UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 40-F
ANNUAL REPORT PURSUANT TO SECTION 13(a) or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 28, 2013 Commission File Number 001-35776
Acasti Pharma Inc.
(Exact name of Registrant as specified in its charter)
Québec, Canada
(Province or other jurisdiction of incorporation or organization)
2836
(Primary Standard Industrial Classification Code Number)
Not Applicable
(I.R.S. Employer Identification Number)
545, Promenade du Centropolis, Suite 100
Laval, Québec H7T 0A3
(450) 687-2262
(Address and telephone number of Registrant’s principal executive offices)
CT Corporation System
111 Eighth Avenue, 13th Floor, New York, NY 10011
(212) 894-8700
(Name, address, (including zip code) and telephone number (including area code) of agent for service in the United States)
Securities registered or to be registered pursuant to Section 12(b) of the Act: Common Shares
Title of Class: Common Shares, no par value
Name of Exchange where Securities are listed: The NASDAQ Capital Market
Securities registered or to be registered pursuant to Section 12(g) of the Act: Not applicable
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
Not applicable
Information filed with this Form:
[X] Annual Information Form [X] Audited annual financial statements
Number of outstanding shares of each of the issuer’s classes of
capital or common stock as of February 28, 2013:
73,107,538 Common Shares outstanding
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act
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.
[X] Yes
[ ] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the Registrant was required to submit and post such files).
[ ] Yes
[ ] No
Certifications and Disclosure Regarding Controls and Procedures.
(a)
Certifications regarding controls and procedures. See Exhibits 99.6 and 99.7.
(b)
Evaluation of disclosure controls and procedures . The Registrant’s Chief Executive Officer (“CEO”) and Chief Financial
Officer (“CFO”) have concluded that, based on an evaluation of the Registrant’s disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange
Act”)) as required by Rules 13a-15(b) and 15d-15(b) under the Exchange Act, the Registrant’s disclosure controls and
procedures were effective as of February 28, 2013.
It should be noted that while the CEO and CFO believe that the Registrant’s disclosure controls and procedures provide a
reasonable level of assurance that they are effective, they do not expect the disclosure controls and procedures to be capable
of preventing all errors and fraud. A control system, no matter how well conceived or operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system are met.
(c) Management’s annual report on internal control over financial reporting and attestation report of the registered public
accounting firm. This annual report does not include a report of management’s assessment regarding internal control over
financial reporting due to a transition period established by rules of the United States Securities and Exchange Commission
(the "Commission") for newly public companies.
The Company qualifies as an “emerging growth company” under Section 3(a)(80) of the Exchange Act, as a result of
enactment of the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth
companies are exempt from Section 404(b) of the Sarbanes-Oxley Act of 2002, which generally requires that a public
company’s registered public accounting firm provide an attestation report relating to management’s assessment of internal
control over financial reporting. The Company qualifies as an emerging growth company and therefore has not included in,
or incorporated by reference into, this annual report such an attestation report as of the end of the period covered by this
annual report.
(d)
Changes in internal control over financial reporting. During the fiscal year ended February 28, 2013, there were no
changes in the Registrant’s internal control over financial reporting that have materially affected, or are reasonably likely to
materially affect, the Registrant’s internal control over financial reporting.
Identification of the Audit Committee. The Registrant has a separately-designated standing audit committee established in accordance
with section 3(a)(58)(A) of the Exchange Act. The Registrant’s audit committee is composed of Dr. Ronald Denis, Mr. Marc LeBel,
Mr. Michel Chartrand and Mr. Martin Godbout. In the opinion of the board of directors of the Registrant, Dr. Ronald Denis, Mr. Marc
LeBel and Mr. Martin Godbout are financially literate and independent as determined under National Instrument 52-110 (Audit
Committees), Rule 10A-3 of the Exchange Act and NASDAQ Rule 5605(a)(2) (collectively, the “ Independence Rules”). Mr. Chartrand
is, in the opinion of the board of directors of the Registrant, financially literate and not an independent director as determined by the
Independence Rules because he served as the Chief Operating Officer of Neptune Technologies & Bioressources Inc., the Registrant’s
parent company. The Registrant’s audit committee currently consists of a majority of independent directors. Rule 10A-3 of the Exchange
Act requires the Registrant to have (i) a majority of independent directors serving on the audit committee within 90 days of the date of the
effectiveness of the Registrant’s registration statement on Form 8-A filed with the Commission on January 4, 2013 (the “ Registration
Statement”) and (ii) all independent Audit Committee members within one year of the date of effectiveness of the Registration
Statement. Mr. Chartrand is not a nominee for re-election to the Registrant’s board of directors at the Registrant’s next annual general
meeting of shareholders scheduled to occur on June 27, 2013, after which time the Registrant expects its audit committee to be comprised
of three independent directors.
Additional information regarding the members of the Registrant’s audit committee can be found under the heading “Report on Audit
Committee—Composition of the Audit Committee” contained in the Annual Information Form. The audit committee charter can also be
found as Schedule A to the Annual Information Form.
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Audit Committee Financial Expert. The Registrant’s board of directors has determined that Mr. Marc LeBel is the "audit committee
financial expert" within the meaning of Paragraph 8(b) of General Instruction B of Form 40-F.
The Commission has indicated that the designation of Mr. LeBel as an audit committee financial expert does not make Mr. LeBel an
“expert” for any purpose, impose any duties, obligations or liability on Mr. LeBel that are greater than those imposed on members of the
audit committee and board of directors who do not carry this designation or affect the duties, obligations or liability of any other member
of the audit committee or board of directors.
Code of Ethics. The Registrant has adopted a code of ethics entitled “Code of Business Conduct and Ethics for Directors, Officers and
Employees” (the “Code”) that applies to all directors, officers and employees, including the Registrant’s principal executive officer,
principal financial officer and principal accounting officer. A copy of the Code is attached as Exhibit 99.4 hereto.
Principal Accountant Fees and Services. The information provided under the headings “External Auditor Fees—Audit Fees”, “—
Audit-Related Fees”, “—Tax Fees” and “—All Other Fees” contained in the Registrant’s Annual Information Form for the fiscal year
ended February 28, 2013, filed as Exhibit 99.1 hereto (the “Annual Information Form”) is incorporated by reference herein.
Audit Committee Pre-Approval Policies and Procedures. The disclosure provided under “Charter of the Audit Committee of the Board
of Directors—Responsibilities for Engaging External Auditors” in Schedule “A” of Exhibit 99.1, the Registrant’s Annual Information
Form, is incorporated by reference herein. None of the services described above under “Principal Accountant Fees and Services” under
the captions “Audit-Related Fees”, “Tax Fees” and “All Other Fees” were approved by the audit committee pursuant to paragraph (c)(7)(i)
(C) of Rule 2-01 of Regulation S-X.
Off-Balance Sheet Arrangements. The Registrant does not have any off-balance sheet financing arrangements that have or are
reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results
of operations, liquidity, capital expenditures or capital resources that is material to investors.
Tabular Disclosure of Contractual Obligations. The tabular disclosure provided under the heading “Contractual Obligations, Off-
Balance-Sheet Arrangements and Commitments” contained in the Registrant’s Management’s Discussion and Analysis dated May 21,
2013 for the year ended February 28, 2013, filed as Exhibit 99.3 hereto is incorporated by reference herein.
Interactive Data File. The Registrant is not currently required to submit to the Commission, or post to its corporate website, an
Interactive Data File.
Mine Safety Disclosure. Not applicable.
Differences in NASDAQ and Québec Corporate Governance Requirements. NASDAQ Marketplace Rule 5615(a)(3) permits a
foreign private issuer to follow its home country practice in lieu of certain of the requirements of the Rule 5600 Series. A foreign private
issuer that follows a home country practice in lieu of one or more provisions of the Rule 5600 Series is required to disclose in its annual
report filed with the Commission, or on its website, each requirement of the Rule 5600 Series that it does not follow and describe the
home country practice followed by the issuer in lieu of such NASDAQ corporate governance requirements. The Registrant does not
follow NASDAQ Marketplace Rule 5620(c), but instead follows its home country practice. The NASDAQ minimum quorum requirement
under Rule 5620(c) for a meeting of shareholders is 33.33% of the outstanding shares of common voting stock. The
2
Registrant’s quorum requirement, as set forth in the Registrant’s by-laws, is that a quorum for a meeting of the Registrant’s holders of
common shares is the attendance, in person or by proxy, of the shareholders representing 10% of the Registrant’s common shares. The
foregoing is consistent with the laws, customs and practices in Québec and the rules and policies of the TSX Venture Exchange.
Forward-Looking Information. The information provided under the heading “Cautionary Note Regarding Forward-Looking
Information” contained in Exhibit 99.1, the Registrant’s Annual Information Form, is incorporated by reference herein.
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UNDERTAKING AND CONSENT TO SERVICE OF PROCESS
Undertaking
The Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission
staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to: the securities registered pursuant
to Form 40-F; the securities in relation to which the obligation to file an annual report on Form 40-F arises; or transactions in said
securities.
Consent to Service of Process
The Registrant has previously filed a Form F-X in connection with the class of securities in relation to which the obligation to file this
report arises.
Any change to the name or address of the agent for service of process of the Registrant shall be communicated promptly to the
Commission by an amendment to the Form F-X referencing the file number of the relevant registration statement.
4
Pursuant to the requirements of the Exchange Act, the Registrant certifies that it meets all of the requirements for filing on Form 40-F and
has duly caused this annual report to be signed on its behalf by the undersigned, thereto duly authorized.
SIGNATURES
DATED this 29th day of May, 2013.
ACASTI PHARMA INC.
By:
/s/ Henri Harland
Name: Henri Harland
Title: President & CEO
5
Exhibit
Number
Description
EXHIBIT INDEX
99.1
99.2
99.3
99.4
99.5
99.6
99.7
99.8
99.9
2013 Annual Information Form dated May 29, 2013 for the fiscal year ended February 28, 2013.
Financial Statements as at February 28, 2013 and February 29, 2012 and for the years then ended, and the accompanying
auditors' report.
Management’s Discussion and Analysis for the fiscal year ended February 28, 2013.
Code of Business Conduct and Ethics for Directors, Officers and Employees.
Consent of KPMG LLP.
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the U.S. Securities Exchange Act of
1934, as amended.
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the U.S. Securities Exchange Act of
1934, as amended.
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
6
EXHIBIT 99.1
ANNUAL INFORMATION FORM
Fiscal Year Ended February 28, 2013
May 29, 2013
TABLE OF CONTENTS
Basis of Presentation
Cautionary Note Regarding Forward-Looking Information
Corporate Structure
Company Overview
Intercorporate Relationships
Acasti’s Business
Acasti’s Products
Clinical and Nonclinical Research
Sales and Marketing
Competition
Intellectual Property
Raw Materials, Manufacturing and Facility
Employees, Specialized Skills and Knowledge
Litigation
Government Regulation
History and Development of the Corporation
Three-Year History
Recent Developments
Risk Factors
Dividends
Description of Capital Structure
Common Shares
Preferred Shares
Market for Securities
Trading Prices and Volumes for Acasti
Escrowed Securities and Securities subject to Restriction on Transfer
Directors and Officers
Name, Occupation and Security Holding of Directors and Executive Officers
Cease Trade Orders, Bankruptcies, Penalties or Sanctions
Legal Proceedings and Regulatory Actions
Interest of Management and Others in Material Transactions
Transfer Agents and Registrars
Material Contracts
Interest of Experts
Report on Audit Committee
Audit Committee’s Charter
Composition of the Audit Committee
External Auditor Fees
Additional Information
Schedule “A”
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1
1
3
3
3
3
7
8
10
11
12
13
14
14
16
20
20
21
22
40
40
40
41
44
45
45
46
46
48
49
49
49
49
49
49
49
50
51
51
A-1
BASIS OF PRESENTATION
As used in this annual information form (“AIF”), unless the context otherwise requires, references to “Acasti”, “Acasti Pharma”,
“Corporation”, “it”, “its” or similar terms refer to Acasti Pharma Inc., references to “Neptune” refer to Acasti’s parent company, Neptune
Technologies & Bioressources Inc., and references to “NeuroBioPharm” refer to Acasti’s sister company, NeuroBioPharm Inc.
Market data and certain industry data and forecasts included in this AIF were obtained from internal company surveys, market
research, publicly available information, reports of governmental agencies and industry publications and surveys. Acasti has relied upon
industry publications as its primary sources for third-party industry data and forecasts. Industry surveys, publications and forecasts
generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and
completeness of such information is not guaranteed. Acasti has not independently verified any of the data from third-party sources, nor
has Acasti ascertained the underlying economic assumptions relied upon therein. Similarly, internal surveys, industry forecasts and
market research, which Acasti believes to be reliable based upon management's knowledge of the industry, have not been independently
verified. Forecasts are particularly likely to be inaccurate, especially over long periods of time. In addition, Acasti does not know what
assumptions regarding general economic growth were used in preparing the forecasts cited in this AIF. While Acasti is not aware of any
misstatements regarding Acasti’s industry data presented herein, Acasti’s estimates involve risks and uncertainties and are subject to
change based on various factors, including those discussed under “Risk Factors” in this AIF. While Acasti believes its internal business
research is reliable and market definitions are appropriate, neither such research nor definitions have been verified by any independent
source. This AIF may only be used for the purpose for which it has been published.
Unless otherwise noted, in this AIF, all information is presented as of February 28, 2013. All references in this AIF to “dollars”,
“CDN$” and “$” refer to Canadian dollars, and references to “US$” refer to United States dollars, unless otherwise expressly stated.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION
This AIF contains certain information that may constitute forward-looking information within the meaning of Canadian securities
laws and forward-looking statements within the meaning of U.S. federal securities laws, both of which Acasti refers to in this AIF as
forward-looking information. Forward-looking information can be identified by the use of terms such as “may”, “will”, “should”,
“expect”, “plan”, “anticipate”, “believe”, “intend”, “estimate”, “predict”, “potential”, “continue” or other similar expressions concerning
matters that are not statements about the present or historical facts. Forward-looking information in this AIF includes, but is not limited
to, information or statements about:
· Acasti’s ability to conduct its current Phase II and future additional clinical trials for CaPre®, including the timing and results of
those clinical trials;
· Acasti’s ability to commercialize and distribute CaPre® and ONEMIA® in the United States and elsewhere;
· Acasti’s estimates of the size of the potential markets for CaPre® and ONEMIA® and the rate and degree of market acceptance
of CaPre® and ONEMIA®;
· the benefits of CaPre® and ONEMIA® as compared to other products in the pharmaceutical and medical food markets,
respectively;
· Acasti’s ability to maintain and defend its intellectual property rights;
· Acasti’s ability to secure a third-party supplier to provide Acasti with sufficient raw materials for its operations, including krill
oil, used to manufacture CaPre® and ONEMIA®;
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· Acasti’s ability to secure a third-party to manufacture CaPre® whose manufacturing processes and facilities are in compliance
with current good manufacturing practices (“cGMP”);
· Acasti’s ability to obtain and maintain regulatory approval of CaPre®, and the labeling requirements that would apply under
any approval Acasti may obtain;
· regulatory developments affecting the pharmaceutical and medical food markets in the United States and elsewhere;
· the size and growth of the potential markets for CaPre® and ONEMIA® and Acasti’s ability to serve those markets;
· the rate and degree of market acceptance of CaPre®, if it reaches commercialization;
· the success of competing products that are or become available; and
· Acasti’s expectations regarding its financial performance, including its revenues, research and development, expenses, gross
margins, liquidity, capital resources and capital expenditures.
Although the forward-looking information in this AIF is based upon what Acasti believes are reasonable assumptions, no person
should place undue reliance on such information since actual results may vary materially from the forward-looking information.
In addition, the forward-looking information in this AIF is subject to a number of known and unknown risks, uncertainties and other
factors, including those described in this AIF under the heading “Risk Factors”, many of which are beyond the Corporation’s control, that
could cause the Corporation’s actual results and developments to differ materially from those that are disclosed in or implied by the
forward-looking information, including, without limitation:
· whether the current and future clinical trials by the Corporation will be successful;
· whether CaPre® and ONEMIA® can be successfully commercialized;
· the Corporation’s reliance on third parties for the manufacture, supply and distribution of its products and for the supply of raw
materials, including the ability to find a third party to supply krill oil in sufficient quantities and quality and to produce CaPre®
under cGMP standards;
· the Corporation’s reliance on a limited number of distributors for ONEMIA ® and its ability to secure distribution arrangements
for CaPre® if it reaches commercialization;
· the Corporation’s ability to manage future growth effectively;
· the Corporation’s ability to achieve profitability;
· the Corporation’s ability to secure future financing from Neptune or other third party sources on favorable terms or at all and,
accordingly, continue as a going concern;
· the Corporation’s ability to gain acceptance of its products in its markets;
· the Corporation’s ability to attract, hire and retain key management and scientific personnel;
· the Corporation’s ability to achieve its publicly announced milestones on time;
· the Corporation’s ability to successfully defend any product liability lawsuits that may be brought against it;
· intense competition from other companies in the pharmaceutical and medical food industries; and
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· the Corporation’s ability to secure and defend its intellectual property rights and to avoid infringing upon the intellectual
property rights of third parties.
Consequently, all the forward-looking information in this AIF is qualified by this cautionary statement and there can be no guarantee
that the results or developments that the Corporation anticipates will be realized or, even if substantially realized, that they will have the
expected consequences or effects on the Corporation’s business, financial condition or results of operations. Accordingly, you should not
place undue reliance on the forward-looking information. Except as required by applicable law, Acasti does not undertake to update or
amend any forward-looking information, whether as a result of new information, future events or otherwise. All forward-looking
information is made as of the date of this AIF.
Company Overview
CORPORATE STRUCTURE
Acasti was incorporated on February 1, 2002 under Part 1A of the Companies Act (Québec) under the name “9113-0310 Québec
Inc”. On August 7, 2008, pursuant to a Certificate of Amendment, the Corporation changed its name to “Acasti Pharma Inc.”, its share
capital, the provisions regarding the restriction on securities transfers and the borrowing powers of the Corporation. On November 7,
2008, pursuant to a Certificate of Amendment, the Corporation has further revised its provisions regarding its borrowing powers. The
Corporation became a reporting issuer in the Province of Québec on November 17, 2008. On February 14, 2011, the Business
Corporations Act (Québec) came into effect and replaced the Companies Act (Québec). Acasti is now governed by the Business
Corporations Act (Québec).
Acasti’s head office and registered office is located at 545 Promenade du Centropolis, Suite 100, Laval, Québec H7T 0A3. The
Corporation’s website address is http://www.acastipharma.com. The Corporation does not incorporate the information on or accessible
through its website into this AIF, and you should not consider any information on, or that can be accessed through, its website as part of
this AIF.
Intercorporate Relationships
The Corporation has no subsidiaries. As of the date of this AIF, Neptune owns 41,425,933 Class A shares of Acasti (the “ Common
Shares”), representing approximately 57% of the Common Shares issued and outstanding. The Common Shares are voting, participating
and have no par value. Neptune also owns a warrant entitling it to acquire 6,750,000 Common Shares, subject to the final approval of the
TSX Venture Exchange (“ TSXV”) and the approval of the disinterested shareholders of Acasti at its next annual meeting, which is
scheduled to occur on June 27, 2013.
The Common Shares are listed on the TSXV under the ticker symbol “APO” and on The NASDAQ Stock Market (“NASDAQ”)
under the ticker symbol “ACST”.
Business Overview
ACASTI’S BUSINESS
Acasti is an emerging biopharmaceutical company focused on the research, development and commercialization of new krill oil-
based forms of omega-3 phopholipid therapies for the treatment and prevention of certain cardiometabolic disorders, in particular
abnormalities in blood lipids, also known as dyslipidemia. Because krill feeds on phytoplankton (diatoms and dinoflagellates), it is a
major source of phospholipids and polyunsaturated fatty acids (“PUFAs”), mainly eicosapentaenoic acid (“EPA”) and docosahexaenoic
acid (“DHA”), which are two types of omega-3 fatty acids well known to be beneficial for human health.
CaPre®, currently Acasti’s only prescription drug candidate, is a highly purified omega-3 phospholipid concentrate derived from krill
oil and is being developed to help prevent and treat hypertriglyceridemia, which is a condition characterized by abnormally high levels of
triglycerides in the bloodstream. Phospholipids represent approximately two-thirds of the composition of CaPre®. The majority of EPA
and DHA contained in CaPre® is
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bound to phospholipids, allowing these PUFAs to more readily reach the small intestine where they undergo faster absorption and
transformation into complex fat molecules that are required for transport in the bloodstream. Acasti believes that EPA and DHA are
more efficiently transported by phospholipids than EPA and DHA contained in fish oil which are transported by triglycerides and must
undergo additional digestion before they are ready for transport in the bloodstream. CaPre® is designed to be used as a therapy in
conjunction with positive lifestyle changes and administered either alone or in conjunction with other treatment regiments such as statins
(a class of drug used to reduce cholesterol levels) and potentially for use by statin-intolerant or statin-resistant patients. In addition to
targeting the reduction of high triglycerides with levels ranging from 200 to 500 mg/dl (“hypertriglyceridemia”) and very high
triglycerides with levels over 500mg/dl (“severe hypertriglyceridemia”), nonclinical and preliminary clinical data collected by the
Corporation to date has indicated that CaPre® may also normalize blood lipids by reducing low density lipoprotein (“LDL-C”) (bad
cholesterol) and very low density lipoprotein (“VLDL-C”) while increasing high density lipoprotein (“HDL-C”) (good cholesterol).
Acasti has initiated two Phase II clinical trials in Canada (the TRIFECTA trial and the COLT trial) designed to evaluate the safety and
efficacy of CaPre® for the management of hypertriglyceridemia and severe hypertriglyceridemia. Following the completion of the Phase
II COLT trial, if successful, and in parallel with the ongoing Phase II TRIFECTA trial, in Canada, Acasti intends to file an investigational
new drug (“IND”) submission to conduct Phase III clinical trials, and likely a pharmacokinetic study (which may be required by the U.S.
Food and Drug Administration (“ FDA”)), for CaPre® in the United States under the guidelines and rules of the FDA. Acasti expects the
final results on the COLT trial and TRIFECTA trial by the end of September 2013 and first half of 2014, respectively. See “Acasti’s
Business–Acasti’s Clinical and Nonclinical Experience – Clinical”.
ONEMIA®, a medical food and currently Acasti’s only commercialized product, is a purified omega-3 phospholipid concentrate
derived from krill oil with lower levels of phopholipids, EPA and DHA content than CaPre®. Based on nonclinical studies and clinical
testing, Acasti believes ONEMIA ® to be safe and effective for the dietary management of omega-3 phospholipid deficiency related to
abnormal lipid profiles and cardiometabolic disorders. See “Acasti’s Business - Acasti’s Products - ONEMIA®.”
Business Strategy
Key elements of Acasti’s strategy to commercialize therapies for dyslipidemia and other cardiometabolic disorders include:
(i) completing the Corporation’s Phase II TRIFECTA and COLT clinical trials in Canada, initiating and completing Phase III clinical trials
and filing a New Drug Application (“ NDA”) to obtain regulatory approval for CaPre® in the United States (initially for the treatment of
severe hypertriglyceridemia and thereafter for the treatment of hypertriglyceridemia); (ii) strengthening the Corporation’s patent portfolio
and other means of protecting intellectual property exclusivity; (iii) pursuing distribution partnerships to commercialize CaPre® in the
United States and elsewhere; and (iv) continuing to generate awareness of ONEMIA® throughout the medical community in an effort to
build a market foundation for CaPre® to further advance. The Corporation may also pursue strategic opportunities including licensing or
similar transactions, joint ventures, partnerships, strategic alliances or alternative financing transactions to provide sources of capital for
Acasti. However, no assurance can be given as to when or whether Acasti will enter into any such strategic transaction.
Treatments for Cardiometabolic Disorders – Acasti’s Market
Lipid Disorders and Cardiovascular Disease
Heart attacks, strokes and other cardiovascular events represent the leading cause of death and disability among men and women in
the United States. According to the 2011 At-A-Glance Report from the U.S. Center for Disease Control, more than 1 out of every 3 adults
in the United States (approximately 83 million) currently lives with one or more types of cardiovascular disease; an estimated 935,000
heart attacks and 795,000 strokes occur in the United States each year; and an estimated 71 million adults in the United States have high
cholesterol (i.e., high levels of LDL-C). Having abnormally high levels of lipids or lipoproteins, such as cholesterol and triglycerides,
which are fats carried in the blood, is an important risk factor for cardiovascular disease.
The prevalence of hypertriglyceridemia is quickly increasing in the United States and globally, correlating to the increasing incidence
of obesity and diabetes. Market participants estimate that one-third of the population in the United States has elevated levels of
triglycerides, including over 40 million people diagnosed with
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hypertriglyceridemia and over 4 million people diagnosed with severe hypertriglyceridemia. According to The American Heart
Association Scientific Statement on Triglycerides and Cardiovascular Disease (2011), triglyceride levels provide important information as
a marker associated with the risk for heart disease and stroke, especially when an individual also has low HDL-C and elevated levels of
LDL-C. Lowering triglyceride levels is one of the primary goals to reduce a patient’s risk of atherosclerotic cardiovascular disease.
