clinical Experiences:
A cream formulation of the G-1 product did not satisfy the criteria in a Phase I
study in the United Kingdom. However, the original ointment formulation appears
to not have those difficulties. The ointment formulation is reported by the
licensor to have has been tested successfully in both Phase I and Phase II
trials. The licensor submitted results from its Phase III trial to CBQYM. CBQYM
distributed marketing materials based on the trial results to pharmaceutical
companies in order to elicit interest in sub-licensing the product.
Manufacturing:
The molecule is manufactured using conventional synthetic chemistry processes.
Separate formulations for each anticipated method of application will be
required as will the development of analytical and quality testing procedures to
allow stability testing programmes to be initiated. The Corporation does not
expect to experience significant difficulties in manufacturing the G-1
anti-microbial products.
The Corporation's license agreement for G-1 contemplates manufacturing of the
product by CIMAB or a supplier contracted by CIMAB. Should CIMAB agree to
alternative manufacturing arrangements, such as a sub-licensee of CIMYM
manufacturing the product, the loss of manufacturing benefits to CIMAB may be
reflected in a lower license fee and royalty payable to CIMYM than if
manufacturing remains with CIMAB.
Intellectual Property:
Aspects of G-1, including the purified product, its synthesis, formulation and
anti-microbial end-use, are the subject of a patent that has issued in Canada.
In addition, patents for the synthesis of G-1 and its anti-microbial end-use
have been granted in Japan. The Corporation has obtained its rights to such
patents under a license agreement with CIMAB. Also, aspects of G-1, including
the purified product, formulation, anti-microbial end-use, use of G1 as an
anti-microbial medicament, and its use in the manufacture of an anti-microbial
medicament are the subject of a patent that has issued in Europe. See "-
Licensing Arrangements".
Competitive Position:
Although there are many agents currently available to treat infections,
antibiotic resistance continues to be a major concern to health authorities
worldwide. Many anti-microbial agents have a single mode of action, which means
that mutation of the invading organism can render an antibiotic ineffective in
very short order. Data generated on this family of molecules suggest that they
have multiple modes of action by which bacteria or fungi can be killed,
indicating that resistance is less likely to develop in the short term and that
the agents could be useful against multi-resistant species.
COMPETITION
The biopharmaceutical industry is intensely competitive. Many companies,
including other biopharmaceutical companies and biotechnology companies, are
actively engaged in activities similar to those of the Corporation, including
research and development of drugs for the treatment of cancer. More
specifically, competitors for the development of new therapeutic products to
treat cancer also focus on MAb-based cancer therapeutics, cancer vaccines and
other approaches that are based on both active and passive immunotherapies and
22
small molecule discovery and development. A 2001 survey by the Pharmaceutical
Research and Manufacturers of America ("PhRMA") listed 402 new treatments for
cancer that are currently being tested by researchers.
To the knowledge of the Corporation, other companies that are involved in the
development of monoclonal antibody cancer therapeutics directly related to the
Corporation's efforts include Abgenix Inc./Amgen, Genmab A/S, ImClone/BMS, and
Merck KGaA. The Corporation understands that OSI in concert with Genentech and
Roche and AstraZeneca has small molecules designed to target the tyrosine kinase
domains of EGF receptors. Iressa(R) has been approved in twenty countries,
including Japan and the USA for third line monotherapy of NSCLC. OSI reported
that is has positive survival data in a phase III monotherapy study in treatment
refractory NSCLC. Tarceva(TM) is under a rolling NDA submission in the USA for
NSCLC. Erbitux(R) is approved in USA and Switzerland for metastatic colorectal
in combination with irinotecan in irinotecan-refractory patients. Erbitux(R) is
under review by other regulatory agencies including EMEA the European regulatory
agency.
The Corporation expects to encounter significant competition for the
pharmaceutical products it is developing and plans to develop in future. Many of
the Corporation's competitors have substantially greater financial and other
resources, larger research and development capabilities and more extensive
marketing and manufacturing organizations than the Corporation. In addition,
some such companies have considerable experience in pre-clinical testing,
clinical trials and other regulatory approval procedures. There are also
academic institutions, governmental agencies and other research organizations
which are conducting research in areas in which the Corporation is working and
they may also market commercial products, either on their own or through
collaborative efforts. If any of these competitors were to complete clinical
trials, obtain required regulatory approvals and commence commercial sales of
their products before the Corporation they may achieve a significant competitive
advantage.
CLINICAL, PRE-CLINICAL AND BASIC RESEARCH
The Corporation, designs, funds and manages pre-clinical and clinical research,
and may support, but does not conduct, basic research. The Corporation manages
the development of products that it in-licenses through its own team of
clinical, regulatory, licensing and business development executives and through
a number of research and medical collaborations. The Corporation is responsible
for filing applications with the relevant authorities for regulatory approval
for clinical trials and conducts, or has conducted on its behalf, clinical
trials to progress products in development toward regulatory approval and
possible out-licensing for commercial sale. The Corporation's current licenses
generally provide that the Corporation will conduct, or cause to be conducted,
the tests and clinical studies necessary to progress products in development
toward regulatory approval with a view to obtaining the approval for sale of the
licensed drug from appropriate regulatory authorities. The Corporation has
received regulatory approvals for clinical trials in Canada, the United States
of America, the United Kingdom and South Africa from Phase I through Phase III.
Some basic research is conducted at the facilities of the Corporation's
licensors, and the Corporation pays for certain amounts of this research.
23
LICENSING ARRANGEMENTS
In-Licensing
The following diagram depicts YM's product licensing arrangements:
[CHART OMITTED]
License for tesmilifene.
In November 2000, YM was granted an exclusive worldwide license by the
University of Manitoba and The Manitoba Cancer Treatment and Research Foundation
(now CancerCare Manitoba) (the "Original Licensor") for all products and
formulations of tesmilifene pursuant to which the Corporation undertook the
responsibility for the clinical development of the product and its
commercialization. The Corporation must pay to the Original Licensor a specified
minority percentage of revenues received from sub-licensing the product, less
certain specified development costs, similar to the percentage ownership
entitlement of the licensor of TheraCIM, described below. If the Corporation
manufactures and sells tesmilifene itself rather than through sub-licensing, the
Corporation must pay a specified lesser minority percentage of net sales to the
Original Licensor. Management believes these royalties are consistent with
general industry practice for similar arrangements. In 2003, the Corporation
acquired certain additional patent rights for the use of tesmilifene from
Vincent Research and Consulting in exchange for a small share of YM's future
royalty revenues.
License for NorelinTM.
In October 2000, YM secured the exclusive, sub-licensable, worldwide license to
the human therapeutic rights to NorelinTM from BioStar. The license is
non-exclusive with respect to diagnostic applications for P. haemolytica
antibodies and excludes applications related to infectious diseases. Pursuant to
the license, the Corporation is required to pay Biostar an amount equal to the
lesser of (a) either two or four percent (depending on the nature of the
product) of net sales, and (b) 10 percent of any sub-licensing revenue received
by the Corporation. The license will be terminated upon the termination of the
underlying license between Biostar and the University of Saskatchewan. YM has
been advised that certain rights to technology under the licence depend on
patents and patent applications, the prosecution and maintenance of which are
funded by third parties pursuant to agreements with the Veterinary Infectious
Disease Organization ("VIDO"), a division of the University of Saskatchewan. If
such parties purport to abandon any such applications or patents, VIDO has the
24
obligation to provide Biostar with the opportunity to fund the prosecution and
maintenance of such applications and patents, if VIDO chooses not to do so
itself. Similarly, Biostar has the obligation to provide YM with the opportunity
to fund the prosecution and maintenance of such applications and patents, if
Biostar chooses not to do so itself.
Licenses for TheraCIM, RadioTheraCIM, TGF(alpha) and HER-1.
(i) The 1995 CIMYM License
In May 1995, YM acquired an exclusive, sub-licensable license (as amended, the
"1995 CIMYM License") from CIMAB, acting on behalf of CIM, to products for
passive immunotherapy of cancer directed toward EGF and EGFr as targets,
including hR3, a humanized MAb targeting the EGFr. CIMAB is the company
responsible for the commercialization of products developed at CIM and the
product licensed from CBQ (defined below). The 1995 CIMYM License is in respect
of Europe, Canada, the United States, Japan, Australia, Taiwan, Singapore,
Thailand, Hong Kong, South Korea, Malaysia, Indonesia and the Philippines. As a
term of the 1995 CIMYM License, YM has a right of first refusal with respect to
licensing any other products derived from the EGF and EGFr programs of CIM
except its anti-EGFr monoclonal antibody for psoriasis in Europe.
Pursuant to the 1995 CIMYM License, in 1995 the Corporation incorporated CIMYM
and assigned the 1995 CIMYM License to CIMYM. Pursuant to the terms of the 1995
CIMYM License, CIMAB acquired a 20% interest in CIMYM as partial consideration
for the 1995 CIMYM License. CIMYM was also required to pay for certain product
development costs. The terms of the 1995 CIMYM License provide for CIMYM to
conduct or cause to be conducted pre-clinical and clinical trials to evaluate
the licensed products, and to work with CIMAB to select sites, develop protocols
and instruct investigators for pre-clinical and clinical trials. CIMYM is to
decide after the end of each stage of trials whether to proceed with further
development or to terminate the 1995 CIMYM License with respect to that product.
In addition, the 1995 CIMYM License provides that, where commercially
reasonable, CIMYM shall file applications for regulatory approval to market the
licensed products in the applicable territory. Pursuant to the 1995 CIMYM
License, CIMAB has the right, subject to certain terms and conditions, to supply
the related drug substances (i.e., TheraCIM and RadioTheraCIM) for commercial
sale. YM will be responsible for any failure of CIMYM to fulfil its obligations
under the 1995 CIMYM License.
In connection with the 1995 CIMYM License, CIMYM entered into an international
sales, marketing, manufacturing and administrative agreement with CIMYM
(Barbados) pursuant to which CIMYM (Barbados) acquired the rights to market
TheraCIM outside Canada (see "Arrangements with Subsidiaries"). CIMAB owns a
corresponding 20% interest in CIMYM (Barbados).
(ii) The 2001 CIMYM License
In 2001, CIMYM (Barbados) acquired an exclusive, sub-licensable license (the
"2001 CIMYM License") from CIMAB to two active immunotherapy products described
as HER-1 Vaccine and TGF(alpha) Vaccine. CIMAB has the right to consent to any
sub-licensee, such consent not to be unreasonably withheld. The 2001 CIMYM
License is in respect of Europe, Canada, the United States, Japan, Australia,
New Zealand, Taiwan, Singapore, Thailand, Hong Kong, South Korea, Malaysia,
Indonesia and the Philippines. Under the 2001 CIMYM License, CIMYM (Barbados)
has a right of first refusal with respect to licensing all other products
derived from the EGF active immunotherapy program of CIM.
The terms of the 2001 CIMYM License provide for CIMYM (Barbados) to conduct or
cause to be conducted pre-clinical and clinical trials to evaluate the licensed
products, and to work with CIMAB to select sites, develop protocols and instruct
investigators for pre-clinical and clinical trials. CIMYM (Barbados) is to
decide after the end of each stage of trials whether to proceed with further
development or to terminate the 2001 CIMYM License with respect to that product.
In addition, the 2001 CIMYM License provides that, where commercially
reasonable, CIMYM (Barbados) shall file applications for regulatory approval to
market the licensed products in the applicable territory. Pursuant to the 2001
CIMYM License, subject to certain terms and conditions, CIMAB has the right to
supply the related drug substance (i.e., TGF(alpha) and HER-1) for commercial
25
sale, unless sub-licensees require manufacturing rights. If the Corporation
elects to proceed with the license, the Corporation would be expected to make
milestone and research and development payments, the amount of such payments to
be negotiated between the Corporation and CIMAB.
In connection with each of the 1995 CIMYM License and the 2001 CIMYM License, it
is expected that, notwithstanding that CIMAB owns 20% of the voting securities
of each of CIMYM and CIMYM (Barbados), it could, based on the terms of the
relevant license, receive approximately 40% of the overall economic return from
commercialization of the related drug products. This could occur, for example,
if CIMAB manufactures the licensed product.
License for G-1.
In May 1995, YM acquired an exclusive, sub-licensable license (as amended, the
"CBQYM License") from CIMAB, acting on behalf of the Centro de Bioactivos
Quimicos of the Universidad Central de Las Villas located in Santa Clara, Cuba
("CBQ"), to G-1 as an antifungal and antibacterial agent (excluding opthalmic
veterinary use in respect of Europe). The CBQYM License is in respect of Europe,
Canada, the United States, Japan, Australia, Taiwan, Singapore, Thailand, Hong
Kong, South Korea, Malaysia, Indonesia and the Philippines. As a term of the
CBQYM License, YM has a right of first refusal with respect to licensing any
other antibacterial, antifungal or antiviral product from CBQ.
Pursuant to the CBQYM License, in 1995 the Corporation incorporated CBQYM and
assigned the CBQYM License to CBQYM. Pursuant to the terms of the CBQYM License,
CIMAB acquired a 20% interest in CBQYM as partial consideration for the CBQYM
License. The terms of the CBQYM License provide for CBQYM to conduct or cause to
be conducted pre-clinical and clinical trials to evaluate the licensed products,
and to work with CIMAB to select sites, develop protocols and instruct
investigators for pre-clinical and clinical trials. CBQYM is to decide after the
end of each stage of trials whether to proceed with further development or
whether to terminate the CBQYM License with respect to that product. In
addition, the CBQYM License provides that, where commercially reasonable, CBQYM
shall file applications for regulatory approval to market the licensed products
in the applicable territory. Pursuant to the CBQYM License, CIMAB has the right,
subject to certain terms and conditions, to supply the related drug substances
(i.e., G-1) for commercial sale. YM will be responsible for any failure of CBQYM
to fulfil its obligations under the CBQYM License.
In connection with the CBQYM License, CBQYM entered into an international sales,
marketing, manufacturing and administrative agreement with CBQYM (Barbados)
pursuant to which CBQYM (Barbados) acquired the rights to market G-1 outside
Canada (see "Arrangements with Subsidiaries"). CIMAB owns a corresponding 20%
interest in CBQYM (Barbados).
On June 10, 2003, CIMAB assigned, and Heber Biotec, S.A, accepted all rights and
obligations under the G-1 License. The G-1 License has been amended such that
since March 10, 2004, all rights under the agreement became non-exclusive.
It is expected that, notwithstanding that Heber Biotech owns 20% of the voting
securities of each of CBQYM and CBQYM (Barbados), it could, based on the terms
of the relevant license, receive approximately 40% of the overall economic
return from commercialization of the related drug products. This could occur,
for example, if CIMAB manufactures the licensed product.
Out-Licensing
The Corporation generally plans to out-license its licensed drugs to
pharmaceutical companies for manufacturing and marketing under license, although
it may retain co-development or marketing rights if management considers it
appropriate to do so. Under the Corporation's business model, licensees would be
expected, to the extent necessary, to participate in the remaining clinical
development required to obtain final regulatory approval for the product. The
Corporation expects that out-licensing would result in a pharmaceutical company
or other licensee marketing or manufacturing the product in return for licensing
26
fees and royalties on the sale of the product. Management believes this model is
consistent with current biotechnology and pharmaceutical industry licensing
practices.
The Corporation's objectives in seeking to out-license products include:
o obtaining long term revenue streams from royalty payments on the sale of
the products;
o providing access to the resources and experience of large pharmaceutical
companies;
o obtaining up-front payments for product sub-licensing rights; and
o minimizing development expenditures through cost sharing programmes
(especially
late-stage clinical trials and regulatory approval applications).
The Corporation believes that out-licensing arrangements could be attractive to
pharmaceutical corporations because they would provide the prospective partner
with access to new products without the initial research risk or earlier
clinical development costs. Since partners are expected to be sought only at the
later stages of a product's development, the Corporation anticipates that
prospective licensees would view the Corporation's products as having a reduced
risk of failure to achieve regulatory approval.
YM does not intend to develop its own manufacturing, marketing or distribution
programmes although it may wish to participate in ownership of manufacturing
facilities if appropriate opportunities become available. The Corporation
intends to remain principally focused on the identification, further development
and commercialization of in-licensed products.
TheraCIM:
On November 12, 2003, the Corporation's subsidiary, CIMYM, licensed the rights
for TheraCIM in most of Europe to Oncoscience AG of Germany. Under the terms of
the agreement, CIMYM is entitled to receive up to US$30 million as a share of
any amounts received by or due to Oncoscience in relation to development or
sublicensing of the product and as a royalty on initial net sales. Thereafter,
CIMYM is also entitled to receive an escalating royalty on all net sales of the
product. Oncoscience has agreed to use diligent and reasonable efforts to
develop and commercially exploit TheraCIM in the licensed territory. This
license agreement may be terminated by either party in the event of specified
breaches and insolvency events, if a Phase II trial of TheraCIM has not
commenced in Europe within two years, or if certain regulatory approvals for
marketing TheraCIM in Europe have not been obtained within five years. In
addition, Oncoscience may terminate the agreement at any time on 90 days notice.
TGFa Cancer Vaccine and HER-1 Based Cancer Vaccine:
In October 2003, the Corporation entered into an agreement in principle under
which certain subsidiaries of CancerVax Corporation of California, USA are
entitled to license both the TGF(alpha) Cancer Vaccine and HER-1 Based Cancer
Vaccine directly from CIMAB. This arrangement is subject to approval from all
relevant governmental and corporate bodies. Under the proposed agreement YM and
its subsidiary CIMYM (Barbados) would agree to suspend the 2001 CIMYM License in
exchange for certain up-front and milestone payments and would retain an
interest in the revenues from the manufacture and marketing of the drugs or from
their sub-licensing. The CancerVax subsidiaries would undertake further clinical
development of the licensed drugs, and acquire an exclusive license to market
and sell the products in North America, Europe and certain other jurisdictions.
This agreement, if entered into, would be terminable by a party in certain
circumstances including in the event of specified breaches and insolvency
events. CIMAB would have the right to terminate if reasonable efforts are not
made to file submissions for clinical trials for the licensed products, or if
the first regulatory approval for marketing the licensed products is not
received within 12 years. In addition, the CancerVax subsidiaries may terminate
the agreement at any time on 180 days notice. In the event of early termination,
the 2001 CIMYM License would be reinstated. It is expected that this agreement
will be executed and become effective following receipt of the required
approvals, failing which the 2001 CIMYM License between CIMAB and CIMYM
(Barbados) will not be suspended and will continue in force.
27
REGULATORY APPROVAL
Government Approval Process in Canada
The manufacture, distribution and consumption of medical products, drugs and
equipment is regulated by a variety of industry-specific statutes and
regulations in Canada and the countries to which YM has rights for the licensed
products. Drugs sold in Canada are regulated by the Food and Drugs Act (Canada)
and the regulations made under that Act.
Even though a drug, medical product or device may be approved for use in another
jurisdiction, it may not be sold in Canada until approved by Health Canada.
Outside Canada, the regulatory approval process for the manufacture and sale of
pharmaceuticals varies from country to country and the time required may be
longer or shorter than that required by Health Canada.
