UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 20-F/A
AMENDMENT NO. 1
REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(G) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-32186
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 to be
COMMON SHARES registered:
WITHOUT PAR AMERICAN STOCK EXCHANGE (THE "AMEX")
VALUE
Securities registered or to be registered pursuant to Section 12(g) of the
Act: NONE
Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days :
Yes |_| No |X|
Indicate by check mark which financial statement item the registrant has elected
to follow:
Item 17 |_| Item 18 |X|
TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS.................................................ii
TERMS OF REFERENCE.........................................................ii
GLOSSARY OF TERMS AND PROPER NAMES.........................................iii
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.........................................16
ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS.......................39
ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.........................44
ITEM 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.................53
ITEM 8: FINANCIAL INFORMATION.............................................54
ITEM 9: THE OFFER AND LISTING.............................................55
ITEM 10: ADDITIONAL INFORMATION...........................................56
ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........71
ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES...........71
PART II....................................................................71
PART III...................................................................72
ITEM 17: FINANCIAL STATEMENTS.............................................72
ITEM 18: FINANCIAL STATEMENTS.............................................72
ITEM 19: EXHIBITS..........................................................72
FINANCIAL STATEMENTS......................................................F-1
i
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. While any
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, including those discussed under "Risk
Factors" in this registration statement, some of which are beyond our control,
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. 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. See "Risk
Factors".
TERMS OF REFERENCE
The information set forth in this registration statement is as of July 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 our subsidiaries, unless otherwise specified or the context otherwise
requires. References in this registration statement to "United States", "US" or
"U.S." mean the United States of America.
ii
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 tumor 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 tumor-specific antigens or using the patient's own whole tumor
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
cGMP - current good manufacturing practices, as mandated from time to time by
Health Canada and the FDA
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
CIMAB S.A. - a Cuban company responsible for commercializing products developed
at CIM and the product licensed from CBQ
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
iii
Cytotoxic - Having capacity to kill cells
Cytotoxic T cell response - Killing the tumor cell by activated tumor-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 practices, i.e. guidelines established by the
governments of various countries, including Canada and the United States, to be
used as a standard in accordance with the World Health Organization's
Certification Scheme on the quality of pharmaceutical products
GnRH - Gonadotrophin Releasing Hormone; controlling the circulating levels of
the sex hormones
HER-1 positive tumors - Tumors expressing/producing the EGF receptor
Hormone-refractory - Term used to indicate that a tumor 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
Irinotecan - 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 tumor cells have migrated
from the primary tumor 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)
iv
Murine - Derived from mouse cells
NCE - A new chemical entity
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
Orange Book - A reference to the Hatch/Waxman Act
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 FDA
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 tumor growth
Prednisone - An approved standard anti-inflammatory
Resection - The process of tumor removal
Taxol - An approved chemotherapeutic agent
Taxotere - An approved chemotherapeutic agent
TGFa - 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
Tyrosine kinase - An enzyme that catalyzes the phosphorylation of tyrosine
residues in proteins with nucleotides as phosphate donors
Upregulation - Increased production of an RNA transcript or a protein by a cell
Vinylfuran - A chemical polymer
v
Yttrium 90 - A radioisotope used in the treatment of disease
vi
PART I
ITEM 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
A. DIRECTORS AND SENIOR MANAGEMENT.
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, U.S., 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 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
Paul M. Keane Director, Medical Affairs YM BioSciences Inc.
Suite 400, Building 11, 5045 Orbiter Drive
Mississauga, Ontario, Canada, L4W 4Y4
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
1
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 nine month periods
ended March 31, 2004 and 2003. The consolidated financial statements have been
prepared in accordance with Canadian generally accepted accounting principles,
(Canadian GAAP) and are in Canadian dollars.
CONSOLIDATED STATEMENTS OF OPERATIONS DATA
Nine months Nine months
ended ended Year Ended Year Ended Year Ended
Mar. 31, 2004 Mar. 31, 2003 June 30, 2003 June 30, 2002 June 30, 2001
------------- ------------- ------------- ------------- -------------
Interest income $ 225,203 $ 211,796 $ 273,232 $ 154,112 $ 645,742
General and administrative expenses 1,801,707 1,398,527 1,877,509 1,864,289 1,805,204
Licensing and product development expenses 3,134,146 3,192,700 3,965,385 4,729,216 6,294,981
Loss on marketable securities -- (1,812,158) (1,812,158) -- --
Loss for the period ($4,072,318) ($6,191,589) ($7,381,820) ($6,439,393) ($7,454,443)
Basic and diluted loss per common share ($ 0.21) ($ 0.48) ($ 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
CONSOLIDATED BALANCE SHEET DATA
as at as at as at as at as at as at
Mar. 31, 2004 June 30, 2003 June 30, 2002 June 30, 2001 June 30, 2000 June 30, 1999
------------- ------------- ------------- ------------- ------------- -------------
Cash and short-term deposits $22,410,456 $7,675,466 $12,707,522 $8,142,888 $14,646,424 $4,109,934
Total assets 22,575,527 8,649,842 13,577,482 8,448,593 15,283,640 4,247,836
Current Liabilities 1,460,589 322,583 374,386 538,211 368,815 277,191
Shareholders equity 21,114,938 8,327,259 13,203,096 7,910,382 14,914,825 3,970,645
Capital Stock $58,003,735 $42,729,104 $42,172,989 $30,433,582 $29,983,582 $14,541,725
No. of Shares 28,183,152 17,441,894 $12,998,094 12,973,094 12,923,094 9,086,129
Dividends declared NIL NIL NIL NIL NIL NIL
CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES:
The consolidated financial statements have been prepared in accordance with
Canadian GAAP. The principles conform in all material respects with accounting
principles generally accepted in the United States (US GAAP) except as described
in note 10 to the consolidated Financial Statements in Item 18. For all the
periods presented therein, the selected financial data are prepared in
accordance with Canadian GAAP, and 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) Loss for the period and comprehensive income (loss) for the period ended
March 31, 2004 under US GAAP would be ($4,023,061), $49,257 less than the net
loss of ($4,072,318) shown above because US GAAP requires the recognition of
unrealized gains on marketable securities classified as trading securities. In
addition, total assets and shareholders equity as at March 31, 2004 would also
increase by $49,257 under US GAAP compared with those amounts presented above
under Canadian GAAP.
b) Licensing and product development expenses under US GAAP 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
under Canadian GAAP, investment tax credits are presented as a reduction of
licensing and product development costs. The amounts of investment tax credits
are as follows:
- -------------------------------------------------------------------------------------------------------------------------
Nine months ended March 31 Years ended June 30
- -------------------------------------------------------------------------------------------------------------------------
2004 2003 2003 2002 2001
- -------------------------------------------------------------------------------------------------------------------------
$297,625 $25,287 $110,563 $91,597 $368,665
- -------------------------------------------------------------------------------------------------------------------------
CURRENCY EXCHANGE RATES
All references to dollars are expressed in Canadian funds, unless otherwise
indicated. On July 30, 2004 the exchange rate for the conversion of U.S. dollars
into Canadian dollars was Cdn.$1.00 = US$0.7523 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
February 28, 2004 0.7632 0.7440
March 31, 2004 0.7646 0.7421
April 30, 2004 0.7638 0.7296
May 31, 2004 0.7365 0.7159
June 30, 2004 0.7460 0.7261
July 31, 2004 0.7646 0.7492
3
Year Ended Average Rate
June 30, 2000 0.6791
June 30, 2001 0.6580
June 30, 2002 0.6379
June 30, 2003 0.6637
June 30, 2004 0.7452
B. CAPITALIZATION AND INDEBTEDNESS.
The Corporation has no long-term liabilities. The following table sets forth the
capitalization of the Corporation as at June 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 June 16, 2004) $ 59,577,914
Class A non-voting commons shares (500,000,000 authorized
without nominal or par value; no outstanding as at June 16, 2004) $ 0
Class A preferred shares (500,000,000 authorized without
nominal or par value; no outstanding as at June 16, 2004) $ 0
Class B preferred shares (500,000,000 authorized, issuable in series,
without nominal or par value; no outstanding as at June 16, 2004) $ 0
Share purchase warrants $ 3,716,239
Deficit ($42,569,137)
Contributed surplus $ 29,815
Total stockholders' equity $ 20,754,831
Total capitalization $ 20,754,831
C. REASONS FOR THE OFFER AND USE OF PROCEEDS.
Not applicable.
4
D. 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.
RISKS RELATED TO OUR BUSINESS
WE ARE IN THE EARLY STAGES OF DEVELOPMENT AND, AS A RESULT, ARE UNABLE TO
PREDICT WHETHER WE WILL BE ABLE TO PROFITABLY COMMERCIALIZE OUR LICENSED
PRODUCTS.
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 our 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.
WE HAVE A LACK OF REVENUES AND A HISTORY OF LOSSES AND, THEREFORE, ARE UNABLE TO
PREDICT THE EXTENT OF ANY FUTURE LOSSES OR WHEN WE WILL BECOME PROFITABLE.
The Corporation has not received any revenues from the commercialization of our
licensed products and, since incorporation and up to March 31, 2004, has an
accumulated deficit of $40.6 million. The Corporation expects expenditures and
the accumulated deficit to increase as we proceed with our commercialization
programs until such time as any sales, license fees and royalty payments
generate sufficient revenues to fund our continuing operations.
WE ARE DEPENDENT ON OTHERS FOR THE MANUFACTURE, DEVELOPMENT AND SALE OF OUR
PRODUCTS. IF WE ARE UNABLE TO ESTABLISH OR MANAGE COLLABORATIONS IN THE FUTURE,
THERE COULD BE A DELAY IN THE MANUFACTURE, DEVELOPMENT AND SALE OF OUR PRODUCTS.
The Corporation does not conduct any of our own research. Basic research on a
particular drug product is conducted by biopharmaceutical companies, scientific
and academic institutions and hospitals, or scientists affiliated with those
institutions. Once the basic research is complete, the Corporation enters into
license agreements to in-license the right to develop and market the products.
The Corporation has negotiated certain in-licensing agreements with: the
University of Manitoba, CancerCare Manitoba, Vincent Research and Consulting,
CIMAB, Biostar Inc., the Veterinary Infectious Disease Organization ("VIDO") (a
division of the University of Saskatchewan), and Heber Biotec S.A. See "-
Licensing Arrangements - In-Licensing".
The Corporation enters into arrangements with and is dependant on others with
respect to the manufacture, development and sale of our in-licensed products.
Product development includes, but is not limited to, pre-clinical testing,
clinical testing, regulatory approvals and the development of additional
regulatory and marketing information. The Corporation's ability to successfully
develop and commercialize our in-licensed products is dependent on our ability
to make arrangements with others on commercially acceptable terms. The product
development process may be delayed or terminated if the Corporation cannot
secure or maintain such arrangements. The Corporation does not have any material
third party manufacture, formulation or supply agreements. However, the
Corporation has entered into an agreement with Pharm-Olam International, Ltd. in
connection with clinical testing and product development of tesmilifene.
The Corporation expects to enter into out-licensing agreements with others with
respect to manufacturing and marketing our drug products. The Corporation may
retain co-development and marketing rights if management deems it appropriate to
do so. At this time, the Corporation has entered into two out-licensing
agreements.
The Corporation entered into the first out-licensing agreement through our
subsidiary, CIMYM Inc., an Ontario corporation ("CIMYM"). On November 12, 2003,
CIMYM out-licensed the rights for TheraCIM in most of Europe
5
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
Oncoscience in relation to the development or sublicensing of the product and as
a royalty on initial net sales. After CIMYM has received US$30 million, CIMYM
continues to receives royalties on net sales but at a lesser percentage.
The Corporation and our subsidiary, CIMYM, Inc., a Barbados Corporation ("CIMYM
(Barbados)") entered into the second out-licensing agreement with Tarcanta, Inc.
and Tarcanta, Ltd. (collectively, "Tarcanta"), two wholly-owned subsidiaries of
CancerVax Corporation of California, U.S. ("CancerVax") and CIMAB relating to
Tarcanta licensing TGFa and HER-1 from the Corporation. CancerVax has announced
that it has received a license from the Office of Foreign Asset Control of the
United States Department of Treasury ("OFAC" or "Treasury") authorizing Tarcanta
to enter into the transactions with CIMAB and the Corporation. On July 13, 2004,
the Corporation, CIMYM (Barbados), CIMAB and Tarcanta entered into a License,
Development, Manufacturing and Supply Agreement. By the terms of this agreement
with Tarcanta, the 2001 CIMYM License has been suspended until such time, if at
all, there is a default under the agreement with Tarcanta. Under the terms of
the new agreement, the Corporation is entitled to receive certain up-front and
milestone payments and retains an interest in the revenues from the manufacture
and marketing of the drugs or from their sub-licensing. See "- Licensing
Arrangements - Out-Licensing" and see "-Licensing Arrangements - In-Licensing -
Licenses for TheraCIM, RadioTheraCIM, TGFa and HER-1".
There can be no assurance that the Corporation will be successful in maintaining
our relationships with research institutions or others or in negotiating
additional in-licensing or out-licensing agreements on terms acceptable to the
Corporation or that any such arrangements will be successful. In addition, there
can be no assurance that the arrangements between the Corporation and others
will prevent other parties from entering into arrangements with such entities
for the development or commercialization of similar products or that the parties
with whom the Corporation has such arrangements 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 in-licensing and out-licensing arrangements, we could
encounter delays in product introductions or could find that the development,
manufacture or sale of our licensed products could be materially adversely
affected.
WE HAVE NO EXPERIENCE IN COMMERCIAL MANUFACTURING OF OUR LICENSED PRODUCTS AND
MAY ENCOUNTER PROBLEMS OR DELAYS IN MAKING ARRANGEMENTS FOR PRODUCTS TO BE
COMMERCIALLY MANUFACTURED, WHICH COULD RESULT IN DELAYED DEVELOPMENT, REGULATORY
APPROVAL AND MARKETING.
The Corporation has not commercially launched any of the licensed products and
has no commercial 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 we may invest in the ownership of production facilities if
appropriate opportunities are available.
Two of the Corporation's licensed products (namely, TheraCIM and Radio TheraCIM)
are expected to be manufactured in small quantities for testing by the relevant
licensor (namely, CIMAB) or a related party, subject to certain terms and
conditions of the licensing agreements between the Corporation and CIMAB.
Currently these expectations are being met. There can be no assurance, however,
that such entities will be able to develop adequate manufacturing capabilities
for commercial scale quantities in a commercially reasonable manner.
Two other licensed products of the Corporation which are currently manufactured,
and finished and filled, in small quantities for testing, by third parties are
tesmilifene and NorelinTM. The manufacturing process for these drugs is such
that the Corporation expects that commercial quantities of these drugs can be
manufactured. If current suppliers cannot manufacture commercial quantities or
the Corporation otherwise experiences a problem with current suppliers, it will
be necessary for the Corporation to obtain these drugs from new suppliers. The
Corporation does not have supply agreements with the third party suppliers of
tesmilifene and NorelinTM, but such suppliers have produced quantities for the
Corporation to specification on purchase order. The Corporation expects that we
could find new suppliers for these drugs, if necessary. There can be no
assurance, however, that the Corporation or our licensor will be able to reach
satisfactory arrangements with our current suppliers or, if necessary, new
suppliers or that such arrangements will be successful.
6
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.
WE ARE DEPENDENT ON LICENSES FROM THIRD PARTIES AND THE MAINTENANCE OF LICENSES
IS NECESSARY FOR OUR SUCCESS.
The Corporation has obtained our rights to the licensed products under license
agreements from various third party licensors as follows:
(a) License Agreement between CIMYM Inc. and CIMAB SA, January 24, 2001 with
respect to TGFa and HER-1, which agreement has been suspended in
accordance with the terms of the Tarcanta out-licensing agreement (See
"-Licensing Agreements - Out-Licensing");
(b) 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 with respect to tesmilifene;
(c) License Agreement between YM BioSciences Inc. (formerly known as York
Medical Inc.) and Biostar Inc. dated October 11, 2000 with respect to
NorelinTM; and
(d) License Agreement between YM BioSciences Inc. (formerly known as Yorkton
Medical Inc.) and CIMAB SA, dated May 3, 1995 with respect to TheraCIM and
RadioTheraCIM.
The above listed license agreements are more fully described under the heading
"- Licensing Arrangements - In-Licensing" and the agreements have been filed as
part of this registration statement as Exhibits.
The Corporation is dependent upon the licenses for our rights to the licensed
products and commercialization of the licensed products. While the Corporation
believes we are in compliance with our 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 our rights under the licenses would have a material
adverse effect on the Corporation as the Corporation would not have products to
develop. To the extent that management considers a particular license to be
material to the undertaking of the Corporation, the Corporation has entered into
a signed license agreement for that license. Terms of certain remaining licenses
are to be determined at a later date. The in-license agreements to which the
Corporation is currently a party require the Corporation to maintain and defend
the patent rights that we in-license against third parties.
Although the Corporation's current licenses are governed by the laws of Ontario
and Barbados, 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 judgment or order
obtained in one jurisdiction will be enforceable in another. In international
venture undertakings it is standard practice to attorn to a neutral
jurisdiction to seek remedy for unresolved commercial disputes. These
arrangements are usually negotiated as part of the original business agreement.
In the case of the license agreements with the Corporation, the parties have
agreed that the proper law of the contract is Ontario and the parties will
attorn to the courts of Ontario or the Federal court of Canada to resolve any
dispute.
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 our 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 could
have a material adverse effect on the Corporation's ability to continue
development of our licensed products.
7
As described under "Business of the Corporation - Licensing Arrangements", the
Corporation has a number of license agreements with CIMAB. CIMAB is an
institution of the Government of Cuba that purportedly operates at arms-length
from the state bureaucracy with regard to its business, scientific and
administrative decision-making. It is akin to a "crown corporation" in Canada.