Hypertriglyceridemia is due to both genetic and environmental factors, including obesity, sedentary lifestyle and high-calorie diets.
Hypertriglyceridemia is also associated with comorbid conditions such as diabetes, chronic renal failure, pancreatitis and nephrotic
syndrome.
A National Health and Nutrition Examination Survey analysis of dyslipidemia in the United States in 2010 indicated that while LDL-
C levels have actually declined since its last analysis, the percentage of patients with hypertriglyceridemia has risen by 6% along with the
dramatic increases in obesity. The National Cholesterol Education Program (“NCEP”) Expert Panel on Detection, Evaluation and
Treatment of High Blood Cholesterol recommends that the first priority for the management of hypertriglyceridemia is triglyceride
reduction to decrease the risk of pancreatitis. In addition, severe hypertriglyceridemia is also associated with a markedly increased risk for
cardiovascular disease and recent studies by market participants have demonstrated that elevated triglyceride levels can be regarded as an
independent risk factor for cardiovascular disease-related events such as myocardial infarction, ischemic heart disease and ischemic
stroke.
In a subgroup analysis of the Japan EPA Lipid Intervention Study, in which 18,645 hypercholesterolemic patients randomly received
EPA plus a statin or statin control, patients with baseline triglycerides >150 mg/dL and HDL <40 mg/dL receiving EPA plus a statin
(7,503 patients) had a 19% reduced risk of cardiovascular disease compared to a statin alone (7,478 patients; P=0.048). In addition, the
Italian Group for the Study of the Survival of Myocardial Infarction (GISSI) trial randomly assigned 11,324 survivors of recent
myocardial infarction to receive omega-3 PUFAs (1 gram per day), vitamin E (300 mg per day), both, or neither (the control group) for
3.5 years. Among the patients who received omega-3 PUFAs alone, as compared to the control group, there was a 15% reduction in the
composite primary end point of death, nonfatal myocardial infarction, or nonfatal stroke (p<0.02) and a 20% reduction in the rate of death
from any cause (p<0.01). The reduction in risk of sudden death was statistically significant beginning at the four month stage. A
similarly significant, although more delayed, pattern after six to eight months of treatment was observed for cardiovascular, cardiac and
coronary deaths.
A recent meta-analysis by Sarwar et al. included 29 prospective studies and was the largest and most comprehensive epidemiological
assessment of the association between triglyceride levels and cardiovascular disease risk in Western populations (262,525 participants;
10,158 cases). A combined analysis of the 29 studies yielded an adjusted odds ratio of 1.72 (72% higher risk) for the patients with
triglyceride levels greater than or equal to 200 mg/dL compared to those with normal triglyceride levels. The conclusion of the study is
that there are moderately strong associations between triglyceride levels and cardiovascular disease risk.
Several omega-3 fatty acid products derived from fish oil are currently being marketed and sold in the United States and elsewhere.
Some consist of supplements that are commercialized for human health maintenance while others are prescription omega-3 fatty acids
that are designed as treatments for severe hypertriglyceridemia.
Available Prescription Drugs
The rise in obesity over the last 20 years has led to a parallel increase in triglyceride levels among the population and awareness of
medical and health practitioners about the critical role that high triglyceride levels, particularly together with abnormal levels of LDL-C,
HDL-C and non HDL-C (which is collectively referred to as dyslipidemia), have as a predictor of cardiovascular events. Accordingly, the
introduction of new prescription drugs and drug therapies to lower the risk of cardiovascular events by addressing dyslipidemia has
become a priority. The initial treatment recommendation for patients with dyslipidemia is typically a lifestyle change (diet and increased
exercise). Dyslipidemia is also treated with statins, which account for a large portion of prescriptions for dyslipidemia. However, statins
alone are primarily used for reducing LDL-C only and appear to have only modest effects on triglyceride levels. Recognizing that statins
alone are not effective triglyceride lowering drugs, the NCEP panel recommends the use of more focused therapies to lower triglyceride
levels in patients with severe hypertriglyceridemia. The first-line drug therapy in patients with severe hypertriglyceridemia is often a
prescription omega-3 fatty acid or fibrates, but clinical tests have shown that fibrates may also induce side effects.
- 5 -
According to an investigation published by the American Medical Association in 2009, fewer than 4% of adults in the United States
with hypertriglyceridemia receive prescription medication to lower trigylceride levels, representing a significant unmet medical need.
Many available treatment options have limitations in the treatment of hypertriglyceridemia which Acasti believes CaPre® can address.
The use of fibrates, for example, has been shown to raise the risk of abnormal increases in liver enzymes and creatinine (a marker of
kidney function) and, when combined with a statin, rhabdomyolysis (muscle breakdown). The Corporation does not believe that CaPre®
produces such side effects. Furthermore, Acasti believes that CaPre® in combination with statins could become a standard of care in
patients with mixed dyslipidemia because of its once per day dosing convenience.
There are several marketed prescription omega-3 fatty acids currently approved for treatment of dyslipidemia in the United States and
elsewhere. According to the Frost Sullivan 2012 Global Overview of the EPA and DHA Omega-3 Ingredients Markets, the global market
revenue for marine and algae EPA/DHA omega-3 ingredients market in 2011 was approximately $1.8 billion. Lovaza and Omacor, which
are sold in the United States and Europe, respectively, are omega-3 ethyl-esters derived from fish oil comprised of EPA and DHA and are
indicated for the treatment of severe hypertriglyceridemia in twice-daily doses of two 1-gram capsules or once-a-day dose of four 1-gram
capsules. In addition, Vascepa and Epadel are two approved omega-3 ethyl-esters derived from fish oil comprised of EPA that are sold in
the United States and Japan, respectively. Market participants have estimated that the total prescription omega-3 market generated over
$2 billion in sales worldwide in 2012. Acasti believes that there will be increased growth in the prescription omega-3 market based on the
expected introduction, and resulting increased promotion and awareness, of new prescription omega-3 products, as well as the emergence
of new clinical data regarding the efficacy of omega-3s in the treatment and prevention of cardiometabolic disorders. Other disorders that
potentially benefit from the use of prescription omega 3 fatty acids include osteopenia/osteoporosis, depression, sleep disorders associated
with depression and pain and inflammation.
The cardioprotective efficacy of omega-3 fatty acids is well-established. Omega-3 products have anti-thrombotic and anti-
inflammatory effects that have proven to inhibit atherosclerosis in animal models as well as reduce the rate of adverse cardiovascular
events in humans. Omega-3 fatty acids, particularly those with concentrated levels of EPA and DHA, have been demonstrated in multiple
clinical trials to lower concentrations of triglycerides and non-HDL in the bloodstream. In a study published in the American Journal of
Clinical Nutrition in 2009, it was proposed that the omega-3 index be considered a potential risk factor for coronary heart disease
mortality, especially sudden cardiac death.
Medical Foods
Medical foods are at the intersection of functional food and prescription drugs. Medical foods are regulated by the FDA and intended
for specific dietary management of a disease with “distinctive nutritional requirements” under the supervision of a physician and contain
ingredients that are generally recognized as safe (GRAS) or are otherwise considered acceptable for use. No market pre-authorization by
the FDA or other similar international agencies is needed for medical foods to be commercialized in the United States or elsewhere.
The majority of U.S. medical food products on the market are for metabolic diseases. Protein-based medical foods are the most
common. Nutrients such as omega-3s, isoflavones, vitamin D, chelated zinc, flavonoids (e.g., baicalin, catechin, pterostilbene), chromium
picolinate, phytosterols and L-arginine are other leading ingredients used in this developing category, along with other vitamins and
minerals such as pyridoxine, thiamine and folic acid, which are being used in combination. Acasti believes ONEMIA ® is the only
medical food that offers a high concentration of krill oil-derived omega-3 fatty acids.
Manufacturers are bringing more medical foods to market that address metabolic processes. In 2006, Limbrel (flavocoxid), the first
medical food for the management of osteoarthritis, was launched. Axona was designated by the FDA in 2009 as a medical food, targeting
metabolic deficiencies associated with Alzheimer’s disease; the well-researched VSL #3, a probiotic for ulcerative colitis and ileal pouch,
was introduced to the market in 2002; and NiteBite, a snack bar for the nutritional management of hyperglycemia, has been marketed
since 1996.
- 6 -
Acasti’s Products
Overview
Acasti believes its krill oil-based form of omega-3 phospholipid therapies have advantages over omega-3 products that are derived
from fish oil. EPA and DHA in krill oil are mainly carried by phospholipids, while EPA and DHA derived from fish oil are mainly carried
by triglycerides. Acasti believes that omega-3 phospholipids provide for better absorption and assimilation of EPA and DHA into the
blood compared to other omega-3 sources, including those derived from fish oil. Phospholipids represent approximately two-thirds of the
composition of CaPre®. This high phospholipid content allows the EPA and DHA bound to the phospholipids to be absorbed into the
small intestine where their transformation into complex fat molecules that are required for transport in the bloodstream occurs. Acasti
believes that omega-3 fatty acids from fish oil require additional digestion before this process can occur. Once in the blood stream, the
target destinations for krill oil-based phospholipids also differ from fish oil-based omega-3 triglycerides. Krill oil is absorbed directly into
the membranes of cells and tissue, which are also composed of phospholipids, whereas fish oils are stored in fat tissue as a source of
energy, requiring a much higher amount of fish oil in order to provide the body with the EPA and DHA for the desired health benefits. In
addition, absorption of ethyl-ester forms of currently available prescription omega-3 fatty acids derived from fish oil requires the
breakdown of fats by pancreatic enzymes that are produced in response to the consumption of high fat meals. As a low fat diet is typically
a critical component for treatment of patients with severe hypertriglyceridemia, these ethyl-ester formulations have demonstrated lower
absorption and bioavailability relative to those formulated as omega-3 phopholipids.
CaPre®
CaPre®, currently Acasti’s only prescription drug candidate, is a highly purified omega-3 phospholipid concentrate derived from krill
oil and is being developed to prevent and treat hypertriglyceridemia. The active ingredient of CaPre® is a mixture of concentrated omega-
3 fatty acids purified from crude krill oil and developed as an oral formulation. CaPre® contains EPA and DHA bound to phospholipids
as well as free EPA and DHA for a total concentration of approximately two-thirds phospholipids and approximately 30% EPA and DHA.
The Corporation’s near term strategy is to develop and commercialize CaPre® in the United States as a prescription drug with a claim for
the treatment of severe hypertriglyceridemia and, as a next step, the treatment of hypertriglyceridemia.
CaPre® is designed to be used as a therapy in conjunction with positive lifestyle changes and administered either alone or with other
treatments such as statins and potentially for use by statin-intolerant or statin-resistant patients. In addition to targeting the reduction of
high and very high triglycerides, nonclinical research collected by the Corporation to date has indicated that CaPre® may also normalize
blood lipids overall by reducing LDL-C and increasing HDL-C. Clinical research is, however, required in order to confirm an analogous
efficacy in humans.
CaPre® is currently being evaluated in the Phase II TRIFECTA and COLT clinical trials in Canada, both of which aim to evaluate the
effect of different daily doses of CaPre® on patients with hypertriglyceridemia to severe hypertriglyceridemia. A total of
approximately 600 patients have been enrolled in the two trials. Obtaining regulatory approval for CaPre® requires that safety is
confirmed and it is effective at reducing triglycerides at a level that would medically benefit the patient. Acasti’s longer-term objective is
to demonstrate that CaPre® can also reduce LDL-C and raise HDL-C. Acasti believes there are no drugs currently on the market that have
been proven effective to a clinically relevant extent for all three indications, although based on nonclinical studies Acasti believes CaPre®
may provide significant benefits in all three areas.
ONEMIA®
ONEMIA®, a medical food and currently Acasti’s only commercialized product to date, is a purified omega-3 phospholipids
concentrate derived from krill oil with lower levels of phopholipids, EPA and DHA content than CaPre®. The term “medical food” is
defined in the United States Orphan Drug Act as a food which is formulated to be consumed or administered enterally under the
supervision of a physician and which is intended for the dietary management of a disease or condition for which distinctive nutritional
requirements, based on recognized scientific principles, are established by medical evaluation. Nonclinical studies conducted by the
Corporation, supported by
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clinical testing conducted on Neptune Krill Oil (NKO®), have shown ONEMIA® to be safe and effective for the dietary management of
omega-3 phospholipids deficiency and the related abnormal lipid profiles and cardiometabolic disorders. Phospholipid deficiency and
abnormal lipid profiles can lead to a number of conditions, including hyperlipidemia (which generally manifests as high LDL-C and high
triglycerides), atherosclerosis (the build-up of plaque on the inside of blood vessels), diabetes, rheumatoid arthritis, certain
gastroenterology disorders and metabolic syndrome.
ONEMIA® was introduced in the U.S. market in 2011. In 2012, Acasti made its first sales of ONEMIA® to a medical food
distributor in the United States, which has begun distribution of ONEMIA® through its network of dispensing physicians under its own
brand name. ONEMIA® is also available behind-the-counter in pharmacies. Acasti expects continued sales of ONEMIA ® in the short-
term to provide revenues that will contribute, in part, to finance Acasti’s research and development projects while continuing to generate
awareness of ONEMIA® throughout the medical community in an effort to build a market foundation for CaPre® to further
advance. During the 2012 fiscal year, Acasti generated revenues of approximately $724,000 from sales of ONEMIA®.
In 2012, Acasti interviewed and collected data on a voluntary basis from physicians either buying, using, or testing ONEMIA® on
some of their patients. The 20 physicians (consisting of five primary care physicians and 15 cardiologists or endocrinologists) that
participated are also prescribers of Lovaza and recommended ONEMIA® to 348 patients without controlling their diet, exercise or
monitoring compliance with the recommended dosage. Most physicians were willing to try ONEMIA® as a potentially more cost
efficient option relative to Lovaza without side effects such as reflux and other gastrointestinal disorders, and having a once per day
dosing convenience making it easier to use than Lovaza with its dosage requirements of four 1g capsules per day. This survey also
showed that primary care physicians responded favorably to features of ONEMIA® such as once-a-day dosing, bioavailability due to the
element of marine phospholipids in ONEMIA® and the ability to take ONEMIA® with or without a meal.
Clinical and Nonclinical Research
Nonclinical
Acasti has collaborated with a contract research organization (“CRO”) to conduct nonclinical development and testing of therapeutic
candidates for preventing and treating hypertriglyceridemia. The first series of tests, which was conducted in three mouse models
reflecting: (i) healthy state; (ii) hypertriglyceridemia; and (iii) severe hypertriglyceridemia, took place in 2010 to evaluate the active
pharmaceutical ingredients (“APIs”) of CaPre®. After six weeks of treatment at very low doses ranging from human equivalent daily
dosages (“HED”) of between 0.5g and 2.5g of CaPre®, a statistically significant increase of HDL-C and reduction of LDL-C was
observed, as well as a reduction of triglycerides by up to 60%.
Acasti completed its own initial nonclinical research designed to evaluate the safety and efficacy of CaPre® in 2011. The efficacy of
CaPre® on dyslipidemia was evaluated on Zucker Diabetic Fatty (“ZDF”) rats, a commonly used diseased rat phenotype, characterized
by established type 2 diabetes, glucose intolerance and severely elevated triglycerides and cholesterol. After 4, 8 and 12 weeks of chronic
daily treatment with HED of between 0.5g and 2.5g, CaPre® was shown to significantly increase HDL-C, by 40% at the lower dose and
by up to 61% at higher dose, after 3 months of treatment of the ZDF rats.
Additional nonclinical research, was completed internally by Acasti in late 2011 to further evaluate a potentially broader spectrum of
therapeutic efficacy of CaPre®. CaPre® was administered for three months at a HED of 0.5g and 2.5g in both ZDF diabetic and healthy
rats. Both rat phenotypes were subjected to oral glucose tolerance tests (“OGTT”). In medical practice, the OGTT is commonly used to
test for diabetes and insulin resistance. It involves the oral administration of high amounts of glucose in order determine how quickly it is
cleared from the blood. Treatment of ZDF rats with CaPre® was shown to significantly reduce impaired glucose intolerance within one
month of treatment, with the higher dose being only slightly more effective than the lower dose. After three months, the ZDF rats had
established a normal tolerance to glucose analogous to the tolerance of healthy rats. Also, the healthy rats continued to tolerate glucose
normally, indicating another safety parameter for CaPre®.
In preparation of its planned filing of an IND application with the FDA in the future, Acasti carried out an extensive nonclinical
program to demonstrate the safety of CaPre® in a defined set of studies required by the FDA.
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These studies were carried out by contract research organizations with Good Laboratory Practice certification and conducted on various
species of animals recommended by the FDA to investigate the long term effects of CaPre® at doses of up to 10g HED over 13 weeks. In
these studies, hematological, biochemical, coagulation and overall health parameters of CaPre® were evaluated and no toxic effects were
observed in any of the segments of the studies. Once overall systemic toxicity was ruled out, Acasti’s studies focused on the potential
toxic effects of CaPre® on vital systems, such as the cardiovascular, respiratory and central nervous system as evaluated by behavioural
studies of the various species. These studies demonstrated that CaPre® did not have any adverse or toxic effects on any of the vital
systems investigated, again up to doses well above the recommended clinical dose of CaPre®. To rule out any short term toxic effects of
CaPre® on genes, genomic toxicity studies were undertaken on accepted cellular and animal models. These studies showed no toxic
effects of CaPre® on any of the genetic markers indicative of potential gene altering toxic effects.
Acasti believes these studies clearly indicate that CaPre® was well-tolerated and showed no toxic effects on any of the physiological
and vital systems of the tested animal subjects or their genes or molecules at doses well above the anticipated clinical therapeutic dose of
1-4g daily.
Acasti is continuing its nonclinical studies to further investigate the potential therapeutic effects of CaPre® and ONEMIA® in the
management of lipid disorders, in particular by studying their effects on the regulation of genes known to be implicated in the
pathogenesis of atherosclerosis.
Clinical
The Phase II TRIFECTA and COLT clinical trials have been initiated under Canada’s Natural Health Product Directorate (“ NHPD”)
guidelines. Both the TRIFECTA and COLT trials have initiated recruitment of patients and are currently in progress.
COLT Trial
The COLT trial, a randomized open-label dose-ranging, multi-center trial, is designed to assess the safety and efficacy of CaPre® in
the treatment of hypertriglyceridemia and severe hypertriglyceridemia (clinical trial.gov identifier NCT01516151). The primary objectives
of the COLT trial are to evaluate the efficacy of 0.5, 1.0, 2.0 and 4.0g of CaPre® per day in reducing fasting plasma triglycerides over
four and eight weeks in 276 randomized enrolled patients (230 evaluable patients) with hypertriglyceridemia and severe
hypertriglyceridemia as compared to the standard of care alone. The enrollment for this trial is complete.
The primary objective of the COLT trial is to evaluate the effect of CaPre® on fasting plasma triglycerides in patients with
triglycerides between 2.28 and 10.0 mmol/L (200-877mg/dL). The secondary objectives of the COLT trial are to evaluate the effect of
CaPre® on fasting plasma triglycerides in patients with triglycerides between 2.28 and 5.69 mmol/L (200-499mg/dL); to evaluate the
dose dependent effect on fasting plasma triglycerides in patients with triglycerides > 5.7 and <10 mmol/L (500-877 mg/dL); to evaluate
the effect of Capre® in patients with hypertriglyceridemia and severe hypertriglyceridemia on fasting plasma levels of LDL-C (direct
measurement), fasting plasma levels of HDL-C, non-HDL-C, hs-CRP, omega-3 index; and to assess the tolerability and safety of
Capre®.
Preliminary clinical data from 157 patients who have completed four weeks of treatment with 0.5, 1, 2 or 4g of CaPre® per day were
assessed and CaPre® achieved a clinically important and statistically significant triglycerides reduction of up to 23% (p < 0.05) as
compared to the normal standard of care. The COLT trial assesses the effectiveness of CaPre® in patients whose standard of care may be
any treatment the treating physicians consider appropriate, ranging from life-style modification to lipid modifying agents such as statins
and fibrates. 86% of the patients analyzed in the COLT trial have baseline triglycerides of between 200 and 499mg/dl (2.28 to 5.69
mmol/L) and after the first four weeks no serious adverse events were reported. To date, the results of this preliminary analysis from the
COLT trial suggest that CaPre® is safe and effective for the treatment of patients with triglyceride levels ranging from 200 to 500 mg/dL.
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TRIFECTA Trial
The TRIFECTA trial (clinical trial.gov identifier NCT01455844), a randomized, double-blind, placebo-controlled study, is primarily
designed to assess the effect of CaPre® on fasting plasma triglycerides as compared to a placebo in patients with hypertriglyceridemia and
severe hypertriglyceridemia. The study consists of the enrollment of 429 randomized patients (342 evaluable patients), 306 of which are
currently enrolled in the trial, who will be administered doses of 1.0g or 2.0g of CaPre® or 2.0 g of placebo per day for 12 weeks.
Similar to the COLT trial, the primary objective of the TRIFECTA trial is to evaluate the effect of CaPre® on fasting plasma
triglycerides in patients with triglycerides between 2.28 and 10.0 mmol/L (200-877mg/dL). The secondary objectives of the TRIFECTA
trial are to evaluate the effect of CaPre® on fasting plasma triglycerides in patients with triglycerides between 2.28 and 5.69 mmol/L
(200-499mg/dL); to evaluate the dose dependent effect on fasting plasma triglycerides in patients with triglycerides > 5.7 and <10
mmol/L (500-877 mg/dL); to evaluate the effect of Capre® in patients with hypertriglyceridemia and severe hypertriglyceridemia on
fasting plasma levels of LDL-C (direct measurement), fasting plasma levels of HDL-C, non-HDL-C, hs-CRP, omega-3 index; and to
assess the tolerability and safety of Capre®.
On December 20, 2012, the TRIFECTA trial completed its first of two interim analyses. The review committee made up of medical
physicians assembled to evaluate the progress of the TRIFECTA trial, reviewed the interim analysis relative to drug safety and efficacy,
and unanimously agreed that the study should continue as planned. All committee members agreed that there were no concerning
toxicity issues related to the intake of CaPre® and that the signals of a possible therapeutic effect, noted as reduction of triglycerides in the
groups evaluated, were reassuring and sufficiently clinically significant to allow the further continuation of the TRIFECTA trial. As it is
customary, the data was provided to the committee members blind, meaning that the identity of the three groups was not revealed. Since
the data showed no safety concerns and a possible therapeutic effect, the decision was made by the committee that there is no need to
unblind the data. The Corporation currently expects the TRIFECTA trial to be completed by the first half of 2014.
Next Steps
Following the completion of the Phase II COLT trial, if successful, and in parallel with the ongoing Phase II TRIFECTA trial, in
Canada, Acasti intends to file an IND submission to conduct Phase III clinical trials. Acasti will likely conduct a pharmacokinetic study
(which may be required by the FDA) prior to or in parallel with a Phase III clinical trial for which Acasti expects to file an IND in the
United States. The pharmacokinetic study would be designed to enable Acasti to better evaluate the bioavailability and the
pharmacokinetics parameters of DHA/EPA in humans following multiple doses of CaPre®. Acasti expects that the duration of a
pharmacokinetics study, if required by the FDA, would likely be over a 30-day period and involve the enrollment of approximately 60
healthy subjects.
Acasti expects that the FDA would require Acasti to conduct two Phase III clinical trials in the United States, one in a patient
population with high triglycerides (200-499 mg/dL) and a second in a patient population with very high triglycerides (>500 mg/dL). Each
of these two studies would constitute the primary basis of an efficacy claim for CaPre® in NDA submissions, one for
hypertriglyceridemia and one for severe hypertriglyceridemia. Acasti is also evaluating the possibility of submitting a Special Protocol
Assessment (“SPA”) to the FDA in order to form the basis for the design of its intended Phase III clinical trials. An SPA is a declaration
from the FDA that an uncompleted Phase III trial's design, clinical endpoints, and statistical analyses are acceptable for FDA approval. A
separate request would be submitted for each specific protocol at least 90 days prior to the anticipated start of the Phase III clinical trials
in the United States. See “- Government Regulations - United States Drug Development.”
Sales and Marketing
The Corporation has exclusive global commercial rights to CaPre®. The Corporation does not currently have in-house sales and
marketing or distribution capabilities and the Corporation currently plans to seek an established commercial partner for the distribution of
CaPre® if it reaches commercialization. Based on the current status of the TRIFECTA and COLT clinical trials and assuming research
and development for both trials proceed as planned, Acasti estimates that the completion of Phase II and Phase III clinical trials for
CaPre® will take at least an
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additional 24 to 36 months and cost approximately $50.0 million before reaching commercialization. In addition to completing clinical
trials, the Corporation expects that additional time and capital will be required to complete the filing of a NDA to obtain FDA approval for
CaPre® in the United States and to complete marketing and other pre-commercialization activities. The Corporation would focus initially
on specialists, cardiologists and primary care physicians who comprise the top prescribers of lipid-regulating therapies as part of the sales
and marketing strategy for CaPre®. See “Risk Factors – Risks Related to Product Development, Regulatory Approval and
Commercialization”.