Drug Approval Process In Canada
The Food and Drug Regulations require licensing of manufacturing facilities,
carefully controlled research and testing of products, governmental review and
approval of test results prior to marketing of therapeutic products, and
adherence to GMP, as defined by each licensing jurisdiction, during production.
The principal activities which must be completed prior to obtaining approval for
marketing of a therapeutic drug product are essentially the same in Canada as in
most major markets of the world and are as follows:
o Pre-clinical Animal Studies. Pre-clinical studies are conducted in animals
to test pharmacology and toxicology and to do formulation work based on in
vivo results.
o Phase I Clinical Trials. Phase I clinical trials consist of testing a
product in a small number of humans for its safety (toxicity), dose
tolerance and pharmacokinetic properties.
o Phase II Clinical Trials. Phase II clinical trials usually involve a
larger patient population than is required for Phase I trials and are
conducted to evaluate the efficacy of a product in patients having the
disease or medical condition for which the product is indicated. These
trials also serve to further identify side effects and risks in a larger
group of patients.
o Phase III Clinical Trials. Phase III clinical trials involve conducting
tests in an expanded patient population at geographically dispersed test
sites (multi-center trials) in a controlled and/or uncontrolled
environment to gather information about clinical safety and efficacy.
These trials also generate information from which the overall benefit-risk
relationship of the drug can be determined and provide a basis for drug
labelling.
Two key factors influencing the progression of clinical trials are the rate at
which patients can be recruited into clinical trials and whether effective
treatments are currently available for the disease the drug is intended to
treat. Patient recruitment is largely dependent upon the incidence and severity
of the disease and the alternative treatments available, as well as alternate
research studies.
A Clinical Trial Application must be filed and accepted by either the
Therapeutic Products Directorate ("TPD") or the Biologics and Genetic Therapies
Directorate ("BGTD") of Health Canada before each phase of human clinical trials
may begin. The CTA application must contain specified information including the
results of the pre-clinical or clinical tests completed at the time of the CTA
application. In addition, since the method of manufacture may affect the
efficacy and safety of a drug, information on chemistry and manufacturing
methods must be presented. Health Canada conducts inspections to determine
compliance with GMP. Good manufacturing practices and quality control procedures
must be in place.
28
Upon completion of all clinical studies, the results are submitted to the TPD or
BGTD as part of a New Drug Submission ("NDS"). A notice of compliance ("NOC")
which permits marketing of the product typically takes between 12 and 24 months
from the date a NDS is submitted.
Even after marketing approval has been obtained, further studies may be required
to provide additional data on safety and efficacy in order to gain approval for
the use of a drug as a treatment for clinical indications other than those for
which the product was initially tested. Also, Health Canada conducts post-market
surveillance programmes to monitor a product's side effects. Results of
post-marketing programmes may limit or expand the further marketing of products.
A serious safety or efficacy problem involving an approved drug or medical
device may result in Health Canada action requiring withdrawal of the product
from the market.
United States Approval Process
In the United States, the FDA, a federal government agency, is responsible for
the drug approval process. The FDA's mission is to ensure that all medications
on the market are safe and are effective. The FDA's approval process examines
potential drugs; only those that meet strict requirements are approved.
The drug approval process begins with the discovery of a potential drug.
Pharmaceutical companies then test the drug extensively. A description of the
different stages in the drug approval process in the US follows.
Stage 1: Preclinical Research
After an experimental drug is discovered, research is conducted to help
determine its potential for treating or curing an illness. This is called
preclinical research. Animal studies are conducted to determine if there are any
harmful effects of the drug and to help understand how the drug works.
Information from these experiments is submitted to the FDA in an Investigational
New Drug Application. The FDA reviews information in an IND Application and
decides if the drug is safe to study in humans.
Stage 2: Clinical Research
In Stage 2, the experimental drug is studied in humans. The studies are known as
clinical trials. Clinical trials are carefully designed and controlled
experiments in which the experimental drug is administered to patients to test
its safety and to determine the effectiveness of an experimental drug. The four
general phases of clinical research are described below.
Phase I clinical studies are generally conducted with healthy volunteers who are
not taking other medicines; patients with the illness that the drug will treat
are not tested at this stage. Ultimately, Phase I studies demonstrate how an
experimental drug affects the body of a healthy individual. Phase I consists of
a series of small studies consisting of "tens" of volunteers. Tests are done on
each volunteer throughout the study to see how the person's body processes,
responds to, and is affected by the drug. Low doses and high doses of the drug
are usually studied, resulting in the determination of the safe dosage range in
volunteers by the end of Phase I. This information will determine whether the
drug proceeds to Phase II.
Phase II clinical studies are conducted in order to determine how an
experimental drug affects people who have the disease to be treated. Phase II
usually consists of a limited number of studies that help determine the drug's
short-term safety, side effects, and general effectiveness. The studies in Phase
II are often controlled investigations, involving comparison between the
experimental drug and a placebo, or between the experimental drug and an
existing drug. Information gathered in Phase II studies will determine whether
the drug proceeds to Phase III.
Phase III studies consists of numerous clinical trials that are used to more
fully investigate the nature of the drug. These trials differ from Phase II
trials because a larger number of patients are studied (sometimes in the
thousands) and because the studies are usually of longer duration. As well,
Phase III studies can include patients who have more than one illness and are
taking medications in addition to the experimental drug used in the study.
Therefore, the patients in Phase III studies more closely reflect the general
29
population. The information from Phase III forms the basis for most of the
drug's initial labeling, which will guide physicians on how to use the drug.
Phase IV studies are conducted after a drug is approved. Companies often conduct
Phase IV studies to more fully understand how their drug compares to other
drugs. Also, the FDA may require additional studies after the drug is approved.
FDA-required Phase IV studies often investigate the drug in specific types of
patients that may not have been included in the Phase III studies. FDA-required
Phase IV studies can also involve very large numbers of patients to further
assess the drug's safety.
Stage 3: FDA Review and Approval
Following Phase III, the pharmaceutical company prepares reports of all studies
conducted on the drug and submits the reports to the FDA in a New Drug
Application ("NDA"). The FDA reviews the information in the NDA to determine if
the drug is safe and effective for its intended use. Occasionally, the FDA will
ask experts for their opinion of the drug; this occurs at advisory committee
meetings. If the FDA determines that the drug is safe and effective, the drug
will be approved.
Stage 4: Marketing
After the FDA has approved the experimental drug, the pharmaceutical company can
make it available to physicians and their patients. A company may also continue
to conduct research to discover new uses for the drug. Each time a new use for a
drug is discovered, the drug is once again subject to the entire FDA approval
process before it an be marketed for that purpose.
C. ORGANIZATIONAL STRUCTURE.
The Corporation currently has four material subsidiaries, shown in the following
diagram:
[CHART OMITTED]
(1) Canadian operating subsidiary incorporated under the laws of Ontario.
(2) International marketing subsidiary incorporated under the laws of
Barbados.
ARRANGEMENTS WITH SUBSIDIARIES
YM and CIMAB entered into funding agreements with CIMYM and CBQYM (the "Canadian
Subsidiaries") in November 1995 (the "Funding Agreements") in connection with
the 1995 CIMYM License and the CBQYM License, respectively. The Funding
Agreements provide that YM will arrange for the appropriate studies and clinical
trials for the licensed products held by the Canadian Subsidiaries and will fund
the cost of such studies and trials provided that doing so would not be
commercially or scientifically unreasonable. Accordingly, YM makes the final
determination as to whether or not a clinical trial expense is justified with
respect to any given product. YM will be reimbursed for all funds it provides
30
pursuant to the Funding Agreements out of revenue generated from the
exploitation of the relevant license, subject to the successful development of
the licensed products and adequate generation of revenue.
YM and CIMAB, contemporaneously with the assignment of each of the 1995 CIMYM
License and the CBQYM License, entered into joint-venture shareholders
agreements (the "Shareholders Agreements") with the Canadian Subsidiaries
relating to their operation. Pursuant to the Shareholders Agreements, each
Canadian Subsidiary is required to include nominees of CIMAB both as board
members and as members of operating management. The Shareholder Agreements
provide that: (i) issued and outstanding shares of either Canadian Subsidiary
may not be sold or transferred without the consent of both YM and CIMAB; (ii)
the issue of additional shares of either Canadian Subsidiary shall first be
offered to each of YM and CIMAB in proportion to their holdings, and thereafter,
with the consent of both YM and CIMAB, to any other person; and (iii) the boards
of directors of each of the Canadian Subsidiaries will consist of five
directors, three of whom are nominees of YM and two of whom are nominees of
CIMAB. All material and out-of-the-ordinary-course-of-business contracts of a
Canadian Subsidiary, including those relating to the borrowing of money, issuing
guarantees, entering into non arm's-length agreements, paying dividends and
pledging of property, must be approved by four-fifths of the Board of directors.
CIMYM (Barbados) and CBQYM (Barbados) (the "International Marketing
Subsidiaries"), were incorporated in Barbados in May 1996 to market the licensed
products under the 1995 CIMYM License and the CBQYM License, respectively,
outside of Canada. YM and CIMAB have entered into joint-venture shareholder
agreements (the "Barbados Shareholders Agreements") with the International
Marketing Subsidiaries relating to their operation. The terms of the Barbados
Shareholders Agreements are consistent with the Shareholders Agreements, except
that the boards of directors of each of the International Marketing Subsidiaries
consist of a majority of directors nominated by YM. Material and
out-of-the-ordinary-course-of-business contracts and approval for the strategic
marketing plan and annual budget must be approved by a vote of the majority of
directors, including the affirmative vote of at least one nominee of YM and one
nominee of CIMAB. All earnings of the International Marketing Subsidiaries are
to be paid annually to the shareholders as dividends unless a change in such
policy is approved by a majority of the directors, including one nominee of each
of YM and CIMAB.
Pursuant to international sales, marketing, manufacturing and administrative
agreements dated as of July 4, 1996, each of the Canadian Subsidiaries
sub-licensed certain of its respective rights to the licensed product under the
1995 CIMYM License and the CBQYM License to the corresponding International
Marketing Subsidiary in exchange for certain royalty payments.
The International Marketing Subsidiaries will arrange for the out-licensing of
the licensed products in all relevant territories except Canada. The Canadian
Subsidiaries remain responsible for all elements of commercializing the licensed
products within Canada, and for the cost of commercializing the licensed
products outside of Canada up to the point of out-licensing.
D. PROPERTY, PLANTS AND EQUIPMENT.
FACILITIES
The Corporation currently occupies 5,800 square feet of space in Mississauga,
Ontario pursuant to a sub-lease agreement dated July 31, 1997 (the "Sub-Lease")
and a lease amending and extension agreement dated February 1, 2003 (the "Lease
Amending Agreement"), such Lease Amending Agreement extended the initial terms
of the Sub-Lease for a term of five years commencing on February 1, 2003 and
expiring on January 31, 2008. The average annual costs, including operating
expenses, are approximately $120,000.
There are no environmental issues associated with the facilities and the
Corporation currently has no plans to construct, expand or improve the
facilities.
31
EQUIPMENT AND OTHER PROPERTY
As at December 31, 2003, the Corporation owned tangible fixed assets with a book
value of $11,381, consisting primarily of computer equipment.
ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion and analysis of the Corporation's financial condition
and results of operations for the six months ended December 31, 2003 and
December 31, 2002 and for the fiscal years ended June 30, 2003, June 30, 2002
and June 30, 2001. This discussion and analysis of the Corporation's financial
condition and results of operations should be read in conjunction with the
consolidated financial statements and the related notes included elsewhere in
this registration statement. The financial statements have been prepared by
management in accordance with accounting principles generally accepted in
Canada. These accounting principles differ in certain respects from U.S. GAAP.
The differences as they affect our consolidated financial statements are set out
Note 10 to the audited consolidated financial statements.
NATURE OF OPERATIONS
The Corporation is a licensing and development company engaged in the
commercialization of drug products and technologies from original research. The
Corporation evaluates drug projects, technologies and products and the
prospective markets for them and obtains, as appropriate, a license for the
further development and marketing of the products.
The Corporation expends money on the evaluation, licensing and further
development of certain drug products and on providing licensing, marketing,
clinical development and regulatory affairs skills, patent advice and funding to
facilitate the introduction of the licensed products into the principal
pharmaceutical markets. This involves taking the products researched and
developed by others and progressing them through the clinical and regulatory
processes in Canada and elsewhere in order to achieve regulatory approval for
their sale in the markets to which the Corporation has rights.
The Corporation will incur expenditures either directly or, pursuant to
agreements with certain partners, on behalf of joint ventures. These will
include costs associated with the conduct of clinical trials; the collection and
collation of data; the organizing of data and market information for each
product; the development and production of non-confidential and confidential
dossiers on each licensed product and the marketing of the information contained
in the dossiers to prospective commercialization partners; and the negotiation
and completion of out-licensing arrangements for the licensed products. The
Corporation does not intend to establish its own manufacturing or marketing
infrastructure for the licensed products or any additional products for which
licensing rights are obtained, although the Corporation may participate in
ownership of manufacturing facilities if appropriate opportunities are
available.
32
A. OPERATING RESULTS
SIX MONTH PERIOD ENDED DECEMBER 31, 2003 COMPARED TO THE SIX MONTH PERIOD ENDED
DECEMBER 31, 2002
Total expenditures for the first six months of this year were $2,069,848
compared to $3,173,370 for the first six months of last year. General and
Administrative expenses for the six months were $1,180,425, up slightly from
$923,703 for the prior year, principally due to travel expenses being slightly
above normal this year and less than normal a year ago. Licensing and Product
Development expenses $889,423 for the six months compared to $2,249,667 for the
first six months of last year. Last year included costs of manufacturing
tesmilifene and of clinical trials for TheraCIM hR3 that are now substantially
completed. Also, there were no expenditures this year relating to the
development of the EGF vaccine that was returned to the licensor last year.
Interest revenue was $104,762 this year compared with $137,195 for the first six
months last year; principally because there was less cash on hand during the
period.
Net loss for first half was $1,965,086, down from $4,173,278 for the same period
last year.
FISCAL YEAR ENDED JUNE 30, 2003 COMPARED TO FISCAL YEAR ENDED JUNE 30, 2002
During the fiscal year ended June 30, 2003, the Corporation expended $5,842,894
on the development and the commercialization of licensed products and on the
administration of the Corporation compared to $6,593,505 for the fiscal year
ended June 30, 2002. The loss for the fiscal year ended June 30, 2003 was
$7,381,820 compared to $6,439,393 for the fiscal year ended June 30, 2002. In
fiscal 2003 before "Loss on marketable securities", the loss was $869,731 less
than the comparable figure of $6,439,393 in fiscal 2002. The carrying cost of
marketable securities was written down by $1,812,158 to market value at June 30,
2003. The accumulated deficit at the end of the period was $36,411,810 compared
to $28,969,893 at June 30, 2002.
During the fiscal year ended June 30, 2003 the Corporation funded licensing and
product development activities totaling $3,965,385, a decrease of $763,831 from
the prior year. There was approximately $570,000 less spent on the EGF vaccine
in fiscal 2003 than in fiscal 2002 because work was stopped on development of
the vaccine in the first quarter of fiscal 2003. There was also approximately
$470,000 less spent on TheraCIM in fiscal 2003 because fiscal 2002 included
manufacturing costs that were not repeated in fiscal 2003. Expenditures related
to the development of tesmilifene increased approximately $560,000 in 2003 over
fiscal 2002 as new patents were filed and new batches were manufactured for
clinical trials.
The general and administrative expenses for the fiscal year ended June 30, 2003
totaled $1,877,509, comparable to $1,864,289 for the prior year.
FISCAL YEAR ENDED JUNE 30, 2002 COMPARED TO FISCAL YEAR ENDED JUNE 30, 2001
During the fiscal year ended June 30, 2002, the Corporation expended $6,593,505
on the development and the commercialization of licensed products and on the
administration of the Corporation compared to $8,100,185 for the fiscal year
ended June 30, 2001. The loss for the fiscal year ended June 30, 2002 was
$6,446,693 compared to $7,454,443 for the fiscal year ended June 30, 2001, and
the accumulated deficit at the end of the period was $28,969,893 compared to
$22,523,200 at June 30, 2001.
During the fiscal year ended June 30, 2002 the Corporation funded licensing and
product development activities totaling $4,729,216, a decrease of $1,565,765
from the prior year. This is equal to the amount by which the spending on the
manufacturing process and facilities for TheraCIM declined in fiscal 2002. The
total amount spent on the EGF vaccine was about the same as in fiscal 2001 with
the reduction in research payments to CIMAB being almost offset by the increase
in the costs of the clinical trial in non-small-cell-lung cancer. The increase
in development costs for tesmilifene and Norelin were offset by a reduction in
patent costs and travel costs for CIMYM.
33
The general and administrative expenses for the fiscal year ended June 30, 2002
totaled $1,864,289, comparable to $1,805,204 for the prior year.
B. LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Corporation has financed the evaluation, licensing and
further development of its licensed products as well as the evaluation of
prospective products principally through equity issuances. Since the Corporation
does not have net earnings from its operations, the Corporation's long-term
liquidity depends on its ability to out-license its products or to access the
capital markets, and both of these will depend substantially on results of the
product development programs.
The Corporation's cash requirements will be affected by the progress of its
clinical trials, the development of its regulatory submissions (alone or
together with partners), the achievement of commercialization agreements, the
costs associated with obtaining and protecting the patents for the licensed
products, and the availability of funding for part of the process from investors
and prospective commercialization partners.
In June 2002, the Corporation raised $11.5 million ($15 million gross) through
the issuance of 3,750,000 Class B Preferred Shares, Series 1. This public
offering resulted in these Class B Preferred Shares being listed on the TSX and
AIM. On June 12, 2003 all the preferred shares were converted to Common Shares.
On that date, all the Common Shares became listed on the TSX and AIM.
As at December 31, 2003 the Corporation had cash and short-term deposits
totaling $22,808,239 and payables of $502,197. On December 15, 2003 the company
completed the sale of 10,895,658 special warrants for a total gross proceeds of
$19,067,402 (net $17,047,001). Management expects that the current cash reserves
will be sufficient to fund the Corporation's development program beyond the 2005
fiscal year.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements, and the reported amount of revenue and
expenses during the reporting period. Significant accounting policies and
methods used in preparation of the financial statements are described in note 1
to the Consolidated Financial Statements. Significant policies and estimates
effect,: the amount of development expenditures expensed vs. capitalized; the
amount reserved against the amount advanced to joint ventures in excess of the
Corporation's proportionate share of expenses incurred by the joint ventures;
and the income tax valuation allowances.
The Corporation does not engage in scientific research but does incur
significant product development costs. Only development costs that meet strict
criteria related to technical, marketing and financial feasibility would be
capitalized. To date, no costs have met such criteria and, accordingly, all
development costs have been expensed as they have been incurred.
All expenditures incurred by the joint ventures are funded by advances from the
Corporation. The Corporation will not be able to recover the advances unless and
until the joint venture's net income exceeds the amount of the cumulative
advances. Accordingly, the Corporation has set up a reserve in full against the
other joint venture partners share of the advances.