CIMAB's management is purportedly both autonomous and responsible for the
success of their business decisions. Despite the fact that CIMAB's management is
purportedly both autonomous and responsible for business decisions and that the
license agreements with the Corporation declare Ontario as proper law, because
of the fact that CIMAB is a state-owned entity, the Corporation will not be able
to force CIMAB to comply with any judgment if CIMAB or the Government of Cuba
refuses to comply.
WE HAVE ADVANCED FUNDS TO OUR JOINT VENTURE SUBSIDIARIES WHICH WE ARE ONLY
ENTITLED TO RECOVER WHEN THE JOINT VENTURE'S NET INCOME EXCEEDS THE AMOUNT OF
CUMULATIVE ADVANCES.
YM and CIMAB entered into funding agreements with CIMYM and CBQYM Inc., an
Ontario corporation ("CBQYM", collectively with CIMYM, 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.
CIMYM (Barbados) and CBQYM (Barbados) (the "Barbadian 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
provides funding to CIMYM (Barbados) and CBQYM (Barbados) under similar terms
and conditions as funding to the Canadian Subsidiaries, except that while each
of the Canadian Subsidiaries have a payable outstanding for the amounts advanced
by YM to such Canadian Subsidiary, the Barbadian Subsidiaries have each issued
redeemable preferred shares to YM for the amounts advanced to such Barbadian
Subsidiary.
YM is entitled to be reimbursed for all funds we provide 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. There can be no assurance, however, that the
Corporation will be able to recover the advances, as the Corporation is not
entitled to recover such advances unless and until the joint venture's net
income exceeds the amount of the cumulative advances.
As at March 31, 2004, YM has advanced $28.1 million to CIMYM, CIMYM (Barbados),
CBQYM and CBQYM (Barbados), collectively. Accordingly, the Corporation has set
up a reserve in full against the other joint venture partners share of the
advances. All advances have been expensed and, therefore, any reimbursement of
such advances would be considered to be income by the Corporation.
WE ARE RELIANT ON LICENSORS FOR RESEARCH ON NEW PRODUCTS.
The Corporation does not conduct our 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 we 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.
WE CONDUCT OUR BUSINESS INTERNATIONALLY AND ARE SUBJECT TO LAWS AND REGULATIONS
OF SEVERAL COUNTRIES WHICH MAY AFFECT OUR ABILITY TO ACCESS REGULATORY AGENCIES
AND MAY AFFECT THE ENFORCEABILITY AND VALUE OF OUR LICENSES.
The Corporation has conducted clinical trials in Canada, the United Kingdom and
the United States and intends to, and may, conduct future clinical trials in
these and other jurisdictions. There can be no assurance that any sovereign
government, including Canada's, will not establish laws or regulations that will
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 any jurisdiction where we might want to conduct clinical
trials or obtain final regulatory approval, and there can be no assurance that
the Corporation will be able to enforce our licenses in foreign jurisdictions.
Governments have, from time to time, established foreign exchange controls which
could have a
8
material adverse effect on the Corporation and our financial condition, since
such controls may limit the Corporation's ability to flow funds into a country
to meet our obligations under in-licensing agreements and to flow funds out of a
country which the Corporation may be entitled to, in the form of royalty and
milestone payments, under out-licensing agreements. In addition, the value of
the Corporation's licenses will depend upon no punitive or prohibitive
legislation in respect of biological materials.
WE ALSO CONDUCT OUR BUSINESS INTERNATIONALLY IN THAT WE CURRENTLY LICENSE
PRODUCTS AND TECHNOLOGIES FROM SOURCES IN CANADA AND CUBA. WE HAVE PREVIOUSLY,
AND INTEND TO, AND MAY, LICENSE PRODUCTS FROM SOURCES IN OTHER JURISDICTIONS.
The Corporation has licensed products, namely TheraCIM, RadioTheraCIM and the
G-1 anti-microbial product, from two academic institutes in Cuba, namely CIM and
CBQ. The United States has maintained an embargo against Cuba, administered by
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, noted above, are likely to be prohibited from sale in the United States
unless Treasury issues a license or the embargo is lifted.
The Corporation's licensed rights to the TGFa Vaccine and the HER-1 Vaccine are
suspended under the terms of the out-licensing agreement between the
Corporation, CIMYM (Barbados), CIMAB and Tarcanta relating to Tarcanta licensing
TGFa and HER-1 from CIMAB. In connection with the out-licensing agreement,
CancerVax has announced that it has received a license from Treasury authorizing
Tarcanta to enter into the transactions with CIMAB and the Corporation. See "-
Licensing Arrangements - Out-Licensing" and see "-Licensing Arrangements -
In-Licensing - Licenses for TheraCIM, RadioTheraCIM, TGFa and HER-1".
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 real 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.
RISKS RELATED TO OUR FINANCIAL RESULTS AND NEED FOR FINANCING
WE MAY BE A "PASSIVE FOREIGN INVESTMENT COMPANY" WHICH COULD RESULT IN ADVERSE
U.S. TAX CONSEQUENCES FOR U.S. INVESTORS.
The Corporation may be deemed to be a "Passive Foreign Investment Company"
("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 a 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 our current income, assets and activities, the Corporation may be a
PFIC. 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".
WE MAY NOT BE ABLE TO OBTAIN NECESSARY FUNDING FROM SALES OR LICENSE FEES OR
ROYALTIES AND, AS A RESULT, MAY NEED TO TRY TO OBTAIN FUTURE CAPITAL THROUGH THE
PUBLIC MARKET OR PRIVATE FINANCING WHICH MAY NOT BE AVAILABLE ON ACCEPTABLE
TERMS.
9
The Corporation may require additional funding for the commercialization of the
licensed products, and we will require additional funds if new products are
licensed and put into development. The amount of additional funding required
depends on the status of each project or new opportunity at any given time. The
Corporation's business strategy is to in-license rights to promising drug
products, further develop those products by progressing the products toward
regulatory approval by conducting and managing clinical trials, and finally to
out-license rights to manufacture and/or market resulting drug products to other
pharmaceutical firms in exchange for royalties and license fees. Due to the in-
and out-licensing arrangements and the Corporation's dependence on others for
the manufacture, development and sale of our in-licensed products, the
Corporation does not have consistent monthly or quarterly expenditures and
cannot determine the amount and timing of required additional funding with any
certainty. As at March 31, 2004 the Corporation had cash and short-term deposits
totaling $22,410,456 and payables of $1,253,756. Management expects that the
current cash reserves will be sufficient to fund the Corporation's development
program beyond the fiscal year ending June 30, 2005.
The Corporation assesses our additional funding needs on a project-by-project
basis from time-to-time. To the extent that the Corporation is unable to fund
our expenditures from sales, license fees and royalties, it may be necessary to
reconsider the continuation of existing projects or entering into new projects,
or require the Corporation 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
holders of our common shares. There is no assurance that such financing will be
available if required, or that it will be available on favorable terms.
OUR OPERATING RESULTS AND STOCK PRICE MAY FLUCTUATE SIGNIFICANTLY.
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
competitors, announcements of technological innovations by the Corporation or
our competitors, governmental regulations, developments in patents or other
proprietary rights of the Corporation, our licensors or our competitors,
litigation, fluctuations in the Corporation's operating results, the Corporation
being thinly capitalized, 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. In addition, the Corporation's common
shares are highly volatile since it may take years before any of our licensed
products will receive final regulatory approval to be marketed in Canada, the
United States or other territories.
THERE IS NO ASSURANCE THAT AN ACTIVE TRADING MARKET IN OUR SHARES IN THE U.S.
WILL BE ESTABLISHED AND/OR, IF ESTABLISHED, SUSTAINED.
We have applied to list our common shares for trading on the American Stock
Exchange. We expect such listing to be completed during the third 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 U.S. will be
established and/or if established sustained.
RISKS RELATED TO OUR INDUSTRY
IF OUR PRE-CLINICAL AND CLINICAL TESTING OF DRUG PRODUCTS DO NOT PRODUCE
SUCCESSFUL RESULTS, WE WILL NOT BE ABLE TO COMMERCIALIZE OUR PRODUCTS.
Each of the Corporation's licensed products must be subjected to additional
pre-clinical and/or clinical testing in order to demonstrate the safety and
efficacy of the Corporation's licensed products in humans. The Corporation's
ability to commercialize our licensed products will depend on the success of
currently ongoing pre-clinical and clinical trials and subsequent pre-clinical
and clinical trials that have not yet begun.
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
10
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 material adverse affects on the Corporation's
business, financial condition or results of operations as it could result in the
Corporation having to reduce or abandon future testing or commercialization of
particular drug products.
IF OUR COMPETITORS DEVELOP AND MAINTAIN THEIR TECHNOLOGICAL CAPABILITIES BETTER
THAN THE CORPORATION, WE MAY NOT BE ABLE TO REMAIN COMPETITIVE IF DEFICIENCIES
IN OUR TECHNOLOGICAL CAPABILITIES DELAY PRE-CLINICAL AND CLINICAL TRIALS OF OUR
LICENSED PRODUCTS.
The Corporation's success depends in part on developing and maintaining a
competitive position in the development and commercialization of our licensed
products and technological capabilities in our areas of expertise. The
biotechnology and pharmaceutical industries are subject to rapid and substantial
technological change. While the Corporation will seek to expand our
technological capabilities in order to remain competitive, there can be no
assurance that developments by others will not render the Corporation's licensed
products non-competitive or that the Corporation or our 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 Corporation's technological capabilities and competitiveness and
the success of the Corporation's competitors and their products and
technologies, could have a material adverse impact on the future pre-clinical
and clinical trials of the Corporation's licensed products, including the
Corporation's ability to obtain the necessary regulatory approvals for the
conduct of such clinical trials.
IF OUR COMPETITORS DEVELOP AND MARKET PRODUCTS THAT ARE MORE EFFECTIVE THAN OUR
EXISTING PRODUCT CANDIDATES OR ANY PRODUCTS THAT WE MAY DEVELOP, OR OBTAIN
MARKETING APPROVAL BEFORE WE DO, OUR PRODUCTS MAY BE RENDERED OBSOLETE OR
UNCOMPETITIVE.
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. The Corporation's future success depends in part
on our ability to maintain a competitive position, including our ability to
further progress our licensed products through the necessary pre-clinical and
clinical trials towards regulatory approval for sale and commercialization.
Other companies may succeed in commercializing products earlier than the
Corporation is able to commercialize our licensed products or in developing
products that are more effective than the licensed products. While the
Corporation will seek to expand our 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.
WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATION THAT INCREASES THE COST AND
UNCERTAINTY ASSOCIATED WITH GAINING FINAL REGULATORY APPROVAL OF OUR PRODUCT
CANDIDATES.
Securing final regulatory approval for the manufacture and sale of human
therapeutic products in Canada and the Corporation's other territories,
including the United States, is a long and costly process that is controlled by
that particular territory's national regulatory agency. The national regulatory
agency in Canada is Health Canada ("Health Canada"), and in the United States it
is the United States Health and Human Services Food and Drug Administration
("FDA"). See "Regulatory Approvals" for a description of approval processes in
Canada and the United Sates. Other national regulatory agencies have similar
regulatory approval processes, but each national regulatory agency has its own
approval processes. Approval in either Canada or the United States does not
assure approval by other national regulatory agencies, although often test
results from one country may be used in applications for regulatory approval in
another country.
11
Prior to obtaining final regulatory approval to market a drug product, every
national regulatory agency has a variety of statutes and regulations which
govern the principal development activities. 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 labeling.
None of the Corporation's products have been completely developed or tested and,
therefore, we are not yet in a position to seek final regulatory approval to
market any of our in-licensed products. To date we have obtained various
regulatory approvals to develop and test our in-licensed products. Currently the
Corporation is conducting an international Phase III trial of tesmilifene in
metastatic and recurrent breast cancer in 700 patients. The Corporation has
received regulatory approvals for the tesmilifene study in several countries,
including Canada and the United States, and approval is pending in a few other
countries. In addition, TheraCIM has been designated an orphan drug in Europe
and the Corporation is currently seeking orphan drug designation for TheraCIM
from the FDA. See "Products in Clinical Development".
There can be no assurance that the licensed products will be successfully
commercialized. The process of completing clinical testing and obtaining final
regulatory approval to market the licensed products 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's ability to develop the
product and delay commercialization of the product. 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 REGULATIONS ALTHOUGH BEYOND OUR CONTROL COULD HAVE AN
ADVERSE EFFECT ON OUR BUSINESS.
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 our
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 our 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. These factors could have a
material adverse effect on the Corporation's ability to further development of
our licensed products.
RISKS RELATED TO INTELLECTUAL PROPERTY AND LITIGATION
OUR SUCCESS DEPENDS UPON OUR ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY AND
OUR PROPRIETARY TECHNOLOGY.
The Corporation's success will depend, in part, on the ability of the
Corporation and our 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 term of a patent will be
extendable after it expires in due course, 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
third
12
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.
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 our trade secrets. To help
protect our 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 materially adversely affected by
competitors who independently develop competing technologies, especially if no
patents or only narrow patents are obtained by the Corporation in respect of our
licensed products.
The Corporation maintains patents in connection with tesmilifene, NorelinTM and
TheraCIM. The following is a description of the Corporation's key current and
pending patents in connection with these drug products.
TESMILIFENE
Tesmilifene itself was first described many decades ago as a member of a family
of compounds having anti-histamine properties. In the early 1980's, research was
conducted into its potential as a chemotherapeutic agent. Ultimately, the
development of tesmilifene for these indications was not advanced.
More recently, the value of tesmilifene as a potentiator of chemotherapeutic
agents was discovered, and patents were obtained by the University of Manitoba
for this application. The basic patents are granted in the United States,
Europe, Japan, Canada and Australia. The scope of patent coverage and the patent
term differ by country. In the United States, the Corporation relies on three
layers of basic patent protection. A key patent among these is US 5,859,065,
having claims relating to the use of tesmilifene and certain structurally
related analogs in combination with any chemotherapeutic for the treatment of
any cancer. The twenty year term of this patent expires in December 2010, but
extensions of up to five additional years may be available under the Patent Term
Restoration Act in the United States. We intend to take full advantage of the
available term extension. In addition, in the United States, the Corporation is
licensed under two granted patents with related coverage, namely, US 6,284,799
expiring February 2014 and US 5,747,543 expiring May 2015.
In addition to being licensed under these granted patents, YM is also licensed
under numerous pending patents relevant to our clinical development program.
These include national filings based on WO03/039526 and WO03/037318. This series
of patent applications is focused on the survival advantage demonstrated
following analysis of the phase III tesmilifene trial, and relates to a
selection of patient subpopulations that will most benefit from the
chemopotentiating and cytoprotective properties of tesmilifene. Patents
resulting from these patent filings will expire in November 2022 in the United
States and most other major markets.
The tesmilifene patent estate licensed to YM includes still other patents
pending for particular chemotherapeutic/tesmilifene combination therapies
adapted for improved efficacy in the treatment of breast and prostate cancers,
among others.
In addition to patents, YM intends to rely on the available term of data
exclusivity in the US and other countries, given that tesmilifene qualifies as
an NCE. Furthermore, full advantage will be taken of the Orange Book provisions
in the United States and equivalent provisions in Canada and other countries, as
a means for delaying generic competition.
NORELIN TM
YM has a license to human therapeutic applications of this GnRH vaccine based on
a leukotoxin-derived but non-leukotoxic carrier protein, to which multimeric
units of GnRH are coupled at each flank. By eliciting an antibody response to
GnRH, NorelinTM is designed to block GnRH from reaching its receptors in the
pituitary gland.
13
The NorelinTM patent estate is extensive, and includes four key US patents
covering various aspects of NorelinTM as a composition of matter, the carrier
component of the NorelinTM vaccine, as well as production of NorelinTM as a
recombinant product. A key US patent is US 5,837,268, which covers the
particular NorelinTM sequence, its formulation as a vaccine, and its end-use,
and subject to any term restoration, will expire in 2012. Other key US patents
are US5,422,110; US5,708,155;and US5,837,268. All of the key patents are owned
by the University of Saskatchewan and licensed to YM, through Biostar (see
licensing arrangements).
In addition, YM has more recently applied for our own patents covering the
NorelinTM formulation and dosing regimen that is the subject of current clinical
trials. Patents resulting from these applications will not expire until 2024.
The Corporation is 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 NorelinTM.
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, our licensors or our 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.
THERACIM
CIMYM is the exclusive licensee under a patent estate that includes composition
of matter coverage for TheraCIM hR3, and further includes coverage for
TheraCIM-based formulations and end-uses in the treatment of EGFR-dependent
cancers. The composition of matter patents are granted in the United States, in
Europe, are allowable in Japan, and are pending in Canada.
CIMYM's key US patent, US 5,891,996 expires in November 2015, and term
extensions of up to five years may be available under the Patent Term
Restoration Act. The same term and extension apply also to the key European
patent, EP 712863.
The Corporation is aware of US patent #5,770,195 granted to Genentech, Inc.
("Genentech"), 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 tumors. ImClone is also reported to have filed a PCT
application covering the use of EGFr MAbs to treat patients having tumors 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 having filed 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 manufacturing of TheraCIM may fall within the scope of process patents owned
by Protein Design Labs Inc., Genentech, 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
14
process patents are upheld, management believes we will be able to obtain
licenses under such patents on commercially reasonable terms, though there can
be no assurance thereof.