ONEMIA® is being distributed in the United States by Acasti to physicians, who then can either provide it to their patients directly
or via a website by using a dedicated medical food access code. Acasti also makes ONEMIA® available via distributors and behind-the-
counter in pharmacies. In 2012, Acasti made its first sales of ONEMIA® to a medical food distributor in the United States, which has
begun distribution through its network of dispensing physicians under its own brand name. Acasti intends to make ONEMIA® available
via additional distributors and behind-the-counter in more pharmacies in the United States and to secure distribution partners to
commercialize ONEMIA® outside of the United States. Revenues of Acasti for the fiscal years ended February 28, 2013 and February
29, 2012 were all derived from the sale of ONEMIA® and amounted to approximately $724,000 and $10,000, respectively. During its
fiscal year ended February 28, 2013, more than 90% of sales of ONEMIA® were made through Acasti’s distribution partner in the United
States and the remaining 10% came from direct sales by Acasti.
Competition
The biopharmaceuticals industry is highly competitive. There are many public and private biopharmaceutical companies, universities,
governmental agencies and other research organizations actively engaged in the research and development of products that may be similar
to the Corporation’s products or address similar markets. It is probable that the number of companies seeking to develop products similar
to the Corporation’s products will increase. Many of these and other existing or potential competitors have substantially greater financial,
technical and human resources than the Corporation does and may be better equipped to develop, manufacture and market products. These
companies may develop and introduce products and processes competitive with or superior to Acasti’s. In addition, other technologies or
products may be developed that have an entirely different approach or means of accomplishing the intended purposes of Acasti’s
products, which might render the Corporation’s technology and products noncompetitive or obsolete. Acasti’s competitors in the United
States and elsewhere include large, well-established pharmaceutical companies, specialty pharmaceutical sales and marketing companies
and specialized cardiovascular treatment companies. These companies include GlaxoSmithKline plc, which currently markets Lovaza, a
prescription omega-3 for patients with severe hypertriglyceridemia, Abbott Laboratories, which currently markets Tricor and Trilipix
(both fibrates) and Niaspan (niacin) for treatment of severe hypertriglyceridemia, and Amarin Corporation, which currently markets
Vascepa, an ethyl-ester form of EPA, for the treatment of patients with severe hypertriglyceridemia.
In March 2011, Pronova BioPharma Norge AS, which owns the patents for Lovaza, entered into an agreement with Apotex Corp. and
Apotex Inc. to settle their patent litigation in the United States related to Lovaza. Pursuant to the terms of the settlement agreement,
Pronova granted Apotex a license to enter the U.S. market with a generic version of Lovaza in the first quarter of 2015, or earlier,
depending on circumstances. As a result, Acasti expects Apotex to compete against it as well. Other companies are also seeking to
introduce generic versions of Lovaza.
In addition, Acasti is aware of other pharmaceutical companies that are developing products that, if approved, would compete with
CaPre®. These include a free fatty acid form of omega-3 (comprised of 55% EPA and 20% DHA) being developed by Omthera
Pharmaceuticals, which in April 2012 announced its top-line Phase 3 clinical trial results and indicated that it plans to submit an NDA
during 2013 for the treatment of hypertriglyceridemia. On May 28, 2013, London-based AstraZeneca PLC announced that it has entered
into a definitive agreement to acquire Omthera Pharmaceuticals. Acasti believes other emerging biopharmaceutical companies are also
developing potential treatments for hypertriglyceridemia based on omega-3 fatty acids, but Acasti is unaware of the development stage of
their product candidates. CaPre® may also face competition from omega-3 dietary supplements that are available without a prescription.
See Risk Factors – Risks Related to Product Development, Regulatory Approval and Commercialization – The Corporation faces
competition from other biotechnology and pharmaceutical companies.”
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There are also competitors in the medical food market. In May 2013, Pivotal Therapeutics announced positive results for its clinical
trial of Vascazen, a medical food product being developed to improve patient lipid profiles and reduce cardiovascular disease risk factors.
Intellectual Property
Acasti intends to obtain, maintain and enforce patent protection for its products, formulations, methods and other proprietary
technologies, preserve its trade secrets and operate without infringing on the proprietary rights of other parties.
Patents and Licensed Rights
In August 2008, Neptune granted to Acasti a license to rights on its intellectual property portfolio related to cardiovascular
pharmaceutical applications. This license allows Acasti to exploit the subject intellectual property rights in order to develop novel APIs
into commercial products for the medical food and the prescription drug markets. Acasti is responsible for carrying out the research and
development of the API, as well as required regulatory submissions and approvals and intellectual property filings relating to the
cardiovascular applications. The following table summarizes the patent applications related to Acasti’s license from Neptune.
Patent description
Composition of Matter
(natural phospholipids of marine origin containing flavonoids and
polyunsaturated phospholipids and their uses)
Method of Use for Dyslipidemia
(krill and/or marine extracts for prevention and/or treatment of
cardiovascular diseases, arthritis, skin cancer, premenstrual
syndrome, diabetes and transdermal transport)
US Patent #
US8,030,348
(1)
Expiration Date
of the Patent
Holder
2022
Neptune
US8,057,825
2022
Neptune
Method of Extraction
(Method of extracting lipids from marine and aquatic animal
tissues)
______________________
Note:
(1) Two continuations also stem from U.S. Pat. 8,030,348 (U.S. Pat. 8,278,351 and 8,383,675).
US6,800,299
2020
Neptune
(Licensee)
The license agreement provides that the products developed by Acasti must comply with the ranges specified in the license agreement
pertaining to the concentration of phospholipids.
The Corporation is obligated under the license agreement to pay Neptune, until the expiration of Neptune’s licensed patents, a royalty
equal to the sum of (a) in relation to sales of products in the licensed field, the greater of: (i) 7.5% of Acasti’s net sales and (ii) 15% of
Acasti’s gross margin; and (b) 20% of revenues from sub-licenses granted by Acasti to third parties. The license will expire on the date of
expiration of the last-to-expire of the licensed patent claims and/or continuation in part and/or divisional of the licensed patent claims.
After the last-to expire of the licensed patents, which is currently expected to occur in 2022, the license agreement will automatically
renew for an additional period of 15 years, during which period royalties will equal half of those calculated according to the above
formula. Notwithstanding the above, the license agreement provides for minimum royalty payments as follows: year 1 ‐ nil; year 2 ‐
$50,000; year 3 ‐ $200,000; year 4 ‐ $225,000 (initially $300,000, but reduced to $225,000 following Acasti’s abandonment of its option
right to develop products for the over-the-counter market pursuant to the license); year 5 ‐ $700,000; and year 6 and thereafter - $750,000.
Minimum royalties are based on contract years based on the effective date of the license agreement, which is August 7, 2008.
On December 4, 2012, the Corporation announced that it entered into a prepayment agreement with Neptune pursuant to which the
Corporation exercised its option under the license agreement to pay in advance all of the future royalties payable under the license. The
value of the prepayment, determined with the assistance of outside valuations specialists, using the pre-established formula set forth in the
license agreement, amounts to approximately $15.5 million, which Acasti intends to pay through the issuance of 6,750,000 Common
Shares, issuable at a price of $2.30 per share, upon the exercise of a warrant issued to Neptune.
- 12 -
The prepayment agreement and the issuance of the Common Shares to Neptune upon the exercise of the warrant are subject to the
final approval of the TSXV and the approval of the disinterested shareholders of the Corporation at the next annual meeting of
shareholders of the Corporation, which is scheduled to occur on June 27, 2013.
Pursuant to the terms and conditions of the license agreement, Acasti is required, at Neptune’s option, to have its products, if any,
manufactured by Neptune at prices determined according to different cost-plus rates for each of the product categories under the license.
A copy of the license agreement is available on SEDAR at www.sedar.com.
Acasti has also initiated its own patent portfolio with its first application for a U.S. provisional composition and use patent. The patent
application is entitled “Concentrated Therapeutic Phospholipid Compositions (US20110160161)” and relates to concentrated therapeutic
phospholipids compositions and methods for treating or preventing diseases associated with cardiovascular disease, metabolic syndrome,
inflammation and associated diseases, neurodevelopmental diseases, and neurodegenerative diseases. As of the date of this AIF, Acasti’s
patent application has been filed in more than 40 jurisdictions worldwide. See “Litigation” and “Risk Factors – Risks Related to
Intellectual Property - It is difficult and costly to protect Acasti’s intellectual property rights, and Acasti cannot ensure the protection of
these rights.”
Brand names and trademarks
Acasti has applied for worldwide trademark protection of CaPre® as well as for the trademark ONEMIA ®, and is the owner of the
trademark BREAKING DOWN THE WALLS OF CHOLESTEROL™ in Canada, the United States and the European Union. The
trademark CaPre® is now registered in certain jurisdictions including the United States, Canada and Europe.
Trade Secrets
In addition, Acasti protects its optimization and extraction processes through industrial trade secrets and know-how.
Raw Materials, Manufacturing and Facility
The Corporation’s head office and operations are located at 545, Promenade Centropolis, suite 100, Laval, Québec, Canada,
H7T 0A3. The Corporation leases its premises for $6,000 per month.
Acasti uses krill oil as its primary raw material to produce CaPre® and ONEMIA®. There are two ocean regions where krill is
generally harvested: the Southern Ocean (Antarctic krill Euphausia superba) and the Northern Pacific Ocean (Pacific krill Euphausia
pacifica), mainly off the coasts of Japan and Canada. The total quantity of the krill species in these two oceans is estimated to be at least
500,000,000 metric tonnes. The World Health Organization estimates that approximately 271,000 metric tonnes of both krill species are
harvested annually. From 2002 to 2011, between 105,000 to 212,000 metric tonnes originated from the Southern Ocean and, on average,
60,000 metric tonnes originated from the Northern Pacific Ocean each year. The annual Antarctic krill catches represent an estimated
0.05% of the existing resource. Acasti’s products are derived from Antarctic krill.
According to the Commission for the Conservation of Antarctic Marine Living Resources, from 2008 to 2011, annual quotas for
Antarctic krill have increased by 33%. Annual allowable quotas of 6.555 million tonnes for 2010 were increased to 8.695 million tons for
2011. As a result, the Corporation believes that krill is an abundant and accessible resource with potential for long-term sustainable
exploitation. The average market price for whole frozen krill is approximately US$900 per metric tonne.
Acasti does not own its own manufacturing facility for the production of krill oil, CaPre® and ONEMIA® nor does it have plans to
develop its own manufacturing facility in the foreseeable future. Acasti depends on third party suppliers and manufacturers for all of its
required raw materials and drug substance and, if approved for distribution by the FDA, Acasti expects to rely on cGMP third parties to
manufacture, encapsulate, bottle and package clinical supplies of CaPre®. Prior to the explosion at Neptune’s production plant on
November 8, 2012, Acasti acquired all of its krill oil for the production of CaPre® and ONEMIA ® from its parent company, Neptune.
However, due to the incident, Acasti is currently acquiring its krill oil through purchases in the open market in order to meet production
requirements for ONEMIA® and is seeking a third party to both supply krill oil on an interim basis and provide
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manufacturing services for the production of CaPre® in accordance with cGMP regulations imposed by the FDA. On May 28, 2013
Neptune’s announced that it has commenced reconstruction of its production plant with an anticipated completion by or before its fiscal
year ending February 28, 2014. Acasti intends to acquire its krill oil supply from Neptune upon the recommencement of Neptune’s krill
oil production. See “Risk Factors – Risks Related to the Corporation – Acasti’s supply of krill oil for commercial supply and clinical trials
is dependent upon relationships with third party manufacturers and key suppliers” and “― The Corporation relies on third parties for the
manufacture and supply of CaPre® and ONEMIA® and such reliance may adversely affect Acasti if the third parties are unable or
unwilling to fulfill their obligations.”
Employees, Specialized Skills and Knowledge
Acasti’s management consists of professionals experienced in business development, finance and science. The Acasti research team
includes scientists with expertise in pharmaceutical development, chemistry, manufacturing and controls, nonclinical and clinical studies,
pharmacology, regulatory affairs, quality assurance/quality control, intellectual property and strategic alliances. As of February 28, 2013,
the Corporation employed ten persons in Canada, seven of whom have biology, chemistry, biochemistry or microbiology backgrounds,
and three of whom serve general and administrative roles. Acasti generally requires all of its employees to enter into an invention
assignment, non-disclosure and non-compete agreement. The Corporation relies, in part, on the administrative and other staff of its parent
company, Neptune, and also relies on consultants from time to time. The Corporation’s employees are not covered by any collective
bargaining agreement or represented by a trade union. The Corporation places special emphasis on training for its personnel.
Litigation
Due to the fact that a significant portion of the Corporation’s intellectual property rights are licensed to it by Neptune, the
Corporation depends on Neptune to protect a significant portion of the intellectual property rights that it uses under such license. Neptune
is engaged in a number of legal actions relating to its intellectual property.
U.S. Nutraceuticals LLC
On or around January 27, 2010, Neptune and Acasti filed a Motion for the Issuance of a Permanent Injunction before the Quebec
Superior Court against U.S. Nutraceuticals LLC (d.b.a. Valensa), a based Company. Neptune and Acasti are seeking inter alia an
injunction ordering Valensa to amend some patent applications filed by Valensa to add Neptune as co-owner, or in the alternative to have
Valensa assign these patent applications to Neptune, as well as punitive damages, loss of profit and loss of business opportunity for an
amount currently established at $3,000,000. On September 28, 2011, Valensa filed its Defence wherein it denied Neptune/Acasti’s
allegations and requested a dismissal of the Motion. Valensa also filed a Cross-Demand but only against Neptune, wherein it alleged
breach of contract and damages in the amount of $2,300,000. Neptune has denied all material allegations made by Valensa. The case is
currently pending and no trial dates have been set.
Aker Biomarine ASA and others
On November 13, 2009, Neptune filed a patent infringement lawsuit against Aker BioMarine ASA, Jedwards International, Inc and
Virgin Antartic LLC, asserting its U.S. patent relating to a method of extraction of total lipids fractions from Krill. Neptune alleges that
the Defendants have used solvents for the extraction of their krill oil, which are covered by the patent (US6,800,299) licensed to Neptune.
As of the date of this Annual Information Form, the case is still pending before the federal district court in Massachusetts.
On October 4, 2011, Neptune filed a Complaint in the U.S. District Court for the District of Delaware against Aker Biomarine ASA,
Aker Biomarine Antarctic USA Inc. and Schiff Nutrition International Inc. (Aker et al.) for the infringement of Neptune’s U.S. patent
8,030,348 and for damages. On December 19, 2011, Aker et al. filed Counterclaims denying any infringement, seeking the invalidity of
Neptune’s patent, and seeking an award for costs and damages. The proceedings have been stayed due to the reexamination of the ’348
patent.
On October 2, 2012, Neptune filed a Complaint in the U.S. District Court for the District of Delaware against Aker Biomarine ASA,
Aker Biomarine Antartic USA Inc., Aker Biomarine Antartic AS, Schiff Nutrition Group Inc., and Schiff Nutrition International Inc.
(Aker et al.) for the infringement of Neptune’s U.S. patent 8,278,351 and for
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unspecified damages. All proceedings in this action are stayed pending a determination from the United States International Trade
Commission (“ITC”) regarding Neptune’s request filed on January 29, 2013.
On March 6, 2013, Neptune filed a Complaint in the U.S. District Court for the District of Delaware against Aker Biomarine ASA,
Aker Biomarine Antartic USA Inc., Aker Biomarine Antartic AS, Schiff Nutrition Group Inc., and Schiff Nutrition International Inc.
(Aker et al.) for the infringement of Neptune’s U.S. patent 8,383,675 and for unspecified damages. It is expected that this proceeding will
be stayed, pending a determination from the ITC regarding Neptune’s request filed on January 29, 2013.
Enzymotec Limited and others
On October 4, 2011, Neptune filed a Complaint in the U.S. District Court for the District of Delaware against Enzymotec Limited,
Enzymotec USA Inc., Mercola.com Health Resources, LLC and Azantis Inc. for the infringement of Neptune’s U.S. patent 8,030,348 and
for damages. On December 30, 2011, Enzymotec USA Inc. filed a Counterclaim denying any infringement, seeking the invalidity of
Neptune’s patent, and seeking an award for costs and damages. On December 30, 2011 and Mercola.com Health Resources, LLC filed a
Counterclaim denying any infringement, seeking the invalidity of Neptune’s patent, and seeking an award for costs and damages. On
December 30, 2011, Enzymotec Limited and Azantis Inc. filed a motion to dismiss for alleged lack of personal jurisdiction. The
proceedings have been stayed for the reasons mentioned above.
On October 2, 2012, Neptune filed a Complaint in the U.S. District Court for the District of Delaware against Enzymotec Limited,
Enzymotec USA Inc., Mercola.com Health Resources, LLC for the infringement of Neptune’s U.S. patent 8,278,351 and for damages. All
proceedings in this action are stayed pending a determination from the United States International Trade Commission regarding
Neptune’s request filed on January 29, 2013.
On March 6, 2013, Neptune filed a Complaint in the U.S. District Court for the District of Delaware against Enzymotec Limited,
Enzymotec USA Inc., Mercola.com Health Resources, LLC for the infringement of Neptune’s U.S. patent 8,383,675 and for damages.
This proceeding has not yet been stayed but will most likely be pending a determination from the United States International Trade
Commission regarding Neptune’s request filed on January 29, 2013.
Rimfrost USA and others
On March 6, 2013, Neptune filed a Complaint in the U.S. District Court for the District of Delaware against Rimfrost USA, LLC,
Avoca, Inc., and Olympic Seafood AS for the infringement of Neptune’s U.S. patents 8,030,348, 8,287,351 and 8,383,675, and for
damages. This proceeding has not yet been stayed but will most likely be pending a determination from the United States International
Trade Commission regarding Neptune’s request filed on January 29, 2013.
Patent EP1,417,211
On March 9, 2010, Neptune filed an appeal with the European Patent Office’s Board of Appeal contesting a 2009 decision of the
European Patent Office regarding the European composition of phospholipids and use patent EP1,417,211. On April 9, 2013, the
European Opposition Board dismissed Neptune’s appeal and the European patent EP1,417,211 was revoked.
ITC Complaint
On January 29, 2013, Neptune filed a Complaint under Section 337 of the U.S. Tariff Act of 1930 with the United States
International Trade Commission alleging that Aker BioMarine AS, Aker BioMarine Antarctic USA, Inc., Aker BioMarine Antarctic AS,
Enzymotec Limited, Enzymotec USA, Inc., Olympic Seafood AS, Olympic Biotec Ltd., Rimfrost USA, LLC, Bioriginal Food & Science
Corp. and Avoca, Inc., a division of Pharmachem Laboratories Inc. are engaging in unfair trade practices by, at least, the importation, sale
for importation, and sale after importation of certain krill-based products, namely krill paste and krill oils, that directly or indirectly
infringe one or more claims of Neptune’s U.S. Patents No. 8,278,351 and 8,383,675. The ITC has indicated that the evidentiary hearing
will commence on December 10, 2013.
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The Corporation is not aware of any other legal proceedings or regulatory actions in which it is involved and no such proceedings or
regulatory actions are known by the Corporation to be contemplated Government Regulation.
Government authorities in the United States, at the federal, state and local level, and in other countries extensively regulate, among
other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping,
promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of drug products such as
CaPre®. Generally, before a new drug can be marketed, considerable data demonstrating its quality, safety and efficacy must be obtained,
organized into a format specific to each regulatory authority, submitted for review and approved by the regulatory authority.
United States Drug Development
FDA Regulatory Process
In the United States, the FDA regulates drugs under the Federal Food, Drug and Cosmetic Act and its implementing regulations.
Drugs are also subject to other federal, state and local statutes and regulations. The process of obtaining regulatory approvals and the
subsequent compliance with appropriate federal, state and local statutes and regulations require the expenditure of substantial time and
financial resources. Failure to comply with the applicable requirements at any time during the product development or approval process,
or after approval, may subject an applicant to administrative or judicial sanctions. These sanctions could include, among other actions, the
FDA’s refusal to approve pending applications, withdrawal of an approval, a “clinical hold” on investigations intended to support FDA
approval, warning letters, product recalls or withdrawals from the market, product seizures, total or partial suspension of production or
distribution injunctions, fines, refusals of government contracts, debarment from government programs, restitution, disgorgement, civil or
criminal penalties, or entry of consent decrees and integrity agreements. Any agency or judicial enforcement action could have a material
adverse effect on Acasti.
In order to be marketed in the United States, CaPre® must be approved by the FDA through the NDA process. The process required
before a drug may be marketed in the United States generally involves the following:
· completion of extensive nonclinical (animal) and formulation studies in accordance with applicable regulations, including the
FDA’s Good Laboratory Practice (“GLP”) regulations;
· submission of an IND, which must become effective before human clinical trials may begin;
· performance of adequate and well-controlled clinical trials in accordance with the applicable IND and other clinical study-
related regulations, such as cGCPs, to establish the safety and efficacy of the proposed drug for its proposed indication;
· submission of an NDA for a new drug;
· satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities where the drug is produced
to assess compliance with cGMP to assure that the facilities, methods and controls are adequate to preserve the drug’s identity,
strength, quality and purity;
· satisfactory completion of potential FDA audit of the nonclinical and/or clinical trial sites that generated the data in support of
the NDA; and
· FDA review and approval of the NDA prior to any commercial marketing or sale of the drug in the United States.
The data required to support an NDA is generated in two distinct development stages: nonclinical and clinical. The nonclinical
development stage generally involves synthesizing or otherwise producing the active component, developing the formulation and
determining the manufacturing process, as well as carrying out non-human toxicology, pharmacology and drug metabolism studies in the
laboratory, which support subsequent clinical testing. The sponsor must submit the results of the nonclinical tests, together with
manufacturing information, analytical data, any available clinical data or literature and a proposed clinical protocol, to the FDA as part of
the IND, which
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is a request for authorization from the FDA to administer an investigational drug product to humans. The IND automatically becomes
effective 30 days after receipt by the FDA, unless the FDA raises concerns or questions regarding the proposed clinical trials. The FDA
may also place the IND on clinical hold within that 30-day time period. In such a case, the IND sponsor and the FDA must resolve any
outstanding concerns before the clinical trial can begin. A clinical hold may be imposed at any time before or during a clinical trial due to
safety concerns or non-compliance. Accordingly, the Corporation cannot be sure that submission of an IND will result in the FDA
allowing clinical trials to begin, or that, once begun, issues will not arise that could cause the trial to be suspended or terminated.
The clinical stage of development involves the administration of the investigational drug to healthy volunteers or patients under the
supervision of qualified investigators, generally physicians not employed by or under the trial sponsor’s control, in accordance with
cGCPs, which include the requirement that all research subjects provide their informed consent for their participation in any clinical trial.
Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical trial, dosing procedures, subject
selection and exclusion criteria, data collection, and the parameters to be used to monitor subject safety and assess the investigational
drug’s efficacy. Each protocol, and any subsequent amendments to the protocol or new investigator’s information, must be submitted to
the FDA as part of the IND. Further, each clinical trial must be reviewed and approved by an independent institutional review board
(“IRB”) at or servicing each institution at which the clinical trial will be conducted. An IRB is charged with protecting the welfare and
rights of trial participants and considers such items as whether the risks to individuals participating in the clinical trials are minimized and
are reasonable in relation to anticipated benefits. The IRB also approves the informed consent form that must be provided to each clinical
trial subject or its legal representative. There are also requirements governing the reporting of ongoing clinical trials and completed
clinical trial results to public registries, as well as reporting of safety information under the IND.
Clinical studies are generally conducted in three sequential phases that may overlap, known as Phase I, Phase II and Phase III clinical
trials. Phase I generally involves a small number of healthy volunteers who are initially exposed to a single dose and then multiple doses
of the investigational drug. The primary purpose of these studies is to assess the metabolism, pharmacologic action, side effect tolerability
and safety of the drug. Phase II trials typically involve studies in disease-affected patients to determine the dose required to produce the
desired benefits. At the same time, safety and further pharmacokinetic and pharmacodynamic information is collected, as well as
identification of possible adverse effects and safety risks and preliminary evaluation of efficacy. Phase III clinical trials generally involve
large numbers of patients at multiple sites, often in multiple countries (from several hundred to several thousand subjects) and are
designed to provide the data necessary to demonstrate the effectiveness of the product for its intended use, its safety in use, and to
establish the overall benefit/risk relationship of the product and provide an adequate basis for product approval. Phase III clinical trials
should, if possible, include comparisons with placebo and may include a comparison to approved therapies. The duration of treatment is
often extended to mimic the actual use of a product during marketing. Generally, two adequate and well-controlled Phase III clinical trials
are required by the FDA for approval of an NDA (Pivotal Studies).
Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA. In addition, written IND
safety reports must be submitted to the FDA and the investigators for serious and unexpected adverse events or any finding from tests in
laboratory animals that suggests a significant risk for human subjects. The FDA, the IRB, or the sponsor may suspend or terminate a
clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable
health risk. Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial
sponsor, known as a data safety monitoring board or committee. This group provides oversight and will determine whether or not a trial
may move forward at designated check points based on review of interim data from the study. The Corporation may also suspend or
terminate a clinical trial based on evolving business objectives and/or competitive climate.
The manufacturing process must be capable of consistently producing quality batches of the investigational drug and, among other
things, must develop methods for testing the identity, strength, quality and purity of the final drug product. The sponsor must develop
appropriate labeling that sets forth the conditions of intended use. Additionally, appropriate packaging must be selected and tested and
stability studies must be conducted to demonstrate that the drug candidate does not undergo unacceptable deterioration over its shelf life.