The Corporation and its joint ventures have a net tax benefit resulting from
non-capital losses carried forward, and pools of scientific research and
experimental development expenditures and investment tax credit. In view of the
recent net losses incurred, management is of the opinion that it is not more
likely than not that these tax assets will be realized in the foreseeable future
and hence, a full valuation allowance has been recorded against these income tax
assets. Accordingly, no future income assets or liabilities are recorded on the
balance sheets.
34
RISKS AND UNCERTAINTIES
For a discussion of the risks and uncertainties relating to the biotechnology
industry and YM BioSciences particularly, readers are referred to the discussion
in this registration statement under the heading "Risk Factors".
D. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
The Corporation does not engage in research, but product development, patents
and licenses are at the heart of the Corporation's activities. Details of the
Corporation's licensing and product development activities for the last three
years, including amounts spent during each of the last three financial years,
can be found under the captions "Business Overview" and "Risk Factors" and
elsewhere under this Item 5 and in the financial statements. It should be noted
that during the past three years the Corporation spent some of its resources on
the development of an EGF vaccine, but in 2003 the Corporation stopped work on
the project and returned the license to the licensor.
E. TREND INFORMATION
It is important to note that historical patterns of expenditures cannot be taken
as an indication of future expenditures. The amount and timing of expenditures
and therefore liquidity and capital resources vary substantially from period to
period depending on the pre-clinical and clinical studies being undertaken at
any one time and the availability of funding from investors and prospective
commercial partners.
Other than as discussed above, the Corporation is not aware of any material
trends related the Corporation's business of product development, patents and
licensing.
F. OFF-BALANCE SHEET ARRANGEMENTS
The Corporation has certain arrangements with its subsidiaries that have an
effect or may have a future effect on the Corporation's financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or
capital resources. The arrangements are described under "Organizational
Structure - Arrangements with Subsidiaries" and in notes 1, 5 and 9 of the
financial statements.
G. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
As of June 30, 2003, the only determinable future payments were those related
operating lease obligations, which payments are set forth below.
- --------------------- ------------------ ------------------- ------------------ ------------------- ------------------
Contractual Total Less Than 1 Year 1-3 Years 3-5 Years More Than 5 Years
Obligations
- --------------------- ------------------ ------------------- ------------------ ------------------- ------------------
Operating Lease $271,747 $58,632 $177,555 $35,560
(Expires:
January 2008)
- --------------------- ------------------ ------------------- ------------------ ------------------- ------------------
In addition, as of June 30, 2003, the Corporation had certain product
development payments as described in note 8 of the financial statements. The
product development payments were paid in full in November 2003. Finally, as of
June 30, 2003, the Corporation was party to certain licensing agreements that
required the Corporation to pay royalty fees based on any fees that the
Corporation may receive from sublicensees. The royalty fees are not known.
35
ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. DIRECTORS AND SENIOR MANAGEMENT.
- ------------------------------- --------------------------------------------------- ----------------------
Name Position Period Served
- ------------------------------- --------------------------------------------------- ----------------------
David G.P. Allan Chairman, Chief Executive Officer and Director Since 1994
- ------------------------------- --------------------------------------------------- ----------------------
Thomas I.A. Allen Director Since 1996
- ------------------------------- --------------------------------------------------- ----------------------
Mark Entwistle Director Since 1997
- ------------------------------- --------------------------------------------------- ----------------------
John Friedman Director Since 2004
- ------------------------------- --------------------------------------------------- ----------------------
Henry Friesen Director Since 2001
- ------------------------------- --------------------------------------------------- ----------------------
Paul M. Keane Officer Since 1996
- ------------------------------- --------------------------------------------------- ----------------------
Vincent Salvatori Officer Since 1998
- ------------------------------- --------------------------------------------------- ----------------------
Len Vernon Officer Since 1997
- ------------------------------- --------------------------------------------------- ----------------------
Julius Vida Director Since 2001
- ------------------------------- --------------------------------------------------- ----------------------
Gilbert Wenzel Director Since 2001
- ------------------------------- --------------------------------------------------- ----------------------
Tryon M. Williams Director Since 1995
- ------------------------------- --------------------------------------------------- ----------------------
David G.P. Allan - Chairman, Chief Executive Officer and Director
Mr. Allan has been Chief Executive Officer of the Corporation since April 1998
and Chairman of the Board of directors of the Corporation since August 1994. In
1992 Mr. Allan created the Knowledge-Based Industries Group for a Canadian
investment bank where he was Executive Director until 1998. Mr. Allan is a
former governor of The Toronto Stock Exchange, a former member of the Canadian
Healthcare Licensing Association and of the Awards Selection Committee for the
Networks of Centres of Excellence in Canada.
Thomas I.A. Allen, Q.C., F.C.I.Arb - Director
Mr. Allen was called to the Bar in Ontario and began practicing law in 1965
concentrating on securities law and corporate law. He was a member of senior
management of Gordon Capital Corporation, and its merchant bank, Gordon
Investment Corporation, from mid 1989 until early 1994. Mr. Allen was counsel to
Davies, Ward & Beck from 1994 until 1996 when he joined the Toronto office of
the law firm Ogilvy Renault. Mr. Allen is Chairman of the Accounting Standards
Oversight Council of Canada, a member of the Advisory Board of the Office of the
Superintendent of Financial Institutions of Canada and a director of Bema Gold
Corporation, Mundoro Mining Inc., GEAC Computer Corporation, Unisphere Waste
Conversion Inc., and Middlefield Bancorp Limited. Mr Allen has been a director
of the Corporation since December 1996.
Mark Entwistle, M.A. - Director
Prior to founding his own consulting practice in 1997 in international trade,
political business intelligence and strategic communications, Mr. Entwistle was
an Ambassador for Canada in the Caribbean from 1993 to 1997. Mr. Entwistle was
previously a career diplomat with the Canadian Department of Foreign Affairs and
International Trade in a variety of embassy positions from 1982 to 1997, and
served as Press Secretary and Director of Communications to the Prime Minister
of Canada from 1991-1993. He is a Fellow of the Canadian Defence and Foreign
Affairs Institute. Mr. Entwistle has been a director of the Corporation since
October 1997.
John Friedman - Director
Mr. Friedman launched the Easton Capital Group ("Easton") in 1993, with Easton
Capital Corporation. In 1999, Easton Hunt Capital Partners was added to the
Group. Prior to Easton, Mr. Friedman was a founder of Atrium Capital
Corporation, which he helped manage from 1991-1993, and also the founder and
Managing General Partner of Security Pacific Capital Investors from 1989 through
1991. Security Pacific Capital Investors was a $200-million private equity fund
geared towards expansion financings and recapitalizations. Prior to joining
Security Pacific, Mr. Friedman was a Managing Director and Partner at E.M.
Warburg, Pincus & Co., Inc.,
36
where he spent eight and a half years from 1981-1989. Prior thereto, he worked
at Shearson Loeb Rhoades and was an attorney with Sullivan and Cromwell from
1978 through 1980. He holds a JD degree from Yale Law School and a BA degree
from Yale College. John currently serves on the Boards of Conor Medsystems,
Renovis, Acorda Therapeutics, Comverse Technology, Trellis Bioscience, YM
BioSciences Inc., Assistive Technology, and ModelWire, Inc., and is on the
President's Council at the Cold Spring Harbor Laboratory. Mr. Friedman has been
a director of the Corporation since April 2004.
Henry Friesen, C.C., M.D., F.R.S.C. - Director
Dr. Friesen is the Chair, Genome Canada, a non-profit organization that supports
national genomics to benefit Canadian science and industry. From 1991 to 2000
Dr. Friesen was President of the Medical Research Council of Canada, now known
as the Canadian Institutes of Health Research. Dr. Friesen is noted for his
discoveries about the human hormone prolactin and as Head of the Department of
Physiology and Professor of Medicine at the University of Manitoba. Dr. Friesen
is a Fellow of the Royal Society of Canada, a Companion of the Order of Canada
and also sits on the Board of directors of Aventis Pasteur Canada and Spectral
Diagnostics Inc. Dr. Friesen has been a director of the Corporation since
November 2001.
Paul M. Keane, M.D., F.R.C.P.C., F.A.C.P., F.R.C. Path - Director, Medical
Affairs
Dr. Keane has been an officer of the Corporation since January 1996. Dr. Keane
was Director of Clinical Research at Miles Canada Inc. (now Bayer Canada) from
1989 to 1995, prior to which he was Professor of Medicine at University of
Calgary and Professor of Pathology at McMaster University. Dr. Keane has
authored numerous scientific publications in peer review journals, has acted as
a reviewer of research proposals for the Medical Research Council of Canada and
has acted in an editorial capacity for a number of scientific journals.
Vincent Salvatori, Ph.D. - Executive Vice President
Dr. Salvatori has been an officer of the Corporation since December 2002. Dr.
Salvatori is an experienced drug development executive with an accomplished
background in the pharmaceutical and biotechnology industry. He has more than 20
years of experience in all aspects of drug development, corporate operations and
external collaborations. Dr. Salvatori most recently held the position of Senior
Vice President of Clinical Operations for Bioniche Life Sciences Inc. from May
1998 to July 2002. He was previously at StressGen Biotechnologies Corporation
from January 1995 to April 1998 where he held the positions of Chief Operating
Officer and Vice President of Research and Development, subsequently appointed
to Senior Vice President. In this capacity, Dr. Salvatori was responsible for
corporate operations, strategic management and clinical/regulatory development.
Prior to joining StressGen, Dr. Salvatori was the Senior Director of Program
Management at QLT PhotoTherapeutics Inc. from June 1990 to December 1994 and
held various positions at Boehringer Ingelheim (Canada) Ltd. from April 1982 to
June 1990.
Len Vernon, B.Sc., C.A. - Director, Finance and Administration
Mr. Vernon earned a B.Sc. in 1968 and was awarded his C.A. in 1972 with Clarkson
Gordon & Co. (now Ernst & Young). He has held senior financial positions with a
number of organizations both public and private. Prior to joining YM as an
officer in July 1997, Mr. Vernon was an independent consultant working with
senior management in a variety of industries. Prior to 1992 he was
Vice-president, Finance and Administration of Unitel Inc. (now Allstream Inc.) a
major Canadian telecommunications company.
Julius Vida, Ph.D., M.B.A. - Director
Dr. Vida has been the President of Vida International Pharmaceutical
Consultants, a consulting firm advising pharmaceutical and biotechnology
companies, since 1993. Previously Dr. Vida was Director of Licensing and
subsequently Vice President, Business Development, Licensing and Strategic
Planning at Bristol-Myers Squibb, from 1975 to 1993. Dr. Vida is a director of a
number of biotechnology firms including Medarex, Inc., Orphan Medical, Inc.,
37
ALS, Inc., FibroGen, Inc., OsteoScreen, Inc., Spectrum Pharmaceuticals Inc.,
Albachem, LTD. (UK) and SWITCH Biotech AG, Inc. Dr. Vida has been a director of
the Corporation since September 2001.
Gilbert Wenzel, Ph.D. - Director
Dr. Wenzel is currently President and Chief Executive Officer of Quisisana AG, a
business development firm focused on pharmaceuticals. Prior to founding
Quisisana in January 2003, Dr. Wenzel joined Novartis Group, a global
pharmaceutical manufacturer, in November 2000 where he served as Head of
Strategic Planning and a Member of its Executive Committee until January 2003.
Prior to joining Novartis in November 2000, Dr. Wenzel spent 15 years with
McKinsey & Co., an international management consulting firm, and was a member of
the European Leadership Group of its Pharma/Healthcare Sector and of the
European New Venture Initiative. From 1981 to 1985, Dr. Wenzel was at Hoechst AG
in Germany and developed global strategies for generics and over-the-counter
medicines. Dr. Wenzel has been a director of the Corporation since March 2001.
Tryon M. Williams, B.Sc. (Math) - Director
Mr. Williams is the Chairman of CellStop International Limited, an automobile
electronics manufacturer, and Chief Executive Officer and director of Bingo.com,
Inc., an internet technology company. Since 1993, Mr. Williams has been Adjunct
Professor, Sauder School of Business, The University of British Columbia. Mr.
Williams is also a director of Infowave Software, Inc. and several other private
corporations. Mr. Williams has been a director of the Corporation since November
1995.
CLINICAL ADVISORY BOARD
The Corporation maintains a Clinical Advisory Board ("CAB") composed of
internationally recognized clinicians and scientists. Management meets with
members of the CAB periodically to review operational aspects of the
Corporation's clinical and scientific programme and make recommendations with
regard to the perceived trends and direction of medical and biopharmaceutical
technologies and the industry generally. Each member of the CAB has signed a
confidentiality agreement with the Corporation. CAB members receive honoraria
paid by the Corporation of varying amounts per year. The current composition of
the CAB is as follows:
Lorne J. Brandes, B.Sc., M.D., C.R.C.P.C.
Professor, Departments of Medicine and Pharmacology/Therapeutics, University of
Manitoba, Winnipeg, Manitoba, Canada; Section of Hematology/Oncology, CancerCare
Manitoba, Winnipeg, Manitoba, Canada
Robert S. Kerbel, Ph.D.
Professor of Medical Biophysics, University of Toronto, Toronto, Ontario,
Canada; Canada Research Chair in Molecular Medicine; Director, Molecular and
Cell Biology Research, Sunnybrook and Women's College Health Science Centre,
Toronto, Ontario, Canada
Agustin Lage Davila M.D. Ph.D.
Director, Centro de Inmunologia Molecular, Havana, Cuba; Professor of Medicine,
University of Havana
Derek Raghavan, M.D., Ph.D., F.A.C.P., F.R.A.C.P.
Professor of Medicine and Urology, Chief, Division of Oncology, University of
Southern California (USC), Los Angeles, California, United States; Associate
Director for Clinical Research at USC/Norris Comprehensive Cancer Center and
Hospital, Los Angeles, California, United States
38
Raymond M. Reilly, Ph.D.
Associate Professor, Departments of Medical Imaging and Pharmaceutical Sciences,
University of Toronto, Toronto, Ontario, Canada; Associate Scientist, Department
of Medical Imaging, University Health Network, Toronto, Ontario, Canada
Niclas Stiernholm, PhD.
Chief Executive Officer, Trillium Therapeutics Inc., Toronto, Ontario, Canada
Mark Vincent, M.D., M.R.C.P., F.R.C.P.C.
Associate Professor, Department of Oncology, University of Western Ontario,
London, Ontario, Canada; Staff Medical Oncologist, London Regional Cancer
Centre, London, Ontario, Canada
Daniel D. Von Hoff, M.D., F.A.C.P.
Professor of Medicine, University of Arizona and Executive Vice President,
Translational Genomics Research Institute and Director, Translational Drug
Development Program, Tucson, Arizona, United States.
B. COMPENSATION.
COMPENSATION OF DIRECTORS
Directors of the Corporation who are not full-time employees of the Corporation
are entitled to receive an annual retainer fee of $12,000 plus an attendance fee
of $1,500 per meeting (with the exception of informational meetings) and per day
spent travelling to attend the meeting, plus expenses. With respect to
informational meetings, directors of the Corporation who are not full-time
employees of the Corporation are entitled to an attendance fee of $500 per
meeting and per day spent travelling to attend the meeting, plus expenses. In
addition, the Chair of the Audit Committee is entitled to an annual retainer fee
of $6,000 and the Chair of the each of the Compensation and the Corporate
Governance and Nominating Committees are entitled to an annual retainer fee of
$4,000. Members of the Audit, Compensation and Corporate Governance and
Nominating Committees who are not full-time employees of the Corporation are
entitled to an attendance fee of $1,500 per meeting and per day spent travelling
to attend the meeting, plus expenses. As at April 30, 2004 the number of options
held by non-executive directors is 667,120. An additional 655,624 options are
held by the Chairman and Chief Executive Officer.
COMPENSATION OF EXECUTIVE OFFICERS
The compensation payable to the executive officers of the Corporation is
established by the Compensation Committee, no member of which is or has been an
executive officer or employee of the Corporation or its subsidiaries.
The following table sets forth a summary of compensation paid during the fiscal
years ended June 30, 2003, 2002, and 2001 to the Corporation's Chief Executive
Officer and its four next most highly compensated executive officers (the "Named
Executive Officers").
39
SUMMARY COMPENSATION TABLE
- ---------------------- ------ ------------------------------- ---------------------------------------------------
Name and Principal Year Annual Compensation Long-Term Compensation
Position
- ---------------------- ------ ------------------------------- ---------------------------------------------------
Awards Payouts
- ---------------------- ------ --------- ------- ------------- ---------- ---------- ------------- ---------------
Salary Bonus Other Securities Restricted LTIP Payouts All Other
($) ($) Annual Under Shares ($) (2) Compensation
Compensation Options or ($)
($) Granted Restricted
Share
Units
($)(1)
- ---------------------- ------ --------- ------- ------------- ---------- ---------- ------------- ---------------
David G.P. Allan, 2003 250,000 15,000 Nil 110,000 - - Nil
Chief Executive 2002 160,000 24,000 Nil Nil Nil
Officer 2001 160,000 Nil Nil 250,000 Nil
- ---------------------- ------ --------- ------- ------------- ---------- ---------- ------------- ---------------
David Harper, 2003 145,000 Nil Nil 54,000 - - Nil
Director, Licensing 2002 140,000 21,000 Nil Nil Nil
and Business 2001 140,000 Nil Nil 25,000 Nil
Development 3
- ---------------------- ------ --------- ------- ------------- ---------- ---------- ------------- ---------------
Paul Keane, 2003 150,000 25,000 Nil 54,000 - - Nil
Director, Medical 2002 125,000 18,750 Nil 15,000 Nil
Affairs 2001 125,000 Nil Nil 10,000 Nil
- ---------------------- ------ --------- ------- ------------- ---------- ---------- ------------- ---------------
Vincent Salvatori, 2003 149,000 Nil Nil 39,500 - - Nil
Executive Vice
President 4
- ---------------------- ------ --------- ------- ------------- ---------- ---------- ------------- ---------------
Len Vernon, 2003 148,000 4,000 Nil 54,000 - - Nil
Director, Finance 2002 140,000 Nil Nil 25,000 Nil
and Administration 2001 140,000 Nil Nil Nil Nil
- ---------------------- ------ --------- ------- ------------- ---------- ---------- ------------- ---------------
1. The Corporation has not at any time granted restricted shares to
executives or other employees.
2. The Corporation has not established any Long Term Incentive Plans as
defined by the regulations to the Securities Act (Ontario), which
specifically exclude option plans.
3. David Harper resigned as Director, Licensing and Business Development on
December 31, 2003.
4. Dr. Salvatori joined the Corporation in December 2002.
LONG TERM INCENTIVE PLANS
The Corporation has no long-term incentive plan in place and there were no
awards made under any long term incentive plan to directors or Named Executive
Officers during the fiscal year ended June 30, 2003. A "Long Term Incentive
Plan" in a plan under which awards are made based on performance over a period
longer than one fiscal year, other than a plan for options, stock appreciation
rights or restricted share compensation.