There may also be risks related to TheraCIM and the Corporation's other licenses
for drug products originating from Cuba, namely RadioTheraCIM, TGFa Vaccine and
HER-1 Cancer Vaccine. 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. The material license
agreements for the Corporation's Cuban sourced products are as follows:
(a) License Agreement between CIMYM Inc. and CIMAB SA, January 24, 2001
with respect to TGFa and HER-1, which agreement has been suspended
in accordance with the terms of the Tarcanta out-licensing agreement
(See "-Licensing Agreements - Out-Licensing"); and
(b) License Agreement between YM BioSciences Inc. (formerly known as
Yorkton Medical Inc.) and CIMAB SA, dated May 3, 1995 with respect
to TheraCIM and RadioTheraCIM.
The above listed license agreements are more fully described under the heading
"- Licensing Arrangements - In-Licensing" and the agreements have been filed as
part of this registration statement as Exhibits.
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 our 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
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 we are infringing their rights. In
addition, enforcement of the Corporation's patents in foreign jurisdictions will
depend on the legal procedures in those jurisdictions. Even if such claims are
found to be invalid, the Corporation's involvement in intellectual property
litigation could have a material adverse effect on our ability to out-license
any products that are the subject of such litigation. In addition, the
Corporation's involvement in intellectual property litigation could result in
significant expense to it, which could materially 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.
PRODUCT LIABILITY CLAIMS ARE AN INHERENT RISK OF OUR BUSINESS, AND IF OUR
CLINICAL TRIAL AND PRODUCT LIABILITY INSURANCE PROVE INADEQUATE, PRODUCT
LIABILITY CLAIMS MAY HARM OUR BUSINESS.
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 a policy aggregate of $10 million. The Corporation currently has
no other product liability insurance and there can be no assurance that we 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 have a material adverse affect on the Corporation by
preventing or inhibiting the commercialization of the licensed products if a
product is withdrawn or a product liability claim is brought against the
Corporation.
RISKS RELATED TO BEING A CANADIAN ENTITY
AS WE ARE A CANADIAN COMPANY, THERE MAY BE LIMITATIONS ON THE ENFORCEMENT OF
CERTAIN CIVIL LIABILITIES AND JUDGMENTS OBTAINED IN THE UNITED STATES AGAINST
US.
The Corporation is incorporated under the laws of the province of Nova Scotia,
Canada and our assets are located outside of the United States. Many of the
Corporation's directors and officers and certain of the experts named
15
elsewhere in this registration statement are residents of Canada. All or a
substantial portion of our assets and the assets of these persons are located
outside of the United States. As a result, it may be difficult for shareholders
to enforce a U.S. judgment in Canada or other non-U.S. jurisdictions or to
succeed in a lawsuit in a non-U.S. jurisdiction based only on violations of U.S.
securities laws.
THE CORPORATION IS GOVERNED BY THE CORPORATE LAWS IN NOVA SCOTIA, CANADA WHICH
ARE IN SOME CASES LESS FAVORABLE TO SHAREHOLDERS THEN THE CORPORATE LAWS IN
DELAWARE, UNITED STATES.
A summary of material differences between the rights of shareholders under the
Delaware General Corporation Law ("DGCL") and under the Nova Scotia Companies
Act (the "NSCA") can be found at "Memorandum and Articles of Incorporation -
Comparison of Shareholder Rights".
ITEM 4: INFORMATION ON THE CORPORATION
A. HISTORY AND DEVELOPMENT OF THE CORPORATION.
YM BioSciences Inc. was incorporated under the laws of Ontario on August 17,
1994 and on December 11, 2001 the Corporation 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 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 our first drug licenses and our 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 our anti-microbial product. In
1998, the Corporation decided to concentrate on anti-cancer products, while
retaining our interest in anti-microbials. The Corporation has used funds raised
in our initial financing and subsequent financings in 1997, 1999, 2000, 2002 and
2003 to advance certain of our licensed drug products through clinical trials in
Canada, the United States and Europe, and to expand our 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 we participated 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 nine month period ended March 31, 2004. Such
investments consisted primarily of leasehold improvements and office computer
equipment.
Capital Expenditures Capital Dispositions
- ------------------------------------------------ -------------------------- -------------------------------
Nine-month period ended March 31, 2004 $ 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.
16
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, Japan and Europe) or are world-wide. The Corporation
uses our expertise to manage and perform what we 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 tumors and/or stages of
cancer. The Corporation also has an interest in two additional anti-cancer
immunotherapies in pre-clinical development. The Corporation intends to license
the rights to manufacture and market our 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 our business strategy. The
Corporation does not currently intend to manufacture or market products although
we 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 our 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 us
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 our 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
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
17
drug regulatory authorities in compliance with applicable protocols and
standards.
Out-Licensing. The Corporation generally plans to further license manufacturing
and marketing rights to our 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 our
products in certain European countries, and our two anti-cancer pre-clinical
products to two wholly-owned subsidiaries of a United States corporation. See
"Licensing Arrangements-Out-Licensing".
The Corporation actively searches for new product opportunities using the
relationships of our 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 our existing license agreements for certain additional products
and extensions to existing products. The Corporation intends to seek other
in-licensing opportunities in pursuing our business strategy.
CANCER AND CANCER THERAPEUTIC MARKET
According to Millennium Research Group, Inc. (June 2001) it was estimated that
worldwide 10.1 million people are diagnosed with some type of cancer annually
and in North America there were approximately 1.1 million new cases in 2000.
The Millennium Research Group, Inc. projects that the incidence of new cases is
likely to increase by 0.27% per year between 2000 and 2005. According to the
American Cancer Society, in the United States 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's analysis, are
prostate (17%), breast (16%), lung (13%) and colorectal (8%). 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.
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 (see
http://www.bioscorpio.com/dmhc1926.htm), and are expected to increase to over
US$45 billion by 2011. The use of cancer therapies is forecast to increase as
diagnostic methods improve (as already demonstrated in prostate cancer) and,
particularly, as more effective treatments are developed.
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 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),
18
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 tumors and/or stages of cancer. The Corporation has also out-licensed
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, NorelinTM, currently in clinical development as
well as two anti-cancer therapeutic vaccines, HER-1 and TGFa, in preclinical
development. The Corporation's lead product, tesmilifene, is a chemical that
appears to enhance 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
Corporation expects, based on clinical trials done to date, to develop all of
our clinical stage candidates beyond their respective initial indications.
TESMILIFENE
BACKGROUND:
Tesmilifene is a small molecule anti-cancer drug with multiple modes of action
that appears to enhance the activity of traditional chemotherapy agents. Its
chemical designation is N,N-diethyl-2-[4-(phenylmethyl)phenoxy]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 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 and recurrent 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
and recurrent 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 and recurrent breast cancer;
h) Phase II combination study of tesmilifene with various taxanes in first-line
metastatic and recurrent breast cancer; and
i) Randomized Phase III trial of tesmilifene plus epirubicin and
cyclophosphamide in patients with metastatic and recurrent breast cancer.
19
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 and recurrent 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 and recurrent 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.
In March 2004, the Corporation entered into a Clinical Research Services
Agreement with Pharm-Olam International, Ltd. ("POI"), a clinical research
organization ("CRO"), to conduct this Phase III trial internationally. 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 and payments
due are dependent on the number of patients recruited, number of countries
trials are conducted in, the length of time over which particular clinical
trials are to be conducted and the time for completion of all Phase III clinical
trials. The Corporation is liable for certain payment of clinical services
costs, data management costs and pass through costs. The agreement will
terminate after POI has completed all services thereunder, if the parties
mutually consent, or may be terminated by either party in the event of certain
defaults by the other party. In the event the Corporation terminates the
agreement without cause and prior to the study under the agreement being
completed, then the Corporation must pay POI a termination fee of 10% of the
remaining compensation, if any is still owed for clinical services costs and
data management costs under the agreement at the time of the termination.
The SouthWest Oncology Group, a US National Cancer Institute-supported cancer
clinical trials cooperative group, 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 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 an objective
reduction in pain in 75% of patients receiving
tesmilifene/mitoxantrone/prednisone compared with 29% in previous studies who
received mitoxantrone/prednisone alone and a decrease in PSA in 59% of patients
compared with 33% in previous studies. Objective pain reduction is measured
using a specific pain-related questionnaire and by discontinuance or reduction
of treatment with analgesics.
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 and recurrent breast cancer with tumor response
and progression-free-survival as primary endpoints and overall survival as a
secondary endpoint. A planned interim analysis failed to demonstrate improvement
in tumor 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.
20
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.
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 does not have supply agreements with these suppliers, but both have
produced quantities for the Corporation to specification on a purchase order
basis. The Corporation has not at this time engaged in detailed discussions
regarding commercial scale manufacturing of tesmilifene, however, the
Corporation believes that numerous pharmaceutical 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 anti-cancer agents to enhance the survival of cancer patients is the
subject of patent filings in the U.S. and many other major and minor markets.
The Corporation has obtained our rights to such patents principally under a
license agreement with University of Manitoba and CancerCare Manitoba and also
by assignment from our consultant, Vincent Research & Consulting Inc. See "-
Licensing Arrangements".
The scope of patent coverage and the patent term differ by country. In the
United States, the Corporation relies on three layers of basic patent
protection. A key patent among these is US 5,859,065, having claims relating to
the use of tesmilifene and certain structurally related analogs in combination
with any chemotherapeutic for the treatment of any cancer. The twenty year term
of this patent expires in December 2010, but extensions of up to five additional
years may be available under the Patent Term Restoration Act in the United
States. We intend to take full advantage of the available term extension. In
addition, in the United States, the Corporation is licensed under two granted
patents with related coverage, namely, US 6,284,799 expiring February 2014 and
US 5,747,543 expiring May 2015.
In addition to being licensed under these granted patents, YM is also licensed
under numerous pending patents relevant to our clinical development program.
These include national filings based on WO03/039526 and WO03/037318. This series
of patent applications is focused on the survival advantage demonstrated
following analysis of the phase III tesmilifene trial, and relates to a
selection of patient subpopulations that will most benefit from the
chemopotentiating and cytoprotective properties of tesmilifene. Patents
resulting from these patent filings will expire in November 2022 in the United
States and most other major markets.
The tesmilifene patent estate licensed to YM includes still other patents
pending for particular chemotherapeutic/tesmilifene combination therapies
adapted for improved efficacy in the treatment of breast and prostate cancers,
among others.
In addition to patents, YM intends to rely on the available term of data
exclusivity in the US and other countries, given that we believe tesmilifene
qualifies as an NCE. Furthermore, full advantage will be taken of the Orange
Book provisions in the United States and equivalent provisions in Canada and
other countries, as a means for delaying generic competition.
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 is being developed as an inhibitor of vascular
endothelial growth factor (VEGF) and its
21
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 and recurrent 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 and recurrent 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 tumor responses have been reported when MAbs are combined with other
anti-cancer treatments.
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 tumor 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 June 2004, the Corporation was advised that Oncoscience has enrolled the
first patient in a 47-patient rolling Phase I/II trial in pediatric glioma, a
form of brain cancer. The Corporation understands that certain new trials will
be initiated in Europe by the Corporation's licensee, Oncoscience AG, 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, CIMAB, is ongoing and a
CIMAB-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
a 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 tumors 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
22
by the Corporation's licensor, CIMAB, 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). Results of
the trial have been published in a major oncology journal.
In July 2001, YM 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 we evaluate the results of trials of
competitive approaches to treatment of this condition.
In August 2004, TheraCIM has been designated an orphan drug in Europe and the
Corporation is currently seeking orphan drug designation for TheraCIM from the
FDA.
CLINICAL EXPERIENCE - RADIOTHERACIM:
In May 2003, data were presented at ASCO, the American Society of Clinical
Oncology's 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
CIMAB, the supplier of the RadioTheraCIM, control the conduct of the trial.
MANUFACTURING:
Currently, the agent of the Corporation's licensor, CIMAB, supplies TheraCIM and
RadioTheraCIM in quantities sufficient to facilitate the clinical development of
these products. It is expected that CIMAB will manufacture and supply, or will
contract for the manufacture and supply of commercial quantities of TheraCIM and
RadioTheraCIM in accordance with the current licensing agreements at such time
and stage of product development as commercial quantities of these products are
required. There is a risk that CIMAB may experience difficulties obtaining or
producing commercially viable quantities of these products. Product from CIMAB's
manufacturing plant has been approved for use in a clinical trial in Canada and
Europe. 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 been inspected by a non-Cuban regulatory agency
and the Corporation recognizes that the manufacturing facility has to continue
to meet GMP standards in order to supply product for commercial use.
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 CIMAB 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 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. See "--Licensing Arrangements".
MARKETING:
TheraCIM and RadioTheraCIM are licensed by the Corporation from a Cuban source,
CIMAB, and as such are likely to be prohibited from sale in the United States
unless OFAC issues a license or the U.S. embargo against Cuba is lifted.
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. CIMYM is the exclusive licensee
under a patent estate that includes composition of matter coverage for TheraCIM
hR3, and further includes coverage for TheraCIM-based formulations and end-uses
in the treatment of EGFr-dependent
23
cancers. The composition of matter patents are granted in the United States, in
Europe, are allowable in Japan, and are pending in Canada. The Corporation has
obtained our 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".
CIMYM's key US patent, US 5,891,996 expires in November 2015, and term
extensions of up to five years may be available under the Patent Term
Restoration Act. The same term and extension apply also to the key European
patent, EP 712863.
The Corporation is aware of US patent #5,770,195 granted to Genentech, 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. 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 tumors. ImClone is also
reported to have filed a PCT application covering the use of EGFr MAbs to treat
patients having tumors 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, 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 we 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
Corporation's efforts include Abgenix Inc. ("Abgenix")/Amgen Inc. ("Amgen"),
Genmab A/S ("Genmab"), ImClone/BMS, and Merck KGaA ("Merck").
The Corporation understands that OSI Pharmaceuticals, Inc. ("OSI") in concert
with Genentech and F.Hoffmann-LaRoche Ltd. ("Roche"), and AstraZeneca PLC
("AstraZeneca") have small molecules designed to target the tyrosine kinase
domains of EGF receptors. The Corporation understands that Iressa(R), from
AstraZeneca, has been approved in twenty countries, including Japan and the
United States for third line monotherapy of Non Small Cell Lung Cancer
("NSCLC"). OSI reported that it has positive survival data in a phase III
monotherapy study in treatment refractory NSCLC.
OSI's product, TarcevaTM, is reported to be in co-development with Roche and
Genentech and is reported to be in numerous trials in various indications
including Phase III registration studies. Tarceva(TM) is under a rolling NDA
submission in the United States for NSCLC. See "- Competition".
Erbitux(R), developed by ImClone/BMS and Merck, is approved in the United States
and Switzerland for metastatic colorectal cancer in combination with irinotecan
in irinotecan-refractory patients. Management understands that Erbitux(R) is
under review by other regulatory agencies including European Medicines Agency
(EMEA) ("EMEA"), the European regulatory agency.
24
NORELINTM
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 tumor 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-tumor effect has been
demonstrated in several animal models.
CLINICAL EXPERIENCE:
In 2002, YM obtained a Clinical Trial Application approval from Health Canada
for NorelinTM 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 which is currently underway.
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
Corporation does not have a supply agreement with any particular supplier, but
this drug has been produced in suitable quantities for the Corporation to
specification on a purchase order basis. The drug substance was manufactured by
Diosynth Inc., located in North Carolina, U.S., and the current drug product has
been manufactured under cGMP conditions by the University of Iowa's
Pharmaceutical Services Division, located in Iowa, U.S. The Corporation is 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 NorelinTM.
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 NorelinTM patent estate is extensive, and includes four key US patents
covering various aspects of NorelinTM as a composition of matter, the carrier
component of the NorelinTM vaccine, as well as production of NorelinTM as a
recombinant product. A key US patent is US 5,837,268, which covers the
particular NorelinTM sequence, its formulation as a vaccine, and its end-use,
and subject to any term restoration, will expire in 2012.
The Corporation has obtained our rights to such patents under a license
agreement with Biostar. See "- Licensing Arrangements".
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
25
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 have been 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 tumors, 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 tumors. 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 tumor cell lines and primary tumor tissues
suggest that the TGFa and the EGFr function as an important autocrine loop in
supporting proliferation of brain tumors. 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 tumors.
INTELLECTUAL PROPERTY:
Aspects of 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 our rights to such patent applications under
a license agreement with CIMAB. See "- Licensing Arrangements".
26
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 tumor 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 tumors of epithelial
origin, such as breast, bladder, ovarian, colon, lung, brain and esophageal
cancer. EGFr expression in human breast tumors has been correlated with a poor
prognosis. Furthermore it has been demonstrated that expression of EGFr in
breast tumor metastases is frequently elevated compared to the primary tumor,
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 tumor 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 our rights to such patent applications under
a license agreement with CIMAB. See "- Licensing Arrangements".
The Corporation's license for the HER-1 Based Cancer Vaccine is suspended under
the terms of the out-licensing agreement between the Corporation, CIMYM
(Barbados), CIMAB and Tarcanta relating to Tarcanta licensing TGFa and HER-1
from CIMAB. In connection with the out-licensing agreement, CancerVax has
announced that it has received a license from Treasury authorizing Tarcanta to
enter into the transactions with CIMAB and the Corporation. See "- Licensing
Arrangements - Out-Licensing" and see "-Licensing Arrangements - In-Licensing -
Licenses for TheraCIM, RadioTheraCIM, TGFa and HER-1".
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 tumor challenge experiments are ongoing.
The Corporation's license for the TGFa Cancer Vaccine and the HER-1 Based Cancer
Vaccine is suspended under the terms of the out-licensing agreement between the
Corporation, CIMYM (Barbados), CIMAB and Tarcanta relating to Tarcanta licensing
TGFa and HER-1 from CIMAB. In return for the suspension of the Corporation's
license, under the terms of the out-licensing agreement, the Corporation is
entitled to receive certain up-front and milestone payments and retains an
interest in the revenues from the manufacture and marketing of the drugs or from
their sub-licensing. In connection with the out-licensing agreement, CancerVax
has announced that it has received a license from Treasury authorizing Tarcanta
to enter into the transactions with CIMAB and the Corporation. See "- Licensing
Arrangements - Out-Licensing" and see "-Licensing Arrangements - In-Licensing -
Licenses for TheraCIM, RadioTheraCIM, TGFa and HER-1".