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Post-approval studies, sometimes referred to as Phase IV clinical trials, may be conducted after initial marketing approval. These
studies are used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances, the
FDA may mandate the performance of Phase IV studies as part of a post-approval commitment, such as pediatric studies.
NDA and FDA Review Process
Nonclinical and clinical information is filed with the FDA in an NDA along with proposed labeling. The NDA is a request for
approval to market the drug and must contain proof of safety, purity, potency and efficacy, which is demonstrated by extensive nonclinical
and clinical testing. Data may come from company-sponsored clinical trials intended to test the safety and effectiveness of a use of a
product, or from a number of alternative sources, including studies initiated by investigators. To support marketing approval, the data
submitted must be sufficient in quality and quantity to establish the safety and effectiveness of the investigational drug product to the
satisfaction of the FDA.
The submission of an NDA is subject to the payment of substantial user fees; a waiver of such fees may be obtained under certain
limited circumstances. FDA approval of an NDA must be obtained before marketing a drug in the United States. In addition, under the
Pediatric Research Equity Act, an NDA or supplement to an NDA must contain data to assess the safety and effectiveness of the drug for
the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation
for which the product is safe and effective. The FDA may grant deferrals for submission of data or full or partial waivers.
The FDA reviews all NDAs submitted before it accepts them for filing and may request additional information. The FDA must make
a decision on accepting an NDA for filing within 60 days of receipt. Once the submission is accepted for filing, the FDA begins an in-
depth review of the NDA. Under the goals and policies agreed to by the FDA under the Prescription Drug User Fee Act (“ PDUFA”) the
FDA has ten months from the filing date in which to complete its initial review of a standard NDA and respond to the applicant. This
review typically takes 12 months from the date the NDA is submitted to the FDA including the screening which takes a period of 60 days.
The FDA does not always meet its PDUFA goal dates for standard NDAs, and the review process is often significantly extended by FDA
requests for additional information or clarification.
After the NDA submission is accepted for filing, the FDA reviews the NDA to determine, among other things, whether the proposed
product is safe and effective for its intended use, and whether the product is being manufactured in accordance with cGMP to assure and
preserve the product’s identity, strength, quality and purity. The FDA will likely re-analyze the clinical trial data, which could result in
extensive discussions between the FDA and the Corporation during the review process.
Before approving an NDA, the FDA will conduct a pre-approval inspection of the manufacturing facilities for the new product to
determine whether they comply with cGMPs. The FDA will not approve the product unless it determines that the manufacturing
processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within
required specifications. In addition, before approving an NDA, the FDA may also audit data from clinical trials to ensure compliance with
GCP requirements. After the FDA evaluates the application, manufacturing process and manufacturing facilities, it will issue a Complete
Response Letter (“CRL”). A CRL indicates that the review cycle of the application is complete and whether the application is approved
and, when applicable, the CRL describes the specific deficiencies in the NDA and may require additional clinical data and/or an additional
pivotal Phase III clinical trial(s), and/or other significant and time-consuming requirements related to clinical trials, nonclinical studies or
manufacturing. The applicant may either resubmit the NDA, addressing all of the deficiencies identified in the letter, or withdraw the
application. Even if such data and information is submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for
approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than the Corporation
interprets the same data.
There is no assurance that the FDA will ultimately approve a drug product for marketing in the United States and the Corporation
may encounter significant difficulties or costs during the review process. If a product receives marketing approval, the approval may be
significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the
commercial value of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the
product labeling, may condition the
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approval of the NDA on other changes to the proposed labeling, or may require a Risk Evaluation and Mitigation Strategy (REMS),
which could limit the Corporation’s ability to market the drug once approved. The FDA may also require the development of adequate
controls and specifications, or a commitment to conduct post-market testing or clinical trials and surveillance to monitor the effects of
approved products.
U.S. Post-Marketing Requirements
Following approval of a new product, a pharmaceutical company and the approved product are subject to continuing regulation by the
FDA, including, among other things, monitoring and recordkeeping activities, reporting to the applicable regulatory authorities of adverse
experiences with the product, providing the regulatory authorities with updated safety and efficacy information, product sampling and
distribution requirements, and complying with promotion and advertising requirements, which include, among others, standards for direct-
to-consumer advertising, restrictions on promoting drugs for uses or in patient populations that are not described in the drug's approved
labeling (“off-label use”), limitations on industry-sponsored scientific and educational activities, and requirements for promotional
activities involving the internet. Although physicians may prescribe legally available drugs for off-label uses, manufacturers and
distributors may not market or promote such off-label uses. Modifications or enhancements to the product or its labeling or changes of the
site of manufacture are often subject to the approval of the FDA and other regulators, which may or may not be received or may result in
a lengthy review process. In some cases, these changes will require the submission of clinical data and the payment of a user fee.
U.S. Patent Term Restoration and Marketing Exclusivity
Depending upon the timing, duration and specifics of the FDA approval of Acasti’s prescription drug candidates, some of Acasti’s
U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984,
commonly referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to
five years as compensation for patent term lost during product development and the FDA regulatory review process. However, patent term
restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product's approval date. The patent term
restoration period is generally one-half the time between the effective date of an IND and the submission date of an NDA plus the time
between the submission date of an NDA and the approval of that application. Only one patent applicable to an approved drug is eligible
for the extension and the application for the extension must be submitted prior to the expiration of the patent. The U.S. Patent and
Trademark Office, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the
future, Acasti intends to apply for restoration of patent term for one of its currently owned or licensed patents to add patent life beyond its
current expiration date, depending on the expected length of the clinical trials and other factors involved in the filing and review of the
relevant NDA.
Non-U.S. Drug Regulation
In Canada, biopharmaceutical product candidates are regulated by the Food and Drugs Act and the rules and regulations promulgated
thereunder, which are enforced by the Therapeutic Products Directorate of Health Canada. In order to obtain approval for
commercializing new drugs in Canada, Acasti must satisfy many regulatory conditions. Acasti must complete preclinical studies in order
to file a clinical trial application (“CTA”) in Canada. Acasti then receives different clearance authorizations to proceed with Phase 1
clinical trials, which can then lead to Phase 2 and Phase 3 clinical trials. Once all three phases of trials are completed, Acasti files a
registration file named a New Drug Submission (“NDS”) in Canada. If the NDS demonstrates that the product was developed in
accordance with the regulatory authorities’ rules, regulations and guidelines and demonstrates favorable safety and efficacy and receives a
favorable risk/benefit analysis, then the regulatory authorities issue a notice of compliance, which allows Acasti to market the product.
In addition to regulations in the United States and Canada, Acasti is subject to a variety of regulations governing clinical studies and
commercial sales and distribution of its products in other jurisdictions around the world. These laws and regulations typically require the
licensing of manufacturing and contract research facilities, carefully controlled research and testing of product candidates and
governmental review and approval of results prior to marketing therapeutic product candidates. Additionally, they require adherence to
good laboratory practices, good clinical practices and good manufacturing practices during production. The systems of new drug
approvals in the
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United States, Canada and the European Union are generally considered to be among the most rigorous in the world.
Whether or not the FDA or Health Canada approval is obtained for a product, Acasti must obtain approvals from the comparable
regulatory authorities of other countries before it can commence clinical studies or marketing of the product in those countries. The
approval process varies from country to country and the time may be longer or shorter than that required for the FDA or Health Canada
approval. The requirements governing the conduct of clinical studies, product licensing, pricing and reimbursement vary greatly from
country to country. In some international markets, additional clinical trials may be required prior to the filing or approval of marketing
applications within the country.
Medical Food Regulation
Prior to 1972, medical foods that mitigated serious adverse effects of the underlying diseases were regulated by the FDA as “drugs”
under the Federal Food, Drug, and Cosmetic Act. In 1972, in an effort to encourage innovation and availability of such products, the FDA
revised its regulatory approach and classified these products as “foods for special dietary use.” The Orphan Drug Amendments of 1988
provided a statutory definition of a medical food, which means a food that is formulated to be consumed or administered enterally under
the supervision of a physician and which is intended for the specific dietary management of a disease or condition, for which distinctive
nutritional requirements, based on recognized scientific principles, are established by medical evaluation. In the Nutrition Labeling and
Education Act of 1990, Congress exempted medical foods from the nutrition labeling, health claim, and nutrient disclosure requirements
applicable to most other foods, further distinguishing this category from conventional food products.
The regulatory status of these products in other countries varies. It is also possible that such products would be regulated in Canada
as natural health products pursuant to the Natural Health Products Regulations.
Active Pharmaceutical Ingredient Regulation
The FDA will regulate finished products containing APIs developed or under development by Acasti; the FDA does not actively
regulate the APIs themselves. Depending on its intended uses, a finished product containing the API may be regulated as a drug or a
medical food under the procedures described above. It may be possible to market a finished product containing an API developed or
under development by Acasti as a dietary supplement. Dietary supplements do not require FDA premarket approval. However, it may be
necessary to submit a notification to the FDA that a company intends to market a dietary supplement containing a “new dietary
ingredient.” In general, the regulatory requirements in other countries also depend on the nature of the finished product and do not focus
on the API itself.
HISTORY AND DEVELOPMENT OF THE CORPORATION
Three-Year History
The following is a summary of significant events related to the development of the Corporation and its business that have occurred in
the last three completed fiscal years.
Fiscal Year Ended February 28, 2011
During the fiscal year ended February 28, 2011, the Corporation completed the nonclinical program required for the filing of the
CTA submission required to be filed in Canada in order to conduct Phase II blind study clinical trials for CaPre®. The CTA submission
was submitted to Health Canada in October 2010. During the same fiscal year, Acasti introduced ONEMIA® to the U.S. market.
A total of 11,500,520 warrants to acquire Common Shares were exercised during the fiscal year ended February 28, 2011,
representing total proceeds of $4,300,208. In addition, Neptune converted its preferred Class B and Class C shares of Acasti into Common
Shares on a one-to-one basis in connection with the initial listing of the Common Shares on the TSXV.
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Fiscal Year Ended February 29, 2012
On March 31, 2011, the Common Shares were listed for trading on the TSXV under the ticker symbol “APO”.
During the fiscal year ended February 29, 2012, Acasti initiated two Phase II open label clinical trials in Canada; (i) the TRIFECTA
trial for which the first patients were enrolled in October 2011, and (ii) the COLT trial, for which the first patients were enrolled in
December 2011. See “Acasti’s Business – Acasti’s Clinical and Nonclinical Experience.”
During the same period, Acasti made significant progress in its nonclinical IND-enabling program for CaPre®. This program allows
Acasti to accumulate, as per FDA and Health Canada guidelines, the required animal data demonstrating the safety of CaPre®. By means
of its nonclinical research and development program, Acasti reported nonclinical results indicating that CaPre® performed effectively on
overall lipid management, specifically reduction of triglycerides.
On September 14, 2011, Acasti closed a rights offering pursuant to which holders of its Common Shares subscribed for 6,445,444
Common Shares at a price of $1.25 per share, representing aggregate net proceeds of $7,850,000 for the Corporation.
On February 13, 2012, Acasti completed a private placement pursuant to which Dr. Harlan Waksal, Acasti’s Executive Vice-
President, Business & Scientific Affairs, and Neptune subscribed for an aggregate of 1,500,000 Common Shares and 750,000 warrants to
purchase Common Shares exercisable at a price of $1.50 per share for a period of three (3) years, for aggregate net proceeds of
$1,979,000.
Fiscal Year Ended February 28, 2013
On January 7, 2013, the Common Shares were listed for trading on the NASDAQ under the ticker symbol “ACST”.
On November 8, 2012, Neptune reported an explosion and fire destroyed its production plant located in Sherbrooke, Québec, Canada.
Acasti announced that its day-to-day operations and business were not interrupted as a result of this tragic event and that all
CaPre® materials required for its two Phase II clinical trials had already been produced and stored in other facilities outside Neptune’s
affected plant. See “Risk Factors – Risks Related to the Company - Risks Related to the Corporation’s Supply of Krill and Krill Oil.”
On December 4, 2012, the Corporation announced that it entered into a prepayment agreement with Neptune pursuant to which the
Corporation exercised its option to prepay all future royalties under the license granted by Neptune to Acasti. The value of the
prepayment, determined with the assistance of outside valuations specialists, using the pre-established formula set forth in the license
agreement, amounts to approximately $15.5 million, which Acasti will pay through the issuance of 6,750,000 Common Shares, issuable
at a price of $2.30 per share, upon the exercise of a warrant delivered to Neptune. The prepayment and the issuance of the Common
Shares to Neptune are subject to the final approval of the TSXV and the approval of the disinterested shareholders of the Corporation at
its next annual meeting, which is scheduled to occur on June 27, 2013.
Recent Developments
On March 19, 2013, Acasti announced preliminary clinical data from its COLT trial. Acasti expects the completion of the COLT trial,
including the complete evaluation of CaPre® on the lipid profile of the enrolled patient population, by the end of September 2013 and
expects the completion of the TRIFECTA trial in the first half of 2014. Following the completion of the Phase II COLT trial, if successful,
and in parallel with the ongoing Phase II TRIFECTA trial, in Canada, Acasti intends to file an IND submission to conduct Phase III
clinical trials, and likely a pharmacokinetic study (which may be required by the FDA), for CaPre® in the United States under the
guidelines and rules of the FDA. “See Acasti’s Business – Acasti’s Clinical and Nonclinical Experience”.
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RISK FACTORS
Investing in the Common Shares involves a high degree of risk. Prospective and current investors should carefully consider the following
risks and uncertainties, together with all other information in this AIF, as well as the Corporation’s financial statements and related
notes and MD&A. Any of the risk factors described below could adversely affect Acasti’s business, financial condition or results of
operations. The market price of the Common Shares could decline significantly if one or more of these risks or uncertainties actually
occur. The risks below are not the only ones Acasti’s faces. Additional risks that Acasti currently does not know about or that Acasti
currently believes to be immaterial may also impair its business. Certain statements below are forward-looking information. See
“Cautionary Note Regarding Forward-Looking Information”.
Risks Related to Product Development, Regulatory Approval and Commercialization
The Corporation’s prospects currently depend entirely on the success of CaPre®, which is still in clinical development, and the
Corporation may not be able to generate revenues from CaPre®.
The Corporation has no prescription drug products that have been approved by the FDA, Health Canada or any similar regulatory
authority. The Corporation’s only prescription drug candidate is CaPre®, for which the Corporation has not yet filed an NDA, and for
which the Corporation must still initiate Phase III clinical trials, undergo further development activities and seek and receive regulatory
approval prior to commercial launch, which the Corporation does not anticipate will occur until 2016 at the earliest. The Corporation does
not have any other prescription drug candidates in development and, therefore, the Corporation’s business prospects currently depend
entirely on the successful development, regulatory approval and commercialization of CaPre®, which may never occur. Most prescription
drug candidates never reach the clinical development stage and even those that do reach clinical development have only a small chance of
successfully completing clinical development and gaining regulatory approval. If the Corporation is unable to successfully commercialize
CaPre® for the prevention and treatment of hypertriglyceridemia or severe hypertriglyceridemia, it may never generate meaningful
revenues. In addition, if CaPre® reaches commercialization and there is low market demand for CaPre® or the market for CaPre®
develops less rapidly than the Corporation anticipates, the Corporation may not have the ability to shift its resources to the development
of alternative products.
The Corporation may not be able to obtain required regulatory approvals for CaPre®.
The research, testing, manufacturing, labeling, packaging, storage, approval, sale, marketing, advertising and promotion, pricing,
export, import and distribution of prescription drug products are subject to extensive regulation by the FDA and other regulatory
authorities in the United States and other countries and those regulations differ from country to country. Acasti is not permitted to market
CaPre® in the United States until it receives approval of an NDA from the FDA and similar restrictions apply in other countries. In the
United States, the FDA generally requires the completion of preclinical testing and clinical trials of each drug to establish its safety and
efficacy and extensive pharmaceutical development to ensure its quality before an NDA is approved. Regulatory authorities in other
jurisdictions impose similar requirements. Of the large number of drugs in development, only a small percentage result in the submission
of an NDA to the FDA and even fewer are approved for commercialization. To date, the Corporation has not submitted an NDA for
CaPre® to the FDA or comparable applications to other regulatory authorities. If the Corporation’s development efforts for CaPre®,
including its planned Phase III clinical trials, are not successful for the prevention and treatment of hypertriglyceridemia or severe
hypertriglyceridemia, and regulatory approval is not obtained in a timely fashion or at all, the Corporation’s business will be materially
adversely affected.
The receipt of required regulatory approvals for CaPre® is uncertain and subject to a number of risks, including the following:
· the FDA or comparable foreign regulatory authorities or IRBs may disagree with the design or implementation of the
Corporation’s clinical trials;
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· the Corporation may not be able to provide acceptable evidence of the safety and efficacy of CaPre®;
· the results of the Corporation’s clinical trials may not meet the level of statistical or clinical significance required by
the FDA or other regulatory agencies for marketing approval;
· the dosing of CaPre® in a particular clinical trial may not be at an optimal level;
· patients in the Corporation’s clinical trials may suffer adverse effects for reasons that may or may not be related to
CaPre®;
· the data collected from the Corporation’s clinical trials may not be sufficient to support the submission of an NDA for
CaPre® or to obtain regulatory approval for CaPre® in the United States or elsewhere;
· the FDA or comparable foreign regulatory authorities may not approve the manufacturing processes or facilities of
third-party manufacturers with which the Corporation contracts for clinical and commercial supplies; and
· the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change
in a manner rendering the Corporation’s clinical data insufficient for approval.
The FDA and other regulators have substantial discretion in the approval process and may refuse to accept any application or may
decide that the Corporation’s data is insufficient for approval and require additional clinical trials, or preclinical or other studies. In
addition, varying interpretations of the data obtained from preclinical studies and clinical trials could delay, limit or prevent regulatory
approval of CaPre®. In addition, the process of obtaining regulatory approvals is expensive, often takes many years, if approval is
obtained at all, and can vary substantially based upon, among other things, the type, complexity and novelty of the prescription drug
candidates involved, the jurisdiction in which regulatory approval is sought and the substantial discretion of the regulatory authorities.
Changes in the regulatory approval policy during the development period, changes in or the enactment of additional statutes or
regulations, or changes in regulatory review for a submitted product application may cause delays in the approval or rejection of an
application. If regulatory approval is obtained in one jurisdiction, that does not necessarily mean that CaPre® will receive regulatory
approval in all jurisdictions in which the Corporation may seek approval. The failure to obtain approval for CaPre® in one or more
jurisdictions may negatively impact the Corporation’s ability to obtain approval in a different jurisdiction. A failure to obtain regulatory
marketing approval for CaPre® in any indication would prevent the Corporation from commercializing CaPre®, and the Corporation’s
ability to generate revenue would be materially impaired.
The Corporation may be unable to develop alternative product candidates.
To date, the Corporation has not commercialized any prescription drug candidates and does not have any other compounds in
clinical trials, nonclinical testing, lead optimization or lead identification stages besides CaPre®. The Corporation cannot be certain that
CaPre® will prove to be sufficiently effective and safe to meet applicable regulatory standards for any indication. If the Corporation fails
to successfully commercialize CaPre® as a treatment for hypertriglyceridemia and severe hypertriglyceridemia, or any other indication,
whether as a stand-alone therapy or in combination with other treatments, the Corporation would have to develop, acquire or license
alternative product candidates or drug compounds to expand its product candidate pipeline beyond CaPre®. In such a scenario, the
Corporation may not be able to identify, and acquire product candidates that prove to be successful products, or to acquire them on terms
that are acceptable to the Corporation.
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Even if the Corporation receives regulatory approval for CaPre®, the Corporation still may not be able to successfully commercialize it
and the revenue that the Corporation generates from its sales, if any, may be limited.
The commercial success of CaPre® in any indication for which the Corporation obtains marketing approval from the FDA or
other regulatory authorities will depend upon its acceptance by the medical community, including physicians, patients and health
insurance providers. The degree of market acceptance of CaPre® will depend on a number of factors, including:
· demonstration of clinical safety and efficacy of prescription omega-3 products generally;
· relative convenience, pill burden and ease of administration;
· the prevalence and severity of any adverse side effects;
· the willingness of physicians to prescribe CaPre® and of the target patient population to try new therapies;
· efficacy of CaPre® compared to competing products, including omega-3 dietary supplements;
· the introduction of any new products, including generic prescription omega-3 products, that may in the future become
available to treat indications for which CaPre® may be approved;
· new procedures or methods of treatment that may reduce the incidences of any of the indications for which CaPre®
shows utility;
· pricing;
· the inclusion of prescription omega-3 products in applicable treatment guidelines;
· the effectiveness of the Corporation’s or any future collaborators’ sales and marketing strategies;
· limitations or warnings contained in FDA-approved labeling;
· the Corporation’s ability to obtain and maintain sufficient third-party coverage or reimbursement from government
health care programs, including Medicare and Medicaid, private health insurers and other third-party payors; and
· the willingness of patients to pay out-of-pocket in the absence of third-party coverage or reimbursement.
In addition, even if the Corporation obtains regulatory approvals, the timing or scope or conditions of any approvals may prohibit
or reduce the Corporation’s ability to commercialize CaPre® successfully. For example, if the approval process takes too long, the
Corporation may miss market opportunities and give other companies the ability to develop competing products or establish market
dominance. Any regulatory approval the Corporation ultimately obtains may be limited or subject to restrictions or post-approval
commitments that render CaPre® not commercially viable. For example, regulatory authorities may not approve the price the Corporation
intends to charge for CaPre®, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve
CaPre® with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that
indication. Any of the foregoing scenarios could have a material adverse effect on the commercial prospects for CaPre®. If CaPre® is
approved, but does not achieve an adequate level of acceptance by
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physicians, health insurance providers and patients, the Corporation may not generate sufficient revenue and the Corporation may not be
able to ever achieve profitability.
The Corporation faces competition from other biotechnology and pharmaceutical companies and its operating results will suffer if
the Corporation fails to compete effectively.
The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological
change. The Corporation’s potential competitors both in the United States and globally include large, well-established pharmaceutical
companies, specialty pharmaceutical sales and marketing companies and specialized cardiovascular treatment companies. Many of these
competitors have substantially greater name recognition, commercial infrastructures and financial, technical and personnel resources than
the Corporation. These companies include GlaxoSmithKline plc, which currently markets Lovaza, a prescription omega-3 for patients with
severe hypertriglyceridemia, and Abbott Laboratories, which currently markets Tricor and Trilipix (both fibrates) and Niaspan (niacin) for
treatment of severe hypertriglyceridemia and high triglycerides, and Amarin Corporation, which currently markets Vascepa, an ethyl-ester
form of EPA, for the treatment of patients with severe hypertriglyceridemia. In addition, Acasti is aware of other pharmaceutical
companies that are developing products that, if approved, would compete with CaPre®. These include a free fatty acid form of omega-3
(comprised of 55% EPA and 20% DHA) being developed by Omthera Pharmaceuticals, which in April 2012 announced its top-line Phase
3 clinical trial results and indicated that it plans to submit an NDA during 2013 for the treatment of hypertriglyceridemia. CaPre® may
also compete with omega-3 dietary supplements that are available without a prescription. These established competitors and others may
invest heavily to quickly discover and develop novel compounds that could make CaPre® obsolete or uneconomical. CaPre® may need to
demonstrate compelling comparative advantages in efficacy, convenience, tolerability and safety to be commercially successful. Other
competitive factors, including generic drug competition, could force the Corporation to lower prices or could result in reduced sales. In
addition, new products developed by others could emerge as competitors to CaPre®. If the Corporation is not able to compete effectively
against its current and future competitors, its business will not grow and its financial condition and operations will suffer.
CaPre®, if approved, would be subject to competition from products for which no prescription is required.
If approved by applicable regulatory authorities, CaPre® will be a prescription-only omega-3. Mixtures of omega-3 fatty acids
are naturally occurring substances in various foods, including fatty fish. Omega-3 fatty acids are also marketed by others as dietary
supplements. Dietary supplements may generally be marketed without a lengthy FDA premarket review and approval process and are not
subject to prescription. However, unlike prescription drug products, manufacturers of dietary supplements may not make therapeutic
claims for their products; dietary supplements may be marketed with claims describing how the product affects the structure or function
of the body without premarket approval, but may not expressly or implicitly represent that the dietary supplement will diagnose, cure,
mitigate, treat, or prevent disease. The Corporation believes the pharmaceutical-grade purity of CaPre® has a superior therapeutic profile
to naturally occurring omega-3 fatty acids and the omega-3 in commercially available dietary supplements. However, the Corporation
cannot be certain that physicians or consumers will view CaPre® as superior. To the extent the price of CaPre® is significantly higher
than the prices of commercially available omega-3 fatty acids marketed by other companies as dietary supplements, physicians may
recommend these commercial alternatives instead of CaPre® or patients may elect on their own to take commercially available non-
prescription omega-3 fatty acids. Either of these outcomes may adversely impact the Corporation’s results of operations by limiting how
the Corporation prices CaPre® and limiting the revenue the Corporation receives from the sale of CaPre®.
Even if the Corporation obtains marketing approval for CaPre®, the Corporation will be subject to ongoing obligations and continued
regulatory review, which may result in significant additional expense.