OPTION GRANTS
The following table sets forth information concerning options for the purchase
of Common Shares granted during the fiscal year ended June 30, 2003 to the
directors and Named Executive Officers.
40
OPTION GRANTS DURING THE MOST RECENTLY
COMPLETED FINANCIAL YEAR
- --------------------- ---------------- ------------------ --------------- ----------------- -----------------
Market Value of
Common Shares % of Total Exercise Price Securities Expiration Date
Name Under Options Granted ($/Security) Underlying
Option (1) to Employees in Options on
Financial Year the Date of
Grant
($/Security)
- --------------------- ---------------- ------------------ --------------- ----------------- -----------------
David G.P. Allan 102,500 17% 1.75 1.45 April 30, 2013
7,500 1% 2.50 1.45 April 30, 2013
- --------------------- ---------------- ------------------ --------------- ----------------- -----------------
David Harper2 29,000 5% 1.75 1.45 April 30, 2013
25,000 4% 2.50 1.45 April 30, 2013
- --------------------- ---------------- ------------------ --------------- ----------------- -----------------
Paul Keane 29,000 5% 1.75 1.45 April 30, 2013
25,000 4% 2.50 1.45 April 30, 2013
- --------------------- ---------------- ------------------ --------------- ----------------- -----------------
Vincent Salvatori 14,500 2% 1.75 1.45 April 30, 2013
25,000 4% 2.50 1.45 April 30, 2013
- --------------------- ---------------- ------------------ --------------- ----------------- -----------------
Len Vernon 29,000 5% 1.75 1.45 April 30, 2013
25,000 4% 2.50 1.45 April 30, 2013
- --------------------- ---------------- ------------------ --------------- ----------------- -----------------
(1) The options vest at the rate of 2.5% per month.
(2) David Harper resigned as Director, Licensing and Business Development on
December 31, 2003.
None of the directors or Named Executive Officers exercised any options during
the fiscal year ended June 30, 2003. The following table shows the number of
options to purchase Common Shares held by the Named Executive Officers and the
value of unexercised in-the-money options of such persons as at the end of the
Corporation's most recently completed fiscal year:
OPTIONS HELD AND FISCAL YEAR END OPTION VALUES
- ----------------------- --------------------------------- --------------------------------------
Name Unexercised Options at June 30, Value of Unexercised
2003 In-the-Money Options
at June 30, 2003(1)
- ----------------------- --------------------------------- --------------------------------------
Vested Unvested Vested Unvested
- ----------------------- -------------- ------------------ ------------------ -------------------
David G.P. Allan 314,250 142,000 Nil Nil
- ----------------------- -------------- ------------------ ------------------ -------------------
David Harper2 73,950 55,050 Nil Nil
- ----------------------- -------------- ------------------ ------------------ -------------------
Paul Keane 72,825 56,175 Nil Nil
- ----------------------- -------------- ------------------ ------------------ -------------------
Vincent Salvatori 25,725 13,775 Nil Nil
- ----------------------- -------------- ------------------ ------------------ -------------------
Len Vernon 72,825 56,175 Nil Nil
- ----------------------- -------------- ------------------ ------------------ -------------------
(1) Values have been based on the closing price of the Common Shares on the
Toronto Stock Exchange on June 30, 2003 of $1.00 per share.
(2) David Harper resigned as Director, Licensing and Business Development on
December 31, 2003.
EMPLOYMENT ARRANGEMENTS AND TERMINATION OF EMPLOYMENT
An executive officer of the Corporation is entitled to receive six months salary
upon termination if such termination is caused by a change of control of the
Corporation. The Chief Executive Officer of the Corporation is entitled to
receive twenty-four months salary upon termination if such termination is caused
by a change of control of the Corporation. Other than the foregoing
arrangements, the Corporation does not currently have employment agreements with
any of the Named Executive Officers.
PENSION PLANS AND RETIREMENT BENEFITS
The Corporation does not provide any pension, retirement or similar benefits.
41
LICENSING BONUS POOL
The Corporation has established a licensing bonus pool to reward management and
employees for the completion of product licenses of the Corporation's products.
The Corporation will contribute to the licensing bonus pool: (i) if the
Corporation receives a license fee or an applicable milestone or royalty payment
under a license agreement; (ii) if a licensor directly invests in the
Corporation by purchasing shares out of treasury in exchange for the licensing
rights to a particular drug; and (iii) if the Corporation sells an interest in a
product to a development partner and the Corporation retains an interest in that
product. The amount contributed to the licensing bonus pool for each of
(i)-(iii) is set forth in a summary of the licensing bonus pool which is
provided to all management and non-management participants. Nothing has occurred
to date that has required the Corporation to contribute to the licensing bonus
pool.
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
the Corporation's memorandum of association and articles of association.
No director has a service contract with us. Each director has formally consented
to serve as a director and signed a confidentially agreement with us.
From time to time the 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
The members of the Corporation's Audit Committee are Thomas I.A. Allen and Tryon
M. Williams.
The principal functions of the Audit Committee are to appoint, compensate and
oversee the external auditors; to review and approve annual and quarterly
financial statements and all legally required continuous and public disclosure
documents containing financial information about the Corporation; to review and
approve the adequacy of internal accounting controls and the quality of
financial reporting procedures and systems; to examine the presentation and
impact of key financial and other significant risks that may be material to the
Corporation's financial reporting; and to review and approve the nature and
scope of the annual audit and review the results of the external auditor's
examination. The Audit Committee reports its findings with respect to such
matters to the Board of directors.
CORPORATE GOVERNANCE AND NOMINATING COMMITTEE
The members of the Corporation's Corporate Governance and Nominating Committee
are Thomas I.A. Allen, Julius Vida and Tryon M. Williams.
The mandate of the Corporation's Corporate Governance and Nominating Committee
is to develop and monitor the Corporation's system of corporate governance in
the context of the Toronto Stock Exchange Report on Corporate Governance, and
the rules and regulations promulgated by the Ontario Securities Commission and
the Securities and Exchange Commission, including reviewing the mandate of the
Board of directors and its committees; periodically reviewing and evaluating the
performance of all directors, committees and the Board as a whole; selecting new
candidates for Board memberships, making recommendations to the Board and
ensuring that appropriate orientation and education programmes are available for
new Board members; establishing procedures to ensure that the Board may meet
independent of Management and reviewing annually the membership and chairs of
all committees.
42
COMPENSATION COMMITTEE
The members of the Corporation's Compensation Committee are Thomas I.A. Allen,
Tryon M. Williams and Mark Entwistle.
The mandate of the Compensation Committee is to establish and monitor the
Corporation's policies for attracting, retaining, developing and motivating
senior employees. The compensation policies are designed to support the
Corporation's strategic objectives, ensure that incentive programmes are
designed to motivate senior managers to achieve or exceed corporate objectives
and to enhance shareholder value and to ensure that there is reasonable
consistency in the application of the compensation policies. The Corporation's
responsibilities include reviewing annually the performance of the Chief
Executive Officer (or more frequently if deemed necessary by the Compensation
Committee), setting the Chief Executive Officer's compensation and, in
consultation with the Chief Executive Officer, establishing his personal
objectives, reviewing the performance and approving the compensation of
executive officers of the Corporation on the recommendation of the Chief
Executive Officer, establishing incentive compensation programmes and monitoring
their effectiveness and developing and documenting the compensation policy and
philosophy of the Corporation for approval by the Board of directors.
D. EMPLOYEES.
As of June 30, 2003, the Corporation employed 14 permanent employees. Each of
the employees are located at the Corporation's head office. Other than
administrative staff, the employees conduct the Corporation's licensing and
product development activities.
E. SHARE OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS.
The following table sets out details of our shares and options that are directly
or indirectly held by directors and executive officers as at April 30, 2004,
based on 28,183,152 Common Shares issued and outstanding on such date.
- ------------------------ --------------------- ------------------- ---------------- --------------- -------------------
Number of
Percentage of Common Shares
Number of Common Outstanding held under Exercise Price
Name Shares Common Shares Option Expiration Date
- ------------------------ --------------------- ------------------- ---------------- --------------- -------------------
David G.P. Allan 669,659 2.4% 656,250 $1.75 - $4.50 2007 - 2013
- ------------------------ --------------------- ------------------- ---------------- --------------- -------------------
Thomas I.A. Allen - - 105,600 $1.75 - $4.50 2007 - 2013
- ------------------------ --------------------- ------------------- ---------------- --------------- -------------------
Mark Entwistle - - 80,660 $1.75 - $4.50 2007 - 2013
- ------------------------ --------------------- ------------------- ---------------- --------------- -------------------
John Friedman - - 50,000 $2.10 2014
- ------------------------ --------------------- ------------------- ---------------- --------------- -------------------
Henry Friesen - - 80,660 $1.75 - $4.50 2011 - 2013
- ------------------------ --------------------- ------------------- ---------------- --------------- -------------------
Paul M. Keane - - 204,000 $1.75 - $4.50 2007 - 2013
- ------------------------ --------------------- ------------------- ---------------- --------------- -------------------
Vincent Salvatori - - 80,000 $1.75 - $2.50 2008 - 2013
- ------------------------ --------------------- ------------------- ---------------- --------------- -------------------
Len Vernon - - 170,000 $1.75 - $4.50 2008 - 2013
- ------------------------ --------------------- ------------------- ---------------- --------------- -------------------
Julius Vida - - 75,660 $1.75 - $4.50 2011 - 2013
- ------------------------ --------------------- ------------------- ---------------- --------------- -------------------
Gilbert Wenzel - - 75,660 $1.75 - $4.50 2011 - 2013
- ------------------------ --------------------- ------------------- ---------------- --------------- -------------------
Tryon M. Williams 20,100 0.1% 118,160 $1.75 - $4.50 2007 - 2013
- ------------------------ --------------------- ------------------- ---------------- --------------- -------------------
STOCK OPTION PLAN
The directors of the Corporation adopted a stock option plan (the "Option Plan")
on November 22, 1996, which was subsequently ratified by the shareholders on
December 14, 1996. The Option Plan was subsequently amended on November 26, 2003
to increase the number of Common Shares available to be reserved for issuance
under the Option Plan to 2,750,000.
Under the Option Plan, options to purchase Common Shares may, from time to time,
be granted to directors, officers, employees and service providers of the
Corporation. The exercise price for any options granted under the Option Plan
will not be less than the current market price of the Common Shares at the time
of grant. The aggregate number of Common Shares issuable to directors and senior
officers of the Corporation and their associates ("Insiders") under the Option
43
Plan and any other share compensation arrangements of the Corporation may not:
(i) exceed 2,750,000 Common Shares; or (ii) result in the issuance to Insiders
and their associates, within a one year period, of more than 10% of the number
of Common Shares outstanding at the time of the grant. The aggregate number of
Common Shares issuable to any Insider under the Option Plan and any other share
compensation arrangements of the Corporation may not, within a one year period,
exceed 5% of the number of Common Shares outstanding at the time of the grant
from time to time. The maximum term of each option is ten years, and options
granted under the Option Plan are non-transferable and subject to early
termination in the event of the death of the optionee or the optionee ceasing to
be a director, officer, employee of or service provider to the Corporation or
the applicable subsidiary.
STOCK OPTIONS OUTSTANDING
Options in respect of 597,500 Common Shares were granted in the fiscal year
ended June 30, 2003 under the Option Plan. During the fiscal year 80,000 options
expired or were cancelled. As at April 30, 2004 there were 2,530,752 options
outstanding. The exercise price of such options is between $1.50 and $4.50.
The following table contains information regarding the outstanding options to
acquire Common Shares granted by the Corporation as of April 30, 2004:
- ---------------------------------- ------------------ ------------------- ---------------------- --------------------------
Number of Common Exercise Fair Market Value at Expiry
Shares Optioned Price date of Grant
- ---------------------------------- ------------------ ------------------- ---------------------- --------------------------
Directors and former directors 274,620 $1.75 $1.75 2013
(9) 52,500 $2.00 $2.00 2013
(Excluding senior officers) 120,000 $3.25 $3.25 2007
220,000 $4.50 $4.50 2005-2011
50,000 $2.10 $2.10 2014
- ---------------------------------- ------------------ ------------------- ---------------------- --------------------------
Senior Officers (5) 560,500 $1.75 $1.75 2013
7,500 $2.00 $2.00 2013
100,000 $2.50 $2.50 2008-2013
246,250 $3.25 $3.25 2007-2008
325,000 $4.50 $4.50 2010-2011
- ---------------------------------- ------------------ ------------------- ---------------------- --------------------------
Employees and former employees 135,500 $1.75 $1.75 2013
(6) 65,000 $2.50 $2.50 2008-2013
50,000 $3.25 $3.25 2007
0 $4.00 $4.00 2008
62,000 $4.50 $4.50 2010
- ---------------------------------- ------------------ ------------------- ---------------------- --------------------------
Consultants and advisors (14) 25,000 $1.50 $1.50 2004
112,000 $1.75 $1.75 2013
8,000 $2.50 $2.50 2013
9,050 $3.25 $3.25 2004
12,500 $4.00 $4.00 2007-2008
95,332 $4.50 $4.50 2005-2010
- ---------------------------------- ------------------ ------------------- ---------------------- --------------------------
TOTAL 2,530,752
- ---------------------------------- ------------------ ------------------- ---------------------- --------------------------
ITEM 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. MAJOR SHAREHOLDERS.
The corporation is not indirectly owned or controlled by another corporation, by
any foreign government or by any other person or entity. The following table
sets forth certain information as of April 30, 2004 concerning the beneficial
ownership of our Common Shares as to each person known to us that is the
beneficial owner of more that 5% of our outstanding shares:
44
- ---------------------------- ------------------------------------ -------------------------- ----------------------------
Title of Class Identity of Person or Group Number of Shares Percent of class
- ---------------------------- ------------------------------------ -------------------------- ----------------------------
Common shares equity4Life 1,500,000 5.3%
- ---------------------------- ------------------------------------ -------------------------- ----------------------------
Common shares North Sound Legacy International Ltd. 1,522,726 5.4%
- ---------------------------- ------------------------------------ -------------------------- ----------------------------
The Corporation's major shareholders do not have different voting rights than
the other shareholders.
B. RELATED PARTY TRANSACTIONS.
We have not entered into any related party transactions in the period since the
beginning of our preceding three financial years, July 1, 2000, to the date
hereof.
C. INTERESTS OF EXPERTS AND COUNSEL.
Not applicable.
ITEM 8: FINANCIAL INFORMATION
A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
Audited consolidated financial statements including consolidated balance sheets,
consolidated statements of loss and deficit and consolidated statements of cash
flows, for the fiscal years ended June 30, 2003, 2002 and 2001, and the
unaudited financial statements for the six months ended December 30, 2003 and
2002, together with the notes to those statements and the auditor's report
thereon, are contained under the caption "Item 18: Financial Statements" below.
EXPORT SALES
The Corporation has not undertaken any export sales.
LEGAL OR ARBITRATION PROCEEDINGS
The Corporation is not a party to any material pending legal or arbitration
proceedings and is not aware of any material contemplated legal proceedings to
which we may be a party.
DIVIDEND POLICY
The Corporation has not paid any dividends since its incorporation. The
Corporation will consider paying dividends in future as its operational
circumstances may permit having regard to, among other things, the Corporation's
earnings, cash flow and financial requirements. It is the current policy of the
Board of directors to retain all earnings to finance the Corporation's business
plan.
B. SIGNIFICANT CHANGES
Other than "Subsequent Events" described in note 12 of the financial statements,
there have been no significant changes in the Corporation's business since
December 31, 2003.
45
ITEM 9: THE OFFER AND LISTING
A. OFFER AND LISTING DETAILS.
The Corporation's Common Shares have traded on the Toronto Stock Exchange (the
"TSX") since June 12, 2003 under the symbol "YM", and were admitted to trading
on the Alternative Investment Market ("AIM") of the London Stock Exchange plc on
June 12, 2003 under the symbol "YMBA".
PRICE HISTORY
The Corporation has been listed on the Toronto Stock Exchange (the "TSX") since
June 11, 2002. Initially, the Corporation listed its Class B Preferred Shares,
Series 1. On June 12, 2003, the Class B Preferred Shares, Series 1, were
automatically converted on a one-for-one basis into the Common Shares, which
became listed on the TSX on that date. The following tables set forth the high
and low closing prices as reported by the TSX for our securities for each of the
indicated periods. Prices prior to June 12, 2003 are for the Corporation's Class
B Preferred Shares, Series 1, and prices on or after June 12, 2003 are for the
Corporation's Common Shares:
Annual high-low price history for previous two fiscal years
- ---------------------------------- ------------------------------- -------------------------------
Fiscal Year Ended High Low
- ---------------------------------- ------------------------------- -------------------------------
June 30, 2002 (1) 4.30 3.80
- ---------------------------------- ------------------------------- -------------------------------
June 30, 2003 4.05 0.85
- ---------------------------------- ------------------------------- -------------------------------
(1) The high-low price history for the fiscal year ended June 30, 2002, includes
the high and low closing prices as reported for June 11, 2002, the first date
the Corporation's Class B Preferred Shares, Series 1 were listed, to June 30,
2002.
Quarterly high-low price history for previous two fiscal years and the most
recent fiscal quarters
- ------------------------- ---------------------- -----------------------
Quarter Ended High Low
- ------------------------- ---------------------- -----------------------
June 30, 2002(1) 4.30 3.80
- ------------------------- ---------------------- -----------------------
September 30, 2002 4.05 2.00
- ------------------------- ---------------------- -----------------------
December 31, 2002 2.25 1.60
- ------------------------- ---------------------- -----------------------
March 31, 2003 1.90 1.45
- ------------------------- ---------------------- -----------------------
June 30, 2003 1.60 0.85
- ------------------------- ---------------------- -----------------------
September 30, 2003 1.65 0.86
- ------------------------- ---------------------- -----------------------
December 31, 2003 2.50 1.15
- ------------------------- ---------------------- -----------------------
March 31, 2004 3.10 1.75
- ------------------------- ---------------------- -----------------------
(1) The high-low price history for the quarter ended June 30, 2002, includes the
high and low closing prices as reported for June 11, 2002, the first date the
Corporation's Class B Preferred Shares, Series 1 were listed, to June 30, 2002.
Monthly high-low price history for previous six months
- ------------------------- ---------------------- -----------------------
Month High Low
- ------------------------- ---------------------- -----------------------
October 2003 1.63 1.54
- ------------------------- ---------------------- -----------------------
November 2003 1.62 1.50
- ------------------------- ---------------------- -----------------------
December 2003 2.10 1.95
- ------------------------- ---------------------- -----------------------
January 2004 2.30 1.75
- ------------------------- ---------------------- -----------------------
February 2004 3.10 1.80
- ------------------------- ---------------------- -----------------------
March 2004 2.49 2.10
- ------------------------- ---------------------- -----------------------
April 2004 3.50 2.05
- ------------------------- ---------------------- -----------------------
DESCRIPTION OF SECURITIES
The securities being registered pursuant to this registration statement are our
Common Shares, without par value.
46
B. PLAN OF DISTRIBUTION.
Not applicable.