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
27
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. See "--Licensing Arrangements".
MARKETING:
G-1 Vinylfuran is licensed by the Corporation from CIMAB and, as such, is likely
to be prohibited from sale in the United States unless OFAC issues a license or
the embargo against Cuba is lifted.
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 our 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".
CURRENT STATUS:
YM is involved in no current clinical activity on G-1 and has notified the
licensor that it intends to wind-up CBQYM.
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
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.
28
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/Amgen, Genmab, ImClone/BMS, and Merck. 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 United States 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 United
States for NSCLC. Erbitux(R) is approved in United States 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 we are developing and plan 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 we in-license through our 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 our 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,
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.
29
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 tesmilifene license agreement is Exhibit 4.4 to this
registration statement.
The Corporation must pay to the Original Licensor a specified minority
percentage of revenues received from sub-licensing the product, after our
recovery of certain specified development costs. 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, after our recovery
of certain specified development costs, to the Original Licensor. Management
believes these royalties are consistent with general industry practice for
similar arrangements. No royalties have been paid to date, and future royalties
cannot be quantified because they are dependent on net sales, net royalties and
net revenues which have not yet materialized. There can be no assurance as to if
or when the Corporation may sell the licensed product nor enter into
sub-licensing arrangements for the product. Under the terms of this license
agreement, the Corporation has paid US$300,000 over the years 2000, 2001 and
2002 for sponsored research. The Corporation must make reasonable efforts to
ensure that the licensed product is efficiently marketed and distributed by
November 2005. The Corporation may sub-license the product. This license
agreement shall be in force as long as any patents thereunder are valid, or
until such time as the license agreement is terminated by either party because
of a default by the other party, by either party if the other party enters into
liquidation or reorganization proceedings or receivership or bankruptcy, or by
YM on 90 days written notice if there are no sub-licensees. 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. Management of YM does not consider the agreement with
Vincent Research and Consulting to be material to YM as of the date hereof.
LICENSE FOR NORELINTM.
In October 2000, YM secured the exclusive, sub-licensable, worldwide license to
the human therapeutic rights to
30
NorelinTM from Biostar. The NorelinTM license agreement is Exhibit 4.2 to this
registration statement. 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 paid 75,000 of our
common shares and 37,500 warrants were granted to purchase our common shares.
The warrants granted to Biostar were granted at a price of US$9.00 per common
share and expire on October 11, 2004. Finally, 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. No such royalty payments have been paid to date, and future
royalties cannot be quantified because they are dependent on net sales and
sub-licensing arrangements which have not yet materialized. There can be no
assurance as to if or when the Corporation may have net sales or enter into
sub-licensing arrangements for the licensed products. This license agreement
shall be in force as long as any patents thereunder are valid, or until such
time as the license agreement is terminated by either party because of a default
by the other party, by either party if the other party enters into liquidation
or reorganization proceedings or receivership or bankruptcy, or by YM on 90 days
written notice if there are no sub-licensees. Notwithstanding the foregoing, any
sub-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 license 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
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, TGFA 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. 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 CIMAB except its
anti-EGFr monoclonal antibody for psoriasis in Europe. The 2001 CIMYM License is
Exhibit 4.5 to this registration statement.
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. In addition to that 20% equity interest in CIMYM,
CIMAB is entitled to receive 10% of net revenues received by CIMYM. In addition,
YM and CIMYM, pursuant to the terms of the 1995 CIMYM License, paid US$2,750,000
for certain product development costs for TheraCIM and US$330,000 for certain
product development costs for RadioTheraCIM.
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. CIMAB shall sell the
product manufactured by it in Cuba to CIMYM at 85% of the sales price that CIMYM
sets for the sale of the product to sub-licensees, thereby entitling CIMYM to
the 15% difference. CIMYM shall use its best efforts to obtain a sub-license
agreement in which CIMAB retains the right to manufacture the product. YM will
be responsible for any failure of CIMYM to fulfil its obligations under the 1995
CIMYM License. This license agreement shall be in force as long as any patents
thereunder are valid, or until such time as the license agreement is terminated
by
31
either party because of a default by the other party, or by CIMYM with written
notice within 90 days after the end of a stage of pre-clinical trials or after
each stage of clinical trials.
In connection with the 1995 CIMYM License, CIMYM entered into an international
sales, marketing, manufacturing and administrative agreement with CIMYM Inc., a
Barbados corporation ("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 TGFa 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 2001 CIMYM License
is Exhibit 4.5 to this registration statement.
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., TGFa and HER-1) for commercial sale,
unless sub-licensees require manufacturing rights. CIMAB shall sell the product
manufactured by it in Cuba to CIMYM (Barbados) at either 90%, if there are no
positive net revenues, or 100% of the best available price for the manufacture,
supply and delivery of such product in Havana, Cuba.
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. On signing of
the 2001 CIMYM License, CIMYM (Barbados) paid CIMAB US$125,000 for product
develop costs.
The terms of the 2001 CIMYM License have been suspended pursuant to a License,
Development, Manufacturing and Supply agreement entered into by the Corporation
and its subsidiary, CIMYM (Barbados), Tarcanta and CIMAB on July 13, 2004. By
the terms of this agreement with Tarcanta, the 2001 CIMYM License has been
suspended until such time, if at all, there is a default under the agreement
with Tarcanta. See "- Licensing Arrangements - Out-Licensing".
As at March 31, 2004 YM has advanced US$23.8 million to CIMYM and CIMYM
(Barbados), collectively, for the licensing and development of the products
licensed by CIMYM. Under the terms of the 1995 and 2001 CIMYM Licenses, YM was
given the right to recover all funds advanced to CIMYM and CIMYM (Barbados),
collectively, from either CIMYM and CIMYM (Barbados). To the extent that the net
revenues of CIMYM are less than or equal to the advanced amounts, YM is only
permitted to recover such advances from 30% of the net revenues. At this time
none of the advances have been repaid. There have been no revenues to date.
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.
32
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 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. On June 10, 2003, CIMAB assigned, and Heber
Biotec, S.A, accepted all rights and obligations under the G-1 License. On March
10, 2004, the G-1 License was amended such all of YM's rights under the
agreement became non-exclusive. Management of YM does not consider the CBQYM
License to be material to YM as of the date hereof.
OUT-LICENSING
The Corporation generally plans to out-license our licensed drugs to
pharmaceutical companies for manufacturing and marketing under license, although
we 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
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 our own manufacturing, marketing or distribution
programmes although we 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. This license
agreement is Exhibit 4.3 to this registration statement. Under the terms of the
agreement, CIMYM is entitled to receive up to US$30 million as a share of any
amounts received by Oncoscience in relation to development or sublicensing of
the product and as a royalty on initial net sales. After CIMYM has received
US$30 million, CIMYM continues to receives royalties on net sales but at a
lesser percentage. Oncoscience has agreed to use diligent and reasonable efforts
to develop and commercially exploit TheraCIM in the licensed territory. No
amounts or royalties have been received as of the date hereof by CIMYM from
Oncoscience, since no sublicensing fees or net sales amounts have been received
by Oncoscience. 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
33
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:
On July 13, 2004, the Corporation and its subsidiary, CIMYM (Barbados), have
entered into a License, Development, Manufacturing and Supply Agreement with
Tarcanta, two wholly-owned subsidiaries of CancerVax, and CIMAB relating to
Tarcanta licensing TGFa and HER-1 from the Corporation. CancerVax has announced
that it has received a license from OFAC authorizing Tarcanta to enter into the
transactions with CIMAB and the Corporation. By the terms of this agreement with
Tarcanta, the 2001 CIMYM License has been suspended until such time, if at all,
there is a default under the agreement with Tarcanta. Under the terms of the
agreement, the Corporation is entitled to receive certain up-front and milestone
payments and retains an interest in the revenues from the manufacture and
marketing of the drugs or from their sub-licensing. Tarcanta has agreed to
undertake further clinical development of the licensed drugs, and acquired an
exclusive license to market and sell the products in North America, Europe and
certain other jurisdictions. This agreement is terminable by a party in certain
circumstances including in the event of specified breaches and insolvency
events. CIMAB has 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, Tarcanta 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.
REGULATORY APPROVAL
Securing final regulatory approval for the manufacture and sale of human
therapeutic products in Canada and the Corporation's other territories,
including the United States, is a long and costly process that is controlled by
that particular territory's national regulatory agency. The national regulatory
agency in Canada is Health Canada, and in the United States it is the FDA. Other
national regulatory agencies have similar regulatory approval processes, but
each national regulatory agency has its own approval processes. Approval in
either Canada or the United States does not assure approval by other national
regulatory agencies, although often test results from one country may be used in
applications for regulatory approval in another country.
Prior to obtaining final regulatory approval to market a drug product, every
national regulatory agency has a variety of statutes and regulations which
govern the principal development activities. 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 labeling.
None of the Corporation's products have been completely developed or tested and,
therefore, we are not yet in a position to seek final regulatory approval to
market any of our in-licensed products. To date we have obtained various
regulatory approvals to develop and test our in-licensed products. Currently the
Corporation is conducting an international Phase III trial of tesmilifene in
metastatic and recurrent breast cancer in 700 patients. The Corporation has
received regulatory approvals for the tesmilifene study in several countries,
including Canada and the United States, and approval is pending in a few other
countries. In addition, TheraCIM has been designated an orphan drug in Europe
and the Corporation is currently seeking orphan drug designation for TheraCIM
from the FDA. See "Products in Clinical Development".
CANADIAN APPROVAL PROCESS
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.
34
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.
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 labeling.
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.
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
35
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
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
36
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.
37
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 certain Funding Agreements with the Canadian
Subsidiaries, CIMYM and CBQYM, in November 1995 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 is entitled to be reimbursed for all funds we provide 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. YM provides funding to CIMYM (Barbados) and CBQYM (Barbados)
under similar terms and conditions as funding to the Canadian Subsidiaries. All
earnings of the
38
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.
Under the current arrangements, 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.
The Corporation recently made the decision, and has instructed counsel in Canada
and Barbados, to dissolve CBQYM and CBQYM (Barbados).
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.
EQUIPMENT AND OTHER PROPERTY
As at March 31, 2004, 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 nine months ended March 31, 2004 and March 31,
2003 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
39
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 our 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.
A. OPERATING RESULTS.
NINE MONTH PERIOD ENDED MARCH 31, 2004 COMPARED TO THE NINE MONTH PERIOD ENDED
MARCH 31, 2003
Total expenditures for the first nine months of this year were $4,935,853
compared to $4,591,227 for the first nine months of last year. General and
Administrative expenses for the nine months were $1,801,707, up from $1,398,527
for the prior year, principally due to increased travel and investor relations
expenses. Licensing and Product Development expenses were $3,134,146 for the
nine months compared to $3,192,700 for the first nine months of last year. Last
year included costs of manufacturing tesmilifene which was not repeated this
year. This year includes $1,817,000 for the tesmilifene Phase III clinical trial
in metastatic and recurrent breast cancer that commenced this spring. Interest
revenue was $225,203 this year compared with $211,796 for the first nine months
last year.
Net loss for the first nine months was $4,072,318, down from $6,191,589 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.
40
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 NorelinTM were offset by a reduction in
patent costs and travel costs for CIMYM.
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 our inception, the Corporation has financed the evaluation, licensing and
further development of our licensed products as well as the evaluation of
prospective products principally through equity issuances. Since the Corporation
does not have net earnings from our operations, the Corporation's long-term
liquidity depends on our ability to out-license our 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 our
clinical trials, the development of our 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.
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) by means of
a private placement financing.
As at March 31, 2004 the Corporation had cash and short-term deposits totaling
$22,410,456 and payables of $1,253,756. 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 under Canadian GAAP. 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.
41
The Corporation and our 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.
RISKS AND UNCERTAINTIES
For a discussion of the risks and uncertainties relating to the biotechnology
industry and YM particularly, readers are referred to the discussion in this
registration statement under the heading "Risk Factors".
C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
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 we in-license through our 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 our 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.
Details of the Corporation's in- and out-licensing arrangements and product
development activities, can be found under the captions "Business Overview -
Licensing Arrangements" and "Risk Factors" and elsewhere under this Item 5.
HISTORICAL EXPENDITURES
The Corporation has historically accounted for costs by company (i.e., YM and
each joint venture subsidiary) rather that by product. Within YM however, we
have tracked third-party development, patent and license expenditures for YM's
products, namely tesmilifene and NorelinTM. The following is a summary of those
third-party expenditures:
Third-Party Product Expenses
Nine months
ended Year ended Year ended Year ended
March 31, 2004 June 30, 2003 June 30, 2002 June 30, 2001 Inception to Date
NorelinTM $362,190 $577,040 $642,224 $532,198 $2,113,652
Tesmilifene $2,180,117 $1,070,684 $514,644 $266,525 $4,031,970
Not included in any of the third-party development, patent and license
expenditures above are three categories of expenditures which the Corporation
accumulates on behalf of the Corporation and our joint venture subsidiaries and
does not allocate to particular products. The first category of expenses which
are not third party expenses are those general and administrative expenses which
the Corporation incurs on behalf of all companies, the parent and our joint
venture subsidiaries, in doing business. These general and administrative
expenses include salaries of the Chief Executive Officer, finance and
administrative staff, rent and occupancy, telephone and office, corporate legal
and audit, and investor relations. These expenses are not separated by product
but are set forth on our Consolidated Statements of Operations and Deficit under
"Expenses - general and administrative". The second category of expenses which
the Corporation and joint venture subsidiaries incur are salaries and expenses
related to licensing, regulatory and clinical operations. These expenditures are
charged to "licensing and product development
42
expenses" and allocated among the Corporation and the joint venture subsidiaries
but again not attributed to particular products. The third category of expenses,
those that are directly related to a product licensed to a joint venture
subsidiary, are charged to that joint venture. For example, patent costs for all
CIMYM products are charged to CIMYM but not separated by product.
Total licensing and product development expenses for the last three years are
set forth on our Consolidated Statements of Operations and Deficit under
"Expenses - licensing and product development". This line item includes
third-party development, patent and license expenditures and the two categories
of expenses accumulated on behalf of the Corporation and the joint venture
subsidiaries, but not allocated by product.
EXPENDITURES TO COMPLETION
The Corporation's business strategy is to in-license rights to promising drug
products, further develop those products by progressing the products toward
regulatory approval by conducting and managing clinical trials, and finally to
out-license rights to manufacture and/or market resulting drug products to other
pharmaceutical firms in exchange for royalties and license fees. The path to
commercialization is varied and uncertain such that the Corporation cannot
anticipate the path to be taken by the Corporation or our joint venture
subsidiaries for any particular product. It is not possible for the Corporation
to predict or even estimate the nature, timing, or future costs, project
completion dates, or when material net cash flows might be realized on any
particular project. However, we do expect that our costs will increase as we
continue to develop each of the licensed products and move each licensed product
closer to commercialization. Our expectations could change quickly in the event
that we are able to out-license any product.
The Corporation's business strategy is to use our 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. Out-license opportunities could occur at any time. Licensees would
be expected, to the extent necessary, to: participate in the remaining clinical
development required to obtain final regulatory approval for the product;
relieve the Corporation of some or all of the costs to finalize development;
and/or pay us upfront and milestone payments. To date, the Corporation has
out-licensed TheraCIM in certain European countries to Oncoscience AG, and has
entered into an out-licensing agreement with Tarcanta relating to TGFa and
HER-1. See "Licensing Arrangements-Out-Licensing".
D. 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.
E. OFF-BALANCE SHEET ARRANGEMENTS.
The Corporation has certain arrangements with our 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 in that there is no assurance that funds advanced to our
subsidiaries will be reimbursed . The arrangements are described under "Risk
Factors", "Organizational Structure - Arrangements with Subsidiaries" and in
notes 1, 5 and 9 of the financial statements.
43
F. 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.
In addition, 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.
Finally, during the nine months ended March 31, 2004, the Corporation entered
into a Clinical Research Services Agreement with Pharm-Olam International, Ltd.
("POI"), dated March 10, 2004. The Corporation has contracted with POI to do a
Phase III clinical trial with tesmilifene in metastatic and recurrent 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 and payments due are dependent on the number of patients recruited, number
of countries trials are conducted in, the length of time over which the clinical
trials are to be conducted and the time for completion of all Phase III clinical
trials. The Corporation is liable for certain payment of clinical services
costs, data management costs and pass through costs.
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
- ------------------------------- --------------------------------------------------- ----------------------
44
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., 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, O.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
45
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.,
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, CEO and director of CellStop Systems, Inc., 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.
46
CLINICAL AND SCIENTIFIC ADVISORY BOARD
The Corporation maintains a Clinical and Scientific Advisory Board ("CSAB")
composed of internationally recognized clinicians and scientists. Management
meets with members of the CSAB 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 CSAB has signed a
confidentiality agreement with the Corporation. CSAB members receive honoraria
paid by the Corporation of varying amounts per year. The current composition of
the CSAB is as follows:
LORNE J. BRANDES, B.SC., M.D., C.R.C.P.C.1 Mr. Brandes has been an advisor since
November 2000.
Professor, Departments of Medicine and Pharmacology/Therapeutics, University of
Manitoba, Winnipeg, Manitoba, Canada; Section of Hematology/Oncology, CancerCare
Manitoba, Winnipeg, Manitoba, Canada. Dr. Brandes has been an advisor since
November 2000.