Even if the Corporation obtains U.S. regulatory approval for CaPre® for the prevention and treatment of hypertriglyceridemia or
severe hypertriglyceridemia, which would not occur until the Corporation successfully completes Phase III clinical trials, the FDA may
still impose significant restrictions on its indicated uses or marketing or the conditions of approval, or impose ongoing requirements for
potentially costly and time-consuming post-approval studies, including Phase IV clinical trials or clinical outcome studies, and post-
market surveillance to
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monitor the safety and efficacy of CaPre®. Even if the Corporation secures U.S. regulatory approval, the Corporation would continue to
be subject to ongoing regulatory requirements related to CaPre® governing manufacturing, labeling, packaging, storage, distribution,
safety surveillance, advertising, promotion, recordkeeping and reporting of adverse events and other post-market information. These
requirements include registration with the FDA, as well as continued compliance with cGCPs, for any clinical trials that the Corporation
conducts post-approval. In addition, manufacturers of drug products and their facilities are subject to continual review and periodic
inspections by the FDA and other regulatory authorities for compliance with cGMP, requirements relating to quality control, quality
assurance and corresponding maintenance of records and documents.
If the Corporation or a regulatory agency discovers previously unknown problems with a product, such as adverse events of
unanticipated severity or frequency, problems with the facility where the product is manufactured, or the Corporation or its manufacturers
fail to comply with applicable regulatory requirements, the Corporation may be subject to the following administrative or judicial
sanctions:
· restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary
or mandatory product recalls;
· issuance of warning letters or untitled letters;
· clinical holds;
· injunctions or the imposition of civil or criminal penalties or monetary fines;
· suspension or withdrawal of regulatory approval;
· suspension of any ongoing clinical trials;
· refusal to approve pending applications or supplements to approved applications filed by the Corporation, or
suspension or revocation of product license approvals;
· suspension or imposition of restrictions on operations, including costly new manufacturing requirements; or
· product seizure or detention or refusal to permit the import or export of product.
The occurrence of any event or penalty described above may inhibit the Corporation’s ability to commercialize CaPre® and
generate revenue. Adverse regulatory action, whether pre- or post-approval, can also potentially lead to product liability claims and
increase the Corporation’s product liability exposure. See “Business – Government Regulations.”
Recently enacted and future legislation may increase the difficulty and cost for the Corporation to obtain marketing approval of and
commercialize CaPre® and affect the prices the Corporation may obtain.
In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed
changes regarding the healthcare system that could prevent or delay marketing approval for CaPre®, restrict or regulate post-approval
activities and affect the Corporation’s ability to profitably sell CaPre®. Legislative and regulatory proposals have been made to expand
post-approval requirements and restrict sales and promotional activities for pharmaceutical products. The Corporation does not know
whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or
what the impact of such changes on the marketing approvals of CaPre®, if any, may be. In addition, increased scrutiny by the
- 26 -
U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject the Corporation
to more stringent product labeling and post-marketing testing and other requirements.
In the United States, the Medicare Modernization Act, or MMA, changed the way Medicare covers and pays for pharmaceutical
products. The legislation expanded Medicare coverage for drug purchases by the elderly and introduced a new reimbursement
methodology based on average sales prices for drugs. In addition, this legislation authorized Medicare Part D prescription drug plans to
use formularies where they can limit the number of drugs that will be covered in any therapeutic class. As a result of this legislation and
the expansion of federal coverage of drug products, the Corporation expects that there will be additional pressure to contain and reduce
costs. These cost reduction initiatives and other provisions of this legislation could decrease the coverage and price that the Corporation
receives for CaPre® and could seriously harm its business. While the MMA applies only to drug benefits for Medicare beneficiaries,
private health insurance companies often follow Medicare coverage policy and payment limitations in setting their own reimbursement
rates, and any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from private health
insurance companies.
In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care
and Education Affordability Reconciliation Act of 2010 or, collectively, the Health Care Reform Law, a sweeping law intended to
broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add
new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on the health industry and
impose additional health policy reforms. Effective October 1, 2010, the Health Care Reform Law revised the definition of “average
manufacturer price” for reporting purposes, which could increase the amount of Medicaid drug rebates to states. Further, the new law
imposed a significant annual fee on companies that manufacture or import branded prescription drug products. Substantial new provisions
affecting compliance have also been enacted, which may possibly require the Corporation to modify its business practices with
healthcare practitioners.
Despite initiatives to invalidate the Health Care Reform Law, the U.S. Supreme Court has upheld certain key aspects of the
legislation, including the requirement that all individuals maintain health insurance coverage or pay a penalty, referred to as the individual
mandate. Although there are legal challenges to the Health Care Reform Law in lower courts on other grounds, at this time it appears the
implementation of the Health Care Reform Law will continue. The Corporation will not know the full effects of the Health Care Reform
Law until applicable federal and state agencies issue regulations or guidance under the new law. Although it is too early to determine the
effect of the Health Care Reform Law, the new law appears likely to continue the pressure on pharmaceutical pricing, especially under the
Medicare program, and may also increase the Corporation’s regulatory burdens and operating costs. The Corporation expects that
additional federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state
governments will pay for healthcare products and services, and in turn could significantly reduce the projected value of certain
development projects and reduce the Corporation’s ability to achieve profitability.
If the Corporation markets CaPre® in a manner that violates healthcare fraud and abuse laws, or if the Corporation violates
government price reporting laws, the Corporation may be subject to civil or criminal penalties.
In addition to FDA restrictions on marketing of pharmaceutical products, several other types of federal and state healthcare fraud
and abuse laws have been applied in recent years to restrict certain marketing practices in the pharmaceutical industry. These laws include
the U.S. Anti-Kickback Statute, U.S. False Claims Act and similar state laws. Because of the breadth of these laws and the narrowness of
the safe harbors, it is possible that some of the Corporation’s business activities could be subject to challenge under one or more of these
laws.
The U.S. Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving
remuneration to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item
or service reimbursable under Medicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted
broadly to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, dispensers, purchasers and
formulary managers on the other. Although there are several statutory exemptions and regulatory safe harbors protecting certain common
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activities from prosecution, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to
induce prescribing, purchasing or recommending drugs reimbursable under federal healthcare programs may be subject to scrutiny if they
do not qualify for an exemption or safe harbor. The Corporation’s practices may not, in all cases, meet all of the criteria for safe harbor
protection from anti-kickback liability. Moreover, recent health care reform legislation has strengthened these laws. For example, the
Health Care Reform Law, among other things, amends the intent requirement of the U.S. Anti-Kickback Statute and criminal health care
fraud statutes; a person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, the
Health Care Reform Law provides that the government may assert that a claim including items or services resulting from a violation of
the U.S. Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the U.S. False Claims Act. Federal false claims laws
prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government or
knowingly making, or causing to be made, a false statement to get a false claim paid.
Over the past few years, a number of pharmaceutical and other healthcare companies have been prosecuted under these laws for a
variety of alleged promotional and marketing activities, such as: allegedly providing free trips, free goods, sham consulting fees and
grants and other monetary benefits to prescribers; reporting to pricing services inflated average wholesale prices that were then used by
federal programs to set reimbursement rates; engaging in off-label promotion that caused claims to be submitted to Medicaid for non-
covered, off-label uses; and submitting inflated best price information to the Medicaid Rebate Program to reduce liability for Medicaid
rebates. Most states also have statutes or regulations similar to the U.S. Anti-Kickback Statute and the U.S. False Claims Act, which apply
to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. Sanctions
under these federal and state laws may include civil monetary penalties, exclusion of a manufacturer’s products from reimbursement under
government programs, criminal fines and imprisonment. Settlements of government litigation may include Corporate Integrity
Agreements with commitments for monitoring, training, and reporting designed to prevent future violations.
Third-party coverage and reimbursement and health care cost containment initiatives and treatment guidelines may constrain the
Corporation’s future revenues.
The Corporation’s ability to successfully market CaPre® will depend in part on the level of reimbursement that government
health administration authorities, private health coverage insurers and other organizations provide for the cost of the Corporation’s
products and related treatments. Countries in which CaPre® may in the future be sold through reimbursement schemes under national
health insurance programs frequently require that manufacturers and sellers of pharmaceutical products obtain governmental approval of
initial prices and any subsequent price increases. In certain countries, including the United States, government-funded and private medical
care plans can exert significant indirect pressure on prices. The Corporation may not be able to sell CaPre® profitably if its prices are not
approved or coverage and reimbursement is unavailable or limited in scope. Increasingly, third-party payors attempt to contain health care
costs in ways that are likely to impact the Corporation’s development of products including:
· not approving the prices charged for health care products;
· limiting both coverage and the amount of reimbursement for new therapeutic products;
· denying or limiting coverage for products that are approved by the regulatory agencies but are considered to be
experimental or investigational by third-party payors; and
· refusing to provide coverage when an approved product is used in a way that has not received regulatory marketing
approval.
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Termination or suspension of, or delays in the commencement or completion of, any necessary future studies of CaPre® for any
indications could occur.
The commencement and completion of clinical studies for CaPre®, including the Corporation’s ongoing TRIFECTA and COLT Phase II
clinical trials in Canada, can be delayed for a number of reasons, including delays related to:
· the FDA, Health Canada or similar regulatory authorities not granting permission to proceed and placing the clinical
study on hold;
· subjects failing to enroll or remain in the Corporation’s trials at the rate the Corporation expects;
· a facility manufacturing CaPre® being ordered by the FDA or other government or regulatory authorities to
temporarily or permanently shut down due to violations of cGMP requirements or other applicable requirements, or
cross-contaminations of product candidates in the manufacturing process;
· any changes to the Corporation’s manufacturing process that may be necessary or desired;
· subjects choosing an alternative treatment for the indications for which the Corporation is developing CaPre®, or
participating in competing clinical studies;
· subjects experiencing severe or unexpected drug-related adverse effects;
· reports from clinical testing on similar technologies and products raising safety and/or efficacy concerns;
· third-party clinical investigators losing their license or permits necessary to perform the Corporation’s clinical trials,
not performing the Corporation’s clinical trials on their anticipated schedule or employing methods not consistent with
the clinical trial protocol, cGMP requirements, or other third parties not performing data collection and analysis in a
timely or accurate manner;
· inspections of clinical study sites by the FDA, Health Canada or similar regulatory authorities or IRBs finding
regulatory violations that require the Corporation to undertake corrective action, result in suspension or termination of
one or more sites or the imposition of a clinical hold on the entire study, or that prohibit the Corporation from using
some or all of the data in support of its marketing applications;
· third-party contractors becoming debarred or suspended or otherwise penalized by the FDA, Health Canada or other
government or regulatory authorities for violations of regulatory requirements, in which case the Corporation may
need to find a substitute contractor, and the Corporation may not be able to use some or any of the data produced by
such contractors in support of its marketing applications;
· one or more IRBs refusing to approve, suspending or terminating the study at an investigational site, precluding
enrollment of additional subjects, or withdrawing its approval of the trial; reaching agreement on acceptable terms
with prospective CRO and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary
significantly among different CROs and trial sites;
- 29 -
· deviations of the clinical sites from trial protocols or dropping out of a trial;
· the addition of new clinical trial sites; and
· the inability of the CRO to execute any clinical trials for any reason.
Product development costs for CaPre® will increase if the Corporation has delays in testing or approval or if the Corporation
needs to perform more or larger clinical studies than planned. Additionally, changes in regulatory requirements and policies may occur
and the Corporation may need to amend study protocols to reflect these changes. Amendments may require the Corporation to resubmit
its study protocols to the FDA, Health Canada or similar regulatory authorities or IRBs for reexamination, which may impact the costs,
timing or successful completion of that study. Any delays in completing the Corporation’s clinical trials will increase its costs, slow down
its development and approval process and jeopardize its ability to commence sales of CaPre® and generate revenues. Any of these
occurrences may have a material adverse effect on the Corporation’s business, financial condition and prospects.
Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and
trials may not be predictive of future trial results.
Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at
any time during the clinical trial process. The results of preclinical studies and early clinical trials may not be predictive of the results of
later-stage clinical trials. For example, the positive preliminary results generated to date in the Corporation’s TRIFECTA and COLT
Phase II clinical trials for CaPre® do not ensure that the final Phase II results or later clinical trials will produce similar results. The
Corporation cannot assure you that the FDA will view the results as the Corporation does or that any future trials of CaPre® for other
indications will achieve positive results. Product candidates in later stages of clinical trials may fail to show the desired safety and
efficacy traits despite having progressed through preclinical studies and initial clinical trials. A number of companies in the
biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles,
notwithstanding promising results in earlier trials. Any future clinical trial results for CaPre® may not be successful.
A number of factors could contribute to a lack of favorable safety and efficacy results for CaPre® for other indications. For
example, such trials could result in increased variability due to varying site characteristics, such as local standards of care, differences in
evaluation period, and due to varying patient characteristics including demographic factors and health status. There can be no assurance
that the Corporation’s clinical trials, including its TRIFECTA and COLT Phase II clinical trials, will demonstrate sufficient safety and
efficacy for the FDA to approve CaPre® for the prevention and treatment of hypertriglyceridemia and severe hypertriglyceridemia, or any
other indication that the Corporation may consider in any additional NDA submissions for CaPre®.
In addition, clinical trials and nonclinical studies performed by research organizations and other independent third parties may
yield negative results regarding the effect of omega-3 fatty acids on cardiometabolic disorders and specifically hypertriglyceridemia and
severe hypertriglyceridemia. For example, in May 2013, the New England Journal of Medicine published results on a study in which it
concluded that a daily treatment of omega-3 fatty acids did not reduce the risk of cardiovascular events. The clinical trial consisted of the
enrollment of 12,513 patients who were followed by a network of 860 general practitioners in Italy. Patients were randomly assigned to
omega−3 fatty acids (1g daily) or placebo. Researchers reported that omega-3 fatty acid supplements did not reduce death from heart
disease or heart attacks or strokes in the group and concluded that the intake of omega-3 fatty acids does not have any specific advantage
in a population that is considered at high risk of cardiovascular disease. The New England Journal of Medicine study along with other
future studies yielding similar results could have a negative impact on consumer perception and market acceptance of the efficacy of
omega-3 fatty acids on cardiometabolic disorders, specifically the beneficial effect on triglyceride and cholesterol levels, and such impact
may a material adverse effect on the Corporation’s business.
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The Corporation relies on third parties to conduct its clinical trials for CaPre®.
The Corporation has entered into agreements with a CRO to provide monitors for and to manage data for its ongoing clinical
trials. The Corporation relies heavily on these parties for execution of clinical studies for CaPre® and controls only certain aspects of their
activities. Nevertheless, the Corporation is responsible for ensuring that each of its studies is conducted in accordance with the applicable
protocol, legal, regulatory and scientific standards, and the Corporation’s reliance on CROs would not relieve it of its regulatory
responsibilities. The Corporation and its CROs are required to comply with cGCPs, which are regulations and guidelines enforced by the
FDA, Health Canada and comparable foreign regulatory authorities for any products in clinical development. The FDA enforces these
cGCP regulations through periodic inspections of trial sponsors, principal investigators and trial sites. If the Corporation or its CROs fail
to comply with applicable cGCPs, the clinical data generated in the Corporation’s clinical trials may be deemed unreliable and the FDA,
Health Canada or comparable foreign regulatory authorities may require the Corporation to perform additional clinical trials before
approving the Corporation’s marketing applications. The Corporation cannot assure you that, upon inspection, the FDA will determine
that any of the Corporation’s clinical trials comply with cGCPs. In addition, the Corporation’s clinical trials must be conducted with
products produced under cGMP regulations and require a large number of test subjects. The Corporation’s failure or the failure of its
CROs to comply with these regulations may require the Corporation to repeat clinical trials, which would delay the regulatory approval
process and could also subject the Corporation to enforcement action up to and including civil and criminal penalties.
If any of the Corporation’s relationships with these third-party CROs terminate, the Corporation may not be able to enter into
arrangements with alternative CROs. If CROs do not successfully carry out their contractual duties or obligations or meet expected
deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to
adhere to the Corporation’s clinical protocols, regulatory requirements or for other reasons, any such clinical trials may be extended,
delayed or terminated, and the Corporation may not be able to obtain regulatory approval for or successfully commercialize CaPre®.
The Corporation’s supply of krill oil for commercial supply and clinical trials is dependent upon relationships with other third party
manufacturers and key suppliers since Neptune’s production plant was destroyed.
The Corporation depends on krill oil sourced from third parties for the production of ONEMIA™ and CaPre®. The
Corporation’s reliance on third party suppliers of krill oil involves several risks, including potential fluctuations in supply and reduced
control over production costs, delivery schedules and the quality of available krill oil. Until November 2012, Acasti purchased all of its
supply of krill oil from its parent company, Neptune. On November 8, 2012, an explosion and fire destroyed Neptune’s production plant
located in Sherbrooke, Québec, Canada. Since the incident, Acasti is currently acquiring its krill oil through purchases in the open market
in order to meet production requirements for ONEMIA™, and is also seeking a third party to both supply krill oil on an interim basis and
provide manufacturing services for the production of CaPre® in accordance with cGMP regulations imposed by the FDA. However, the
Corporation will have to source additional quantities of krill oil for the continued production of ONEMIA™ and its planned Phase III
clinical trials for CaPre®, and, if regulatory approval is obtained, larger quantities for the commercialization and distribution of CaPre®
than the Corporation is currently able to source. On May 28, 2013, Neptune announced it has commenced reconstruction of its production
plant with an anticipated completion by or before its fiscal year ending February 28, 2014. Acasti intends to acquire its krill oil supply
from Neptune upon the recommencement of krill oil production by Neptune. However, until the reconstruction of Neptune’s production
plant is completed, Acasti is seeking alternative suppliers of krill oil and may be required to pay higher prices for krill oil (in comparison
to what it paid Neptune or what it pays currently), or it may be unable to acquire krill oil in sufficient quantities. Further, any alternative
supply of krill oil may not be of comparable quality to that previously provided by Neptune which may impact the efficacy, or the
markets’ perception of the efficacy, of ONEMIA™ and CaPre®. Although a prospective new supplier of krill oil to the Corporation has
been identified, Acasti cannot be certain that it will be able to contract with this third party supplier on acceptable terms or at all.
Disruption to the Corporation’s required quantities and quality of krill oil supplies would have a material adverse effect on Acasti’s
business and results of operations.
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The Corporation relies on third parties for the manufacturing, production and supply of CaPre® and ONEMIA® and may be
adversely affected if those third parties are unable or unwilling to fulfill their obligations.
The production of pharmaceutical products requires significant expertise and capital investment, including the development of
advanced manufacturing techniques and process controls. Acasti does not own or operate manufacturing facilities for the production of
CaPre® and ONEMIA®, nor does it have plans to develop its own manufacturing operations in the foreseeable future. Accordingly, the
Corporation needs to rely on one or more third party manufacturers to produce and supply its required drug product for its nonclinical
research and clinical trials for CaPre® and its commercial sales of ONEMIA®. The Corporation’s reliance on third-parties to produce
CaPre® and ONEMIA® exposes Acasti to a number of risks. For example, Acasti may be subject to delays in or suspension of the
production of CaPre® and ONEMIA® if a third-party manufacturer:
· becomes unavailable for any reason, including as a result of the failure to comply with good manufacturing practices, or GMP,
regulations;
· experiences manufacturing problems or other operational failures, such as equipment failures or unplanned facility shutdowns
required to comply with GMP or damage from any event, including fire, flood, earthquake, business restructuring or
insolvency; or
· fails or refuses to perform its contractual obligations under its agreement with the Corporation, such as failing or refusing to
deliver the quantities requested on a timely basis.
Until recently, the Corporation had contracted with one third party manufacturer in the United States to produce CaPre® for the
Corporation’s clinical trials and ONEMIA® for distribution and commercialization. However, the FDA requires manufacturers of drug
products and their facilities to comply with cGMP, and other requirements relating to quality control, quality assurance and corresponding
maintenance of records and documents. The Corporation has been advised that this manufacturer is not cGMP compliant and, as a result,
the Corporation will need to identify and enter into an agreement with another manufacturer that complies with these FDA standards prior
to initiating its planned Phase III clinical trials for CaPre®. The selection of a replacement third-party manufacturer could be time-
consuming and costly since the Corporation will need to confirm that the manufacturing facility of such new third-party manufacturer
complies with applicable FDA standards. In addition, the third-party manufacturer would have to familiarize itself with the production
techniques for CaPre® and ONEMIA®. Any delay in finding an alternative third-party manufacturer of CaPre® could delay the initiation
of the Corporation’s planned Phase III clinical trials for CaPre, which could materially adversely affect Acasti’s business prospects.
Risks Relating to the Corporation’s Intellectual Property Rights
It is difficult and costly to protect Acasti’s intellectual property rights, and Acasti cannot ensure the protection of these rights.
The Corporation's activities depend, in part, on its ability to (i) obtain and maintain patents, trade secret protection and operate
without infringing the intellectual proprietary rights of third parties, (ii) successfully defend these patents (including patents owned by or
licensed to the Corporation) against third-party challenges, and (iii) successfully enforce these patents against third party competitors.
There is no assurance that the Corporation will be granted such patents and/or proprietary technology or that such granted patents and/or
proprietary technology will not be circumvented through the adoption of a competitive, though non-infringing, process or product. The
patent positions of pharmaceutical companies can be highly uncertain and involve complex legal, scientific and factual questions for
which important legal principles remain unresolved. Changes in either the patent laws or in interpretations of patent laws may diminish the
value of the Corporation’s intellectual property. Accordingly, the Corporation cannot predict the breadth of claims that may be allowable
or enforceable in its patents (including patents owned by or licensed to the Corporation). Failure to protect the Corporation's existing and
future intellectual property rights could seriously harm its business and prospects and may result in the loss of its ability to exclude others
from using the Corporation's technology or its own right to use the technologies. If the Corporation does not
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adequately ensure the right to use certain technologies, it may have to pay others for the right to use their intellectual property, pay
damages for infringement or misappropriation and/or be enjoined from using such intellectual property. The Corporation’s patents do not
guarantee the right to use the technologies if other parties own intellectual property rights that are necessary in order to use such
technologies. The Corporation's and Neptune’s patent position is subject to complex factual and legal issues that may give rise to
uncertainty as to the validity, scope and enforceability of a particular patent.
In any case, there can be no assurance that:
· any rights under Canadian, U.S. or foreign patents owned by the Corporation or other patents that Neptune and other third
parties license to the Corporation will not be curtailed;
· the Corporation was the first inventor of inventions covered by its issued patents or pending applications or that the
Corporation was the first to file patent applications for such inventions;
· the Corporation’s pending or future patent applications will be issued with the breadth of claim coverage sought by the
Corporation, or be issued at all;
· the Corporation’s competitors will not independently develop or patent technologies that are substantially equivalent or
superior to the Corporation's technologies;
· any of the Corporation's trade secrets will not be learned independently by its competitors; or
· the steps the Corporation takes to protect its intellectual property will be adequate.
In addition, effective patent, trademark, copyright and trade secret protection may be unavailable, limited or not sought in certain
foreign countries.
The Corporation also seeks to protect its proprietary intellectual property, including intellectual property that may not be patented
or patentable, in part by confidentiality agreements and, if applicable, inventors' rights agreements with its strategic partners and
employees. There can be no assurance that these agreements will not be breached, that the Corporation will have adequate remedies for
any breach or that such persons or institutions will not assert rights to intellectual property arising out of these relationships. The cost of
enforcing the Corporation's patent rights or defending rights against infringement charges by other patent holders may be significant and
could limit operations. The Corporation intends to vigorously enforce and protect its intellectual property.
The degree of future protection for the Corporation’s proprietary rights is uncertain, because legal means afford only limited
protection and may not adequately protect the Corporation’s rights, permit it to gain or keep its competitive advantage, or provide it with
any competitive advantage at all. The Corporation cannot be certain that any patent application owned by a third party will not have
priority over patent applications filed or in-licensed by the Corporation, or that the Corporation or its licensor will not be involved in
interference, opposition or invalidity proceedings before U.S., Canadian or foreign patent offices.
The Corporation depends on Neptune to protect a significant portion of its proprietary rights that derive from the Corporation’s
license agreement with Neptune. Neptune may be primarily or wholly responsible for the maintenance of patents and prosecution of the
licensed patent applications relating to important areas of the Corporation’s business. If Neptune fails to adequately maintain, prosecute
or protect these patents or patent applications, the Corporation may have the right to take further action on its own to protect its
technology. However, the Corporation may not be successful or have adequate resources to do so. Any failure by Neptune or by the
Corporation to protect its intellectual property rights could significantly harm the Corporation’s business and prospects.
The Corporation also relies on trade secrets to protect its technology, especially in cases when the Corporation believes patent
protection is not appropriate or obtainable. However, trade secrets are difficult to
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protect. If the Corporation cannot maintain the confidentiality of its proprietary and licensed technology and other confidential
information, the Corporation’s ability and that of its licensor to receive patent protection and its ability to protect valuable information
owned or licensed by the Corporation may be imperiled. Enforcing a claim that a third-party entity illegally obtained and is using any of
the Corporation’s trade secrets is expensive and time consuming, and the outcome is unpredictable. Moreover, the Corporation’s
competitors may independently develop equivalent knowledge, methods and know-how. If the Corporation fails to obtain or maintain
patent protection or trade secret protection for CaPre®, ONEMIA® or the Corporation’s technologies, third parties could use the
Corporation’s proprietary information, which could impair its ability to compete in the market and adversely affect its ability to generate
future revenues and attain profitability.