C. MARKETS.
The Corporation's Common Shares have traded on the TSX since June 12, 2003 under
the symbol "YM", and were admitted to trading on AIM on June 12, 2003 under the
symbol "YMBA". We have applied to list the Common Shares for trading on the
American Stock Exchange. We expect such listing to be completed during the
second quarter of calendar 2004. However, there can be no assurance that our
application will be approved or that an active trading market in our shares in
the US 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.
The authorized share capital of the Corporation consists of 500,000,000 Common
Shares without nominal or par value, 500,000,000 Class A non-voting common
shares without nominal or par value, 500,000,000 Class A preferred shares
without nominal or par value and 500,000,000 Class B preferred shares, issuable
in series, without nominal or par value. As at April 30, 2004, there were
28,183,152 Common Shares, no Class A non-voting common shares and no preferred
shares outstanding.
The following table is a reconciliation of our issued share capital from June
30, 2000 to April 30, 2004:
- ----------------------------------------------------------------------------------------------------
Issued and Outstanding Special Common Preferred Amount
Warrants Shares Shares
- ----------------------------------------------------------------------------------------------------
As at June 30, 2000 12,923,094 $29,983,582
- ----------------------------------------------------------------------------------------------------
Issued pursuant to a licensing agreement 50,000 450,000
- ----------------------------------------------------------------------------------------------------
As at June 30, 2001 12,973,094 $30,433,582
- ----------------------------------------------------------------------------------------------------
Issued pursuant to a licensing agreement 25,000 225,000
- ----------------------------------------------------------------------------------------------------
Public offering of preferred shares 3,750,000 11,514,407
- ----------------------------------------------------------------------------------------------------
As at June 30, 2002 12,998,094 3,750,000 $42,172,989
- ----------------------------------------------------------------------------------------------------
Issued from treasury 759,000 2,595,780
- ----------------------------------------------------------------------------------------------------
Shares repurchased for cancellation (19,000) (46,200) (39,665)
- ----------------------------------------------------------------------------------------------------
Conversion of preferred to common 4,462,800 (4,462,800)
- ----------------------------------------------------------------------------------------------------
As at June 30, 2003 17,441,894 0 $44,729,104
- ----------------------------------------------------------------------------------------------------
Shares repurchased for cancellation (169,900) (73,675)
- ----------------------------------------------------------------------------------------------------
Private placement 10,895,658 17,047,001
- ----------------------------------------------------------------------------------------------------
As at December 31, 2003 10,895,658 17,271,994 $61,702,430
- ----------------------------------------------------------------------------------------------------
Exercise of special warrants (10,895,658) 10,895,658
- ----------------------------------------------------------------------------------------------------
Issued on the exercise of options 15,500 27,125
- ----------------------------------------------------------------------------------------------------
As at April 30, 2004 0 28,183,152 $61,729,555
- ----------------------------------------------------------------------------------------------------
47
THE COMMON SHARES
All of the Common Shares rank equally as to voting rights, participation in a
distribution of the assets of the Corporation on a liquidation, dissolution or
winding-up of the Corporation and the entitlement to dividends. The holders of
the Common Shares are entitled to receive notice of all meetings of shareholders
and to attend and vote the Common Shares at the meetings. Each Common Share
carries with it the right to one vote.
In the event of the liquidation, dissolution or winding-up of the Corporation,
the holders of the Common Shares will be entitled, subject to the rights,
privileges, restrictions and conditions attaching to any other class of shares
of the Corporation, to receive, on a pro rata basis, share for share, with the
Class A non-voting common shares, all of the remaining property of the
Corporation. There are no pre-emptive or conversion rights and no provisions for
redemption, retraction, purchase for cancellation or surrender or sinking or
purchase funds.
OUTSTANDING OPTIONS AND WARRANTS
The Corporation had 2,530,752 options outstanding as at April 30, 2004. See
"Item 6-E. Share Ownership of Directors and Executive Officers" for a more
detailed summary of the Corporation's outstanding stock options and a
description of the Corporation's stock option plan.
As at April 30, 2004, the Corporation had 6,944,339 share purchase warrants
outstanding, which have been issued to licensors and to participants in the
Corporation's private placement. The following table describes the share
purchase warrants outstanding as of April 30, 2004:
- ------------------------------ ----------------- ---------------------- ---------------------
Issued Number of Expiry Exercise Price
Common Shares
Issuable
- ------------------------------ ----------------- ---------------------- ---------------------
Sept. 1, 2000 200,000 Sept. 1, 2005 $4.50
- ------------------------------ ----------------- ---------------------- ---------------------
Oct. 11, 2000 37,500 Oct. 11, 2004 $9.00
- ------------------------------ ----------------- ---------------------- ---------------------
Feb. 15, 2002 44,444 Feb. 15, 2006 $4.50
- ------------------------------ ----------------- ---------------------- ---------------------
June 12, 2002 125,000 June 12, 2006 $4.00
- ------------------------------ ----------------- ---------------------- ---------------------
Feb. 17, 2004 5,447,829 Feb 15, 2009 $2.50
- ------------------------------ ----------------- ---------------------- ---------------------
Feb. 17, 2004 1,089,566 Feb. 15, 2009 $1.75
- ------------------------------ ----------------- ---------------------- ---------------------
Total 6,944,339
- ------------------------------ ----------------- ---------------------- ---------------------
B. MEMORANDUM AND ARTICLES OF ASSOCIATION.
YM BioSciences Inc. was incorporated under the laws of Ontario on August 17,
1994 and on December 11, 2001 it continued into the Province of Nova Scotia
under the Nova Scotia Companies Act. The head office and principal place of
business of the Corporation is Suite 400, Building 11, 5045 Orbitor Drive,
Mississauga, Ontario, Canada, L4W 4Y4. The registered office of YM BioSciences
is 1959 Upper Water Street, Suite 800, Halifax, Nova Scotia, Canada, B3J 2X2.
48
The authorized share capital of the Corporation consists of 500,000,000 Common
Shares without nominal or par value, 500,000,000 Class A non-voting common
shares without nominal or par value, 500,000,000 Class A preferred shares
without nominal or par value and 500,000,000 Class B preferred shares, issuable
in series, without nominal or par value.
All of the Common Shares rank equally as to voting rights, participation in a
distribution of assets on a liquidation, dissolution or winding-up of the
Corporation and the entitlement to dividends. The holders of the Common Shares
are entitled to receive notice of all meetings of shareholders and to attend and
vote at the meetings. Each Common Share carries with it the right to one vote.
There are no limitations on the rights of shareholders, including non-resident
or foreign shareholders, to own or exercise the voting rights of the Common
Shares.
In the event of liquidation, dissolution or winding-up of the Corporation or
other distribution of assets, the holders of the Common Shares will be entitled
to receive, on a pro-rata basis, all of the assets remaining after the
Corporation has paid out it's liabilities. Although the Corporation currently
does not pay dividends, a capital distribution in the form of dividends, if any,
would be declared by the Board of directors.
Provisions as to modification, amendment or variation of the rights attached to
the Common Shares are contained in the Corporation's memorandum and articles and
the Nova Scotia Companies Act. Generally speaking, substantive changes to the
rights attached to the Common Shares will require the approval of the holders of
Common Shares by special resolution (at least 75% of the votes cast).
There are no restrictions on the repurchase or redemption by us of Common Shares
as long as we remain solvent. There are no indentures or agreements limiting the
payment of dividends. There are no conversion rights, special liquidation
rights, sinking fund provisions, pre-emptive rights or subscription rights
attached to any Common Shares. Holders of Common Shares are not liable to
further capital calls by the Corporation.
The directors have the power to convene general meetings of the Corporation and
to set the record date for such meetings to determine the shareholders of record
entitled to receive notice of and vote at such meetings. Meetings must be held
annually, at least every 13 months, and if they are not convened by the
directors, may be requisitioned by shareholders in certain circumstances. The
directors must stand for election at each annual general meeting of
shareholders.
If one of the Corporation's directors votes on a proposal, arrangement or
contract in which the director is materially interested, the director is liable
to account to the Corporation for any profit made as a consequence of our
entering into or performing the proposed arrangement or contract, unless the
arrangement or contract is reasonable and fair and is approved by a special
resolution of the shareholders. A director is not deemed to be interested or
have been interested at any time in a proposal, arrangement or transaction
merely because it relates to the remuneration of a director in that capacity.
The directors have the power to borrow money form any source and upon any terms
and conditions on the Corporation's behalf. There is no requirement that the
directors hold shares in the Corporation to qualify as directors and there is no
age limit requirement for directors.
C. MATERIAL CONTRACTS.
Except for contracts entered into in the ordinary course of business, the only
material contracts which the Corporation entered into prior to the date hereof
as follows:
(a) Stock Option Plan dated November 22, 1996, as amended on November 26,
2003. See "Share Ownership of Directors and Executive Officers - Stock
Option Plan".
49
(b) Clinical Research Services Agreement between YM BioSciences Inc. and
Pharm-Olam International, Ltd. ("POI"), dated March 10, 2004. The
Corporation has contracted with POI to do a Phase III clinical trial in
Metastatic Breast Cancer. POI in turn is contracting with others to
perform services and to recruit and treat patients. The contract with POI
is payable over the next few years depending on the recruitment of
patients.
(c) Development and License Agreement between CIMYM Inc., CIMAB SA and
Oncoscience AG, dated November 5, 2003. See "- Licensing Arrangements -
Out-Licensing -TheraCIM".
(d) License Agreement between CIMYM Inc. and CIMAB SA, January 24, 2001. See
"- Licensing Arrangements - In-Licensing - Licenses for TheraCIM,
RadioTheraCIM, TGF(alpha) and HER-1".
(e) License Agreement between York Medical Inc., University of Manitoba and
The Manitoba Cancer Treatment and Research Foundation, carrying on its
undertaking as Cancercare Manitoba, dated November 2, 2000. See "-
Licensing Arrangements - In-Licensing - License for Tesmilifene".
(f) License Agreement between York Medical Inc. and Biostar Inc. dated October
11, 2000. See "- Licensing Arrangements - In-Licensing - License for
Norelin".
(g) License Agreement between Yorkton Medical Inc. and CIMAB SA, dated May 3,
1995. See "- Licensing Arrangements - In-Licensing - Licenses for
TheraCIM, RadioTheraCIM, TGF(alpha) and HER-1".
(h) Licensing Bonus Pool Plan dated March 31, 2004. See "Compensation -
Licensing Bonus Pool".
(i) Lease Amending and Extension Agreement between 1411029 Ontario Limited and
YM BioSciences Inc. dated January 15, 2003. See "Property, Plants and
Equipment - Facilities".
(j) The Corporation has entered into joint venture arrangements with licensors
for the purpose of developing and commercializing certain of its licensed
products. The agreements found at Exhibit 4.10 though Exhibit 4.19 set out
the terms of such joint venture arrangements. See "Arrangements with
Subsidiaries".
In the ordinary course of its business, the Corporation enters into licenses for
products which it develops, however, because of their materiality to the
Corporation, they are referenced here. The licenses for these products are more
fully described in this registration statement under the heading "Business
Overview - Licensing".
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. See "Item 10 - Canadian Federal Income
Taxation" and "Certain United States Federal Income Tax Consequences".
There is no limitation imposed by Canadian law or by the Canadian Charter of
Rights and Freedoms, or other constituent documents on the right of a
non-resident to hold or vote our Common Shares, other than as provided in the
Investment Canada Act ("ICA"). The following discussion summarizes the principal
features of the ICA for a non-resident who proposes to acquire Common Shares of
a Canadian business or the establishment by a non-resident of a new Canadian
business. The description of the ICA contained herein 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 that 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. A review is required where a non-Canadian is a WTO
investor (i.e. an investor from a country that is a member of the World Trade
Organization) and that investor is making a direct acquisition of assets
exceeding CDN$237 million. In the context of an indirect acquisition, a review
will be required only where the asset value associated with the Canadian
business(es) represents greater than 50 per cent of the asset value of the
transaction. Otherwise, such transactions are not subject to review under the
ICA.
50
It should be noted that if the Canadian business being acquired is engaged in a
"sensitive sector" defined in the ICA as including financial services, culture,
transportation and uranium, then lower thresholds apply for notification namely,
CDN$5 million for direct acquisitions and CDN$50 million 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 the Corporation, a non-Canadian would acquire control of the
Corporation for the purposes of the ICA if the non-Canadian acquired a majority
of the Corporation's Common Shares. The acquisition of less than a majority but
one third or more of the Common Shares would be presumed to be an acquisition of
control of the Corporation unless it could be established that, following such
acquisition, the Corporation was not controlled in fact by the acquirer through
the ownership of such Common Shares.
Certain transactions relating to the Corporation's Common Shares would be exempt
from the ICA, including:
(a) acquisition of the Corporation's 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 the Corporation 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 the Corporation by reason of an amalgamation,
merger. consolidation or corporate reorganization following which the
ultimate direct or indirect control in fact of the Corporation, through
the ownership of Common Shares remained unchanged.
E. TAXATION.
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes certain material U.S. federal income tax
considerations applicable to U.S. Holders and Non-U.S. Holders (each as defined
below) as a result of the purchase, ownership and disposition of Common Shares.
This discussion is limited to holders that hold Common Shares as a capital asset
within the meaning of Section 1221 of the United States Internal Revenue Code of
1986, as amended (the "Code").
This summary is not exhaustive of all possible U.S. federal income tax
considerations applicable to an investment in Common Shares. This summary is of
a general nature only and is not intended to be legal or tax advice to any
prospective purchaser of Common Shares. Holders of Common Shares should consult
their own tax advisors in determining the application to them of the U.S.
federal income tax consequences set forth below and any other U.S. federal,
state, local, foreign or other tax consequences of the purchase, ownership and
disposition of Common Shares.
This summary is based on the Code, Treasury Regulations, IRS rulings and
official pronouncements, judicial decisions and the Treaty, all as in effect on
the date hereof, and all of which are subject to change, possibly with
retroactive effect, or different interpretations, which could affect the
accuracy of the statements and conclusions set forth below and the U.S. federal
income tax consequences to U.S. Holders and Non-U.S. Holders. Holders should
note that no rulings have been or will be sought from the IRS with respect to
any of the U.S. federal income tax issues discussed below, and no assurance can
be given that the IRS will not successfully challenge the conclusions reached in
this summary.
This discussion does not purport to deal with all aspects of United States
federal income taxation that might be relevant to any particular holder in light
of their personal investment circumstances or status, nor does it discuss the
United States federal income tax consequences to certain types of holders that
may be subject to special rules under the United States federal income tax laws,
51
such as financial institutions, persons owning 10% or more (by vote or value) of
the Common Shares, persons that hold Common Shares that are a hedge against, or
that are hedged against, currency risk or that are part of a straddle or
conversion transaction, or persons whose functional currency is not the United
States dollar.
For purposes of this summary, a "U.S. Holder" means any holder that is for U.S.
federal income tax purposes: (i) a citizen or individual resident in the United
States; (ii) a corporation or other entity taxable as a corporation created or
organized under the laws of the United States or a political subdivision
thereof; (iii) an estate, the income of which is subject to U.S. federal income
tax regardless of the source; or (iv) a trust, if (A) a court within the United
States is able to exercise primary supervision over the trust's administration
and one or more United States persons have the authority to control all of its
substantial decisions, or (B) the trust was in existence on August 20, 1996 and
has properly elected under applicable Treasury Regulations to continue to be
treated as a United States person. A "Non-U.S. Holder" is a beneficial owner
that is not a U.S. Holder.
52
U.S. HOLDERS
Distributions
Subject to the discussion below under "Passive Foreign Investment Company", the
gross amount of any distribution made with respect to the Common Shares, other
than distributions in liquidation and distributions in redemption of stock that
are treated as exchanges, will be treated as a dividend to the extent that the
distribution is paid out of current or accumulated earnings and profits of the
Corporation. The amount treated as a dividend will include any Canadian
withholding tax deducted from the distribution. Under current law, certain
dividends received by individuals are taxed at lower rates than items of
ordinary income. Distributions, if any, in excess of the current and accumulated
earnings and profits of the Corporation will constitute a nontaxable return of
capital to a U.S. Holder and will be applied against and reduce the U.S.
Holder's tax basis in the holder's Common Shares. To the extent that
distributions exceed the tax basis of a U.S. Holder in its Common Shares, the
excess generally will be treated as capital gain.
In the case of a distribution in Canadian dollars, the amount of the
distribution 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 receipt of the distribution by the U.S. Holder, and the U.S.
Holder 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 that the Corporation pays will not be eligible for the
dividends-received deduction generally allowed to United States corporations
under the Code.
Subject to the limitations set forth in the Code, the Canadian tax withheld or
paid with respect to distributions on the Common Shares generally may be
credited against the U.S. federal income tax liability of a U.S. Holder if such
U.S. Holder makes an appropriate election for the taxable year in which such
taxes are paid or accrued. Alternatively, a U.S. Holder who does not elect to
credit any foreign taxes paid during the taxable year may deduct such taxes in
such taxable year subject to certain requirements. Because the foreign tax
credit provisions of the Code are very complex, U.S. Holders should consult
their own tax advisors with respect to the claiming of foreign tax credits.
Sale or Exchange
Subject to the discussion below under "Passive Foreign Investment Company", upon
a sale or exchange of Common Shares, a U.S. Holder will recognize gain or loss
in an amount equal to the difference between the amount realized on the sale or
exchange and the U.S. Holder's adjusted tax basis in the Common Shares. Any gain
or loss recognized will be capital gain or loss and will be long-term capital
gain or loss if the U.S. Holder has held the Common Shares for more than one
year. Under current law, long-term capital gains of individuals are generally
taxed at lower rates than items of ordinary income. Deductions for capital
losses are subject to limitations.
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" (a "PFIC"). A PFIC is a non-U.S.
corporation that meets an income test and/or an asset test. The income test is
met if 75% or more of the corporation'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 corporation's assets
produce, or are held for the production of, passive income. Based on its current
income, assets and activities, the Corporation may be a PFIC.
If the Corporation is a PFIC, then, in the absence of the elections described
below, a U.S. Holder will generally be subject to increased tax liability and an
interest charge with respect to gain recognized on the sale of such holder's
Common Shares and upon the receipt of certain "excess distributions" made in
respect of Common Shares. Generally, the special tax and interest charges are
determined as follows: (i) the gain or excess distribution (which are treated as
53
ordinary income) is allocated ratably over the days in the U.S. Holder's 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 such amounts were
actually taxed in the prior years but the tax had not been paid.
As an alternative to the foregoing rules, if the Common Shares constitute
"marketable stock" under applicable Treasury regulations, a U.S. Holder 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 such holder's 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). The Corporation expects that the Common
Shares will be treated as marketable stock for these purposes but no assurance
can be given.
Alternatively, if the Corporation complies with certain information reporting
requirements, a U.S. Holder may elect to treat the Corporation as a "qualified
electing fund" (a "QEF"), in which case such holder would be required to include
in income each year its pro rata share of the Corporation's ordinary earnings
and net capital gains, whether or not distributed. However, the Corporation does
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 and the
applicability of the mark to market regime.
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.