ROBERT S. KERBEL, PH.D.2
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. Dr. Kerbel has been an advisor since April 1999.
AGUSTIN LAGE DAVILA M.D. PH.D.3
Director, Centro de Inmunologia Molecular, Havana, Cuba; Professor of Medicine,
University of Havana. Dr. Davila was a director of the Corporation until his
resignation on May 28, 2002 at which time he became an advisor.
DEREK RAGHAVAN, M.D., PH.D., F.A.C.P., F.R.A.C.P.4
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. Dr. Raghavan was an advisor
since October 2000.
RAYMOND M. REILLY, PH.D.5
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. Dr.
Reilly was an advisor since December 1998.
NICLAS STIERNHOLM, PHD.6
Chief Executive Officer, Trillium Therapeutics Inc., Toronto, Ontario, Canada.
Dr. Stiernholm was an executive vice-president of the Corporation until he
resigned in December 2002 at which time he became an advisor.
MARK VINCENT, M.D., M.R.C.P., F.R.C.P.C.7
Associate Professor, Department of Oncology, University of Western Ontario,
London, Ontario, Canada; Staff Medical Oncologist, London Regional Cancer
Centre, London, Ontario, Canada. Dr. Vincent has been an advisor since October
1998.
47
DANIEL D. VON HOFF, M.D., F.A.C.P.8
Professor of Medicine, University of Arizona and Executive Vice President,
Translational Genomics Research Institute and Director, Translational Drug
Development Program, Tucson, Arizona, United States. Dr. Von Hoff has been an
advisor since July 2001.
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 traveling 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 traveling 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 $1,500 per meeting and per day spent traveling
to attend the meeting, plus expenses. As at July 30, 2004 the number of options
held by non-executive directors is 717,120. An additional 655,624 options are
held by the Chairman and Chief Executive Officer.
COMPENSATION OF EXECUTIVE OFFICERS
The compensation payable to the executive officers of the Corporation is
established by the Compensation Committee, no member of which is or has been an
executive officer or employee of the Corporation or our subsidiaries.
The following table sets forth a summary of compensation paid during the fiscal
years ended June 30, 2004, 2003, and 2002 to the Corporation's Chief Executive
Officer and our four next most highly compensated executive officers (the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
- -----------------------------------------------------------------------------------------------------------
NAME AND PRINCIPAL YEAR ANNUAL COMPENSATION LONG-TERM COMPENSATION
POSITION
- -----------------------------------------------------------------------------------------------------------
AWARDS PAYOUTS
- -----------------------------------------------------------------------------------------------------------
SALARY BONUS OTHER SECURITIES RESTRICTED LTIP ALL
($) ($) ANNUAL UNDER SHARES OR PAYOUTS OTHER
COMPENSATION OPTIONS RESTRICTED ($) (2) COMPEN-
($) GRANTED SHARE UNITS SATION
($)(1) ($)
- -----------------------------------------------------------------------------------------------------------
David G.P. Allan 2004 259,000 Nil Nil 200,000 -- -- Nil
Chief Executive 2003 250,000 15,000 Nil 110,000
Officer 2002 160,000 24,000 Nil Nil
- -----------------------------------------------------------------------------------------------------------
Craig Binnie 2004 137,000 Nil Nil 30,000 -- -- Nil
Director, 2003 140,000 Nil Nil 47,500
Clinical Product 2002 115,000 17,250 Nil Nil
Development
- -----------------------------------------------------------------------------------------------------------
Paul Keane Director, 2004 155,000 Nil Nil 75,000 -- -- Nil
Medical Affairs 2003 150,000 25,000 Nil 54,000
2002 125,000 18,750 Nil Nil
- -----------------------------------------------------------------------------------------------------------
Vincent Salvatori 2004 207,000 Nil Nil 40,500 -- -- Nil
Executive 2003 149,000 Nil Nil 39,000
VP (3)
- -----------------------------------------------------------------------------------------------------------
Len Vernon Director, 2004 153,000 Nil Nil 41,000 -- -- Nil
Finance and 2003 148,000 4,000 Nil 54,000
Administration 2002 140,000 21,000 Nil Nil
- -----------------------------------------------------------------------------------------------------------
1. The Corporation has not at any time granted restricted shares to
executives or other employees.
48
2. The Corporation has not established any Long Term Incentive Plans (LTIPs)
as defined by the regulations to the Securities Act (Ontario), which
specifically exclude option plans.
3. Dr. Salvatori joined YM 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, 2004. A "Long Term Incentive
Plan" is 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 shares granted during the fiscal year ended June 30, 2004 to the directors
and Named Executive Officers.
OPTION GRANTS DURING THE MOST RECENTLY
COMPLETED FINANCIAL YEAR
- -------------------------------------------------------------------------------------------------------------
Market Value of
Securities % 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 200,000 25% 1.75 1.70 Nov. 27, 2013
- -------------------------------------------------------------------------------------------------------------
Craig Binnie 30,000 4% 1.75 1.70 Nov. 27, 2013
- -------------------------------------------------------------------------------------------------------------
Paul Keane 75,000 9% 1.75 1.70 Nov. 27, 2013
- -------------------------------------------------------------------------------------------------------------
Vincent Salvatori 40,500 5% 1.75 1.70 Nov. 27, 2013
- -------------------------------------------------------------------------------------------------------------
Len Vernon 41,000 5% 1.75 1.70 Nov. 27, 2013
- -------------------------------------------------------------------------------------------------------------
Thomas I. A. Allen 25,660 3% 1.75 1.70 Nov. 27, 2013
- -------------------------------------------------------------------------------------------------------------
Mark Entwistle 25,660 3% 1.75 1.70 Nov. 27, 2013
- -------------------------------------------------------------------------------------------------------------
Henry Friesen 25,660 3% 1.75 1.70 Nov. 27, 2013
- -------------------------------------------------------------------------------------------------------------
John D. Morgan(2) 25,660 3% 1.75 1.70 Nov. 27, 2013
- -------------------------------------------------------------------------------------------------------------
JuliusVida 25,660 3% 1.75 1.70 Nov. 27, 2013
- -------------------------------------------------------------------------------------------------------------
Gilbert Wenzel 25,660 3% 1.75 1.70 Nov. 27, 2013
- -------------------------------------------------------------------------------------------------------------
Tryon Williams 25,660 3% 1.75 1.70 Nov. 27, 2013
- -------------------------------------------------------------------------------------------------------------
Williams (in trust) 5,000 1% 1.75 1.70 Nov. 27, 2013
- -------------------------------------------------------------------------------------------------------------
John Friedman(2) 50,000 6% 2.10 2.10 Apr. 5, 2014
- -------------------------------------------------------------------------------------------------------------
1. The options vest 1/3 immediately and 1/3 on each of the two subsequent
anniversaries.
2. John Morgan resigned from the board in April, 2004 and was replaced by
John Friedman.
None of the executive officers named during the fiscal year ended June 30, 2003,
namely Messers. Allan, Harper, Keane, Salvatori and Vernon (the "2003 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 2003 Named Executive Officers and the value of unexercised in-the-money
options of such persons as at the end of the Corporation's fiscal year ended
June 30, 2003:
49
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 Harper(2) 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
Certain executive officers of the Corporation, namely each of Messrs. Keane,
Salvatori, and Vernon, are 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, namely Mr. Allan,
is entitled to receive twenty-four months salary upon termination if such
termination is caused by a change of control of the Corporation. These
arrangements were put in place by a resolution of the board of directors. 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.
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 in three different
situations.
The first situation when the licensing bonus pool will be credited is when the
Corporation receives a license fee or an applicable milestone payment under a
license agreement, then the bonus pool will be credited by a percentage of the
cumulative signing or milestone payments received for each product in the
Corporation's portfolio. The percentages will range from 2.70% to 11.00%. The
actual percentage paid will depend on: whether the product is being licensed for
the first, second or third time; the royalty rate paid by the licensor to the
Corporation; and whether the amount of payment paid to the Corporation is $10
million, $20 million, $30 million or greater. For example, if the royalty rate
is greater than 17% and the payment paid to the Corporation is on the first $10
million received by the licensor, then the Corporation will credit the bonus
pool 11.00% of the cumulative signing or milestone payments.
The second situation when the licensing bonus pool will be credited is if a
licensor directly invests in the Corporation by purchasing shares out of
treasury in exchange for the licensing rights to a particular drug. In the event
of such a direct investment, 2% of the amount of direct investment "at market"
(defined as the average
50
trading price of shares for twenty trading days preceding announcement of the
license) will be contributed to the licensing bonus pool. In the event that a
portion of the direct investment is at a premium to "market", then 10% of the
first million dollars of premium, 15% of the second million dollars of premium,
20% of the third million dollars of premium and 25% of the remainder of the
premium, will be contributed to the licensing bonus pool.
The third situation when the licensing bonus pool will be credited is if the
Corporation sells an interest in a product to a development partner and the
Corporation retains an interest in that product. In other words, when the
Corporation has a co-development partner where the partner funds a portion and
we fund a portion of the future development of the product. In such a case, the
bonus will be paid on the amount received for a product. Royalty rates will be
established jointly with the co-development partner and no bonuses are payable
on royalties.
A summary of the licensing bonus pool 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, Henry
Friesen, 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.
COMPENSATION COMMITTEE
The members of the Corporation's Compensation Committee are Thomas I.A. Allen,
Tryon M. Williams and Mark Entwistle.
51
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 July 30, 2004,
based on 28,584,591 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 2.3% 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
52
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 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 ended June 30,
2003, 80,000 options expired or were cancelled. As at June 25, 2004 there were
2,523,252 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 June 25, 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 133,500 $1.75 $1.75 2013
(6) 59,500 $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 2,523,252
- ---------------------------------- ------------------ ------------------- ---------------------- --------------------------
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 July 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:
53
- ---------------------------- ------------------------------------ -------------------------- ----------------------------
Title of Class Identity of Person or Group Number of Shares Percent of class
- ---------------------------- ------------------------------------ -------------------------- ----------------------------
Common shares equity4Life 1,500,000 5.2%
- ---------------------------- ------------------------------------ -------------------------- ----------------------------
Common shares North Sound Legacy International Ltd. 1,522,726 5.3%
- ---------------------------- ------------------------------------ -------------------------- ----------------------------
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, 2001, 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 interim financial statements for the nine months ended March 31, 2004
and 2003, together with the notes to those statements and the report thereon of
the independent registered public accounting firm dated August 14, 2003 except,
as to note 10 which is as of June 24, 2004, 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 our incorporation. The
Corporation will consider paying dividends in future as our 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.
There have been no significant changes in the Corporation's business since March
31, 2004.
54
ITEM 9: THE OFFER AND LISTING
A. OFFER AND LISTING DETAILS.
The Corporation has been listed on the Toronto Stock Exchange (the "TSX") and
the Alternative Investment Market ("AIM") of the London Stock Exchange plc since
June 11, 2002. Initially, the Corporation listed our 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 and the AIM on that date.
The Corporation's common shares have traded on the TSX since June 12, 2003 under
the symbol "YM", and were admitted to trading on the AIM on June 12, 2003 under
the symbol "YMBA".
PRICE HISTORY
The following tables set forth the high and low prices as reported by the TSX
for our securities for each of the indicated periods.
Annual high-low price history for previous two fiscal years
- ---------------------------- --------------------------- -----------------------
Fiscal Year Ended High Low
- ---------------------------- --------------------------- -----------------------
June 30, 2003 4.05 0.85
- ---------------------------- --------------------------- -----------------------
June 30, 2004 4.28 0.86
- ---------------------------- --------------------------- -----------------------
Quarterly high-low price history for previous two fiscal years and the most
recent fiscal quarters
- ------------------------- ---------------------- -----------------------
Quarter Ended High Low
- ------------------------- ---------------------- -----------------------
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
- ------------------------- ---------------------- -----------------------
June 30, 2004 4.28 2.05
- ------------------------- ---------------------- -----------------------
55
Monthly high-low price history for previous six months
- ------------------------- ---------------------- -----------------------
Month High Low
- ------------------------- ---------------------- -----------------------
February 2004 3.10 1.80
- ------------------------- ---------------------- -----------------------
March 2004 2.66 2.01
- ------------------------- ---------------------- -----------------------
April 2004 3.50 2.05
- ------------------------- ---------------------- -----------------------
May 2004 3.40 2.70
- ------------------------- ---------------------- -----------------------
June 2004 4.28 2.96
- ------------------------- ---------------------- -----------------------
July 2004 3.80 2.74
- ------------------------- ---------------------- -----------------------
DESCRIPTION OF SECURITIES
The securities being registered pursuant to this registration statement are our
common shares, without par value.
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 third
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 consistCOMMON00,000,PREFERREDon
shaAMOUNTthout nominal or par value, 500,000,000 Class A SPECIAL 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 June 25, 2004, there were
28,584,591 common shares, no Class A non-voting common shares and no preferred
shares outstanding.
56
The following table is a reconciliation of our issued share capital from June
30, 2000 to June 25, 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
Exercise of special warrants (10,895,658) 10,895,658 13,321,181
Issued on the exercise of options 15,500 27,125
AS AT MARCH 31, 2004 0 28,183,152 $58,003,735
Issued on the exercise of options 7,500 17,250
Issued on the exercise of warrants 18,939 56,929
Issued on the exercise of compensation options 375,000 1,500,000
AS AT JUNE 25, 2004 28,584,591 $59,577,914
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 2,523,752 options outstanding as at June 25, 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 June 25, 2004, the Corporation had 6,944,339 share purchase warrants
outstanding. Of the 6,944,339 share purchase warrants outstanding, the only
share purchase warrants granted to a licensor were granted in connection with
the NorelinTM license pursuant to the License Agreement between the Corporation
and Biostar Inc. dated October 11, 2000 ("Biostar License Agreement"). Pursuant
to that Biostar License Agreement, 37,500 warrants to purchase common stock at
$9.00 per share were issued to Biostar Inc., which warrants will expire October
11, 2004 ("Biostar Warrants"). The remaining 6,906,839 share purchase warrants
outstanding were granted to participants in the Corporation's private placement.
The following table describes the share purchase warrants granted to those
57
private placement participants which are outstanding as of June 25, 2004
(collectively, "Private Placement Warrants"):
- ------------------------------ ----------------- ---------------------- ---------------------
Issued Number of Expiry Exercise Price
Common Shares
Issuable
- ------------------------------ ----------------- ---------------------- ---------------------
Sept. 1, 2000 200,000 Sept. 1, 2005 $4.50
- ------------------------------ ----------------- ---------------------- ---------------------
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 6,906,839
- ------------------------------ ----------------- ---------------------- ---------------------
Each Biostar Warrant and Private Placement Warrant entitles the holder to one
common share. If certain corporate changes occur such as, subdivisions or
consolidations of the common shares, changes or reclassifications of the common
shares, or additional rights, options or warrants are issued, then subscription
prices are to be adjusted in accordance with the terms of the respective warrant
certificate. In addition, warrant holders are entitled to notice upon certain
events noted in each respective warrant certificate.
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 we 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 is 1959 Upper
Water Street, Suite 800, Halifax, Nova Scotia, Canada, B3J 2X2.
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
58
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.
COMPARISON OF SHAREHOLDER RIGHTS
THE CORPORATION IS GOVERNED BY THE CORPORATE LAWS IN NOVA SCOTIA, CANADA WHICH
ARE IN SOME CASES LESS FAVORABLE TO SHAREHOLDERS THEN THE CORPORATE LAWS IN
DELAWARE, UNITED STATES.
The following is a summary of material differences between the rights of
shareholders under Delaware General Corporate Law ("DGCL") and under the Nova
Scotia Companies Act (the "NSCA").
MERGERS AND OTHER EXTRAORDINARY CORPORATE TRANSACTIONS
Under the DGCL, a merger or consolidation requires the approval of a majority of
the votes cast by the holders of shares entitled to vote in person or by proxy
and if any class or series is entitled to vote thereon as a class, the
affirmative vote of a majority of the shares within each class or series
entitled to vote as a class in person or by proxy (a "Majority Vote") (unless
the certificate of incorporation (the "Certificate of Incorporation") issued
under DGCL requires a greater vote). The sale, lease, exchange or other
disposition of all, or substantially all, the property and assets, of a Delaware
corporation, requires a Majority Vote (unless the Certificate of Incorporation
requires a greater vote). Under the DGCL, the dissolution of a corporation
requires a Majority Vote (unless the Certificate of Incorporation requires a
greater vote).
Under the NSCA, a statutory amalgamation, by direction of the Director appointed
under the NSCA, requires approval of a three-quarters majority of the votes cast
by the holders of shares entitled to vote, and if any class or series is
entitled to vote thereon as a class, the affirmative vote of two-thirds of the
shares within each class or series entitled to vote separately. In addition, the
amalgamation must be approved by the court before it becomes effective. The
sale, lease, exchange or other disposition of all, or substantially all, the
property and assets, of a Nova Scotia company, requires a special resolution. A
resolution is deemed to be a "special resolution" under the NSCA whenever it has
been passed by a majority of not less than three-fourths of such shareholders
entitled to vote as are present in person or by proxy at any general meeting and
such resolution has been confirmed by a majority of such shareholders entitled
to vote as are present in person or by proxy at a subsequent confirmatory
meeting held at an interval of not less than 14 days, and not more than one
month, from the date of the first meeting. Alternatively, a resolution which has
been unanimously passed by all of the shareholders of a company shall be deemed
to be a special resolution. Under the NSCA, the voluntary dissolution of a
company requires approval by special resolution.