CaPre® is covered by patents that are not owned by the Corporation but are instead licensed to the Corporation by Neptune.
In addition to its proprietary patent applications, the Corporation has an exclusive worldwide license under certain patents and
know-how to develop and commercialize CaPre® within a specified field of use pursuant to a license agreement with Neptune. The
limitation on the Corporation’s field of use may prevent it from developing and commercializing CaPre® in other fields. Additionally, the
Corporation’s license is subject to termination for breach of its terms, and therefore its rights may only be available to it for as long as
Neptune agrees that the Corporation’s development and commercialization activities are sufficient to meet the terms of the license. If this
license is terminated for any reason and the Corporation is not able to negotiate another agreement with Neptune for use of its patents and
know-how, the Corporation will not be able to manufacture and market CaPre®, which would have a material adverse affect on its
business and financial condition. See “Business – Intellectual Property – Patents and Licensed Rights.”
CaPre® may infringe the intellectual property rights of others, which could increase the Corporation’s costs and delay or prevent the
Corporation’s development and commercialization efforts.
The Corporation’s success depends in part on avoiding infringement of the proprietary technologies of others. The
pharmaceutical industry has been characterized by frequent litigation regarding patent and other intellectual property rights. Identification
of third party patent rights that may be relevant to the Corporation’s proprietary or licensed technology is difficult because patent
searching is imperfect due to differences in terminology among patents, incomplete databases and the difficulty in assessing the meaning
of patent claims. Additionally, because patent applications are maintained in secrecy until the application is published, the Corporation
may be unaware of third-party patents that may be infringed by the development and commercialization of CaPre® or any other future
prescription drug candidate. There may be certain issued patents and patent applications claiming subject matter that the Corporation’s
licensor or the Corporation may be required to license in order to research, develop or commercialize CaPre®, and the Corporation cannot
be certain whether such patents and patent applications would be available to license on commercially reasonable terms, or at all. Any
claims of patent infringement asserted by third parties would be time-consuming and may:
· result in costly litigation;
· divert the time and attention of the Corporation’s technical personnel and management;
· cause product development or commercialization delays, including delays in clinical trials for CaPre®;
· prevent the Corporation from commercializing CaPre® until the asserted patent expires or is held finally invalid or not
infringed in a court of law;
· require the Corporation to cease or modify its use of the technology and/or develop non-infringing technology; or
· require the Corporation to enter into royalty or licensing agreements.
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Others may hold proprietary rights that could prevent CaPre® from being marketed. Any patent-related legal action against the
Corporation claiming damages and seeking to enjoin commercial activities relating to CaPre® or the Corporation’s processes could
subject the Corporation to potential liability for damages and require the Corporation to obtain a license to continue to manufacture or
market CaPre® or any other future prescription drug candidates. The Corporation cannot predict whether the Corporation would prevail in
any such actions or that any license required under any of these patents would be made available on commercially acceptable terms, if at
all. In addition, the Corporation cannot be sure that it could redesign CaPre® or any other future product candidates or processes to avoid
infringement, if necessary. Accordingly, an adverse determination in a judicial or administrative proceeding, or the failure to obtain
necessary licenses, could prevent the Corporation from developing and commercializing CaPre® or any other future product candidate,
which could harm the Corporation’s business, financial condition and operating results.
A number of companies, including several major pharmaceutical companies, have conducted research on pharmaceutical uses of
omega-3 fatty acids, which has resulted in the filing of many patent applications related to this research. The Corporation is aware of
third-party U.S., Canadian or other foreign patents that contain broad claims related to methods of using these general types of
compounds, which may be construed to include potential uses of CaPre® or any future product candidates. If the Corporation were to
challenge the validity of these or any other issued U.S, Canadian or other foreign patents in court, the Corporation would need to
overcome a statutory presumption of validity that attaches to every U.S. and Canadian patent. This means that, in order to prevail, the
Corporation would have to present clear and convincing evidence as to the invalidity of the other party’s patent’s claims. If the
Corporation were to challenge the validity of any issued U.S. patent in an administrative trial before the Patent Trial and Appeal Board in
the U.S. Patent and Trademark Office, the Corporation would have to prove that the claims are unpatentable by a preponderance of the
evidence. There is no assurance that a jury and/or court would find in the Corporation’s favor on questions of infringement, validity or
enforceability.
General Risks Related to the Corporation
The Corporation may never become profitable or be able to sustain profitability.
The Corporation is a clinical-stage biopharmaceutical company with a limited operating history. The likelihood of success of the
Corporation’s business plan must be considered in light of the problems, expenses, difficulties, complications and delays frequently
encountered in connection with developing and expanding early-stage businesses and the regulatory and competitive environment in
which the Corporation operates. Biopharmaceutical product development is a highly speculative undertaking, involves a substantial
degree of risk and is a capital-intensive business. Therefore, the Corporation expects to incur expenses without any meaningful
corresponding revenues unless and until it is able to obtain regulatory approval and subsequently sell CaPre® in significant quantities.
The Corporation has been engaged in developing CaPre® since 2008. To date, the Corporation has not generated any revenue from
CaPre®, and it may never be able to obtain regulatory approval for the marketing of CaPre® in any indication. Further, even if the
Corporation is able to commercialize CaPre® or any other product candidate, there can be no assurance that the Corporation will generate
significant revenues or ever achieve profitability. The Corporation’s net loss for the fiscal year ended February 28, 2013 was
approximately $6.9 million. As of February 28, 2013, the Corporation had an accumulated deficit of approximately $20.0 million.
If the Corporation obtains FDA approval, it expects that its expenses will increase as it prepares for the commercial launch of
CaPre®. The Corporation also expects that its research and development expenses will continue to increase in the event it pursues FDA
approval for CaPre® for other indications. As a result, the Corporation expects to continue to incur substantial losses for the foreseeable
future, and these losses may be increasing. The Corporation is uncertain about when or if it will be able to achieve or sustain profitability.
If the Corporation achieves profitability in the future, it may not be able to sustain profitability in subsequent periods. Failure to become
and remain profitable would impair the Corporation’s ability to sustain operations and adversely affect the price of the Common Shares
and its ability to raise capital.
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The Corporation will require additional funding to continue as a going concern.
The Corporation will require substantial additional funds to conduct further research and development, scheduled clinical testing,
regulatory approvals and the commercialization of CaPre®. Based on the current status of the TRIFECTA and COLT Phase II clinical
trials and assuming the research and development for both trials proceeds as planned, Acasti expects that research and development of
CaPre® will take at least an additional 24 to 36 months and cost approximately $50.0 million. In addition to completing clinical trials, the
Corporations expects that additional time and capital will be required to complete the filing of a NDA to obtain FDA approval for CaPre®
in the United States and to complete marketing and other pre-commercialization activities. The Corporation’s cash and short term
investments were approximately $4.8 million as of February 28, 2013. Depending on the status of regulatory approval or, if approved,
commercialization of CaPre®, the Corporation will most likely require additional capital to fund its operating needs.
The Corporation has incurred operating losses and negative cash flows from operations since inception. As at February 28, 2013,
the Corporation’s current liabilities and expected level of expenses in the research and development phase of its drug candidate
significantly exceed current assets. The Corporation’s liabilities at February 28, 2013 include amounts due to Neptune of approximately
$1.7 million. The Corporation plans to rely on the continued support of Neptune to pursue its operations, including obtaining additional
funding, if required. The continuance of this support is outside of the Corporation’s control. If the Corporation does not receive the
continued financial support from its parent or the Corporation does not raise additional funds through public or private equity or debt
financing, joint venture arrangements, and collaborative arrangements with other pharmaceutical companies, and/or from other sources, it
may not be able to realize its assets and discharge its liabilities in the normal course of business. There can be no assurance that any
additional funding from Neptune or any other third party will be available on acceptable terms or at all to enable the Corporation to
continue and complete the research and development of CaPre®. As a result, there exists a material uncertainty that casts substantial doubt
about the Corporation’s ability to continue as a going concern and, therefore, realize its assets and discharge its liabilities in the normal
course of business.
Furthermore, if the Corporation is unable to secure sufficient capital to fund its operations, it may be forced to enter into strategic
collaborations that could require the Corporation to share commercial rights to CaPre® with third parties in ways that the Corporation
currently does not intend or on terms that may not be favorable to the Corporation.
In order to establish the Corporation’s sales and marketing infrastructure, the Corporation will need to expand the size of its
organization, and the Corporation may experience difficulties in managing this growth.
As of February 28, 2013, the Corporation had 10 employees in Canada, seven of whom have biology, chemistry, biochemistry or
microbiology backgrounds and three of whom serve in general and administrative capacities. As the Corporation’s development and
commercialization plans and strategies develop, the Corporation expects that it will need to expand the size of its employee base for
managerial, operational, sales, marketing, financial and other resources. Future growth would impose significant added responsibilities on
members of management, including the need to identify, recruit, maintain, motivate and integrate additional employees. In addition, the
Corporation’s management may have to divert a disproportionate amount of its attention away from the Corporation’s day-to-day
activities and devote a substantial amount of time to managing these growth activities. The Corporation’s future financial performance and
its ability to commercialize CaPre® and any other future product candidates and its ability to compete effectively will depend, in part, on
the Corporation’s ability to effectively manage any future growth.
If the Corporation is not successful in attracting and retaining highly qualified personnel, the Corporation may not be able to
successfully implement its business strategy.
The Corporation’s ability to compete in the highly competitive pharmaceuticals industry depends in large part upon its ability to
attract and retain highly qualified managerial, scientific and medical personnel. Competition for skilled personnel in the Corporation’s
market is intense and competition for experienced scientists may limit the
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Corporation’s ability to hire and retain highly qualified personnel on acceptable terms. The Corporation is highly dependent on its
management, scientific and medical personnel. The Corporation’s management team has substantial knowledge in many different aspects
of drug development and commercialization. Despite the Corporation’s efforts to retain valuable employees, members of its management,
scientific and medical teams may terminate their employment with the Corporation on short notice or, potentially, without any notice at
all. The loss of the services of any of the Corporation’s executive officers or other key employees could potentially harm its business,
operating results or financial condition. The Corporation’s success may also depend on its ability to attract, retain and motivate highly
skilled junior, mid-level, and senior managers and scientific personnel.
Other pharmaceutical companies with which the Corporation competes for qualified personnel have greater financial and other
resources, different risk profiles, and a longer history in the industry than the Corporation does. They also may provide more diverse
opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high-quality candidates
than what the Corporation has to offer. If the Corporation is unable to continue to attract and retain high-quality personnel, the rate and
success at which the Corporation can develop and commercialize product candidates would be limited.
If product liability lawsuits are brought against the Corporation, it may incur substantial liabilities and may be required to cease the
sale, marketing and distribution of its products .
The Corporation faces a potential risk of product liability as a result of its sales, marketing and distribution activities relating to
ONEMIA® and any future commercialization of CaPre® or any other future product. For example, the Corporation may be sued if any
product it develops allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or
sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers
inherent in the product, negligence, strict liability and a breach of warranties. Claims could also be asserted under U.S. state or Canadian
provincial or other foreign consumer protection legislation. If the Corporation cannot successfully defend itself against product liability
claims, it may incur substantial liabilities or be required to cease the sale, marketing and distribution of its products. Even successful
defense against product liability claims would require significant financial and management resources. Regardless of the merits or
eventual outcome, liability claims may result in:
· decreased demand for ONEMIA®, CaPre® or any future products that the Corporation may develop;
· injury to the Corporation’s reputation;
· withdrawal of clinical trial participants;
· costs to defend the related litigation;
· a diversion of management’s time and the Corporation’s resources;
· substantial monetary awards to consumers, trial participants or patients;
· product recalls, withdrawals or labeling, marketing or promotional restrictions;
· loss of revenue;
· the inability to commercialize CaPre®;
· the inability to continue the sale, marketing and distribution of ONEMIA®; and
· a decline in the price of the Common Shares.
If the Corporation is unable to obtain and retain sufficient product liability insurance at an acceptable cost to protect against
potential product liability claims, the commercialization of products it develops could be hindered or prevented. The Corporation
currently carries product liability insurance in the amount of $5.0 million in the aggregate. In addition, the Corporation currently carries
liability insurance covering its clinical trials in the amount of $5.0 million in the aggregate. Although the Corporation maintains such
insurance, any claim that may be brought
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against the Corporation could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by the
Corporation’s insurance or that is in excess of the limits of the Corporation’s insurance coverage. The Corporation’s insurance policies
also have various exclusions, and the Corporation may be subject to a product liability claim for which it has no coverage. In the event of
a successful product liability claim against it, the Corporation may have to pay from its own resources any amounts awarded by a court or
negotiated in a settlement that exceed its coverage limitations or that is not covered by the Corporation’s insurance, and the Corporation
may not have, or be able to obtain, sufficient capital to pay such amounts.
The Corporation may acquire businesses or products or form strategic alliances in the future and the Corporation may not realize the
benefits of such acquisitions.
The Corporation may acquire additional businesses or products, form strategic alliances or create joint ventures with third parties
that the Corporation believes will complement or augment its existing business. If the Corporation acquires businesses with promising
markets or technologies, it may not be able to realize the benefit of acquiring such businesses if the Corporation is unable to successfully
integrate them with its existing operations and company culture. The Corporation may encounter numerous difficulties in developing,
manufacturing and marketing any new products resulting from a strategic alliance or acquisition that delay or prevent the Corporation
from realizing their expected benefits.
The Corporation may not achieve its publicly announced milestones on time.
From time to time, the Corporation publicly announces the timing of certain events it expects to occur, such as the anticipated
timing of results from its clinical trials. These statements are forward-looking and are based on the best estimate of management at the
time relating to the occurrence of such events. However, the actual timing of such events may differ from what has been publicly
disclosed. The timing of events such as completion of a clinical trial, discovery of a new product candidate, filing of an application to
obtain regulatory approval, beginning of commercialization of certain products, or announcement of additional clinical trials for a product
candidate may ultimately vary from what is publicly disclosed. For example, the Corporation cannot provide assurances that the
TRIFECTA and COLT Phase II clinical trials in Canada will be completed on schedule or at all, that it will conduct Phase III clinical
trials for CaPre®, that it will make regulatory submissions or receive regulatory approvals as planned, or that it will be able to adhere to
plans for the scale-up of manufacturing and launch of any of its products. These variations in timing may occur as a result of different
events, including the nature of the results obtained during a clinical trial or during a research phase, problems with a supplier or a
distribution partner or any other event having the effect of delaying the publicly announced timeline. The Corporation undertakes no
obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except
as otherwise required by law. Any variation in the timing of previously announced milestones could have a material adverse effect on the
Corporation’s business plan, financial condition or operating results and the trading price of the Common Shares.
The interests of the Corporation’s controlling shareholder, which exerts significant influence over the Corporation, may conflict with
the Corporation’s interests and those of its public shareholders.
The Corporation’s parent company, Neptune, currently owns 57% of the issued and outstanding Common Shares. On December 4, 2012,
Acasti exercised its option under its license agreement (subject to approval of the disinterested shareholders of Acasti at its next annual
meeting, which is scheduled to occur on June 27, 2013) between Acasti and Neptune, to pay in advance all of the future royalties payable
under the license agreement pursuant through the issuance of a warrant to Neptune to acquire up to 6,7500,000 additional Common
Shares, which if fully exercised would increase Neptune’s ownership of Common Shares to 61% (based on the number of Common
Shares outstanding as of the date of this AIF). As its controlling shareholder, the interests of Neptune may conflict or even compete with
the Corporation’s interests and those of its other shareholders. As a result of its substantial ownership of the outstanding Common Shares,
Neptune is able to influence or control matters requiring approval by the Corporation’s shareholders, including the election of directors
and the approval of mergers, acquisitions or other extraordinary transactions. Neptune may also have interests that differ from those of
other Acasti shareholders and may vote in a way with which other shareholders may disagree and which may be adverse to their interests.
This concentration of ownership may have the effect of delaying, preventing or deterring a change
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of control of the Corporation, could deprive its shareholders of an opportunity to receive a premium for their shares as part of a sale of the
Corporation, and might ultimately affect the market price of the Common Shares. Conversely, this concentration may facilitate a change
in control at a time when other shareholders may prefer not to sell.
Risks Related to the Corporation’s Status as a Foreign Private Issuer/Emerging Growth Company
As a foreign private issuer, the Corporation is subject to different U.S. securities laws and regulations than a domestic U.S. issuer,
which may limit the information publicly available to the Corporation’s U.S. shareholders.
The Corporation is a foreign private issuer under applicable U.S. federal securities laws, and therefore, it is not required to
comply with all the periodic disclosure and current reporting requirements of the U.S. Securities and Exchange Act of 1934, as amended
(the “Exchange Act”). As a result, the Corporation does not file the same reports that a U.S. domestic issuer would file with the SEC,
although the Corporation is required to file with or furnish to the SEC the continuous disclosure documents that the Corporation is
required to file in Canada under Canadian securities laws. In addition, the Corporation’s officers, directors and principal shareholders are
exempt from the reporting and short-swing profit recovery provisions of Section 16 of the Exchange Act. Therefore, the Corporation’s
shareholders may not know on as timely a basis when the Corporation’s officers, directors and principal shareholders purchase or sell
common shares as the reporting periods under the corresponding Canadian insider reporting requirements are longer. In addition, as a
foreign private issuer, the Corporation is exempt from the proxy rules under the Exchange Act.
The Corporation may lose its foreign private issuer status in the future, which could result in significant additional costs and expenses
to the Corporation.
The Corporation may in the future lose its foreign private issuer status if a majority of the Common Shares are held in the United
States and it fails to meet the additional requirements necessary to avoid loss of foreign private issuer status. The regulatory and
compliance costs to the Corporation under U.S. federal securities laws as a U.S. domestic issuer would be significantly more than the costs
the Corporation incurs as a Canadian foreign private issuer eligible to use MJDS. If the Corporation is not a foreign private issuer, it
would not be eligible to use the MJDS or other foreign issuer forms and would be required to file periodic and current reports and
registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a
foreign private issuer. In addition, the Corporation may lose the ability to rely upon exemptions from NASDAQ corporate governance
requirements that are available to foreign private issuers. If the Corporation loses foreign private issuer status or no longer satisfies the
criteria of MJDS eligibility, compliance with more enhanced disclosure requirements and other U.S. securities laws may increase our
legal and financial compliance costs, make some activities more difficult and time-consuming, increase demand on our systems and
resources and divert management’s attention from other business concerns, all of which could have a material adverse effect on our
business, financial condition and results of operations.
As an "emerging growth company", Acasti is exempt from the requirement to comply with the auditor attestation requirements of the
Sarbanes-Oxley Act.
Acasti is an "emerging growth company," as defined in the U.S. Jumpstart Our Business Startups Act, and intends to avail itself
of the exemption provided to emerging growth companies from the auditor attestation requirements of Section 404(b) of the Sarbanes-
Oxley Act of 2002. Therefore, Acasti’s internal controls over financial reporting will not receive the level of review provided by the
process relating to the auditor attestation included in annual reports of issuers that are not using an exemption. In addition, Acasti cannot
predict if investors will find the Common Shares less attractive because it relies on this exemption. If some investors find the Common
Shares less attractive as a result, there may be a less active trading market for the Common Shares and trading price for the Common
Shares may be negatively affected.
U.S. investors may be unable to enforce certain judgments.
- 39 -
The Corporation is a company existing under the Business Corporations Act (Québec). The majority of the Corporation’s
directors and officers are residents of Canada, and substantially all of the Corporation’s assets are located outside the United States. As a
result, it may be difficult to effect service within the United States upon the Corporation or upon its directors and officers. Execution by
U.S. courts of any judgment obtained against the Corporation or any of its directors or officers in U.S. courts may be limited to the assets
of such companies or such persons, as the case may be, located in the United States. It may also be difficult for holders of securities who
reside in the United States to realize in the United States upon judgments of U.S. courts predicated upon civil liability and the civil
liability of the Corporation’s directors and executive officers under the U.S. federal securities laws. The Corporation has been advised that
a judgment of a U.S. court predicated solely upon civil liability under U.S. federal securities laws or the securities or “blue sky” laws of
any state within the United States, would likely be enforceable in Canada if the United States court in which the judgment was obtained
has a basis for jurisdiction in the matter that would be recognized by a Canadian court for the same purposes. However, there may be
doubt as to the enforceability in Canada against these non-U.S. entities or their controlling persons, directors and officers who are not
residents of the United States, in original actions or in actions for enforcement of judgments of U.S. courts, of liabilities predicated solely
upon U.S. federal or state securities laws.
DIVIDENDS
The Corporation does not anticipate paying any cash dividend on the Common Shares in the foreseeable future. The Corporation
presently intends to retain future earnings to finance the expansion and growth of the Corporation’s business. Any future determination to
pay dividends will be at the discretion of the Corporation’s Board of Directors and will depend on the Corporation’s financial condition,
results of operations, capital requirements and other factors the Board of Directors deems relevant. In addition, the terms of any future
debt or credit facility may preclude the Corporation from paying dividends.
DESCRIPTION OF CAPITAL STRUCTURE
The Corporation’s authorized capital consists of an unlimited number of no par value Common Shares and an unlimited number of no
par value Class B, Class C, Class D and Class E preferred shares (collectively the “Preferred Shares”), issuable in one or more series.
As of February 28, 2013, there were (i) a total of 73,107,538 Common Shares issued and outstanding and no Preferred Shares issued
and outstanding, (ii) 5,216,250 options to purchase Common Shares issued and outstanding, at a weighted average exercise price of $1.55
per Common Share, and (iii) 12,932,350 warrants (including 6,750,000 warrants held by Neptune) to purchase Common Shares issued
and outstanding, at a weighted average exercise price of $1.39 per Common Share.
The following is a brief description of the rights, privileges, conditions and restrictions attaching to the Common Shares and Preferred
Shares.
Common Shares
Voting Rights
Each Common Share entitles its holder to receive notice of, and to attend and vote at, all annual or special meetings of the
shareholders of the Corporation. Each Common Share entitles its holder to one vote at any meeting of the shareholders, other than
meetings at which only the holders of a particular class or series of shares are entitled to vote due to statutory provisions or the specific
attributes of this class or series.
- 40 -
Dividends
Subject to the prior rights of the holders of Preferred Shares ranking before the Common Shares as to dividends, the holders of
Common Shares are entitled to receive dividends as declared by the Board of Directors of the Corporation from the Corporation’s funds
that are available for the payment of dividends.
Winding-up and Dissolution.
In the event of the Corporation’s voluntary or involuntary winding-up or dissolution, or any other distribution of the Corporation’s
assets among its shareholders for the purposes of winding up its affairs, the holders of Common Shares shall be entitled to receive, after
payment by the Corporation to the holders of Preferred Shares ranking prior to Common Shares regarding the distribution of the
Corporation’s assets in the case of winding-up or dissolution, share for share, the remainder of the property of the Corporation, with
neither preference nor distinction. The order of priority, applicable to all classes of shares of the Corporation with respect to the
redemption, liquidation, dissolution or distribution of property (the “Order of priority”) is as follows:
First, the Class E non-voting shares;
Second, the Class D non-voting shares;
Third, the Class B multiple voting shares and Class C non-voting shares, pari passu; and
Fourth, the Common Shares.
Notwithstanding the above-mentioned Order of priority, shareholders of a class of shares may renounce the above-mentioned Order
of priority by unanimous approval by all shareholders of that class of shares.
Preferred Shares
Class B multiple voting shares
Each Class B multiple voting share entitles the holder thereof to ten (10) votes per share in all shareholder meetings of the
Corporation.
Dividends
Holders of Class B multiple voting shares are entitled to receive, as and when such dividends are declared, an annual non-cumulative
dividend of five percent (5%) on the amount paid for the said shares, payable at the time and in the manner which the Directors may
determine and subject to the Order of priority.
Participation
Subject to the provisions of subsection 5.2.2 of the of the Corporation’s articles, dated February 1, 2002, as amended (the “ Articles”),
holders of Class B multiple voting shares do not have the right to participate in the profits or surplus assets of the Corporation.
Conversion
Holders of Class B multiple voting shares have the right, at their entire discretion, to convert, part or all of the Class B multiple
voting shares they hold into Common Shares on the basis of one (1) Common Share for each Class B multiple voting share converted.
Redemption
Subject to the provisions of the BCA and the Order of priority, holders of Class B multiple voting shares have the right to demand
from the Corporation, upon a thirty (30) day written notice, that the Corporation redeem the Class B multiple voting shares at a price
equivalent to the amount paid for such shares plus the redemption premium, as defined in subsection 5.2.4.1 of the Articles, and any and
all declared but yet unpaid dividends on same.
- 41 -
Liquidation
In the event of the dissolution or liquidation of the Corporation or any other distribution of its property, the Class B voting
shareholders shall have the right to be reimbursed for the amount paid on Class B multiple voting shares plus the redemption premium, as
defined in subsection 5.2.4.1 of the Articles as well as the amount of any and all declared but yet unpaid dividends on said shares, subject
to the Order of priority.