NON-U.S. HOLDERS
A Non-U.S. Holder should not be subject to U.S. federal income or withholding
taxes with respect to the sale, disposition or any distribution in respect of
the Common Shares, unless (i) such income is effectively connected with a trade
or business conducted by such Non-U.S. Holder within the United States, or (ii)
in the case of an individual, such Non-U.S. Holder is a nonresident alien who
holds the Common Shares as a capital asset and is present in the United States
for 183 days or more during a taxable year and certain other conditions are
satisfied.
CANADIAN FEDERAL INCOME TAXATION
The following discussion summarizes the principal Canadian federal income tax
considerations generally applicable to a person (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) (the "Canadian
Act") deals at arm's length 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.
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) (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 to the date hereof and our understanding
of the current published administrative and assessing practices of Canada
54
Customs and Revenue Agency. It is assumed that all such amendments will be
enacted substantially as currently proposed, and that there will be no other
material change to any such law or practice, 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 Toronto Stock Exchange 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% of more of the issued
shares of any class 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 such 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 which is not subject to tax in the
United States.
Any dividend on a Common Share, including a stock dividend, paid or credited, or
deemed to be paid or credited, by us to an Investor will be subject to Canadian
withholding tax at the rate of 25% on the gross amount of the dividend, or such
lesser rate 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
Canada Customs and Revenue Agency's position that the Treaty reductions are not
available to an Investor that is a "limited liability company" resident in the
United States. We will be required to withhold any such tax from the dividend,
and remit the tax directly to Canada Customs and Revenue Agency for the account
of the Investor.
F. DIVIDENDS AND PAYING AGENTS.
The Corporation has not paid any dividends since its incorporation. The
Corporation will consider paying dividends in future as its operational
circumstances may permit having regard to, among other things, the Corporation's
earnings, cash flow and financial requirements. It is the current policy of the
Board of directors to retain all earnings to finance the Corporation's business
plan.
G. STATEMENT BY EXPERTS.
Not applicable.
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.
55
Our documents may be viewed at our head office located at Suite 400, Building
11, 5045 Orbitor Drive, Mississauga, Ontario, Canada, L4W 4Y4.
I. SUBSIDIARY INFORMATION.
Not applicable.
ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As at December 31, 2003, YM had US$3,026,000.00 in US currency short-term
investments. To date, YM has not engaged in any foreign currency hedging
activity nor has it formally monitored the fluctuation of US$.
56
ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
PART II
Not applicable.
PART III
ITEM 17: FINANCIAL STATEMENTS
Not applicable.
ITEM 18: FINANCIAL STATEMENTS
See pages F-1 to F-25 of this registration statement on Form 20-F.
ITEM 19: EXHIBITS
The following documents are filed as part of this registration statement on Form
20-F as Exhibits:
Exhibit Description
1.1 Certificate of Continuance dated December 11, 2001
1.2 Certificate of Registration dated December 11, 2001
1.3 Memorandum of Association dated December 11, 2001
1.4 Articles of Association dated December 11, 2001
1.5 Directors resolution re creation and issuance of Class B Preferred Shares,
Series 1
2.1 Form of the Corporation's Canadian common share purchase warrant
2.2 Form of the Corporation's United States common share purchase warrant
2.3 Form of the Corporation's Canadian placement agent warrant
2.4 Form of the Corporation's United States placement agent warrant
2.5 Form of warrant certificate granted by the Corporation in connection with
that certain License Agreement between YM BioSciences Inc. (formerly York
Medical Inc.) and Biostar Inc. dated October 11, 2000.
2.6 Form of warrant certificate granted by YM BioSciences Inc. (formerly York
Medical Inc.) to Aran Asset Management SA dated Jun 12, 2002.
57
2.7 Form of warrant certificate granted by York Medical Inc. to CIMAB S.A
dated September 1, 2000.
2.8 Form of warrant certificate granted by YM BioSciences Inc. (formerly York
Medical Inc.) to Aran Asset Management SA dated February 15, 2002.
2.9 Form of warrant certificate granted by YM BioSciences Inc. (formerly York
Medical Inc.) to Clubb BioCapital Limited dated February 15, 2002.
4.1 Stock Option Plan dated November 22, 1996, as amended on November 26, 2003
4.2 License Agreement between YM BioSciences Inc. (formerly known as York
Medical Inc.) and Biostar Inc. dated October 11, 2000.
4.3+ Development and License Agreement between CIMYM Inc., CIMAB SA and
Oncoscience AG, dated November 5, 2003.
4.4+ License Agreement between YM BioSciences Inc. (formerly known as York
Medical Inc.), University of Manitoba and The Manitoba Cancer Treatment
and Research Foundation, carrying on its undertaking as Cancercare
Manitoba, dated November 2, 2000.
4.5 License Agreement between CIMYM Inc. and CIMAB SA, January 24, 2001.
4.6 License Agreement between YM BioSciences Inc. (formerly known as Yorkton
Medical Inc.) and CIMAB SA, dated May 3, 1995.
4.7+ Clinical Research Services Agreement between YM BioSciences Inc. and
Pharm-Olam International, Ltd., dated March 10, 2004.
4.8 Licensing Bonus Pool Plan dated March 31, 2004.
4.9 Lease Amending and Extension Agreement between 1411029 Ontario Limited and
YM BioSciences Inc. dated January 15, 2003.
4.10 Joint Venture Shareholders' Agreement between York Medical Inc., CIMYM
Inc. (an Ontario Corporation) and CIMAB S.A dated November 14, 1995.
4.11 Assignment and Assumption Agreement between York Medical Inc. and CIMYM
Inc. dated November 22, 1995.
4.12 Letter from York Medical Inc. to CIMYM Inc. dated November 23, 1995.
4.13 Exclusive International Sales, Marketing Manufacturing and Administrative
Agreement between CIMYM Inc. (an Ontario Corporation) and CIMYM Inc. (a
Barbados Corporation) dated July 4, 1996.
4.14 Joint Venture Shareholders' Agreement between York Medical Inc., CIMYM
Inc. (a Barbados Corporation) and CIMAB S.A. dated May 16, 1996.
4.15 Joint Venture Shareholders' Agreement between York Medical Inc., CBQYM
Inc. and CIMAB S.A., representing Centro de Bioactivos Quimicos of the
Universidad Central de Las Villas dated November 11, 1995.
4.16 Assignment and Assumption Agreement between York Medical Inc. and CBQYM
Inc. dated November 22, 1995.
58
4.17 Letter from York Medical Inc. to CBQYM Inc. dated November 23, 1995.
4.18 Exclusive International Sales, Marketing Manufacturing and Administrative
Agreement between CBQYM Inc. (an Ontario Corporation) and CBQYM Inc. (a
Barbados Corporation) dated July 4, 1996.
4.19 Joint Venture Shareholders' Agreement between York Medical Inc., CBQYM
Inc. (a Barbados Corporation) and CIMAB S.A. dated May 16, 1996.
8.1 List of subsidiaries
+ Confidential treatment requested for portions of these agreements.
59
Consolidated Financial Statements
(Amounts in Canadian dollars)
YM BIOSCIENCES INC.
Years ended June 30, 2003, 2002 and 2001
F-1
AUDITORS' REPORT
To the Board of Directors of YM Biosciences Inc.
We have audited the consolidated balance sheets of YM Biosciences Inc. as at
June 30, 2003 and 2002 and the consolidated statements of operations and deficit
and cash flows for each of the years in the three-year period ended June 30,
2003. 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 United States generally accepted auditing standards. Those
standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. 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 consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at June 30, 2003 and
2002 and the results of its operations and its cash flows for each of the years
in the three-year period ended June 30, 2003 in accordance with Canadian
generally accepted accounting principles.
/s/ KPMG LLP
Chartered Accountants
Toronto, Canada
August 14, 2003, except
as to note 12 which is as
of as to February 12, 2004
and as to note 10 which
is as of May 7, 2004
F-2
YM BIOSCIENCES INC.
(Amounts in Canadian dollars, unless otherwise noted)
Consolidated Balance Sheets
- -----------------------------------------------------------------------------------------
December 31, June 30,
2003 2003 2002
- -----------------------------------------------------------------------------------------
(Unaudited)
Assets
Current assets:
Cash and short-term deposits $ 22,808,239 $ 7,675,466 $ 12,707,522
Restricted cash (note 2) -- -- 600,000
Marketable securities (note 3) 783,622 783,622 --
Accounts receivable and
prepaid expenses 94,000 168,187 190,114
- -----------------------------------------------------------------------------------------
23,685,861 8,627,275 13,497,636
Capital assets (note 4) 11,381 22,567 79,846
- -----------------------------------------------------------------------------------------
$ 23,697,242 $ 8,649,842 $ 13,577,482
- -----------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 224,684 $ 101,506 $ 116,100
Accrued liabilities 277,513 221,077 258,286
- -----------------------------------------------------------------------------------------
502,197 322,583 374,386
Shareholders' equity:
Special warrants (note 6) 17,047,001 -- --
Share capital (note 6) 44,655,429 44,729,104 42,172,989
Contributed surplus (note 6) 26,215 9,965 --
Deficit accumulated during the
development stage (38,533,600) (36,411,810) (28,969,893)
- -----------------------------------------------------------------------------------------
23,195,045 8,327,259 13,203,096
Commitments (note 7)
Subsequent events (note 12)
- -----------------------------------------------------------------------------------------
$ 23,697,242 $ 8,649,842 $ 13,577,482
- -----------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-3
YM BIOSCIENCES INC.
(Amounts in Canadian dollars, unless otherwise noted)
Consolidated Statements of Operations and Deficit
- --------------------------------------------------------------------------------------------------------------------------------
Since
Six months ended Years ended inception to
December 31, June 30, December 31,
2003 2002 2003 2002 2001 2003
- --------------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
Interest income $ 104,762 $ 137,195 $ 273,232 $ 154,112 $ 645,742 $ 2,545,993
Expenses:
General and
administrative 1,180,425 923,703 1,877,509 1,864,289 1,805,204 12,344,093
Licensing and product
development 889,423 2,249,667 3,965,385 4,729,216 6,294,981 26,699,241
- --------------------------------------------------------------------------------------------------------------------------------
2,069,848 3,173,370 5,842,894 6,593,505 8,100,185 39,043,334
- --------------------------------------------------------------------------------------------------------------------------------
Loss before the undernoted (1,965,086) (3,036,175) (5,569,662) (6,439,393) (7,454,443) (36,497,341)
Unrealized loss on
marketable securities -- (1,137,103) (1,812,158) -- -- (1,812,158)
- --------------------------------------------------------------------------------------------------------------------------------
Loss before income taxes (1,965,086) (4,173,278) (7,381,820) (6,439,393) (7,454,443) (38,309,499)
Income taxes -- -- -- 7,300 -- 7,300
- --------------------------------------------------------------------------------------------------------------------------------
Loss for the period (1,965,086) (4,173,278) (7,381,820) (6,446,693) (7,454,443) (38,316,799)
Deficit, beginning of period (36,411,810) (28,969,893) (28,969,893) (22,523,200) (15,068,757) --
Cost of purchasing shares
for cancellation in excess
of book value (note 6) (156,704) (11,499) (60,097) -- -- (216,801)
- --------------------------------------------------------------------------------------------------------------------------------
Deficit, end of period $(38,533,600) $(33,154,670) $(36,411,810) $(28,969,893) $(22,523,200) $(38,533,600)
- --------------------------------------------------------------------------------------------------------------------------------
Basic and diluted loss per
common share $ (0.11) $ (0.32) $ (0.56) $ (0.50) $ (0.58)
- ---------------------------------------------------------------------------------------------------------------------
Weighted average number
of common shares
shares outstanding 17,430,393 12,988,094 13,218,177 12,991,039 12,958,436
- ---------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-4
YM BIOSCIENCES INC.
(Amounts in Canadian dollars, unless otherwise noted)
Consolidated Statements of Cash Flows
- ----------------------------------------------------------------------------------------------------------------------------------
Since
Six months ended inception to
December 31, Years ended June 30, December 31,
2003 2002 2003 2002 2001 2003
- ----------------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
Cash provided by (used in):
Operating activities:
Loss for the period $ (1,965,086) $ (4,173,278) $ (7,381,820) $ (6,446,693) $ (7,454,443) $(38,316,799)
Items not involving
cash:
Depreciation 14,910 29,820 59,640 48,061 30,324 258,947
Unrealized loss on
marketable
securities -- 1,137,103 1,812,158 -- -- 1,812,158
Stock-based
compensation 16,250 -- 9,965 -- -- 26,215
Change in non-cash
operating working
capital:
Accounts receivable
and prepaid
expenses 74,187 77,115 21,927 (9,508) 382,741 (94,000)
Accounts payable
and accrued
liabilities 179,614 86,974 (51,803) (163,825) 169,396 502,197
- ----------------------------------------------------------------------------------------------------------------------------------
(1,680,125) (2,842,266) (5,529,933) (6,571,965) (6,871,982) (35,811,282)
Financing activities:
Redemption of
preferred shares -- -- (80,372) -- -- (2,630,372)
Repurchase of
common shares (230,379) (20,026) (19,390) -- -- (249,769)
Net proceeds from
issuance of shares
and special warrants 17,047,001 -- -- 11,739,407 450,000 61,769,990
- ----------------------------------------------------------------------------------------------------------------------------------
16,816,622 (20,026) (99,762) 11,739,407 450,000 58,889,849
Investing activities:
Restricted cash -- -- 600,000 (600,000) -- --
Additions to capital assets (3,724) (2,361) (2,361) (2,808) (81,554) (270,328)
- ----------------------------------------------------------------------------------------------------------------------------------
(3,724) (2,361) 597,639 (602,808) (85,554) (270,328)
- ----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash
and short-term deposits 15,132,773 (2,864,653) (5,032,056) 4,564,634 (6,503,536) 22,808,239
Cash and short-term deposits,
beginning of period 7,675,466 12,707,522 12,707,522 8,142,888 14,646,424 --
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and short-term
deposits, end of period $ 22,808,239 $ 9,842,869 $ 7,675,466 $ 12,707,522 $ 8,142,888 $ 22,808,239
- ----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-5
YM BIOSCIENCES INC.
(Amounts in Canadian dollars, unless otherwise noted)
Notes to Consolidated Financial Statements (continued)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the six months ended December 31, 2003 and 2002 is
unaudited)
- -------------------------------------------------------------------------------
The Company was incorporated on August 17, 1994 under the laws of the Province
of Ontario. The Company continued under the laws of the Province of Nova Scotia
on December 11, 2001. The Company has entered into licensing agreements with
certain biotechnology, pharmaceutical and medical institutes. The licenses grant
exclusive rights for certain territories for certain products or families of
products developed and rights of first refusal on additional territories,
additional products or extensions to existing products.
The Company is a development stage enterprise with a relatively short operating
history. Its long-term viability is dependent on the success of its regulatory
submissions and licensing and marketing activities, its ability to obtain
additional financing and to earn a sufficient market share once its licensed
products are in commercial production.
1. SIGNIFICANT ACCOUNTING POLICIES:
The accompanying financial statements are prepared in accordance with
accounting principles generally accepted in Canada. Significant
accounting policies are summarized below:
(a) Basis of presentation:
These consolidated financial statements have been prepared on the
basis of accounting principles applicable to a going concern, which
assumes that the Company will realize the carrying value of its
assets and satisfy its obligations as they become due in the normal
course of operations.
These consolidated financial statements include the accounts of the
Company and its proportionate share of the revenue, expenses, assets
and liabilities of the following incorporated joint ventures:
- ------------------------------------------------------------------------------
Incorporated in Ontario:
CIMYM Inc. 80%
CBQYM Inc. 80%
Incorporated in Barbados:
CIMYM Inc. 80%
CBQYM Inc. 80%
- ------------------------------------------------------------------------------
F-6
YM BIOSCIENCES INC.
(Amounts in Canadian dollars, unless otherwise noted)
Notes to Consolidated Financial Statements (continued)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the six months ended December 31, 2003 and 2002 is
unaudited)
- -------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
The Company has advanced a total of $5,489,185 as of December 31,
2003 (June 30, 2003 - $5,355,099; June 30, 2002 - $4,718,643), which
is equal to the amount by which the funding provided to the joint
ventures by way of preferred shares and loans exceeds the Company's
proportionate share of expenses incurred. Provision for the advances
has been made in the accounts consistent with the classification of
the expenditures being funded. The provisions may not be required in
the future if recovery from the joint ventures appears certain.
(b) Cash and short-term deposits:
Cash and short-term deposits are recorded at cost. The short-term
deposits consist of highly liquid, held-to-maturity deposits, with
maturities not exceeding 90 days.
(c) Marketable securities:
Marketable securities are recorded at the lower of cost and market
value. Market values of shares and warrants held are determined based
on their quoted market prices. Losses arising from changes in the
market value are included in net earnings or loss for the year.
(d) Capital assets:
Capital assets are stated at cost less accumulated depreciation.
Depreciation is provided to write off the cost of capital assets over
their estimated useful lives using the straight-line method over the
following periods:
- -------------------------------------------------------------------------------
Computer equipment 3 years
Furniture and equipment 5 years
Leasehold improvements Term of lease
- -------------------------------------------------------------------------------
(e) Development costs:
To date, all development costs have been expensed. Development costs
that meet specific stringent criteria related to technical, market
and financial feasibility are capitalized. To date, none of the
development costs has met such criteria. The Company has made no
expenditures for scientific research.
F-7
YM BIOSCIENCES INC.
(Amounts in Canadian dollars, unless otherwise noted)
Notes to Consolidated Financial Statements (continued)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the six months ended December 31, 2003 and 2002 is
unaudited)
- -------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(f) Government assistance:
Government assistance, including investment tax credits received
relating to development costs, is reflected as a reduction of the
development costs when there is reasonable assurance that the
assistance will be realized.
(g) Income taxes:
The Company uses the asset and liability method of accounting for
income taxes. Under the asset and liability method, future tax assets
and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Future tax assets and liabilities are measured using enacted
or substantively enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected
to be recovered or settled. The effect on future tax assets and
liabilities of a change in tax rates is recognized in income in the
year that includes the date of enactment or substantive enactment.
In assessing the realizability of future income tax assets,
management considers whether it is more likely than not that some
portion or all of the future income tax assets will be realized. The
ultimate realization of future income tax assets is dependent upon
the generation of future taxable income during the period in which
the temporary differences are deductible. Management considers the
scheduled reversals of future income tax liabilities, the character
of the future income tax asset and tax planning strategies in making
this assessment. To the extent that management believes that the
realization of future income tax assets does not meet the more likely
than not realization criteria, a valuation allowance is recorded
against the future income tax assets.
F-8
YM BIOSCIENCES INC.
(Amounts in Canadian dollars, unless otherwise noted)
Notes to Consolidated Financial Statements (continued)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the six months ended December 31, 2003 and 2002 is
unaudited)
- -------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(h) Stock-based compensation:
The Company has a stock option plan for directors, officers,
employees and service providers, as described in note 6. All stock
options issued under the plan have an exercise price equal to the
fair market value of the underlying shares on the date of the grant.