59
AMENDMENTS TO CHARTER/ MEMORANDUM OF ASSOCIATION
Under the DGCL, an amendment to the Certificate of Incorporation ordinarily
requires a Majority Vote (unless the Certificate of Incorporation requires a
greater vote). If a class or series is entitled separately to vote on an
amendment, its Majority Vote (unless the Certificate of Incorporation requires a
greater vote), separately calculated, is necessary to approve the amendment. In
addition, under the DGCL, the holders of outstanding shares of a class or series
shall be entitled to vote as a class upon a proposed amendment by a Majority
Vote (unless the Certificate of Incorporation requires a greater vote), whether
or not entitled to vote thereon by the provisions of a company's Certificate of
Incorporation, if the amendment would have certain effects identified in the
DGCL.
Under the NSCA, no amendment may be made to the Memorandum of Association except
as expressly permitted. Those provisions of the Memorandum of Association
concerning capital may be altered by Majority Vote or special resolution,
depending on the particular amendment proposed. A name change requires a special
resolution. The provisions of the Memorandum of Association respecting the
objects and powers of the Corporation may be changed only by special resolution
and court approval. Other provisions of the Memorandum of Association cannot be
changed. In addition, under the NSCA, the holders of outstanding shares of a
class or series will ordinarily be entitled to vote as a class or series upon a
proposed amendment, whether or not entitled to vote thereon by the provisions of
the Corporation's Memorandum of Association.
AMENDMENTS OF BYLAWS/ARTICLES OF ASSOCIATION
Under the DGCL, directors of a corporation may adopt, amend or repeal the
corporation's bylaws, unless: (a) the Certificate of Incorporation reserves the
power exclusively to the shareholders, or (b) the shareholders, in amending,
repealing or adopting a particular bylaw, expressly provide that the board of
directors may not amend or repeal that bylaw. Unless the Certificate of
Incorporation or a bylaw adopted by the shareholders provides otherwise, a
corporation's shareholders may amend, repeal or adopt the corporation's bylaws
even though the bylaws may also be amended, repealed or adopted by its
directors.
Under the NSCA, the Articles of Association may only be amended by special
resolution of the shareholders. The amendment is effective whether or not filed.
In addition, under the NSCA, the holders of outstanding shares of a class or
series will ordinarily be entitled to vote as a class upon a proposed amendment,
whether or not entitled to vote thereon by the provisions of the Corporation's
Memorandum of Association.
NAMING OF COMPANIES
Under the NSCA a limited company must have a name ending in "Limited", "Ltd",
"Incorporated", "Inc." or a French form thereof. Under Delaware law a company
shall use one of these same endings or others, including "association",
"company", "corporation", "club", "foundation", "fund", "institute", "society",
"union", or "syndicate", (or abbreviations thereof, with or without
punctuation), or words (or abbreviations thereof, with or without punctuation)
of like import of foreign countries or jurisdictions (provided they are written
in roman characters or letters).
CAPITAL
Both Nova Scotia and Delaware permit companies to be incorporated with par
shares, no par share or a combination of such. However in the case of a Nova
Scotia company the "capital" of a share with par value is equal to the par value
thereof while the directors of a Delaware company may attribute a portion of the
excess amount to "capital". In the case of a Nova Scotia company the "capital"
of a share without par value is equal to the consideration received therefor
while the directors of a Delaware company may attribute only a portion of this
as "capital".
FRANCHISE TAX
Delaware levies a franchise tax based on authorized capital. Nothing comparable
exists in Nova Scotia.
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LIABILITY OF MEMBERS
The liability of shareholders of a Delaware company is limited. For liability of
shareholders of a Nova Scotia company to be limited a statement to this effect
must be found in the memorandum of association of the Corporation. Such a
statement exists in the Memorandum of Association of the Corporation.
QUORUM OF SHAREHOLDERS
Under the DGCL, with respect to any matter, a quorum shall be present at a
meeting of shareholders if the holders of a majority of the shares entitled to
vote are represented at the meeting in person or by proxy, unless otherwise
provided in the Certificate of Incorporation. Where a separate vote by a class
or series or classes or series is required, a quorum shall be present at a
meeting of shareholders if the holders of a majority of the shares entitled to
vote are represented at the meeting in person or by proxy, unless otherwise
provided in the Certificate of Incorporation.
The NSCA does not prescribe a quorum. Under the Articles of Association holders
of shares representing 5% of the votes which could be cast at the meeting,
present in person or by proxyholder or authorized representative and entitled to
vote shall constitute a quorum for a meeting. The same rule applies to meetings
of a class for the purpose of a class vote. If within half an hour from the time
appointed for a general meeting a quorum is not present, the meeting, if it was
convened pursuant to a requisition of shareholders is dissolved; otherwise it
stands adjourned to the same day, in the next week, at the same time and place.
If at the adjourned meeting a quorum is not present within half an hour from the
time appointed for the meeting, the shareholders present are a quorum and may
hold the meeting.
ACTIONS WITHOUT A MEETING-SHAREHOLDERS
Under the DGCL, shareholders may act without a meeting if a consent in writing
to such action is signed by all shareholders, provided, however, that the
Certificate of Incorporation may provide that shareholders may take action
without a meeting if a consent in writing is signed by the shareholders having
the minimum number of votes that would be necessary to take such action at a
meeting.
Under the NSCA, a resolution, including a special resolution, in writing and
signed by every shareholder who would be entitled to vote on the resolution at a
meeting is as valid as if it were passed by such shareholders at a meeting and
satisfies all the requirements of the NSCA respecting meetings of shareholders.
SPECIAL MEETINGS
Under the DGCL, special meetings of shareholders may be called by the board of
directors or by such person or persons as may be authorized by the certificate
of incorporation or the bylaws.
Under the NSCA, special meetings of shareholders may be called as provided in
the Articles of Association or, on the requisition of the holders of not less
than five per cent of the shares of the company carrying the right to vote at
the meeting sought to be held.
Under the Articles of Association (i) a majority of the directors or (ii) the
holders of not less than fifty per cent of the shares of the Corporation
carrying the right to vote at the meeting sought to held may at any time convene
a special meeting.
DIRECTOR QUALIFICATIONS
Under the DGCL, directors need not be residents of Delaware or shareholders of
the corporation unless the Certificate of Incorporation or bylaws so require.
The Certificate of Incorporation or bylaws may prescribe other qualifications
for directors.
Under the NSCA, directors need not be residents of Nova Scotia or Canada or
shareholders of the Corporation unless the Memorandum of Association or Articles
of Association so require. The Corporation's Memorandum of Association or
Articles of Association do not require the directors to be residents of Nova
Scotia or Canada or shareholders of the Corporation.
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ELECTION OF DIRECTORS
Under the DGCL, unless otherwise provided in the Certificate of Incorporation,
shareholders shall not be entitled to cumulative voting in the election of
directors. Absent such provision, the directors of a corporation shall be
elected by a plurality of the votes cast by the holders of shares entitled to
vote in person or by proxy at a meeting of shareholders at which a quorum is
present.
The NSCA provides no rules respecting the election of directors and these are
provided in the Articles of Association of the Corporation. The Corporation's
Articles of Association provide that directors shall be elected by motion
carried by a plurality of the votes entitled to be cast on such motion. Any
motion to elect a director which is not carried by such majority shall be
considered not to have been carried. The Corporation's Memorandum of Association
and Articles of Association do not provide that shareholders shall have
cumulative voting rights at any election of directors.
ACTIONS WITHOUT A MEETING-DIRECTORS
Under the DGCL, any action required or permitted to be taken at any meeting of
the board of directors may be taken without a meeting if all members of the
board consent to it in writing or by electronic transmission, and the writing or
electronic transmission is filed with the minutes of proceedings of the board
unless otherwise restricted by the Certificate of Incorporation or bylaws.
Under the NSCA, a resolution in writing and signed by every director who would
be entitled to vote on the resolution at a meeting is as valid as if it were
passed by such directors at a meeting and satisfies all the requirements of this
Act respecting meetings of directors.
REMOVAL OF DIRECTORS
Under the DGCL, one or more or all the directors of a corporation may be removed
for cause or, unless provided in the Certificate of Incorporation, removed
without cause by the shareholders by the affirmative vote of the majority of
votes cast by the holders of shares entitled to vote thereon, subject to certain
exceptions.
Under the Corporations Miscellaneous Provisions Act (Nova Scotia), one or more
or all the directors of a corporation may be removed by a resolution passed by
3/4 of the shareholders entitled to vote a meeting called for that purpose. The
director also loses his or her office under the Articles of Association if the
director becomes bankrupt or makes an assignment for the benefit of creditors or
is, or is found by a court of competent jurisdiction to be, of unsound mind.
LOCATION OF DIRECTORS MEETINGS
Nova Scotia law permits meetings to be held anywhere if permitted by the
Articles. Delaware law provides that, unless otherwise restricted by the
Certificate of Incorporation or bylaws, the board may hold its meetings outside
of the State of Delaware.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The law of both Delaware and Nova Scotia requires directors and members of any
committee designated by the Board shall discharge their duties in good faith and
with that degree of diligence, care and skill which ordinary prudent people
would exercise under similar circumstances and positions.
The DGCL permits a corporation to set limits on the extent of a director's
liability.
The NSCA does not restrict a company from indemnifying directors and provides
that in any proceeding against a director for negligence or breach of trust it
appears to the court hearing the case that the director or person is or may be
liable in respect of the negligence or breach of trust, but has acted honestly
and reasonably and ought fairly to be excused for the negligence or breach of
trust, the court may relieve him, either wholly or partly, from his liability on
such terms as the court may think proper. The Articles of Association also
provide that no director or officer, former
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director or officer, or person who acts or acted at the Corporation's request,
as a director or officer of the Corporation, a body corporate, partnership or
other association of which the Corporation is or was a shareholder, partner,
member or director, in the absence of any dishonesty on such person's part,
shall be liable for the acts, receipts, neglects or defaults of any other
director or other such person, or for joining in any receipt or other act for
conformity, or for any loss, damage or expense happening to the Corporation
through the insufficiency or deficiency of title to any property acquired for or
on behalf of the Corporation, or through the insufficiency or deficiency of any
security in or upon which any of the funds of the Corporation are invested, or
for any loss or damage arising from the bankruptcy, insolvency or tortious acts
of any person with whom any funds, securities or effects are deposited, or for
any loss occasioned by error of judgment or oversight on the part of such
person, or for any other loss, damage or misfortune whatsoever which happens in
the execution of the duties of such person or in relation thereto.
Under the Articles of Association of the Corporation every director or officer,
former director or officer, or person who acts or acted at the Corporation's
request, as a director or officer of the Corporation, a body corporate,
partnership or other association of the Corporation, in the absence of any
dishonesty on the part of such person, shall be indemnified by the Corporation
against, and it shall be the duty of the directors out of the funds of the
Corporation to pay to the fullest extent permitted by law, all costs, losses and
expenses, including legal fees and disbursements and including any amount paid
to settle an action or claim or satisfy a judgment, that such director, officer
or person may incur or become liable to pay in respect of any claim made against
such person or civil, criminal or administrative action or proceeding to which
such person is made a party by reason of being or having been a director or
officer of the Corporation or such body corporate, partnership or other
association, whether the Corporation is a claimant or party to such action or
proceeding or otherwise; and the amount for which such indemnity is proved shall
immediately attach as a lien on the property of the Corporation and have
priority as against the shareholders over all other claims.
DIVIDENDS
The DGCL provides that the board of directors of a corporation may authorize and
the corporation may make distributions subject to any restrictions in its
certificate of incorporation. However, the DGCL provides that distributions may
not be made if, after giving affect to the distribution, the corporation would
not be able to pay its debts as they become due in the usual course of its
business or total assets would be less than total liabilities.
The NSCA does not address the payment of dividends and it is generally
understood that the common law of Nova Scotia permits the payment of dividends
out of profits and in any case where payment would not impair the capital of the
Corporation. English authority, which is probably authoritative, interprets
these provisions broadly. The Articles of Association of the Corporation permit
the directors to declare such dividends as they deem proper out of the profits,
retained earnings or contributed surplus of the Corporation upon shares of the
Corporation.
RETURN OF CAPITAL
A Nova Scotia limited company may only return capital, other than by redemption
or repurchase of shares, with shareholder and court approval. Redemption and
repurchase are permitted subject to certain solvency tests. Delaware law
provides that corporations may return capital by dividend, redemption or
repurchase subject to certain solvency tests. Shareholder approval is not
required for these transactions so long as the corporation meets the solvency
tests.
OFFICERS
Nova Scotia law does not prescribe any officers but certain matters cannot be
undertaken without a secretary and standard articles of association do not work
without a President. Otherwise the articles can provide for any officers.
Under Delaware law, a corporation is required to have such officers as are
required to sign instruments to be filed with the Secretary of State and stock
certificates. It is necessary that the corporation have at least two officers to
comply with this requirement. The corporation has complete freedom to designate
its executives by whatever names it wishes and to allocate the managerial power
delegated to executives as the corporation may wish. Any number of offices may
be held by the same person unless otherwise provided by the certificate of
incorporation or the by-laws.
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Officers may be chosen in any way and by any person or body if the by-laws or a
resolution of the governing body so specifies.
SHARE CERTIFICATES
Share certificates of a Nova Scotia company must be under seal. Preferred shares
must have attached thereto a complete description of any limitations thereon for
such rights to be enforceable.
Under Delaware law, the shares of a corporation shall be represented by
certificates, provided that the board of directors of the corporation may
provide by resolution or resolutions that some or all of any or all classes or
series of its stock shall be uncertified stock. However, existing shareholders
and future shareholders are able to obtain a stock certificate signed by or in
the name of the corporation by the chairman or vice-chairman of the board of
directors or the president or vice-president, and by the treasurer or an
assistant treasurer, or the secretary or an assistant secretary of such
corporation if they desire. The terms governing preferred stock must be
expressed "in clear language" in the Certificate of Incorporation (or by a
separate resolution authorized by the charter).
PREEMPTIVE RIGHTS
Under both Delaware and Nova Scotia law, shareholders do not possess preemptive
rights as to the issuance of additional securities by the corporation, unless
the constating documents provide otherwise. Neither the Corporation's Memorandum
of Association or Articles of Association provide that the shareholders shall
have any preemptive rights.
LIQUIDATION RIGHTS GENERALLY
Under Delaware law, shareholders are entitled to share ratably in the
distribution of assets upon the dissolution of their corporation. Preferred
shareholders typically do not participate in the distribution of assets of a
dissolved corporation beyond their established contractual preferences. Once the
rights of preferred shareholders have been fully satisfied, holders of common
stock are entitled to the distribution of any remaining assets. Under Nova
Scotia law, shareholders are entitled to share ratably in the distribution of
assets upon the dissolution of the Corporation except to the extent that their
shares include particular rights or restrictions otherwise.
SHAREHOLDER DERIVATIVE SUITS
Under the DGCL, a derivative suit may be brought only if (a) the plaintiff was a
record or beneficial owner of shares at the time of the transaction of which he
or she complains, and (b) the initial pleading in the suit states that (i) the
ownership requirement is satisfied, and (ii) with particularity, the efforts of
the plaintiff to have the suit brought for the corporation by the board of
directors, or the reasons for not making such efforts. The court may require the
plaintiff to give security for the expenses incurred or expected to be incurred
by the defendants. The court may also require the plaintiff to pay expenses to
the defendants if the court finds, upon final judgment for the defendants, that
the suit was brought without reasonable cause.
Under the NSCA, a derivative suit may be brought by a present or former
registered holder or beneficial owner, of a security of a company or any of its
affiliates, by a director or an officer or a former director or officer of a
company or of any of its affiliates, by the Registrar of Joint Stock Companies
or by any other person who, in the discretion of the court, is a proper person
to bring such an action. A derivative action may only proceed if the complainant
has given reasonable notice to the directors of the company of his intention to
proceed with such action if the directors of the company or its subsidiary do
not bring, diligently prosecute or defend or discontinue the action, the
complainant is acting in good faith and it appears to be in the interests of the
company that the action be brought, prosecuted, defended or discontinued.
DISSENTERS' RIGHTS
Any shareholder of a Delaware corporation has the right to dissent from any plan
of merger or consolidation to which the corporation is a party, provided that
unless the Certificate of Incorporation otherwise provides, a shareholder shall
not have the right to dissent from any plan of merger or consolidation with
respect to shares of a
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class or series which is listed on a national securities exchange or is held of
record by not less than 2,000 holders on the record date fixed to determine the
shareholders entitled to vote upon the plan of merger or consolidation.
Under the NSCA a holder of shares of any class of a company may dissent if the
company resolves to amend its memorandum or articles to add, change or remove
any provisions restricting or constraining the issue or transfer of the shares
of that class, amend its memorandum or articles to add, change or remove any
restriction upon the business or businesses that the company may carry on,
amalgamate with another company, other than any wholly-owned subsidiary of the
company, be continued under the laws of another jurisdiction, or sell, lease or
exchange all or substantially all its property other than in the ordinary course
of business of the company. A holder of shares of any class or series of shares
entitled to vote separately as a class or series upon any such amendment may
dissent if the company resolves to amend its memorandum or articles to increase
or decrease any maximum number of authorized shares of such class, or increase
any maximum number of authorized shares of a class having rights or privileges
equal or superior to the shares of such class, effect an exchange,
reclassification or cancellation of all or part of the shares of such class,
add, change or remove the rights, privileges, restrictions or conditions
attached to the shares of such class and, without limiting the generality of the
foregoing, remove or change prejudicially rights to accrued dividends or rights
to cumulative dividends, add, remove or change prejudicially redemption rights,
reduce or remove a dividend preference or a liquidation preference, or add,
remove or change prejudicially conversion privileges, options, voting, transfer
or pre-emptive rights, or rights to acquire securities of the company, or
sinking fund provisions, increase the rights or privileges of any class of
shares having rights or privileges equal or superior to the shares of such
class, create a new class of shares equal or superior to the shares of such
class, make any class of shares having rights or privileges inferior to the
shares of such class equal or superior to the shares of such class, effect an
exchange or create a right of exchange of all or part of the shares of another
class into the shares of such class or constrain the issue or transfer of the
shares of such class or extend or remove such constraint.