Class C Non-Voting Shares
Subject to the provisions of the BCA, holders of Class C non-voting shares are neither be entitled to vote at any meeting of the
shareholders of the Corporation, nor to receive a notice of such meeting nor to attend any such meeting.
Dividend
Holders of Class C non-voting shares are entitled to receive, as and when such dividends are declared, an annual non-cumulative
dividend of five percent (5%) on the amount paid for the said shares, plus a redemption premium as defined in subsection 5.3.6.1 of the
Articles, payable at the time and in the manner which the Directors may determine and subject to the Order of priority.
Participation
Subject to the provisions of subsection 5.3.2 of the Articles, holders of Class C non-voting shares do not have the right to
participate in the profits or surplus assets of the Corporation.
Conversion
Holders of Class C non-voting shares have the right, at their entire discretion, to convert, part or all of the Class C non-voting shares
they hold into Common Shares on the basis of one (1) Common Share for each Class C non-voting share converted.
Forced Conversion
All of the Corporation’s Class C non-voting shares shall automatically be converted in Common Shares upon the request of an
unrelated third party investor in the Corporation, investing more than $500,000, or any other amount to be determined by the Board of
directors of the Corporation, in the Corporation and requesting as a condition to the investment that the Class C non-voting shares be
converted into Common Shares on the basis of one Common Share for each Class C non-voting share converted.
Redemption
Subject to the provisions of the BCA and the Order of priority, holders of Class C non-voting shares have the right to demand from
the Corporation, upon a thirty (30) day written notice, that the Corporation redeem the Class C non-voting shares at a price equivalent to
the amount paid for said shares plus the redemption premium, as defined in subsection 5.3.6.1 of the Articles, and any and all declared but
yet unpaid dividends on same.
Liquidation
In the event of the dissolution or liquidation of the Corporation or any other distribution of its property, the shareholders have the
right to be reimbursed for the amount paid on Class C non-voting shares plus the redemption premium, as defined in subsection 5.3.6.1 of
the Articles, as well as the amount of any and all declared but yet unpaid dividends on said shares, subject to the Order of priority.
Class D Non-Voting Shares
Subject to the provisions of the BCA, holders of Class D non-voting shares shall neither be entitled to vote at any meeting of the
shareholders of the Corporation, nor to receive a notice of such meeting nor to attend any such meeting.
- 42 -
Dividend
Holders of Class D non-voting shares are entitled to receive, as and when such dividends are declared, a monthly non-cumulative
dividend of half of one percent to two percent (0.5% to 2%) on the amount paid for such shares, plus a redemption premium as defined in
subsection 5.4.6.1 of the Articles, payable at the time and in the manner which the Directors may determine and subject to the Order of
priority.
Participation
Subject to the provisions of subsection 5.4.2 of the Articles, holders of Class D non-voting shares shall not have the right to
participate in the profits or surplus assets of the Corporation.
Conversion
Holders of Class D non-voting shares shall have the right, at their entire discretion, to convert, part or all of the Class D non-voting
shares they hold into Common Shares on the basis of a number of Common Shares equal to the number of Class D non-voting shares
converted multiplied by the conversion ratio, calculated as follows:
The product obtained by multiplying a factor to be agreed at the time of the issuance of the
Class D non-voting shares by the average amount paid per share for the Class D non-voting
shares plus the redemption premium per share, as defined in subsection 5.4.6.1 of the Articles
as well as the amount of any and all declared but yet paid dividends per said shares
Conversion Ratio =
Fair Market Value of the Common Shares at the date of any conversion of Class D non-
voting shares in Common Shares
Forced Conversion
All of the Corporation’s Class C non-voting shares shall automatically be converted in Common Shares upon the request of an
unrelated third party investor in the Corporation, investing more than $500,000, or any other amount to be determined by the Board of
directors of the Corporation, in the Corporation and requesting as a condition to the investment that the Class C non-voting shares be
converted into Common Shares in all cases, on the basis of a number of Common Shares equal to the number of Class D non-voting
shares converted multiplied by the conversion ratio, calculated as follows :
The product obtained by multiplying a factor to be agreed at the time of the issuance of
the Class D non-voting shares by the average amount paid per share for the Class D non-
voting shares plus the redemption premium per share, as defined in subsection 5.4.6.1 of the
Articles as well as the amount of any and all declared but yet paid dividends per said shares
Conversion Ratio =
Fair Market Value of the Common Shares at the date of any conversion of Class D non-
voting shares in Common Shares
Redemption
Subject to the provisions of the BCA and the Order of priority, holders of Class D non-voting shares have the right to demand from
the Corporation, upon a thirty (30) day written notice, that the latter redeem the Class D non-voting shares that are held by the
shareholder(s) at a price equivalent to the amount paid for said shares plus the redemption premium, as defined in subsection 5.4.6.1 of
the Articles, and any and all declared but yet unpaid dividends on same.
- 43 -
Liquidation
In the event of the dissolution or liquidation of the Corporation or any other distribution of its property, the shareholders shall have
the right to be reimbursed for the amount paid on Class D non-voting shares plus the redemption premium, as defined in subsection
5.4.6.1 of the Articles as well as the amount of any and all declared but yet unpaid dividends on said shares, subject to the Order of
priority.
Class E Non-Voting Shares
Subject to the provisions of the BCA, holders of Class E non-voting shares shall neither be entitled to vote at any meeting of the
shareholders of the Corporation, nor to receive a notice of such meeting nor to attend any such meeting.
Dividend
Holders of Class E non-voting shares are entitled to receive, as and when such dividends are declared, a monthly non-cumulative
dividend of half of one percent to two percent (0.5% to 2%) on the amount paid for the said shares, payable at the time and in the manner
which the Directors may determine and subject to the Order of priority.
Participation
Subject to the provisions of subsection 5.5.2 of the Articles, holders of Class E non-voting shares shall not have the right to
participate in the profits or surplus assets of the Corporation.
Conversion
Holders of Class E non-voting shares shall have the right, at their entire discretion, to convert, part or all of the Class E non-voting
shares they hold into Common Shares on the basis of a number of Common Shares equal to the number of Class E non-voting shares
converted multiplied by the conversion ratio, calculated as follows:
Conversion Ratio =
The product obtained by multiplying a factor to be agreed at the time of the issuance of
the Class E non-voting shares by the average amount paid per share for the Class E non-
voting shares plus the amount of any and all declared but yet paid dividends per said shares
Fair Market Value of the Common Shares at the date of any conversion of Class E non-
voting shares in Common Shares
Redemption
Subject to the provisions of the BCA and the Order of priority, the Corporation has the right to demand from holders of Class E non-
voting shares, upon a thirty (30) day written notice, that the latter redeem the Class E non-voting shares that are held by the shareholder(s)
at a price equivalent to the amount paid for said shares and any and all declared but yet unpaid dividends on same.
Liquidation
In the event of the dissolution or liquidation of the Corporation or any other distribution of its property, the shareholders shall have
the right to be reimbursed for the amount paid on Class E non-voting shares as well as the amount of any and all declared but yet unpaid
dividends on said shares, subject to the Order of priority.
MARKET FOR SECURITIES
Since March 31, 2011, the Common Shares have been listed on the TSXV under the ticker symbol APO. Since January 7, 2013, the
Common Shares have been listed on the NASDAQ Stock Market under the ticker symbol ACST.
- 44 -
As at February 28, 2013, there were 73,107,538 issued and outstanding Common Shares of Acasti, each share entitling its holder to
one (1) vote per Common Share.
Trading Prices and Volumes for Acasti
The price ranges and trading volume of the Common Shares for the most recently completed fiscal year on the TSX and the
NASDAQ was as follows:
Period
May 2013
April 2013
March 2013
February 2013
January 2013
December 2012
November 2012
October 2012
September 2012
August 2012
July 2012
June 2012
May 2012
April 2012
March 2012
High
2,74
2,52
2,57
2,65
2,68
2,76
2,68
2,60
2,21
2,33
2,30
2,25
2,47
2,27
2,24
2,30
2,05
2,00
2,04
2,16
2,00
1,60
1,98
1,96
2,02
1,96
1,90
2,00
2,05
1,90
TSX-V (CDN$)
Low
NASDAQ (US$)
Low
Volume
(daily average)
13,144
23,773
26,045
25,926
22,409
35,405
35,455
37,536
16,795
17,032
12,871
21,624
16,545
12,445
27,359
High
2,74
2,48
3,15
2,69
3,99
-
-
-
-
-
-
-
-
-
-
2,35
2,08
1,97
2,00
2,21
-
-
-
-
-
-
-
-
-
-
Volume
(daily average)
17,106
32,068
39,780
52,353
30,122
-
-
-
-
-
-
-
-
-
-
ESCROWED SECURITIES AND SECURITIES SUBJECT TO RESTRICTION ON TRANSFER
Certain securities of Acasti are deposited with Computershare Investor Services Inc. (the “Escrow Agent ”) pursuant to the TSXV
Policy 5.4 and a securities escrow agreement entered into on March 31, 2013 (the listing date of the Corporation’s Common Shares on the
TSXV) between the Corporation and the Escrow Agent (the “Escrow Agreement”).
The following table shows, as at the date hereof, the number of securities of each class of securities and the percentage that number
represents of the outstanding securities of that class, as of February 28, 2013, that are still currently held under escrow by the Escrow
Agent.
Designation of Class
Class A
Stock Options
Series 4 Warrant
Number of Securities
Held in Escrow
22,229,917
500,000
3,375,000
Percentage of Class
of Securities(1)
30.0%
9.6%
18.7%
Note:
(1) On September 30, 2013 and March 31, 2014, respectively, 27% and 73% of the escrowed securities will be released.
- 45 -
Name, Occupation and Security Holding of Directors and Executive Officers
DIRECTORS AND OFFICERS
The following table sets forth each director and executive officer’s name, province and country of residence, his/her principal
occupation, including the committees of the Board, the year in which he or she first became a director. All members of the Board of
Directors herein below will hold their positions until the next annual meeting of shareholders of the Corporation.
Principal Occupation
President and Chief Executive
Officer of Neptune
Chief of Surgery at Hôpital du
Sacré-Coeur, Montréal
Chief Operating Officer
of Neptune (4)
Position Within the
Corporation
President, Secretary and
Chief Executive Officer and
Director
Independent Director and
Chairman of the Board
Director
President, Hodran Consultants
Independent Director
Name, Province and
Country of Residence
Henri Harland (3)
Québec, Canada
Ronald Denis (1,2,3)
Québec, Canada
Michel Chartrand(1,3)
Québec, Canada
Martin Godbout(1,2,3)
Québec, Canada
Marc Lebel(1,2,3)
Québec, Canada
Harlan W. Waksal
New York, United States
Independent Director
Executive Vice-President,
Business and Scientific
Affairs
Interim Chief Executive Officer
and Director of Warnex Inc.
Executive Vice-President,
Business
and Scientific Affairs of the
Corporation
Chief Global Strategy Officer of
the Corporation
Chief Operating Officer of
Acasti
Chief Financial Officer of the
Corporation
Chief Global Strategy
Officer
Tina Sampalis
Québec, Canada
Pierre Lemieux
Québec, Canada
Xavier Harland
Québec, Canada
Notes:
(1) Member of the Audit Committee of the Corporation
(2) Member of the Compensation Committee of the Corporation
(3) Member of the Corporate Governance Committee of the Corporation
(4) M. Chartrand resigned from his office as Chief Operating Officer of Neptune on January 28, 2013
Chief Operating Officer
Chief Financial Officer
Year of Nomination
as a Director of the
Corporation
2008
2008
2008
2011
2011
-
-
-
-
As of February 28, 2013, the directors and executive officers of the Corporation, as a group, beneficially owned or exercised control
or direction over approximately 2,636,730 (3.0%) of the outstanding Common Shares.
Following are brief biographies of Acasti’s directors and executive officers:
Mr. Henri Harland – Director and President and Chief Executive Officer
Mr. Henri Harland is an Actuary and holds a MBA (Finance) from Laval University. Mr. Henri Harland has been a Director,
President and Chief Executive Officer of the Corporation since 2008. His principal occupation is President and Chief Executive Officer
of Neptune, a position he has held since Neptune’s incorporation on October 9, 1998. He is the founder of the Corporation and has been
involved in the krill research project since 1991. For more than ten years he has also held the position of President and Chief Executive
Officer of Groupe Conseil Harland Inc., a financial engineering group. Previously, he acted as an independent financial consultant guiding
companies from different industrial sectors in both North America and Europe in their capital restructure, financing and business
development.
- 46 -
Dr. Ronald Denis - Chairman of the Board and Director
Dr. Ronald Denis is Chairman of the Board and has been a Director of the Corporation since 2008. His principal occupation is Chief
of Surgery and Co-Director of the Trauma Program at Hôpital du Sacré-Coeur in Montréal. Also, since 1987, Dr. Denis has been medical
co-director of the Canadian Formula 1 Grand Prix. Dr. Denis sits on several scientific boards and management committees.
Mr. Michel Chartrand –Director
Mr. Michel Chartrand has been a Director of the Corporation since 2008. His principal occupation was Chief Operating Officer of
Neptune, a position he held from September 12, 2011 until January 28, 2013. Before joining Neptune, he was the Vice-President of Retail
Partner Solutions at McKesson Canada between 2009 and 2011. From 2004 to 2009 Mr. Chartrand was the President and Chief Executive
Officer of Groupe PharmEssor inc. which included, due to a merger, Gestion Santé Services Obonsoins Inc. and Groupe Essaim Inc., two
important Quebec pharmacy franchisors in Quebec. From 1998 to 2004, Mr. Chartrand was the Executive Vice President of Gestion
Santé Services Obonsoins Inc.
Mr. Marc Lebel – Director
Mr. Marc LeBel has been a Director of the Corporation since 2011. His principal occupation is interim Chief Executive Officer and
director of Warnex Inc., a life sciences company which provides laboratory services to the pharmaceutical and healthcare sectors. Mr.
Label is also the co-founder of Anapharm Inc., a Phase I contract research organization which employs approximately 1,200 employees.
Mr. LeBel was Executive Vice-President of Pharmanet Canada Inc., from 2005 to 2007, following its acquisition of Anapharm Inc. Mr.
LeBel is also a director of Nuchem Therapeutics Inc., a company that specializes in providing medicinal chemistry support in drug
discovery and contract research for the biotech and pharmaceutical industries. His recent venture in the film industry made him Executive
Producer of the movie “Ruby McCollum”, and Associate Producer of the 3D animation movie “Sarila”. He has received the following
honors: Excelsia 2006 BioQuébec, Grand Diplômé Université Laval, and Leadership Prize, Canadian Society Pharmaceutical Sciences.
Dr. Martin Godbout – Director
Dr. Martin Godbout has been a Director of the Corporation since 2011. His principal occupation is President of Hodran Consultatnts
Inc. He holds a B.Sc. in Biochemistry (1979) and a doctorate in physiology and molecular endocrinology from Laval University. From
1985 to 1990, he received a postdoctoral fellowship from the Medical Research Council of Canada (MRC) and resided in San Diego,
California, where he continued research work in molecular neurobiology at the Scripps Research Institute. From May 1994 to May 1997,
he was President and Chief Executive Officer of Innovatech Quebec, a technology investment fund managing approximately $60 million.
In May 1997, he became Vice-President of BioCapital, a Canadian venture fund specialized in the financing of start-up companies in the
areas of health and biotechnology. From 1999 to 2009, Dr. Godbout was the President of Genome Canada. Dr. Godbout is also an Officer
of the Order of Canada (2005). Dr. Godbout has been a director of MethylGene since 2004, a public company listed on the Toronto Stock
Exchange. Dr. Godbout is currently a director on several boards of high technology companies, foundations and scientific organizations
such as AmorChem, AngioChem Inc., Asmacure Inc., BioContact Québec Inc., Génome Québec, BioQuébec, Montréal In Vivo, Fonds de
Recherche Québec-Santé and the Ataxia Charlevoix Foundation.
Dr. Pierre Lemieux Ph.D. – Chief Operating Officer
Dr. Pierre Lemieux has been the Chief Operating Officer of the Corporation since April 12, 2010. He holds a post-doctoral degree in
Oncology from the Health Science Center, University of Texas (San Antonio), USA, and a PhD in biochemistry from Laval University,
Canada, jointly with University of Nottingham, England. Prior to joining the Corporation, Dr. Lemieux was the President, Chief
Executive Officer and the chairman of the board as well as being the founder of Technologie Biolactis Inc., a late-stage biotechnology
company specialized in the valorization of proteins to better serve the nutraceutical, cosmetic and pharmaceutical industries.
- 47 -
Mr. Xavier Harland – Chief Financial Officer
Mr. Xavier Harland joined the Corporation as Chief Financial Officer on in March of 2011. He graduated from Laval University in
Actuarial Science in 2003. He is also a CFA charter holder since 2007 and FRM holder since 2006. Xavier Harland was the Director of
Finance for Neptune from 2004 to 2011. Mr. Harland works full time for the Neptune group, which also includes NeuroBioPharm,
Acasti’s sister company.
Dr. Harlan W. Waksal – Vice-President, Business and Scientific Affairs
Dr. Harlan W. Waksal. is the Vice-President, Business and Scientific Affairs at the Corporation. Dr. Waksal is a retired physician, he
received his B.A. from Oberlin College and M.D. from Tufts University School of Medicine, and his post graduate training in Internal
Medicine and in Pathology. In addition, he conducted research in immunology at the Weizmann Institute of Science. Dr. Waksal was a
founder of Imclone Systems Incorporated, a New York based pharmaceutical company specializing in developing new treatment for
various forms of cancer. He served as the Chief Operating Officer and member of the board of directors from 1986 until 2001 and as
President/Chief Executive Officer from 2001 until 2002. During his tenure, he was responsible for building the scientific and operation
infrastructure of the company. Dr. Waksal is the author of over 50 scientific publications and has also authored multiple patents and
patent applications. Dr. Waksal currently serves on the boards of the Oberlin College, Senesco Technologies, Inc. He also serves on the
Advisory Board of Northern Rivers Funds.
Dr. Tina Sampalis M.D., Ph.D. – Chief Global Strategy Officer
Dr. Tina Sampalis is the Chief Global Strategy Officer of the Corporation. Dr. Sampalis is an Oncology Surgeon, trained in
Physiology at McGill University, Medicine at the University of Patras (Greece), Dermatology at Göttingen University (Germany) and
Marselisborg University (Denmark), Pediatric, General and Oncology Surgery at the University of Athens (Greece), graduate training
(PhD) in Surgical Research at the University of Athens and a second PhD in Epidemiology and Experimental Surgery at McGill
University. Between May 2000 and June 2007, she held the position of Vice-President of Research and Business Development at
Neptune and since June 2007 the position of Chief Scientific Officer of the Corporation. She ceased to occupy these positions following
her nomination as Chief Global Strategy Officer for Neptune and Acasti, which was announced on May 25, 2012.
CEASE TRADE ORDERS, BANKRUPTCIES, PENALTIES OR SANCTIONS
To the knowledge of Acasti, none of the directors or executive officers of the Corporation:
(a) is, or has been, within the last ten years, a director, chief executive officer or chief financial officer of any Corporation that:
(i) was subject to a cease trade order, an order similar to a cease trade order, or an order that denied the relevant Corporation
access to any exemption under applicable securities legislation, that was in effect for a period of more than 30 consecutive
days (an “Order”), which Order was issued while the director or executive officer was acting in the capacity as director,
chief executive officer or chief financial officer; or
(ii) was subject to an Order that was issued after the director or executive officer ceased to be a director, chief executive officer
or chief financial officer and which resulted from an event that occurred while that person was acting in the capacity as
director, chief executive officer or chief financial officer; or
To the knowledge of Acasti, no director or executive officer of the Corporation, or shareholder holding a sufficient number of
securities of the Corporation to affect materially the control of the Corporation:
(a) is, or has been, within the last ten years, a director or executive officer of any Corporation that, while that person was acting in
that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any
legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise
with creditors or had a receiver manager or trustee appointed to hold its assets; or
- 48 -
(b) has, within the last ten years, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or
become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager
or trustee appointed to hold his or its assets of the proposed director.
To the knowledge of Acasti, no director, executive officer or shareholder holding a sufficient number of securities of the Corporation
to affect materially the control of the Corporation has been subject to:
(a) any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has
entered into a settlement agreement with a securities regulatory authority; or
(b) any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a
reasonable security holder in deciding whether to vote for a proposed director.
LEGAL PROCEEDINGS AND REGULATORY ACTIONS
The Corporation is not aware of any legal proceedings or regulatory actions in which it is involved and no such proceedings or
regulatory actions are known by the Corporation to be contemplated, except in the section entitled “Acasti’s Business – Litigation.”
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
None of the insiders of the Corporation, the Directors, or any of their respective associates or affiliates, has or has had any material
interest, direct or indirect, in any material transaction whether proposed or concluded, since the beginning of the Corporation’s most
recently completed fiscal year and for the three (3) last completed fiscal years.
TRANSFER AGENTS AND REGISTRARS
Computershare Trust Company of Canada, at its offices in Montreal, is the transfer agent and registrar for the Corporation’s Common
Shares.
MATERIAL CONTRACTS
The Corporation has not entered into any material contract, other than those entered into in the normal course of business, within the
most recently completed fiscal year, or before the most recently completed fiscal year, which is still in effect except for the license
agreement entered into with Neptune on August 7, 2008 and the prepayment agreement entered into with Neptune on December 4, 2012.
See “Acasti’s Business – Intellectual Property – License Agreement.”
INTEREST OF EXPERTS
KPMG LLP (“KPMG”), has audited the Corporation’s consolidated financial statements for the years ended as at February 28, 2013
and February 28, 2012. KPMG is independent with respect to Neptune Technologies & Bioressources Inc. and Acasti Pharma Inc. within
the meaning of the relevant rules and related interpretations prescribed by the relevant professional bodies in Canada.
Audit Committee’s Charter
REPORT ON AUDIT COMMITTEE
The Charter of the Audit Committee is annexed to this circular as Schedule A. The Charter was adopted by the Board of Directors on
June 6, 2007.
- 49 -
Composition of the Audit Committee
The Audit Committee is currently composed of four (4) members of Board of Directors: Dr. Ronald Denis, Mr. Marc LeBel, Mr.
Michel Chartrand and Mr. Martin Godbout. Under National Instrument 52-110 Audit Committees (“ NI 52-110”), a member of an Audit
Committee is “independent” if he or she has no direct or indirect material relationship with the issuer, that is, a relationship which could,
in the view of the Board of Directors, reasonably interfere with the exercise of the member’s independent judgment. Mr. Michel
Chartrand, the only non-independent member of the Audit Committee, is not a nominee for election as a director at the Corporation’s next
annual general meeting.
On January 7, 2013, the Corporation became a NASDAQ-listed public company. From the beginning of the fiscal year February 28,
2013 up until the date the Corporation became a NASDAQ-listed public company, the Corporation was a “venture issuer” as defined in
MI 52-110 and relied on the exemption contained in section 6.1 of MI 52-110, which exempted it from the requirements of Part 3
(Composition of Audit Committee). The Corporation is no longer a “venture issuer”, as defined in MI 52-110, and no longer relies on the
exemption contained in section 6.1 of MI 52-110. Essentially, this exemption exempts a "venture issuer" from the requirements to have
100% of the members of its audit committee independent, as would otherwise be required by NI 52-110.
Since January 7, 2013, the date that the Corporation no longer qualified for the exemption under Section 6.1 of MI 52-110 relating to
the composition of the Audit Committee, to the end of the fiscal year February 28, 2013, the Audit Committee did not hold any meetings.
All members of the Audit Committee are considered to be “financially literate” within the meaning of applicable Canadian securities
regulations in that they each have the ability to read and understand a set of financial statements that present a breadth and level of
complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be
expected to be raided by the Corporation financial statements.
Relevant Education and Experience
The following describes the relevant education and experience of each member of the Audit Committee that shows their (a)
understanding of the accounting principles used by the Corporation to prepare its financial statements, (b) ability to assess the general
application of such accounting principles, (c) experience preparing, auditing, analyzing or evaluating financial statements that present a
breadth and level of complexity of accounting issues that are generally comparable to those that can reasonably be expected to be raised
by the Corporation’s financial statements or experience actively supervising one or more persons engaged in such activities, and (d)
understanding of internal controls and procedures for financial reporting.
Dr. Ronald Denis – Dr. Denis has been Chief of Surgery and Director of the Trauma Program at Hôpital Sacré-Coeur since 1997. In
his duties, Dr. Denis has to manage Sacré-Coeur Hospital Trauma Program budget and staff, also he has had to regularly review and
analyze financial statements. Dr. Denis’ experience has contributed to the development of his ability to analyze financial statements and
understand GAAP.
Mr. Marc Lebel – Mr. Marc LeBel is the co-founder of Anapharm, a Phase I contract research organization, that reached 1 200
employees. Mr. LeBel was Executive Vice-President of Pharmanet, from 2005 to 2007, following its acquisition of Anapharm. Mr. LeBel
is currently Interim CEO and Director of Warnex Inc., Director of Acasti Pharma Inc. and Nuchem Inc. He received the following honors:
Excelsia 2006 BioQuébec, Grand Diplômé Université Laval, and Leadership Prize, Canadian Society Pharmaceutical Sciences. Mr.