The Company applies the intrinsic value-based method of accounting to
its stock option plan. No compensation expense is recorded on the
grant of options to directors, officers and employees under the plan.
Consideration paid by directors, officers and employees on the
exercise of stock options is recorded as share capital. Options
issued to service providers of the Company are valued using the
Black-Scholes fair value option pricing model. The value of these
options is expensed during the period in which the service is
rendered and is recorded as contributed surplus.
(i) Measurement uncertainty:
The preparation of financial statements requires management to make
estimates and assumptions that 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
revenue and expenses during the periods. Actual results could differ
from those estimates.
2. RESTRICTED CASH:
At June 30, 2002, the Company had cash on deposit with a financial
institution in the amount of $600,000. The cash was set aside to secure
certain contingent obligations of the Company to its employees. The
contingency was resolved and the restricted cash was returned to the
Company by the trustee on January 1, 2003.
F-9
YM BIOSCIENCES INC.
(Amounts in Canadian dollars, unless otherwise noted)
Notes to Consolidated Financial Statements (continued)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the six months ended December 31, 2003 and 2002 is
unaudited)
- -------------------------------------------------------------------------------
3. MARKETABLE SECURITIES:
On September 25, 2002, as set out in note 6, the Company issued Class B
preferred shares in exchange for 1,100,000 ordinary shares and 220,000
warrants of New Opportunities Investment Trust ("NOIT") as part of the
NOIT initial prospectus offering. The cost of the NOIT investment of
$2,595,780 was determined with reference to the market value of the
Company's Class B preferred shares at that time. Since the date of the
original listing of the NOIT shares and warrants on the London Stock
Exchange to June 30, 2003, the value of these shares and warrants has
declined by $1,812,158 with such amount being reflected as a loss in the
consolidated statements of operations.
4. CAPITAL ASSETS:
- -------------------------------------------------------------------------------------------------------------------
Accumulated Net book
December 31, 2003 (unaudited) Cost depreciation value
- -------------------------------------------------------------------------------------------------------------------
Computer equipment $ 132,022 $ 123,394 $ 8,628
Furniture and equipment 75,042 72,289 2,753
Leasehold improvements 45,206 45,206 -
- -------------------------------------------------------------------------------------------------------------------
$ 252,270 $ 240,889 $ 11,381
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Accumulated Net book
June 30, 2003 Cost depreciation value
- -------------------------------------------------------------------------------------------------------------------
Computer equipment $ 130,457 $ 112,902 $ 17,555
Furniture and equipment 72,883 67,871 5,012
Leasehold improvements 45,206 45,206 -
- -------------------------------------------------------------------------------------------------------------------
$ 248,546 $ 225,979 $ 22,567
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Accumulated Net book
June 30, 2002 Cost depreciation value
- -------------------------------------------------------------------------------------------------------------------
Computer equipment $ 128,096 $ 85,316 $ 42,780
Furniture and equipment 72,883 50,201 22,682
Leasehold improvements 45,206 30,822 14,384
- -------------------------------------------------------------------------------------------------------------------
$ 246,185 $ 166,339 $ 79,846
- -------------------------------------------------------------------------------------------------------------------
F-10
YM BIOSCIENCES INC.
(Amounts in Canadian dollars, unless otherwise noted)
Notes to Consolidated Financial Statements (continued)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the six months ended December 31, 2003 and 2002 is
unaudited)
- -------------------------------------------------------------------------------
5. INVESTMENT IN JOINT VENTURES:
There are no assets or liabilities in the joint ventures that do not
eliminate on consolidation. The consolidated financial statements include
the Company's proportionate share of the revenue and expenses of
incorporated joint ventures, which are as follows:
- -------------------------------------------------------------------------------------------------------------------
Six months ended
December 31, Years ended June 30,
2003 2002 2003 2002 2001
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
General and administrative
expenses $ 766,115 $ 591,170 $ 1,189,314 $ 1,570,284 $ 1,191,435
Licensing and product
development costs 228,057 389,921 581,726 1,140,209 4,236,540
- -------------------------------------------------------------------------------------------------------------------
Loss for the period $ 994,172 $ 981,091 $ 1,771,040 $ 2,710,493 $ 5,427,975
- -------------------------------------------------------------------------------------------------------------------
6. SHARE CAPITAL AND CONTRIBUTED SURPLUS:
Authorized:
500,000,000 Class A preferred shares
500,000,000 Class B preferred shares
500,000,000 Class A non-voting common shares
500,000,000 common shares
Issued:
- -------------------------------------------------------------------------------------------------------------------
December 31, 2003
Number
of shares Amount
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
Special warrants 10,895,658 $ 17,047,001
- -------------------------------------------------------------------------------------------------------------------
In a private placement on December 15, 2003, the Company issued
10,895,658 special warrants for $1.75 per warrant, net proceeds of which
amounted to approximately $17,047,001.
F-11
YM BIOSCIENCES INC.
(Amounts in Canadian dollars, unless otherwise noted)
Notes to Consolidated Financial Statements (continued)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the six months ended December 31, 2003 and 2002 is
unaudited)
- -------------------------------------------------------------------------------
6. SHARE CAPITAL AND CONTRIBUTED SURPLUS (CONTINUED):
Each special warrant consisted of one common share and one-half of a
share purchase warrant. Each whole share purchase warrant entitles the
holder to purchase one additional common share at $2.50 per share
(subject to adjustment) for a period of five years from February 12,
2004, the date of the final prospectus qualifying the distribution of the
shares and warrants upon exercise of the special warrants.
- -------------------------------------------------------------------------------------------------
Number of
shares Amount
- -------------------------------------------------------------------------------------------------
Class B preferred shares, Series 1:
Balance, June 30, 2001 -- $ --
Issued by public offering 3,750,000 11,514,407
- -------------------------------------------------------------------------------------------------
Balance, June 30, 2002 3,750,000 11,514,407
Issued from treasury (NOIT) 759,000 2,595,780
Shares repurchased for cancellation (46,200) (29,329)
Conversion to common shares (4,462,800) (14,080,858)
- -------------------------------------------------------------------------------------------------
Balance, June 30, 2003 -- $ --
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Number of
shares Amount
- -------------------------------------------------------------------------------------------------
Common shares:
Issued on incorporation, August 17, 1994 7 $ 1
Issued to founding shareholders during fiscal 1996 4,204,250 224,457
Issued on private placements, August 1996 125,009 10,000
Issued on conversion of special warrants, June 1997 4,484,613 13,167,901
Issued on private placement, August 1997 272,250 1,139,366
Issued on private place, March/April 2000 3,813,840 15,366,701
Issued on stock options, May 2000 23,125 75,156
Issued pursuant to licensing agreement, November 2000 50,000 450,000
- -------------------------------------------------------------------------------------------------
Balance, June 30, 2001 12,973,094 30,433,582
Issued pursuant to a licensing agreement 25,000 225,000
- -------------------------------------------------------------------------------------------------
Balance, June 30, 2002 12,998,094 30,658,582
Conversion of preferred shares, June 12, 2003 4,462,800 14,080,858
Shares repurchased for cancellation (19,000) (10,336)
- -------------------------------------------------------------------------------------------------
Balance, June 30, 2003 17,441,894 44,729,104
Shares repurchased for cancellation (169,900) (73,675)
- -------------------------------------------------------------------------------------------------
Balance, December 31, 2003 17,271,994 $ 44,655,429
- -------------------------------------------------------------------------------------------------
F-12
YM BIOSCIENCES INC.
(Amounts in Canadian dollars, unless otherwise noted)
Notes to Consolidated Financial Statements (continued)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the six months ended December 31, 2003 and 2002 is
unaudited)
- -------------------------------------------------------------------------------
6. SHARE CAPITAL AND CONTRIBUTED SURPLUS (CONTINUED):
On September 25, 2002, the Company completed a share purchase
transaction, whereby the Company issued 759,000 Class B preferred shares,
Series 1 at their market value of (pound)1.45 (approximately $3.42) per
share in consideration for 1,100,000 ordinary shares and 220,000 warrants
of NOIT under NOIT's U.K. prospectus offering.
The Company repurchased for cancellation 46,200 Class B preferred shares,
Series 1 and 19,000 common shares during the year ended June 30, 2003
under a normal course issuer bid, at a total cost of $99,762. The excess
over the book value of the shares of $60,097 was charged to deficit.
On June 12, 2003, the Class B preferred shares, Series 1 automatically
converted into common shares on a one-for-one basis.
The Company repurchased for cancellation 169,900 common shares during the
six months ended December 31, 2003 under a normal course issuer bid, at a
total cost of $230,379. The excess over the book value of the shares of
$156,704 was charged to deficit.
Stock options:
The Company has granted stock options pursuant to a stock option plan.
Under the plan, options to purchase common shares may be granted to
directors, officers, employees and service providers of the Company. Of
the 1,727,132 options outstanding at June 30, 2003, 143,382 were granted
to vest immediately and the remainder were granted to vest over time. The
options exercise prices ranging from $1.75 to $4.50.
On January 24, 2003, the Company issued 10,000 stock options in exchange
for investor relations services rendered. The fair value of these options
using the Black-Scholes fair value option pricing model of $9,965 was
expensed and recorded as contributed surplus.
On October 1, 2003, the Company issued 25,000 stock options in exchange
for investor relations services rendered. The fair value of these options
using the Black-Scholes fair value option pricing model of $16,250 was
expensed and recorded as contributed surplus.
F-13
YM BIOSCIENCES INC.
(Amounts in Canadian dollars, unless otherwise noted)
Notes to Consolidated Financial Statements (continued)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the six months ended December 31, 2003 and 2002 is
unaudited)
- -------------------------------------------------------------------------------
6. SHARE CAPITAL AND CONTRIBUTED SURPLUS (CONTINUED):
The following tables outline the impact and assumptions used if the
compensation cost for the Company's stock options issued to directors,
officers and employees was determined under the fair value-based method.
The Company has applied the pro forma disclosure provisions to awards
granted on or after July 1, 2002. The pro forma effect of awards granted
prior to July 1, 2002 has not been included:
- -------------------------------------------------------------------------------------------------------------------
Six months ended Year ended
December 31, June 30,
2003 2003
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
Loss for the period, as reported $ (1,965,086) $ (7,381,820)
Pro forma loss for the period (2,112,364) (7,440,675)
Pro forma loss per common share -
basic and diluted (0.12) (0.56)
- -------------------------------------------------------------------------------------------------------------------
The fair value of each option granted was estimated on the date of grant
using the Black-Scholes fair value option pricing model with the
following assumptions:
- -------------------------------------------------------------------------------------------------------------------
January 24, January 24, April 3, October 1, November 28,
Issue date 2003 2003 2003 2003 2003
- -------------------------------------------------------------------------------------------------------------------
Number of options issued 10,000 35,000 552,500 25,000 748,120
Risk-free interest rate 4.14% 4.14% 4.43% 2.75% 4.11%
Dividend yield -- -- -- -- --
Volatility factor 86% 86% 94% 120% 120%
Expected life of options 5 years 10 years 10 years 5 years 10 years
Vesting period (months) 12 40 40 Immediately 24
- -------------------------------------------------------------------------------------------------------------------
F-14
YM BIOSCIENCES INC.
(Amounts in Canadian dollars, unless otherwise noted)
Notes to Consolidated Financial Statements (continued)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the six months ended December 31, 2003 and 2002 is
unaudited)
- -------------------------------------------------------------------------------
6. SHARE CAPITAL AND CONTRIBUTED SURPLUS (CONTINUED):
The following tables reflect the activity under the stock option plan
from July 1, 2001 through December 31, 2003 and the share options
outstanding at December 31, 2003:
- --------------------------------------------------------------------------------------------------------------
Six months ended Years ended June 30,
December 31, 2003 2003 2002
- --------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Number price Number price Number price
- --------------------------------------------------------------------------------------------------------------
(Unaudited)
Outstanding, beginning of year 1,727,132 3.34 1,209,632 $ 4.04 1,162,132 $ 4.02
Granted 773,120 1.74 597,500 1.70 90,000 4.50
Cancelled/forfeited (6,500) 2.94 (80,000) 4.19 (42,500) 4.50
- --------------------------------------------------------------------------------------------------------------
Outstanding, end of year 2,493,752 2.84 1,727,132 3.34 1,209,632 4.04
- --------------------------------------------------------------------------------------------------------------
Exercisable, end of year 1,524,585 3.47 1,092,170 $ 3.90 905,220 $ 3.88
- --------------------------------------------------------------------------------------------------------------
As at December 31, 2003 (unaudited):
- --------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ --------------------------
Weighted
average Weighted Weighted
remaining average average
Range of Number contractual exercise Number exercise
exercise price outstanding life (years) price exercisable price
- --------------------------------------------------------------------------------------------------------------
$1.50 25,000 0.8 $ 1.50 25,000 $ 1.50
$1.75 1,098,120 8.6 1.75 290,024 1.75
$2.00 60,000 9.3 2.00 12,000 2.00
$2.50 173,000 9.0 2.50 62,600 2.50
$3.25 425,300 3.6 3.25 425,300 3.25
$4.00 10,000 4.0 4.00 10,000 4.00
$4.50 702,332 6.0 4.50 699,661 4.50
- --------------------------------------------------------------------------------------------------------------
$1.50 - $4.50 2,493,752 7.0 2.84 1,524,585 3.47
- --------------------------------------------------------------------------------------------------------------
F-15
YM BIOSCIENCES INC.
(Amounts in Canadian dollars, unless otherwise noted)
Notes to Consolidated Financial Statements (continued)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the six months ended December 31, 2003 and 2002 is
unaudited)
- -------------------------------------------------------------------------------
6. SHARE CAPITAL AND CONTRIBUTED SURPLUS (CONTINUED):
As at June 30, 2003:
- --------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ --------------------------
Weighted
average Weighted Weighted
remaining average average
Range of Number contractual exercise Number exercise
exercise price outstanding life (years) price exercisable price
- --------------------------------------------------------------------------------------------------------------
$1.75 351,500 9.8 $ 1.75 17,575 $ 1.75
$2.00 60,000 9.8 2.00 3,000 2.00
$2.50 176,000 9.2 2.50 32,050 2.50
$3.25 425,300 4.1 3.25 425,300 3.25
$4.00 10,000 4.5 4.00 7,500 4.00
$4.50 704,332 6.5 4.50 606,745 4.50
- --------------------------------------------------------------------------------------------------------------
$1.75 - $4.50 1,727,132 7.0 3.34 1,092,170 3.90
- --------------------------------------------------------------------------------------------------------------
As at June 30, 2002:
- --------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ --------------------------
Weighted
average Weighted Weighted
remaining average average
Range of Number contractual exercise Number exercise
exercise price outstanding life (years) price exercisable price
- --------------------------------------------------------------------------------------------------------------
$3.25 445,300 5.0 $ 3.25 445,300 $ 3.25
$4.50 764,332 7.6 4.50 459,920 4.50
- --------------------------------------------------------------------------------------------------------------
$3.25 - $4.50 1,209,632 6.6 4.04 905,220 3.88
- --------------------------------------------------------------------------------------------------------------
F-16
YM BIOSCIENCES INC.
(Amounts in Canadian dollars, unless otherwise noted)
Notes to Consolidated Financial Statements (continued)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the six months ended December 31, 2003 and 2002 is
unaudited)
- -------------------------------------------------------------------------------
6. SHARE CAPITAL AND CONTRIBUTED SURPLUS (CONTINUED):
Share purchase warrants:
The Company has issued warrants for the purchase of common shares. Each
warrant entitles the holder to purchase one common share of the Company
for a specified price for a specific period of time, generally four years
from the date of issue. The following table contains information
regarding the warrants to acquire common shares outstanding as of
December 31, 2003. As of December 31, 2003, all outstanding warrants were
exercisable.
- ------------------------------------------------------------------------------
Weighted
average
Number of exercise
shares price
- ------------------------------------------------------------------------------
Outstanding, June 30, 2001 2,838,725 $ 4.50
Issued 181,944 4.47
- ------------------------------------------------------------------------------
Outstanding, June 30, 2003 and 2002 3,020,669 4.50
Expired 258,883 4.50
- ------------------------------------------------------------------------------
Outstanding, December 31, 2003 (unaudited) 2,761,786 4.50
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Weighted
average
remaining
Number contractual
Exercise price outstanding life (years)
- ------------------------------------------------------------------------------
$4.00 125,000 2.50
$4.50 2,599,286 0.35
$9.00 37,500 0.83
- ------------------------------------------------------------------------------
F-17
YM BIOSCIENCES INC.
(Amounts in Canadian dollars, unless otherwise noted)
Notes to Consolidated Financial Statements (continued)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the six months ended December 31, 2003 and 2002 is
unaudited)
- -------------------------------------------------------------------------------
7. COMMITMENTS:
As part of the license agreements for certain products, the Company has
committed to make certain product development payments. These payments
are obligations of the Company so long as the Company continues to
support the development of certain products.
The Company is committed to product development payments of $100,000 per
year and to consulting services payments of $50,000 per year to the
University of Manitoba and The Manitoba Cancer Treatment and Research
Foundation for a three-year period ended November 2003.
The Company leases premises under a five-year lease that expires in
January 2008. Under the terms of the lease, the Company can terminate the
lease at any time with six months notice plus a penalty of two months
rent. Annual minimum payments under this operating lease for the next
five years from December 31, 2003 are as follows:
- ------------------------------------------------------------
2004 $ 53,004
2005 53,004
2006 56,645
2007 60,628
2008 5,080
- ------------------------------------------------------------
$ 228,361
- ------------------------------------------------------------
F-18
YM BIOSCIENCES INC.
(Amounts in Canadian dollars, unless otherwise noted)
Notes to Consolidated Financial Statements (continued)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the six months ended December 31, 2003 and 2002 is
unaudited)
- -------------------------------------------------------------------------------
8. INCOME TAXES:
The Company and its joint venturers have non-capital losses for income
tax purposes available for application against future taxable income in
Canada and Barbados. The losses expire as follows:
- ---------------------------------------------------------------------------
Canada Barbados
- ---------------------------------------------------------------------------
2004 $ 129,000 $ --
2005 217,000 --
2006 125,000 930,000
2007 285,000 2,229,000
2008 642,000 2,079,000
2009 1,687,000 3,500,000
2010 2,102,000 5,019,000
2011 1,330,000 3,802,000
2012 -- 2,600,000
2013 -- 787,000
- ---------------------------------------------------------------------------
$ 6,517,000 $ 20,946,000
- ---------------------------------------------------------------------------
The Company has a pool of scientific research and experimental development
expenditures available to reduce future taxable income of $1,214,000. The pool
has no expiry date.
The Company is amortizing its share issuance costs for tax purposes over a five
year period. The unamortized balance is $3,584,000 (June 30, 2003 - $2,141,000;
June 30, 2002 - $2,888,000).
The Company has investment tax credit carryforwards available of $1,054,000 to
reduce future taxes payable. These investment tax credits expire as follows:
- -------------------------------------------------------------------
2011 $ 259,000
2012 424,000
2013 371,000
- -------------------------------------------------------------------
$ 1,054,000
- -------------------------------------------------------------------
No future tax benefit resulting from the non-capital losses, the pool of
scientific research and experimental development expenditures or the investment
tax credit carryforwards has been reflected in the consolidated financial
statements as a valuation allowance of $5,173,000 has been taken at December 31,
2003 (June 30, 2003 - $3,650,000; June 30, 2002 - $2,825,000).