ANTI-TAKEOVER PROVISIONS AND INTERESTED SHAREHOLDER TRANSACTIONS
Delaware corporations are subject to the State of Delaware's "business
combination" statute. In general, such statute prohibits a publicly-traded
corporation from engaging in various "business combination" transactions with
any "interested stockholder" for a period of three years after the time that the
shareholder became an interested stockholder, unless the business combination is
(i) approved by the board prior to the time the shareholder became an interested
stockholder, (ii) the interested stockholder acquired 85% or more of the
outstanding shares in a transaction in which it became an interested
stockholder, or (iii) the business combination is approved by the board and by
holders of two-thirds of the shares not held by the interested stockholder. A
"business combination" includes mergers, assets sales and other transactions
resulting in financial benefit to a shareholder. An "interested stockholder" is
a person who, together with affiliates and associates, owns 15% or more of a
corporation's voting stock.
The NSCA does not restrict related party transactions. However in Canada
takeovers and other related party transactions are addressed in provincial
securities legislation and policies which may apply to the Corporation.
INSPECTION OF BOOKS AND RECORDS
Under Delaware law, upon the written request of any shareholder, the corporation
shall mail to such shareholder its balance sheet as at the end of the preceding
fiscal year, and its profits and loss and surplus statements for such fiscal
year. Inspection rights are extended to any person who beneficially owns stock
through either a voting trustee or nominee who holds the stock of record on
behalf of such person. Where the shareholder is other than a record holder, such
person must state under oath the person's status as a shareholder and produce
documentary evidence of beneficial ownership. Any shareholder is entitled to
examine a corporation's relevant books and records for any proper purpose upon
written demand stating the purpose thereof.
The NSCA permits any person to examine certain of a company's books and records
for any proper purpose upon written demand stating the purpose thereof
accompanied by, in the case of a non-shareholder, the prescribed fee. Securities
legislation applicable in those provinces where the company is a reporting
issuer will provide more meaningful rights to its shareholders.
REGISTERED OFFICE/HEAD OFFICE
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Delaware law requires a "registered office" in Delaware. Nova Scotia law
requires a "registered office" in Nova Scotia. Under Nova Scotia law certain
books and records must be kept at the Registered office.
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".
(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 with tesmilifene in
metastatic and recurrent 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,
TGFa and HER-1".
(e) 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. See "- Licensing Arrangements - In-Licensing - License for
Tesmilifene".
(f) License Agreement between YM BioSciences Inc. (formerly known as York
Medical Inc.) and Biostar Inc. dated October 11, 2000. See "- Licensing
Arrangements - In-Licensing - License for Norelin".
(g) License Agreement between YM BioSciences Inc. (formerly known as Yorkton
Medical Inc.) and CIMAB SA, dated May 3, 1995. See "- Licensing Arrangements -
In-Licensing - Licenses for TheraCIM, RadioTheraCIM, TGFa 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 our 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".
(k) License, Development, Manufacturing and Supply Agreement between YM
BioSciences Inc., CIMYM, Inc., Tarcanta, Inc., Tarcanta, Ltd. and CIMAB S.A.
dated July 13, 2004. "- Licensing Arrangements - Out-Licensing".
In the ordinary course of our business, the Corporation enters into licenses for
products which we develop, however, because of the immateriality of such
licenses to the Corporation, they are not referenced here. The licenses for
these products are more fully described in this registration statement under the
heading "Business Overview - Licensing Arrangements".
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
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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.
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").
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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,
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.
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
68
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 our 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
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
69
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
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
70
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 our incorporation. The
Corporation will consider paying dividends in future as our 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.
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 March 31, 2004, YM had US$955,674 in US currency short-term investments.
To date, YM has not engaged in any foreign currency hedging activity nor have we
formally monitored the fluctuation of US$.
ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
PART II
Not applicable.
71
PART III
ITEM 17: FINANCIAL STATEMENTS
Not applicable.
ITEM 18: FINANCIAL STATEMENTS
See pages F-1 to F-30 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 known as
York Medical Inc.) and Biostar Inc. dated October 11, 2000.
2.6* Form of warrant certificate granted by YM BioSciences Inc. (formerly known
as York Medical Inc.) to Aran Asset Management SA dated Jun 12, 2002.
2.7* Form of warrant certificate granted by YM BioSciences Inc. (formerly known
as York Medical Inc.) to CIMAB S.A dated September 1, 2000.
2.8* Form of warrant certificate granted by YM BioSciences Inc. (formerly known
as York Medical Inc.) to Aran Asset Management SA dated February 15, 2002.
2.9* Form of warrant certificate granted by YM BioSciences Inc. (formerly known
as 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.
72
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 YM BioSciences Inc.
(formerly known as York Medical Inc.), CIMYM Inc. (an Ontario Corporation) and
CIMAB S.A dated November 14, 1995.
4.11 *Assignment and Assumption Agreement between YM BioSciences Inc. (formerly
known as York Medical Inc.) and CIMYM Inc. dated November 22, 1995.
4.12 *Letter from YM BioSciences Inc. (formerly known as 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 YM BioSciences Inc.
(formerly known as York Medical Inc.), CIMYM Inc. (a Barbados Corporation) and
CIMAB S.A. dated May 16, 1996.
4.15 *Joint Venture Shareholders' Agreement between YM BioSciences Inc.
(formerly known as 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 YM BioSciences Inc. (formerly
known as York Medical Inc.) and CBQYM Inc. dated November 22, 1995.
4.17 *Letter from YM BioSciences Inc. (formerly known as 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 YM BioSciences Inc.
(formerly known as York Medical Inc.), CBQYM Inc. (a Barbados Corporation) and
CIMAB S.A. dated May 16, 1996.
4.20++ License, Development, Manufacturing and Supply Agreement between YM
BioSciences Inc., CIMYM, Inc. (a Barbados Corporation), Tarcanta, Inc.,
Tarcanta, Ltd. and CIMAB S.A. dated July 13, 2004.
8.1 *List of subsidiaries
+ Confidential treatment has been granted for portions of these agreements.
++ Confidential treatment requested for portions of this agreement.
* Previously filed.
73
Consolidated Financial Statements
(Expressed in Canadian dollars)
YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Years ended June 30, 2003, 2002 and 2001
F-1
REPORT OF THE INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors of YM Biosciences Inc.
We have audited the consolidated balance sheets of YM Biosciences Inc. (a
development stage company) 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 consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about 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. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of YM Biosciences Inc.
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
conformity with Canadian generally accepted accounting principles.
Canadian generally accepted accounting principles vary in certain significant
respects from accounting principles generally accepted in the United States of
America. Information relating to the nature and effect of such differences is
presented in note 10 to the consolidated financial statements.
/s/ KPMG LLP
Chartered Accountants
Toronto, Canada
August 14, 2003, except
as to note 10 which is
as of June 24, 2004
F-2
YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)
Consolidated Balance Sheets
(Amounts in Canadian dollars, unless otherwise noted)
=====================================================================================
March 31, June 30,
2004 2003 2002
- -------------------------------------------------------------------------------------
(Unaudited)
Assets
Current assets:
Cash and short-term deposits $ 22,410,456 $ 7,675,466 $ 12,707,522
Restricted cash (note 2) -- -- 600,000
Marketable securities (note 3) 19,715 783,622 --
Accounts receivable and
prepaid expenses 133,975 168,187 190,114
-------------------------------------------------------------------------------
22,564,146 8,627,275 13,497,636
Capital assets (note 4) 11,381 22,567 79,846
- -------------------------------------------------------------------------------------
$ 22,575,527 $ 8,649,842 $ 13,577,482
=====================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 1,253,756 $ 101,506 $ 116,100
Accrued liabilities 206,833 221,077 258,286
-------------------------------------------------------------------------------
1,460,589 322,583 374,386
Shareholders' equity:
Share capital (note 6) 58,003,735 44,729,104 42,172,989
Share purchase warrants (note 6) 3,725,820 -- --
Contributed surplus (note 6) 26,215 9,965 --
Deficit accumulated during the
development stage (40,640,832) (36,411,810) (28,969,893)
-------------------------------------------------------------------------------
21,114,938 8,327,259 13,203,096
Commitments (note 7)
- -------------------------------------------------------------------------------------
$ 22,575,527 $ 8,649,842 $ 13,577,482
=====================================================================================
See accompanying notes to consolidated financial statements.
F-3
YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)
Consolidated Statements of Operations and
Deficit Accumulated During the Development Stage
(Amounts in Canadian dollars, unless otherwise noted)
=======================================================================================================================
Since
Nine months ended inception to
March 31, Years ended June 30, March 31,
2004 2003 2003 2002 2001 2004
- -----------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
Interest income $ 225,203 $ 211,796 $ 273,232 $ 154,112 $ 645,742 $ 2,666,434
Expenses:
General and
administrative 1,801,707 1,398,527 1,877,509 1,864,289 1,805,204 12,965,375
Licensing and
product
development 3,134,146 3,192,700 3,965,385 4,729,216 6,294,981 28,943,964
- -----------------------------------------------------------------------------------------------------------------------
4,935,853 4,591,227 5,842,894 6,593,505 8,100,185 41,909,339
- -----------------------------------------------------------------------------------------------------------------------
Loss before the
undernoted (4,710,650) (4,379,431) (5,569,662) (6,439,393) (7,454,443) (39,242,905)
Gain on sale of
marketable securities 638,332 -- -- -- -- 638,332
Unrealized loss on
marketable securities -- (1,812,158) (1,812,158) -- -- (1,812,158)
- -----------------------------------------------------------------------------------------------------------------------
Loss before income
taxes (4,072,318) (6,191,589) (7,381,820) (6,439,393) (7,454,443) (40,416,731)
Income taxes -- -- -- 7,300 -- 7,300
- -----------------------------------------------------------------------------------------------------------------------
Loss for the period (4,072,318) (6,191,589) (7,381,820) (6,446,693) (7,454,443) (40,424,031)
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) (39,239) (60,097) -- -- (216,801)
- -----------------------------------------------------------------------------------------------------------------------
Deficit, end of period $(40,640,832) $(35,200,721) $(36,411,810) $(28,969,893) $(22,523,200) $(40,640,832)
=======================================================================================================================
Basic and diluted
loss per common
share $ (0.21) $ (0.48) $ (0.56) $ (0.50) $ (0.58)
=======================================================================================================================
Weighted average
number of common
shares outstanding 19,136,389 12,898,094 13,218,177 12,991,039 12,958,436
=======================================================================================================================
See accompanying notes to consolidated financial statements.
F-4
YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)
Consolidated Statements of Cash Flows
(Amounts in Canadian dollars, unless otherwise noted)
============================================================================================================================
Since
Nine months ended inception to
March 31, Years ended June 30, March 31,
2004 2003 2003 2002 2001 2004
- ----------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
Cash provided by (used in):
Operating activities:
Loss for
the period $ (4,072,318) $ (6,191,589) $ (7,381,820) $ (6,446,693) $ (7,454,443) $(40,424,031)
Items not involving
cash:
Depreciation 14,910 44,730 59,640 48,061 30,324 258,947
Unrealized loss
on marketable
securities -- 1,812,158 1,812,158 -- -- 1,812,158
Gain on sale of
marketable
securities (638,332) -- -- -- -- (638,332)
Stock-based
compensation 16,250 -- 9,965 -- -- 26,215
Change in non-cash
operating working
capital:
Accounts
receivable
and prepaid
expenses 34,212 100,329 21,927 (9,508) 382,741 (133,975)
Accounts payable
and accrued
liabilities 1,138,006 (61,191) (51,803) (163,825) 169,396 1,460,589
----------------------------------------------------------------------------------------------------------------------
(3,507,272) (4,295,563) (5,529,933) (6,571,965) (6,871,982) (37,638,429)
Financing activities:
Issuance of common
shares on exercise
of options 27,125 -- -- -- -- 27,125
Redemption of
preferred shares -- -- (80,372) -- -- (2,630,372)
Repurchase of
common shares (230,379) (64,107) (19,390) -- -- (249,769)
Net proceeds from
issuance of shares
and special warrants 17,047,001 -- -- 11,739,407 450,000 61,769,990
----------------------------------------------------------------------------------------------------------------------
16,843,747 (64,107) (99,762) 11,739,407 450,000 58,916,974
Investing activities:
Purchase of short-term
investments (14,893,951) -- -- -- -- (14,893,951)
Proceeds on sale
of marketable
securities 1,402,239 -- -- -- -- 1,402,239
Restricted cash -- 600,000 600,000 (600,000) -- --
Additions to
capital assets (3,724) (2,361) (2,361) (2,808) (81,554) (270,328)
----------------------------------------------------------------------------------------------------------------------
(13,495,436) 597,639 597,639 (602,808) (81,554) (13,762,040)
- ----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash
and cash equivalents (158,961) (3,762,031) (5,032,056) 4,564,634 (6,503,536) 7,516,505
Cash and cash equivalents,
beginning of period 7,675,466 12,707,522 12,707,522 8,142,888 14,646,424 --
- ----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 7,516,505 $ 8,945,491 $ 7,675,466 $ 12,707,522 $ 8,142,888 $ 7,516,505
============================================================================================================================
See accompanying notes to consolidated financial statements.
F-5
YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Amounts in Canadian dollars, unless otherwise noted)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the nine months ended
March 31, 2004 and 2003 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 company. 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.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Amounts in Canadian dollars, unless otherwise noted)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the nine months ended
March 31, 2004 and 2003 is unaudited)
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
The Company has made provision of $5,627,773 as of March 31, 2004
(June 30, 2003 - $5,240,642; June 30, 2002 - $4,514,100), 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 generally not exceeding 90 days. At March 31, 2004, cash
and short-term deposits consisted of cash and cash equivalents of
$7,516,505 and short-term investments of $14,893,951 with terms
extending beyond 90 days from the date of acquisition. These
investments are not included in cash and cash equivalents.
(c) Marketable securities:
Marketable securities are recorded at the lower of cost and fair
market value. Market values of shares and warrants held are
determined based on their quoted market prices. Losses arising from
changes in the fair 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
====================================================================
F-7
YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Amounts in Canadian dollars, unless otherwise noted)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the nine months ended
March 31, 2004 and 2003 is unaudited)
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(e) Development costs:
To date, all development costs have been expensed. Development costs
include costs associated with product development activities,
including salaries of scientific and technical staff and payments to
third parties for development activities. 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) 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.
F-8
YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Amounts in Canadian dollars, unless otherwise noted)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the nine months ended
March 31, 2004 and 2003 is unaudited)
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
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.
(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 year. Actual results could differ
from those estimates.
F-9
YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Amounts in Canadian dollars, unless otherwise noted)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the nine months ended
March 31, 2004 and 2003 is unaudited)
================================================================================
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.
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. On January 9, 2004, the Company
completed a transaction, whereby it sold 1,100,000 ordinary shares of NOIT
at their market value of (pound)0.55 (approximately $1.29) per share,
resulting in a net gain of $638,332. As at March 31, 2004, the marketable
securities consist of 220,000 share purchase warrants in NOIT that have a
market value of $68,972.
4. CAPITAL ASSETS:
==========================================================================
Accumulated Net book
March 31, 2004 (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
==========================================================================
F-10
YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Amounts in Canadian dollars, unless otherwise noted)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the nine months ended
March 31, 2004 and 2003 is unaudited)
================================================================================
4. CAPITAL ASSETS (CONTINUED):
==========================================================================
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
==========================================================================
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 share of the revenue and expenses of incorporated joint
ventures, which are as follows:
======================================================================================================================
Nine months ended
March 31, Years ended June 30,
2004 2003 2003 2002 2001
----------------------------------------------------------------------------------------------------------------------
(Unaudited)
General and administrative
expense $1,265,994 $1,127,910 $1,486,310 $1,622,222 $1,738,254
Licensing and product
development costs 282,530 1,085,358 1,419,858 2,277,004 3,449,208
----------------------------------------------------------------------------------------------------------------------
Loss for the period $1,548,524 $2,213,268 $2,906,168 $3,899,226 $5,187,462
======================================================================================================================
F-11
YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Amounts in Canadian dollars, unless otherwise noted)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the nine months ended
March 31, 2004 and 2003 is unaudited)
================================================================================
6. SPECIAL WARRANTS, SHARE CAPITAL AND CONTRIBUTED SURPLUS:
Special warrants:
On December 15, 2003, the Company completed the sale of 10,895,658 special
warrants by way of private placement. Each special warrant sold for $1.75
and entitled the holder to receive one common share and one-half of a
share purchase warrant to purchase one additional common share. As part of
the consideration for arranging the private placement, the Company also
issued 1,089,566 special agent warrants entitling agents to receive a
share purchase warrant to purchase one additional common share. On
February 17, 2004, pursuant to a prospectus filed with the Ontario
Securities Commission, the special warrants were automatically exercised
and the Company issued 10,895,658 common shares and 5,447,829 share
purchase warrants which are exchangeable with $2.50 for one common share
for five years and 1,089,566 share purchase warrants to agents which are
exchangeable with $1.75 a share for five years. Total proceeds amounted to
$19,067,402, less issuance costs of $2,990,115. The share purchase
warrants were issued at fair value of $3,725,820 using the Black-Scholes
fair value option pricing model.
Authorized:
500,000,000 Class A preferred shares
500,000,000 Class B preferred shares, Series 1
500,000,000 Class A non-voting common shares
500,000,000 common shares
Issued:
=====================================================================================================
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 -- $ --
=====================================================================================================
F-12
YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Amounts in Canadian dollars, unless otherwise noted)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the nine months ended
March 31, 2004 and 2003 is unaudited)
================================================================================
6. SPECIAL WARRANTS, SHARE CAPITAL AND CONTRIBUTED SURPLUS (CONTINUED):
======================================================================================
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 exercise 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 placement, 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 purchased for cancellation (19,000) (10,336)
---------------------------------------------------------------------------------
Balance, June 30, 2003 17,441,894 44,729,104
Shares purchased for cancellation (unaudited) (169,900) (73,675)
Issued on exercise of special warrants,
February 2004 10,895,658 13,321,181
Issued on stock options February 2004 (unaudited) 15,500 27,125
--------------------------------------------------------------------------------------
Balance, March 31, 2004 28,183,152 $ 58,003,735
======================================================================================
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 purchased 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
of $60,097 over the book value of the shares was charged to deficit.
F-13
YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Amounts in Canadian dollars, unless otherwise noted)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the nine months ended
March 31, 2004 and 2003 is unaudited)
================================================================================
6. SPECIAL WARRANTS, SHARE CAPITAL AND CONTRIBUTED SURPLUS (CONTINUED):
On June 12, 2003, the Class B preferred shares, Series 1 automatically
converted into common shares on a one-for-one basis.
The Company purchased for cancellation 169,900 common shares during the
nine months ended March 31, 2004 under a normal course issuer bid, at a
total cost of $230,379. The excess of $156,704 over the book value of the
shares was charged to deficit.
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. No value was ascribed
to the warrants issued prior to June 30, 2002. Warrants issued after that
date have been valued using the Black-Scholes fair value option pricing
model. The following table contains information regarding the warrants to
acquire common shares outstanding as of March 31, 2004. As of March 31,
2004, all outstanding warrants were exercisable.
========================================================================================
Weighted
average
Number of exercise
shares price Amount
----------------------------------------------------------------------------------------
Outstanding, June 30, 2001 2,838,725 $4.50 $ --
Issued 181,944 4.47 --
----------------------------------------------------------------------------------------
Outstanding, June 30, 2002 and 2003 3,020,669 4.50 --
Expired (2,602,913) 4.50 --
Issued February 2004 on exercise
of special warrants at relative fair value 5,447,829 2.50 2,756,106
Issued February 2004 on exercise
of special agent warrants at fair value 1,089,566 1.75 969,714
----------------------------------------------------------------------------------------
Outstanding, March 31, 2004 (unaudited) 6,955,151 2.52 $3,725,820
========================================================================================
F-14
YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Amounts in Canadian dollars, unless otherwise noted)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the nine months ended
March 31, 2004 and 2003 is unaudited)
================================================================================
6. SPECIAL WARRANTS, SHARE CAPITAL AND CONTRIBUTED SURPLUS (CONTINUED):
As at March 31, 2004 (unaudited):
==========================================================================
Weighted
average
remaining
Range of Number contractual
exercise price outstanding life (years)
--------------------------------------------------------------------------
$1.75 1,089,566 4.71
$2.50 5,447,829 4.71
$4.00 125,000 2.25
$4.50 255,256 1.50
$9.00 37,500 0.50
==========================================================================
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
option exercise prices range 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-15
YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Amounts in Canadian dollars, unless otherwise noted)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the nine months ended
March 31, 2004 and 2003 is unaudited)
================================================================================
6. SPECIAL WARRANTS, 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.
==========================================================================================================================
Nine months ended Year ended
March 31, June 30,
2004 2003
--------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Loss for the period, as reported $ (4,072,318) $ (7,381,820)
Pro forma loss for the period (4,380,203) (7,440,675)
Pro forma loss per common share - basic and diluted (0.23) (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%
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-16
YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Amounts in Canadian dollars, unless otherwise noted)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the nine months ended
March 31, 2004 and 2003 is unaudited)
================================================================================
6. SPECIAL WARRANTS, SHARE CAPITAL AND CONTRIBUTED SURPLUS (CONTINUED):
The following tables reflect the activity under the stock option plan from
July 1, 2001 through March 31, 2004 and the share options outstanding at
March 31, 2004:
=========================================================================================================================
Nine months ended Years ended June 30,
March 31, 2004 2003 2002
-------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Number price Number price Number price
-------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Outstanding, beginning of period 1,727,132 $ 3.34 1,209,632 $ 4.04 1,162,132 $ 4.02
Granted 773,120 1.75 597,500 1.70 90,000 4.50
Cancelled/forfeited (6,500) 2.94 (80,000) 4.19 (42,500) 4.50
Exercised (15,500) 1.75 -- -- -- --
-------------------------------------------------------------------------------------------------------------------------
Outstanding, end of period 2,478,252 2.85 1,727,132 3.34 1,209,632 4.04
=========================================================================================================================
Exercisable, end of period 1,568,564 $ 3.45 1,092,170 $ 3.90 905,220 $ 3.88
=========================================================================================================================
As at March 31, 2004 (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 0.5 $ 1.50 25,000 $ 1.50
$1.75 1,082,620 8.4 1.75 309,440 1.75
$2.00 60,000 9.0 2.00 16,500 2.00
$2.50 173,000 8.1 2.50 72,950 2.50
$3.25 425,300 3.3 3.25 425,300 3.25
$4.00 10,000 3.7 4.00 10,000 4.00
$4.50 702,332 5.7 4.50 709,374 4.50
----------------------------------------------------------------------------------------------------------------------------
$1.50 - $4.50 2,478,252 6.7 2.85 1,568,564 3.45
============================================================================================================================
F-17
YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Amounts in Canadian dollars, unless otherwise noted)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the nine months ended
March 31, 2004 and 2003 is unaudited)
================================================================================
6. SPECIAL WARRANTS, 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-18
YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Amounts in Canadian dollars, unless otherwise noted)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the nine months ended
March 31, 2004 and 2003 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 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. Payment of obligations under
these contracts has now been completed.
The Company has entered into a clinical research services contract dated
March 2004 for management services relating to a clinical trial involving
up to 700 patients and 67 sites. The contract is expected to be completed
by December 31, 2006, however this is subject to change. The Company can
terminate this contract by providing 30 days' notice and a penalty of 10%
of any remaining commitment.
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 four
years from March 31, 2004 are as follows:
==========================================================================
2005 $ 53,004
2006 53,666
2007 57,640
2008 50,800
--------------------------------------------------------------------------
$ 215,110
==========================================================================
F-19
YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Amounts in Canadian dollars, unless otherwise noted)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the nine months ended
March 31, 2004 and 2003 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 3,664,000 3,802,000
2012 -- 2,600,000
2013 -- 1,433,000
--------------------------------------------------------------------------
$ 8,851,000 $ 21,592,000
==========================================================================
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 has investment tax credit carryforwards of $1,054,000
available 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 full valuation of $4,622,000 has been taken at
March 31, 2004 (June 30, 2003 - $2,988,000; June 30, 2002 - $1,933,000).
F-20
YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Amounts in Canadian dollars, unless otherwise noted)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the nine months ended
March 31, 2004 and 2003 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 March 31, 2004, the fair value of marketable securities
based on their quoted market prices was $68,972 (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-21
YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Amounts in Canadian dollars, unless otherwise noted)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the nine months ended
March 31, 2004 and 2003 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.
=======================================================================================================================
Nine months ended
March 31, Years ended June 30,
2004 2003 2003 2002 2001
-----------------------------------------------------------------------------------------------------------------------
(Unaudited)
Loss for the period based
on Canadian GAAP $ (4,072,318) $ (6,191,589) $ (7,381,820) $ (6,446,693) $ (7,454,443)
Unrealized gain on
marketable securities 49,257 -- -- -- --
-----------------------------------------------------------------------------------------------------------------------
Loss for the period and
comprehensive income
based on United States
GAAP $ (4,023,061) $ (6,191,589) $ (7,381,820) $ (6,446,693) $ (7,454,443)
=======================================================================================================================
Basic and diluted loss
per share $ (0.21) $ (0.48) $ (0.56) $ (0.50) $ (0.58)
=======================================================================================================================
Weighted average number
of common shares
outstanding 19,136,389 12,898,094 13,218,177 12,991,039 12,958,436
=======================================================================================================================
F-22
YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Amounts in Canadian dollars, unless otherwise noted)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the nine months ended
March 31, 2004 and 2003 is unaudited)
================================================================================
10. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (CONTINUED):
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 FASB Statement 115,
Accounting for Certain Investments in Debt and Equity Securities.
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 nine months ended March 31, 2003 and the year
ended June 30, 2003, the Company recognized a charge of $1,812,158
for an other than temporary decline in market value and,
accordingly, there was no difference in the carrying amount of the
marketable securities under United States GAAP and Canadian GAAP.
During the nine months ended March 31, 2004, the unrealized increase
in market value of these securities was $49,257. As such, this
amount has been recognized as an unrealized gain for United States
GAAP purposes with a corresponding increase in investments and
shareholders' equity under United States GAAP.
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-23
YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Amounts in Canadian dollars, unless otherwise noted)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the nine months ended
March 31, 2004 and 2003 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 United
States GAAP is as follows:
=======================================================================================================================
Deficit
accumulated Accumulated
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
Issued on stock options 27,125 -- -- -- 27,125
Shares repurchased for
cancellation (73,675) (156,704) 16,250 -- (214,129)
Loss for the period -- (4,023,061) -- -- (4,023,061)
-----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity
under United States
GAAP, March 31, 2004
(unaudited) $ 61,729,555 $ (40,591,575) $ 26,215 $ -- $ 21,164,195
=======================================================================================================================
Unrealized gain on
marketable securities
(10(b)) -- (49,257) -- -- (49,257)
-----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity
under Canadian GAAP,
March 31, 2004
(unaudited) $ 61,729,555 $ (40,640,832) $ 26,215 $ -- $ 21,114,938
=======================================================================================================================
F-24
YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Amounts in Canadian dollars, unless otherwise noted)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the nine months ended
March 31, 2004 and 2003 is unaudited)
================================================================================
10. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (CONTINUED):
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, except as disclosed for loss for the period under
United States GAAP.
(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 have been analyzed to
determine whether any are Variable Interest Entities ("VIEs") under
FASB Interpretation No. 46 (Revised), Consolidation of Variable
Interest Entities ("FIN 46R"). The company adopted FIN 46R under
United States GAAP retroactively at March 31, 2004 and has
determined that each of its investments in joint ventures should be
consolidated from the date when the company first became involved
with the entities (note 10(h)(i)). As set out in note 1(a), under
Canadian GAAP, the Company proportionately consolidates the joint
ventures and makes provision for any advances to the joint venture
partners that do not eliminate on consolidation such that the
Company has recorded 100% of the results of operations and cash
flows of these entities since their inception. Accordingly, there is
no effect on the Company's financial position or results of
operations as a result of these entities being VIEs and as a
consequence of the Company retroactively adopting FIN 46R at March
31, 2004.
F-25
YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Amounts in Canadian dollars, unless otherwise noted)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the nine months ended
March 31, 2004 and 2003 is unaudited)
================================================================================
10. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (CONTINUED):
There are no assets or liabilities in the joint ventures 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:
=======================================================================================================================
Since
Nine months ended inception to
March 31, Years ended June 30, March 31,
2004 2003 2003 2002 2001 2004
-----------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
General and
administrative
expenses $ 1,582,492 $ 1,409,888 $1,857,887 $ 2,027,777 $ 2,172,818 $ 9,975,719
Licensing and
product
development
costs 353,162 1,356,697 1,774,823 2,846,255 4,311,510 18,163,146
-----------------------------------------------------------------------------------------------------------------------
Loss for the period $ 1,935,654 $ 2,766,585 $3,632,710 $ 4,874,032 $ 6,484,328 $ 28,138,865
=======================================================================================================================
All of the cash flows of the joint ventures are used in operating
activities.
F-26
YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Amounts in Canadian dollars, unless otherwise noted)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the nine months ended
March 31, 2004 and 2003 is unaudited)
================================================================================
10. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (CONTINUED):
(e) Pro forma stock option disclosure:
The following table outlines the pro forma impact of options granted
that have not been recognized as an expense. The compensation cost
for these options is determined under the fair value method for
awards granted on or after July 1, 1995:
=======================================================================================================================
Nine months ended
March 31, Years ended June 30,
2004 2003 2003 2002 2001
-----------------------------------------------------------------------------------------------------------------------
(Unaudited)
Options granted 748,120 35,000 587,500 90,000 659,000
=======================================================================================================================
Weighted average fair
value of options
granted $ 1.08 $ 1.49 $ 1.28 $ 1.33 $ 1.16
=======================================================================================================================
Loss for the period,
as reported $ (4,023,061) $ (6,191,589) $ (7,381,820) $ (6,446,693) $ (7,454,443)
=======================================================================================================================
Pro forma loss for
the period $ (4,326,447) $ (6,194,202) $ (7,680,304) $ (6,751,059) $ (7,648,429)
=======================================================================================================================
Pro forma basic and
diluted loss per
share $ (0.23) $ (0.48) $ (0.58) $ (0.52) $ (0.59)
=======================================================================================================================
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 March 31, 2004 and the following assumptions for grants made
during the period preceding June 30, 2002:
====================================================================
Risk-free interest rate 4.11% - 5.66%
Dividend yield --
Volatility factor 50% - 120%
Expected life of options 5 - 10 years
Vesting period (months) Immediately to 40 months
====================================================================
F-27
YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Amounts in Canadian dollars, unless otherwise noted)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the nine months ended
March 31, 2004 and 2003 is unaudited)
================================================================================
10. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (CONTINUED):
(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
Nine months ended inception to
March 31, Years ended June 30, March 31,
2004 2003 2003 2002 2001 2004
--------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
$ 267,983 $ 25,287 $ 110,115 $ 65,612 $ 355,563 $ 1,631,879
==============================================================================================================
(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
$4,609,000, $2,988,000 and $1,933,000, respectively, for the periods
ended March 31, 2004, June 30, 2003 and June 30, 2002.
F-28
YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Amounts in Canadian dollars, unless otherwise noted)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the nine months ended
March 31, 2004 and 2003 is unaudited)
================================================================================
10. CANADIAN AND UNITED STATES ACCOUNTING POLICY DIFFERENCES (CONTINUED):
(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 VIEs and more
commonly referred to as special purpose entities, in which
either there is insufficient equity to permit the entity to
finance its activities without additional subordinated
financial support from other parties, or the equity investors
lack one or more specified essential characteristics of a
controlling financial interest (i.e., 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 the
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.
In December 2003, FASB Interpretation No. 46 (Revised),
Consolidation of Variable Interest Entities, superseded FIN 46
and is effective for the end of the first reporting period
ending on or after March 15, 2004.
The Company has adopted FIN 46R for United States GAAP
purposes retroactively at March 31, 2004. Upon adoption of the
standard, the Company has determined that each of its
investments in joint ventures should be consolidated from the
date when the Company first became involved with the entities
(note 10(d)).
F-29
YM BIOSCIENCES INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to Consolidated Financial Statements
(Amounts in Canadian dollars, unless otherwise noted)
Years ended June 30, 2003, 2002 and 2001
(Information as at and for the nine months ended
March 31, 2004 and 2003 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 to 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 2002 and 2001 figures have been reclassified to conform with the
financial statement presentation adopted in 2003.
F-30
SIGNATURES
The Registrant hereby certifies that we meet all of the requirements for filing
on Form 20-F and has duly caused and authorized the undersigned to sign this
amendment to the registration statement on its behalf.
YM BIOSCIENCES INC.
By: /s/ David Allan
------------------------------
Name: David Allan
Title: Chief Executive Officer
Dated: August 19, 2004
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 known as
York Medical Inc.) and Biostar Inc. dated October 11, 2000.
2.6* Form of warrant certificate granted by YM BioSciences Inc. (formerly known
as York Medical Inc.) to Aran Asset Management SA dated Jun 12, 2002.
2.7* Form of warrant certificate granted by YM BioSciences Inc. (formerly known
as York Medical Inc.) to CIMAB S.A dated September 1, 2000.
2.8* Form of warrant certificate granted by YM BioSciences Inc. (formerly known
as York Medical Inc.) to Aran Asset Management SA dated February 15, 2002.
2.9* Form of warrant certificate granted by YM BioSciences Inc. (formerly known
as 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 YM BioSciences Inc.
(formerly known as York Medical Inc.), CIMYM Inc. (an Ontario Corporation) and
CIMAB S.A dated November 14, 1995.
4.11 *Assignment and Assumption Agreement between YM BioSciences Inc. (formerly
known as York Medical Inc.) and CIMYM Inc. dated November 22, 1995.
4.12 *Letter from YM BioSciences Inc. (formerly known as 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 YM BioSciences Inc.
(formerly known as York Medical Inc.), CIMYM Inc. (a Barbados Corporation) and
CIMAB S.A. dated May 16, 1996.
4.15 *Joint Venture Shareholders' Agreement between YM BioSciences Inc.
(formerly known as 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 YM BioSciences Inc. (formerly
known as York Medical Inc.) and CBQYM Inc. dated November 22, 1995.
4.17 *Letter from YM BioSciences Inc. (formerly known as 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 YM BioSciences Inc.
(formerly known as York Medical Inc.), CBQYM Inc. (a Barbados Corporation) and
CIMAB S.A. dated May 16, 1996.
4.20++ License, Development, Manufacturing and Supply Agreement between YM
BioSciences Inc., CIMYM, Inc. (a Barbados Corporation), Tarcanta, Inc.,
Tarcanta, Ltd. and CIMAB S.A. dated July 13, 2004.
8.1* List of subsidiaries
+ Confidential treatment has been granted for portions of these agreements.
++ Confidential treatment requested for portions of this agreement.
* Previously filed.