F-19
YM BIOSCIENCES INC.
(Amounts in Canadian dollars, unless otherwise noted)
Notes to Consolidated Financial Statements (continued)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the six months ended December 31, 2003 and 2002 is
unaudited)
- -------------------------------------------------------------------------------
9. FINANCIAL INSTRUMENTS:
The fair values of cash and short-term deposits, accounts receivable,
accounts payable and accrued liabilities approximate their carrying
values because of the short-term nature of these instruments.
Marketable securities are recorded at the lower of their cost and fair
market value. At December 31, 2003, the fair value of marketable
securities based on their quoted market prices was $1,431,015 (June 30,
2003 - $783,622).
10. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES:
The Company's consolidated financial statements are prepared in
accordance with generally accepted accounting principles ("GAAP") in
Canada, which differ in certain respects from those applied in the United
States. The following items present the impact of material differences
between Canadian GAAP and United States GAAP on the Company's
consolidated financial statements.
(a) Development stage enterprise:
United States GAAP requires certain additional disclosures for
development stage enterprises. These requirements include that
cumulative amounts from the enterprise's inception be provided. For
ease of presentation, these disclosures have been disclosed in the
consolidated statements of operations and deficit and cash flows and
note 6 to these consolidated financial statements as appropriate.
F-20
YM BIOSCIENCES INC.
(Amounts in Canadian dollars, unless otherwise noted)
Notes to Consolidated Financial Statements (continued)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the six months ended December 31, 2003 and 2002 is
unaudited)
- -------------------------------------------------------------------------------
10. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (CONTINUED):
(b) Statement of income (loss) and comprehensive income (loss):
The following table reconciles loss for the period as reported in the
consolidated statements of operations and deficit reported under
Canadian GAAP to what would have been reported had the statements
been prepared in accordance with United States GAAP.
- -------------------------------------------------------------------------------------------------------------------
Six months ended
December 31, Years ended June 30,
2003 2002 2003 2002 2001
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
Loss for the period based
on Canadian GAAP $ (1,965,086) $ (4,173,278) $ (7,381,820) $ (6,446,693) $ (7,454,443)
Unrealized gain (loss) on
marketable securities (i) 647,393 -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
Loss for the period and
comprehensive income
based on United States
GAAP $ (1,317,693) $ (4,173,278) $ (7,381,820) $ (6,446,693) $ (7,454,443)
- -------------------------------------------------------------------------------------------------------------------
Basic and diluted loss
per share $ (0.08) $ (0.32) $ (0.56) $ (0.50) $ (0.58)
- -------------------------------------------------------------------------------------------------------------------
Weighted average number
of common shares
outstanding 17,430,393 12,988,094 13,218,177 12,991,039 12,958,436
- -------------------------------------------------------------------------------------------------------------------
(i) Canadian GAAP requires that marketable securities be recorded at
the lower of cost and market value and does not permit the
written-down value to be adjusted upward for subsequent
recoveries of market value. The marketable securities held by
the Company are classified as trading securities in accordance
with Statement 115. Under United States GAAP, these securities
are measured at market value each period end and any unrealized
holding gains and losses are reported in the consolidated
statements of operations and deficit. During the six months
ended December 31, 2003, the market value of these securities
increased by $647,393. As such, this amount has been recognized
above as an unrealized gain for United States GAAP purposes.
Loss per common share has been calculated using the weighted average
number of common shares outstanding during the period. The potential
effect of share options and share purchase warrants is not dilutive
to the loss per common share.
F-21
YM BIOSCIENCES INC.
(Amounts in Canadian dollars, unless otherwise noted)
Notes to Consolidated Financial Statements (continued)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the six months ended December 31, 2003 and 2002 is
unaudited)
- -------------------------------------------------------------------------------
10. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (CONTINUED):
(c) Consolidated statement of changes in shareholders' equity:
United States GAAP requires the inclusion of a consolidated statement
of changes in shareholders' equity for each year a statement of
income is presented. Shareholders' equity under the United States
GAAP is as follows:
- -------------------------------------------------------------------------------------------------------------------
Deficit
accumulated Accumulated
Special during the other
warrants and development Contributed comprehensive
share capital stage surplus income Total
- -------------------------------------------------------------------------------------------------------------------
Balance, June 30, 2000 $ 29,983,582 $ (15,068,757) $ -- $ -- $ 14,914,825
Issued pursuant to a
licensing agreement 450,000 -- -- -- 450,000
Loss for the year -- (7,454,443) -- -- (7,454,443)
- -------------------------------------------------------------------------------------------------------------------
Balance, June 30, 2001 30,433,582 (22,523,200) -- -- 7,910,382
Issued pursuant to a
licensing agreement 225,000 -- -- -- 225,000
Issued by public offering 11,514,407 -- -- -- 11,514,407
Loss for the year -- (6,446,693) -- -- (6,446,693)
- -------------------------------------------------------------------------------------------------------------------
Balance, June 30, 2002 42,172,989 (28,969,893) -- -- 13,203,096
Issued from treasury 2,595,780 -- -- -- 2,595,780
Shares repurchased for
cancellation (39,665) (60,097) 9,965 -- (89,797)
Loss for the year -- (7,381,820) -- -- (7,381,820)
- -------------------------------------------------------------------------------------------------------------------
Balance, June 30, 2003 44,729,104 (36,411,810) 9,965 -- 8,327,259
Special warrants issue 17,047,001 -- -- -- 17,047,001
Shares repurchased for
cancellation (73,675) (156,704) 16,250 -- (214,129)
Loss for the period -- (1,317,693) - -- (1,317,693)
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31,
2003 (unaudited) $ 61,702,430 $ (37,886,207) $ 26,215 $ -- $ 23,842,438
- -------------------------------------------------------------------------------------------------------------------
United States GAAP requires the disclosures of a consolidated
statement of comprehensive income. Comprehensive income generally
encompasses all changes in shareholders' equity, except those arising
from transactions with shareholders. There have been no material
transactions that would have been included in comprehensive income
had the statements been prepared in accordance with United States
GAAP.
F-22
YM BIOSCIENCES INC.
(Amounts in Canadian dollars, unless otherwise noted)
Notes to Consolidated Financial Statements (continued)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the six months ended December 31, 2003 and 2002 is
unaudited)
- -------------------------------------------------------------------------------
10. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (CONTINUED):
(d) Investment in joint ventures:
The Company's investments in joint ventures have been accounted for
under Canadian GAAP using the proportionate consolidation method.
Under United States GAAP, these investments would be accounted for
using the equity method. For the purposes of this reconciliation to
United States GAAP, the following summarized statements of
operations and deficit are required disclosures in lieu of
presenting the consolidated financial statements using the equity
method to record the investments in joint ventures.
There are no assets or liabilities in the joint ventures that do not
eliminate on consolidation. As set out in note 1(a), the Company
makes provision for advances to the joint venture partners that do
not eliminate on consolidation. Accordingly, these consolidated
financial statements include all of the revenue and expenses of
incorporated joint ventures, which are as follows:
F-23
YM BIOSCIENCES INC.
(Amounts in Canadian dollars, unless otherwise noted)
Notes to Consolidated Financial Statements (continued)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the six months ended December 31, 2003 and 2002 is
unaudited)
- -------------------------------------------------------------------------------
10. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (CONTINUED):
- -------------------------------------------------------------------------------------------------------------------
Since
Six months ended inception to
December 31, Years ended June 30, December 31,
2003 2002 2003 2002 2001 2003
- -------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
General and
administrative
expenses $ 957,644 $ 738,962 $ 1,486,642 $ 1,962,855 $ 1,489,294 $ 9,610,936
Licensing and
product
development
costs 285,071 487,401 727,158 1,425,261 5,295,675 17,834,990
- -------------------------------------------------------------------------------------------------------------------
Loss for the period $ 1,242,715 $ 1,226,363 $ 2,213,800 $ 3,388,116 $ 6,784,969 $ 27,445,926
- -------------------------------------------------------------------------------------------------------------------
All of the cash flows of the joint ventures are used in operating
activities.
(e) Pro forma stock option disclosure:
The following table outlines the pro forma impact if the compensation
cost for the Company's stock options is determined under the fair
value method for awards granted on or after July 1, 1995:
- -------------------------------------------------------------------------------------------------------------------
Six months ended
December 31, Years ended June 30,
2003 2002 2003 2002 2001
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
Options granted 748,120 -- 587,500 90,000 659,000
- -------------------------------------------------------------------------------------------------------------------
Weighted average fair
value of options
granted $ 1.08 $ -- $ 1.28 $ 1.33 $ 1.16
- -------------------------------------------------------------------------------------------------------------------
Loss for the period, as
reported $ (1,965,086) $ (4,173,278) $ (7,381,820) $ (6,446,693) $ (7,454,443)
- -------------------------------------------------------------------------------------------------------------------
Pro forma loss for the
period $ (2,219,998) $ (4,296,514) $ (7,680,304) $ (6,751,059) $ (7,648,429)
- -------------------------------------------------------------------------------------------------------------------
Pro forma basic and
diluted loss per
share (0.13) (0.33) (0.58) (0.52) (0.59)
- -------------------------------------------------------------------------------------------------------------------
F-24
YM BIOSCIENCES INC.
(Amounts in Canadian dollars, unless otherwise noted)
Notes to Consolidated Financial Statements (continued)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the six months ended December 31, 2003 and 2002 is
unaudited)
- -------------------------------------------------------------------------------
10. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (CONTINUED):
The fair value of each option granted was estimated on the date of
grant using the Black-Scholes fair value option pricing model with
the assumptions set out in note 6 for the period from July 1, 2002 to
December 31, 2003 and the following assumptions for the period
preceding June 30, 2002:
- -------------------------------------------------------------------------------------------------------------------
Risk-free interest rate 4.11% to 5.66%
Dividend yield --
Volatility factor 50% to 120%
Expected life of
options 5 to 10 years
Vesting period (months) Immediately to 40 months
- -------------------------------------------------------------------------------------------------------------------
(f) Investment tax credits:
Canadian GAAP requires that investment tax credits relating to
development costs be accounted for as a reduction of development
costs. United States GAAP requires such amounts to be accounted for
as a reduction of income tax expense. There is no impact on the net
loss for the period as a result of this GAAP difference. Investment
tax credits earned are as follows:
- -------------------------------------------------------------------------------------------------------------------
Since
Six months ended inception to
December 31, Years ended June 30, December 31,
2003 2002 2003 2002 2001 2003
- -------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
$ 73,440 $ 25,287 $ 110,563 $ 91,597 $ 368,665 $ 1,586,659
- -------------------------------------------------------------------------------------------------------------------
F-25
YM BIOSCIENCES INC.
(Amounts in Canadian dollars, unless otherwise noted)
Notes to Consolidated Financial Statements (continued)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the six months ended December 31, 2003 and 2002 is
unaudited)
- -------------------------------------------------------------------------------
10. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (CONTINUED):
(g) Income taxes:
Canadian GAAP requires that future income taxes are calculated using
enacted income tax rates, or where they exist, substantively enacted
income tax rates. United States GAAP does not permit the use of
substantively enacted rates. As a full valuation allowance has been
recorded against all future tax assets, the future tax assets and
valuation allowances are also different as a result of
Canadian/United States GAAP loss differences.
The future tax assets and related valuation allowances as would have
been calculated using United States GAAP are approximately
$5,056,000, $3,650,000 and $2,825,000, respectively, for the periods
ended December 31, 2003, June 30, 2003 and June 30, 2002.
(h) Recent United States accounting pronouncements:
(i) Consolidation of variable interest entities:
In June 2003, the CICA issued Accounting Guideline 15,
Consolidation of Variable Interest Entities ("AcG-15"). The
guideline is harmonized with FASB Interpretation No. 46,
Consolidation of Variable Interest Entities ("FIN 46") and
provides guidance for applying the principles in Section 1590,
Subsidiaries, to those entities (defined as Variable Interest
Entities ("VIEs") and more commonly referred to as Special
Purpose Entities ("SPEs"), in which either the equity at risk is
not sufficient to permit that entity to finance its activities
without additional subordinated financial support from other
parties, or equity investors lack either voting control, an
obligation to absorb expected losses or the right to receive
expected residual returns. AcG-15 requires consolidation of VIEs
by the Primary Beneficiary. The Primary Beneficiary is defined
as the party which has exposure to the majority of VIE's
expected losses and/or expected residual returns. AcG-15 will be
effective for all annual and interim periods beginning on or
after November 1, 2004 and FIN 46 is effective for all reporting
periods ending on or after March 31, 2004. Early adoption is
encouraged. The Company is currently assessing the impact of
this interpretation on the Company's consolidated financial
statements.
In December 2003, the FASB issued FIN 46R, which superseded FIN
46. FIN 46R contains numerous scope exemptions and guidance on
trust-preferred structures.
F-26
YM BIOSCIENCES INC.
(Amounts in Canadian dollars, unless otherwise noted)
Notes to Consolidated Financial Statements (continued)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the six months ended December 31, 2003 and 2002 is
unaudited)
- -------------------------------------------------------------------------------
10. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (CONTINUED):
(ii) Stock-based compensation:
In December 2002, the FASB issued Statement No. 148, Accounting
for Stock-Based Compensation - Transition and Disclosure, an
amendment of FASB SFAS No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for
the change to the fair value method of accounting for
stock-based employee compensation. The Company has not yet
chosen the method of transition. In addition, this Statement
amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based
employee compensation and the effect of the method used on
reported results.
11. COMPARATIVE FIGURES:
Certain comparative figures have been reclassified to conform with the
financial statement presentation adopted in the current year.
12. SUBSEQUENT EVENTS:
On January 9, 2004, the Company completed a transaction, whereby the
Company sold 1,100,000 ordinary shares of NOIT at their market value of
(sterling) 0.55 (approximately $1.29) per share, resulting in a gain of
approximately $633,000.
On February 12, 2004, the Company filed a prospectus to qualify the
distribution of 10,895,658 common shares and 5,447,829 warrants upon the
exercise of the 10,895,658 special warrants (note 6) previously issued.
Upon the prospectus being filed, the special warrants were automatically
exercised, resulting in the issuance of the 10,895,658 common shares and
5,447,829 detachable share purchase warrants. The values allocated to the
common share and one half warrant components of the special warrant are
$14,124,658 and $2,922,343 respectively.
F-27
SIGNATURES
The Registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused and authorized the undersigned to sign
this registration statement on its behalf.
YM BIOSCIENCES INC.
By: /s/ David Allan
------------------------------
Name: David Allan
Title: Chief Executive Officer
Dated: May 14, 2004
60
EXHIBIT INDEX
The following documents are filed as part of this registration statement on Form
20-F as Exhibits:
Exhibit Description
1.1 Certificate of Continuance dated December 11, 2001
1.2 Certificate of Registration dated December 11, 2001
1.3 Memorandum of Association dated December 11, 2001
1.4 Articles of Association dated December 11, 2001
1.5 Directors resolution re creation and issuance of Class B Preferred Shares,
Series 1
2.1 Form of the Corporation's Canadian common share purchase warrant
2.2 Form of the Corporation's United States common share purchase warrant
2.3 Form of the Corporation's Canadian placement agent warrant
2.4 Form of the Corporation's United States placement agent warrant
2.5 Form of warrant certificate granted by the Corporation in connection with
that certain License Agreement between YM BioSciences Inc. (formerly York
Medical Inc.) and Biostar Inc. dated October 11, 2000.
2.6 Form of warrant certificate granted by YM BioSciences Inc. (formerly York
Medical Inc.) to Aran Asset Management SA dated Jun 12, 2002.
2.7 Form of warrant certificate granted by York Medical Inc. to CIMAB S.A
dated September 1, 2000.
2.8 Form of warrant certificate granted by YM BioSciences Inc. (formerly York
Medical Inc.) to Aran Asset Management SA dated February 15, 2002.
2.9 Form of warrant certificate granted by YM BioSciences Inc. (formerly York
Medical Inc.) to Clubb BioCapital Limited dated February 15, 2002.
4.1 Stock Option Plan dated November 22, 1996, as amended on November 26, 2003
4.2 License Agreement between YM BioSciences Inc. (formerly known as York
Medical Inc.) and Biostar Inc. dated October 11, 2000.
4.3+ Development and License Agreement between CIMYM Inc., CIMAB SA and
Oncoscience AG, dated November 5, 2003.
4.4+ License Agreement between YM BioSciences Inc. (formerly known as York
Medical Inc.), University of Manitoba and The Manitoba Cancer Treatment
and Research Foundation, carrying on its undertaking as Cancercare
Manitoba, dated November 2, 2000.
4.5 License Agreement between CIMYM Inc. and CIMAB SA, January 24, 2001.
4.6 License Agreement between YM BioSciences Inc. (formerly known as Yorkton
Medical Inc.) and CIMAB SA, dated May 3, 1995.
4.7+ Clinical Research Services Agreement between YM BioSciences Inc. and
Pharm-Olam International, Ltd., dated March 10, 2004.
4.8 Licensing Bonus Pool Plan dated March 31, 2004.
4.9 Lease Amending and Extension Agreement between 1411029 Ontario Limited and
YM BioSciences Inc. dated January 15, 2003.
4.10 Joint Venture Shareholders' Agreement between York Medical Inc., CIMYM
Inc. (an Ontario Corporation) and CIMAB S.A dated November 14, 1995.
4.11 Assignment and Assumption Agreement between York Medical Inc. and CIMYM
Inc. dated November 22, 1995.
4.12 Letter from York Medical Inc. to CIMYM Inc. dated November 23, 1995.
4.13 Exclusive International Sales, Marketing Manufacturing and Administrative
Agreement between CIMYM Inc. (an Ontario Corporation) and CIMYM Inc. (a
Barbados Corporation) dated July 4, 1996.
4.14 Joint Venture Shareholders' Agreement between York Medical Inc., CIMYM
Inc. (a Barbados Corporation) and CIMAB S.A. dated May 16, 1996.
4.15 Joint Venture Shareholders' Agreement between York Medical Inc., CBQYM
Inc. and CIMAB S.A., representing Centro de Bioactivos Quimicos of the
Universidad Central de Las Villas dated November 11, 1995.
4.16 Assignment and Assumption Agreement between York Medical Inc. and CBQYM
Inc. dated November 22, 1995.
4.17 Letter from York Medical Inc. to CBQYM Inc. dated November 23, 1995.
4.18 Exclusive International Sales, Marketing Manufacturing and Administrative
Agreement between CBQYM Inc. (an Ontario Corporation) and CBQYM Inc. (a
Barbados Corporation) dated July 4, 1996.
4.19 Joint Venture Shareholders' Agreement between York Medical Inc., CBQYM
Inc. (a Barbados Corporation) and CIMAB S.A. dated May 16, 1996.
8.1 List of subsidiaries
+ Confidential treatment requested for portions of these agreements.