Lebel’s experience as an executive officer has contributed to his understanding of internal controls and procedures for financial reporting
and his ability to evaluate financial statements.
Dr. Martin Godbout – Mr. Martin Godbout holds a B.Sc. in Biochemistry (1979) and a doctorate in physiology and molecular
endocrinology from Laval University. From 1985 to 1990, he received a postdoctoral fellowship from the Medical Research Council of
Canada (MRC) and went to San Diego, California, where he continued research work in molecular neurobiology at the Scripps Research
Institute. From May 1994 to May 1997, he was President and CEO of Innovatech Québec, a technology investment fund of 60 million
dollars. In May 1997, he became Vice-President of BioCapital, a Canadian venture fund specialized in private financing of start-up
- 50 -
companies demonstrating strong potential in the areas of health and biotechnology. From 200 to 2009 he was President of Genome
Canada. Mr. Godbout is an Officer of the Order of Canada (2005). Since 2004, Mr. Godbout is a director of MethylGene, a public
company listed on the Toronto Stock Exchange. Mr. Godbout is currently a director on several boards of high technology companies,
foundations and scientific organizations such as AmorChem, AngioChem, Asmacure, BioContact Québec, Génome Québec, BioQuébec,
Montréal In Vivo, Fonds de Recherche Québec-Santé and the Ataxia Charlevoix Foundation. Mr. Godbout’s experience as an executive
officer has contributed to his understanding of internal controls and procedures for financial reporting and his ability to evaluate financial
statements.
Mr. Michel Chartrand – Mr. Chartrand has been a director of the Corporation since 2008. His principal occupation was Chief
Operating Officer of Neptune, a position he held from September 12, 2011 until January 28, 2013. Before joining Neptune, he was the
Vice-President of Retail Partner Solutions at McKesson Canada between 2009 and 2011. From 2004 to 2009 Mr. Chartrand was the
President and Chief Executive Officer of Groupe PharmEssor inc. which included, due to a merger, Gestion Santé Services Obonsoins
Inc. and Groupe Essaim Inc., two important Quebec pharmacy franchisors in Quebec. From 1998 to 2004, Mr. Chartrand was the
Executive Vice President of Gestion Santé Services Obonsoins Inc. Mr. Chartrand’s experience as an executive officer has contributed to
his understanding of internal controls and procedures for financial reporting and his ability to evaluate financial statements.
External Auditor Fees
Audit Fees
“Audit fees” consist of fees for professional services for the audit of the Corporation’s annual financial statements and review of the
interim financial statements and related matters. For the fiscal year ended February 28, 2013 and February 29, 2012, KPMG LLP, the
Corporation’s external auditors, billed $35,000 and $40,000, respectively, to the Corporation for audit fees.
Audit-Related Fees
“Audit-related fees” consist of fees for professional services that are reasonably related to the performance of the audit or review of
the Company’s financial statements and which are not reported under “Audit Fees” above. For the fiscal year ended February 28, 2013,
and February 29, 2012 KPMG LLP, the Corporation’s external auditors, billed $33,500 and $30,750, respectively, to the Corporation
(accounting consultations, prospectus filings).
Tax Fees
“Tax fees” consist of fees for professional services for tax compliance, tax advice and tax planning. KPMG LLP, the Corporation’s
external auditors, billed a total of $7,500 to the Corporation for tax fees for fiscal year ended February 28, 2013 and a total of $7,000 to
the Corporation for the fiscal year ended February 29, 2012. Tax fees include, but are not limited to, preparation of tax returns.
All Other Fees
The “other fees” include all other fees billed for professional services other than those mentioned hereinabove. KPMG LLP, the
Corporation’s external auditors, billed no fees as to this matter the fiscal years ended February 28, 2013 and February 29, 2012.
Additional information relating to the Corporation may also be found on the SEDAR website at www.sedar.com, and on EDGAR at
ADDITIONAL INFORMATION
www.sec.gov/edgar.shtml.
Additional information, including directors’ and officers’ remuneration and indebtedness, principal holders of the Corporation’s
securities, options to purchase securities and interests of informed persons in material transactions, if applicable, is contained in Acasti’s
Management Proxy Circular dated May 22, 2013 and available on SEDAR. Additional financial information is also provided in the
Corporation’s financial statements and MD&A for the most recently completed fiscal year.
- 51 -
SCHEDULE “A”
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee of the Board of Directors assists the Board in fulfilling its oversight responsibilities relating to the quality and
integrity of the accounting, auditing and reporting practices of the Corporation and such other duties as directed by the Board of Directors
or imposed by legislative authorities or stock exchanges.
Structure and Organization
1. The membership of the Committee will consist of at least three independent members of the Board of Directors, the majority of
whom will not be employees, controlling shareholders or executives of the Corporation or of any associates or affiliates of the
Corporation. Committee members and the Committee Chairman shall be designated by and serve at the pleasure of the Board of
Directors. All members must be financially literate and at least one member must have accounting or related financial
management expertise, in each case in the judgment of the Board of Directors.
2. The Committee shall meet at least four times per year or more frequently as circumstances require. The Committee may ask
members of management or others to attend meetings and provide pertinent information as necessary. The required quorum for
the Committee will be the majority of the members forming the Committee.
3. The Committee is expected to maintain free and open communication with management and the external auditors.
4. The Committee has the authority to investigate any matter brought to its attention and to retain outside counsel for this purpose
if, in its judgment, that is appropriate.
General Responsibilities
The Committee shall:
1. Meet periodically with representatives of the external auditors, the internal audit manager (if any) and management in separate
sessions to discuss any matters that the Committee or these groups believe should be discussed privately with the Committee.
Provide sufficient opportunity for the external auditors to meet with the internal auditors as appropriate without members of
management being present.
2. Prepare the minutes of all Committee meetings and report of such meetings to the Board of Directors.
3. Review and reassess the adequacy of this Charter annually.
Responsibilities for Engaging External Auditors
The Committee shall:
1. Recommend for approval by the Board of Directors and ratification by the shareholders the selection and retention of an
independent firm of chartered professional accountants as external auditors, approve compensation of the external auditors,
and review and approve in advance the discharge of the external auditors.
2. Review the independence of the external auditors. In considering the independence of the external auditors, the Committee will
review the nature of the services provided by the external auditors and the fees charged, and such other matters as the
Committee deems appropriate.
A-1
3. Ensure that the external auditors are in good standing with the Canadian Public Accountability Board (CPAB) and that the
CPAB has not imposed any sanction on them. The Audit Committee is also responsible for ensuring that the external auditors
comply with the rotation requirements with respect to partners involved in the audit of the Corporation.
4. Arrange for the external auditors to be available to the Board of Directors at least annually to help provide a basis for the
Board’s approval of the external auditors’ appointment.
5. Approve all allowable non-audit related services to be provided to the Corporation or one of its subsidiaries by the
Corporation’s external auditors if applicable.
6. Non-audit services of minimal amount satisfy the pre-approval requirements on the following conditions:
(a) that the aggregate amount of all non-audit services that were not pre-approved is reasonably expected to constitute no
more than five per cent of the total amount of fees paid by the Corporation and its subsidiaries to the Corporation’s
external auditors during the fiscal year in which the services are provided;
(b) that the Corporation or its subsidiaries, as the case may be, did not recognize the services as non-audit services at the
time of the engagement; and
(c) that the services are promptly brought to the attention of the Audit Committee and approved, prior to the completion of
the audit, by the Audit Committee or by one or more of its members to whom authority to grant such approvals had
been delegated by the Audit Committee.
Responsibilities for Oversight of the Quality and Integrity of Accounting, Auditing and Reporting Practices of the Corporation
The Committee shall:
1. Directly review the work of the external auditors engaged for the purpose of preparing or issuing an auditor’s report or
performing other audit, review or attestation services for the Corporation. The Committee shall be directly responsible of the
resolution of disagreements between management and the external auditors regarding financial reporting.
2. Review the Corporation’s financial statements, management’s discussion and analysis (MD&A) and annual and interim
earnings press releases together with management and the external auditors, if applicable, before the Corporation publicly
discloses this information. This review should cover the quality of the financial reporting and such other matters as the
Committee deems appropriate.
3. Review with the external auditors and management the audit plan of the external auditors for the current year and the following
year.
4. Review with financial and accounting personnel, the adequacy and effectiveness of the accounting, financial, and computerized
information systems controls of the Corporation, and the results of any external audit procedures, if applicable.
5. Establish procedures for the receipt, retention and treatment of complaints received regarding accounting, internal accounting
controls or auditing matters. Such complaints are to be treated confidentially and anonymously.
6. Review and approve all related party transactions undertaken by the Corporation.
A-2
Periodic Responsibilities
The Committee shall:
1. Review periodically with management any legal and regulatory matters that may have a material impact on the Corporation’s
financial statements, compliance policies and compliance programs.
2. Review with management and approve transactions involving management and/or members of the Board of Directors, which
would require disclosure under TSX Venture Exchange rules.
3. Supervise the corporate compliance program and periodically review whether any improvements should be made thereto and
make appropriate recommendations to management.
4. Perform such other functions assigned by law, the Corporation’s Articles or bylaws, or by the Board of Directors.
5. Review services and related fees for work done by the external auditors as well as an updated projection of the total costs for
the fiscal year.
6. Review and approve the engagement policy of the Corporation with respect to partners, employees, former partners and
employees of the current and previous external auditors of the Corporation.
7. Implement a process for the identification of the principal business risks and monitor the implementation of appropriate
methods of risk management. This process will require consultation with management in order to determine how risks are
handled and to solicit the opinion of the internal audit department with respect to the effectiveness of the risk limitation
strategies.
Authority of the Audit Committee
The Committee shall have the authority to:
1. Engage independent counsel and other advisors as it determines necessary to carry out its duties.
2. Pay the compensation for any advisors employed by the Committee. The Committee shall notify the Board of Directors on the
extent of the financing required to pay for the compensation of the independent expert advisors retained to advise the
Committee.
3. Communicate directly with the internal and external auditors.
A-3
EXHIBIT 99.2
Financial Statements of
ACASTI PHARMA INC.
Years ended February 28, 2013 and February 29, 2012
KPMG LLP
600 de Maisonneuve Blvd. West
Suite 1500
Tour KPMG
Montréal (Québec) H3A 0A3
Telephone (514) 840-2100
(514) 840-2187
Fax
www.kpmg.ca
Internet
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of Acasti Pharma Inc.
We have audited the accompanying financial statements of Acasti Pharma Inc., which comprise the statements of financial position as at
February 28, 2013 and February 29, 2012, the statements of earnings and comprehensive loss, changes in equity and cash flows for the
years then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with International
Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), and for such internal
control as management determines is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance
with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The
procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements,
whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair
presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating
the overall presentation of the financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of Acasti Pharma Inc. as at February
28, 2013 and February 29, 2012, and its financial performance and its cash flows for the years then ended in accordance with IFRS as
issued by the IASB.
Emphasis of Matter
Without modifying our opinion, we draw attention to note 2 (b) in the financial statements, which indicates that Acasti Pharma Inc. has
incurred operating losses and negative cash flows from operations since inception. This condition, along with other matters as set forth in
note 2 (b) in the financial statements, indicates the existence of a material uncertainty that casts substantial doubt about Acasti Pharma
Inc.'s ability to continue as a going concern.
May 21, 2013
Montréal, Canada
*CPA auditor, CA, public accountancy permit No. A110592
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative
("KPMG International"), a Swiss entity.
KPMG Canada provides services to KPMG LLP.
ACASTI PHARMA INC.
Financial Statements
Years ended February 28, 2013 and February 29, 2012
Financial Statements
Statements of Financial Position
Statements of Earnings and Comprehensive Loss
Statements of Changes in Equity
Statements of Cash Flows
Notes to Financial Statements
1
2
3
4
5
ACASTI PHARMA INC.
Statements of Financial Position
February 28, 2013 and February 29, 2012
Assets
Current assets:
Cash
Short-term investments
Trade and other receivables (note 4)
Receivable from corporation under common control
Tax credits receivable (note 6)
Inventories (note 7)
Prepaid expenses
Equipment (note 8)
Intangible assets (note 9)
Total assets
Liabilities and Equity
Current liabilities:
Trade and other payables (note 10)
Payable to parent corporation (note 5)
Royalties payable to parent corporation (note 18)
Total liabilities
Equity:
Share capital (note 11 (a))
Warrants and rights (note 11 (c), (d))
Contributed surplus
Deficit
Total equity
Commitments (note 18)
Total liabilities and equity
See accompanying notes to financial statements.
On behalf of the Board:
/s/ Ronald Denis
Dr. Ronald Denis
Chairman of the Board
$
$
$
February 28,
2013
February 29,
2012
1,196,568 $
3,588,227
450,838
49,658
335,501
222,125
16,691
5,859,608
19,278
6,291,162
1,589,810
5,542,764
442,718
49,658
590,402
599,456
41,650
8,856,458
27,164
6,845,238
12,170,048 $
15,728,860
706,883 $
1,210,604
528,885
2,446,372
28,922,710
406,687
438,711
(20,044,432)
9,723,676
995,662
214,772
49,084
1,259,518
28,614,550
313,315
(1,306,451)
(13,152,072)
14,469,342
$
12,170,048 $
15,728,860
/s/ Michel Chartrand
Michel Chartrand
Director
1
ACASTI PHARMA INC.
Statements of Earnings and Comprehensive Loss
Years ended February 28, 2013 and February 29, 2012
Revenue from sales
Cost of sales
Gross profit
Revenue from research contracts (note 5)
General and administrative expenses
Research and development expenses, net of tax credits of $370,259 (2012 - $453,316)
Results from operating activities
Finance income (note 13)
Finance costs (note 13)
Foreign exchange gain (loss)
Net finance income
Net loss and total comprehensive loss for the year
Basic and diluted loss per share (note 15)
Weighted average number of shares outstanding (note 15)
See accompanying notes to financial statements
2
February 28,
2013
February, 29
2012
$
724,196 $
(406,371)
317,825
10,415
(5,077)
5,338
115,966
–
(4,288,542) (3,529,384)
(3,009,016) (3,104,762)
(6,979,733) (6,512,842)
47,241
(2,685)
42,817
87,373
43,143
(8,962)
(22,272)
11,909
$ (6,892,360) $ (6,500,933)
$
(0.09) $
(0.10)
72,754,436 67,231,636
ACASTI PHARMA INC.
Statements of Changes in Equity
Years ended February 28, 2013 and February 29, 2012
Share capital
Number
Warrants Contributed
surplus
and rights
Dollar
Deficit
Total
Balance, February 29, 2012
72,636,888 $
28,614,550 $
313,315 $
(1,306,451) $(13,152,072) $
14,469,342
Net loss and total comprehensive loss
for the year
Transactions with owners, recorded
directly in equity
Contributions by and distributions to
owners
Share-based payment transactions
Warrants exercised
Share options exercised
Total contributions by and distributions
to owners
–
72,636,888
–
28,614,550
–
313,315
–
(6,892,360)
(1,306,451) (20,044,432)
(6,892,360)
7,576,982
–
353,150
117,500
–
88,289
219,871
93,372
–
–
1,823,845
–
(78,683)
–
–
–
1,917,217
88,289
141,188
470,650
308,160
93,372 1,745,162
–
2,146,694
Balance at February 28, 2013
73,107,538 $
28,922,710 $
406,687 $
438,711 $(20,044,432) $
9,723,676
Balance, February 28, 2011
59,174,444 $
12,174,901 $
– $
181,074 $ (6,651,139) $
5,704,836
Net loss and total comprehensive loss
for the year
Transactions with owners, recorded
directly in equity
Contributions by and distributions to
owners
Issuance of shares through private
placement
Conversion of convertible redeemable
shares
Share-based payment transactions
Warrants exercised
Share options exercised
Issuance of rights
Rights exercised
Total contributions by and distributions
to owners
–
59,174,444
–
12,174,901
–
–
–
(6,500,933)
181,074 (13,152,072)
(6,500,933)
(796,097)
1,500,000
1,978,600
–
–
–
1,978,600
5,260,000
–
214,500
42,500
–
6,445,444
4,052,000
–
55,500
13,252
–
313,315
–
–
– 2,490,280
10,340,297 (2,490,280)
–
1,007,256
–
(4,501)
(2,490,280)
–
–
–
–
–
–
–
4,052,000
1,320,571
55,500
8,751
–
7,850,017
13,462,444
16,439,649
313,315
(1,487,525)
–
15,265,439
Balance at February 29, 2012
72,636,888 $
28,614,550 $
313,315 $
(1,306,451) $(13,152,072) $
14,469,342
See accompanying notes to financial statements.
3
ACASTI PHARMA INC.
Statements of Cash Flows
Years ended February 28, 2013 and February 29, 2012
Cash flows used in operating activities:
Net loss for the year
Adjustments:
Depreciation of equipment
Amortization of intangible asset
Stock-based compensation
Net finance income
Foreign exchange gain (loss)
Foreign exchange (gain) loss on cash
Changes in non-cash operating working capital items:
Trade and other receivables
Receivable from corporation under common control
Tax credits receivable
Inventories
Prepaid expenses
Trade and other payables
Payable to parent corporation
Royalties payable to parent corporation
Net cash used in operating activities
Cash flows from (used in) investing activities:
Interest received
Acquisition of intangible assets
Acquisition of short-term investments
Maturity of short-term investments
Net cash from (used in) investing activities
Cash flows from financing activities:
Proceeds from exercise of warrants and options
Net proceeds from exercise of rights
Net proceeds from private placement
Interest paid
Net cash from financing activities
Foreign exchange gain (loss) on cash held in foreign currencies
Net (decrease) increase in cash
Cash, beginning of year
Cash, end of year
Supplemental cash flow disclosure:
Non-cash transactions:
February 28,
2013
February 29,
2012
$ (6,892,360) $ (6,500,933)
7,886
657,144
10,745
657,142
1,917,217 1,320,571
(11,909)
(22,272)
9,484
(4,384,817) (4,537,172)
(87,373)
42,817
(30,148)
(8,120)
–
254,901
377,331
24,959
(288,779)
995,832
479,801
(250,278)
(37,277)
(349,102)
(599,456)
(27,219)
485,057
(220,538)
(78,936)
1,835,925 (1,077,749)
(2,548,892) (5,614,921)
1,778
(103,068)
8,126
–
– (7,500,000)
2,000,000 4,500,000
1,898,710 (2,991,874)
229,477
64,251
– 7,850,017
– 1,978,600
(8,962)
226,792 9,883,906
(2,685)
30,148
(9,484)
(393,242) 1,267,627
1,589,810
322,183
$ 1,196,568 $ 1,589,810
Conversion of convertible redeemable shares (note 11)
$
– $ 4,052,000
See accompanying notes to financial statements.
4
ACASTI PHARMA INC.
Notes to Financial Statements
Years ended February 28, 2013 and February 29, 2012
1.
Reporting entity
Acasti Pharma Inc. (the "Corporation") is incorporated under the Business Corporations Act (Québec) (formerly Part 1A of the
Companies Act (Québec)). The Corporation is domiciled in Canada and its registered office is located at 545, Promenade du
Centropolis, Laval, Québec, H7T 0A3. The Corporation is a majority-owned subsidiary of Neptune Technologies and
Bioressources Inc. (“Neptune”).
On August 7, 2008, the Corporation commenced operations after having acquired from Neptune an exclusive worldwide license to
use its intellectual property to develop, clinically study and market new pharmaceutical products to treat human cardiovascular
conditions. Neptune’s intellectual property is related to the extraction of particular ingredients from marine biomasses, such as
krill. The eventual products are aimed at applications in the over-the-counter medicine, medical foods and prescription drug
markets.
Operations essentially consist in the development of new products and the conduct of clinical research studies on animals and
humans. Almost all research and development, administration and capital expenditures incurred by the Corporation since the start
of the operations are associated with the project described above.
The Corporation is subject to a number of risks associated with the successful development of new products and their marketing, the
conduct of its clinical studies and their results, the meeting of development objectives set by Neptune in its license agreement, and
the establishment of strategic alliances. The Corporation will have to finance its research and development activities and its clinical
studies. To achieve the objectives of its business plan, the Corporation plans to establish strategic alliances, raise the necessary
capital and make sales. It is anticipated that the products developed by the Corporation will require approval from the U.S Food and
Drug Administration and equivalent organizations in other countries before their sale can be authorized.
2.
Basis of preparation
(a) Statement of compliance:
These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as
issued by the International Accounting Standards Board (“IASB”).
The financial statements were authorized for issue by the Board of Directors on May 21, 2013.
(b) Going concern:
The Corporation has incurred operating losses and negative cash flows from operations since inception. As at February 28,
2013, the Corporation’s current liabilities and expected level of expenses in the research and development phase of its drug
candidate significantly exceed current assets. The Corporation’s liabilities at February 28, 2013 include amounts due to
Neptune of $1,739,489. The Corporation plans to rely on the continued support of Neptune to pursue its operations, including
obtaining additional funding, if required. The continuance of this support is outside of the Corporation’s control. If the
Corporation does not receive the continued financial support from its parent or the Corporation does not raise additional funds,
it may not be able to realize its assets and discharge its liabilities in the normal course of business. As a result, there exists a
material uncertainty that casts substantial doubt about the Corporation’s ability to continue as a going concern and, therefore,
realize its assets and discharge its liabilities in the normal course of business.
The financial statements have been prepared on a going concern basis, which assumes the Corporation will continue its
operations in the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the
ordinary course of business. These financial statements do not include any adjustments to the carrying values and classification
of assets and liabilities and reported revenues and expenses that may be necessary if the going concern basis was not
appropriate for these financial statements.
(c) Basis of measurement:
The financial statements have been prepared on the historical cost basis, except for stock-based compensation which is initially
recorded at fair value as detailed in Note 3(g) (ii).
(d) Functional and presentation currency:
These financial statements are presented in Canadian dollars, which is the Corporation’s functional currency.
5
ACASTI PHARMA INC.
Notes to Financial Statements, Continued
Years ended February 28, 2013 and February 29, 2012
2.
Basis of preparation (continued):
(e) Use of estimates and judgements:
The preparation of the financial statements in conformity with IFRS requires management to make judgements, estimates and
assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and
expenses. Actual results may differ from these estimates.
Estimates are based on the management’s best knowledge of current events and actions that the Corporation may undertake in
the future. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognized in the period in which the estimates are revised and in any future periods affected.
Critical judgements in applying accounting policies that have the most significant effect on the amounts recognized in the
financial statements include the following:
· The use of the going concern basis (Note 2 (b)).
Assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next
financial year include the following:
· Measurement of stock-based compensation (Note 14).
· Allocation of shared costs amongst the Neptune group companies (Note 5).
Also, the Corporation uses its best estimate to determine which research and development ("R&D") expenses qualify for R&D
tax credits and in what amounts. The Corporation recognizes the tax credits once it has reasonable assurance that they will be
realized. Recorded tax credits are subject to review and approval by tax authorities and, therefore, could be different from the
amounts recorded.
3.
Significant accounting policies:
The accounting policies set out below have been applied consistently to all years presented in these financial statements.
(a) Financial instruments:
(i) Non-derivative financial assets:
The Corporation initially recognizes loans and receivables on the date that they are originated. All other financial assets
(including assets designated at fair value through profit or loss) are recognized initially on the trade date at which the
Corporation becomes a party to the contractual provisions of the instrument.
The Corporation derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it
transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the
risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is
created or retained by the Corporation is recognized as a separate asset or liability.
Financial assets and liabilities are offset and the net amount presented in the statements of financial position (balance
sheets) when, and only when, the Corporation has a legal right to offset the amounts and intends either to settle on a net
basis or to realize the asset and settle the liability simultaneously.
The Corporation has the following non-derivative financial assets: cash, short-term investments and receivables.
Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market.
Such assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial
recognition, loans and receivables are measured at amortized cost using the effective interest method, less any impairment
losses.
Loans and receivables comprise cash, trade and other receivables, and short-term investments with maturities of less than
one year.
6
ACASTI PHARMA INC.
Notes to Financial Statements, Continued
Years ended February 28, 2013 and February 29, 2012
3.
Significant accounting policies (continued):
(a) Financial instruments (continued):
(i) Non-derivative financial assets (continued):
Loans and receivables (continued):
Cash and cash equivalents comprise cash balances and highly liquid investments purchased three months or less from
maturity. Bank overdrafts that are repayable on demand and form an integral part of the Corporation’s cash management
are included as a component of cash and cash equivalents for the purpose of the statements of cash flows.
(ii) Non-derivative financial liabilities:
The Corporation initially recognizes debt securities issued and subordinated liabilities on the date that they are originated.
All other financial liabilities (including liabilities designated at fair value through profit or loss) are recognized initially on
the trade date at which the Corporation becomes a party to the contractual provisions of the instrument.
The Corporation derecognizes a financial liability when its contractual obligations are discharged or cancelled or expire.
Financial assets and liabilities are offset and the net amount presented in the statements of financial position (balance
sheets) when, and only when, the Corporation has a legal right to offset the amounts and intends either to settle on a net
basis or to realize the asset and settle the liability simultaneously.
The Corporation has the following non-derivative financial liabilities: trade and other payables and payable to parent
corporation.
Such financial liabilities are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to
initial recognition, these financial liabilities are measured at amortized cost using the effective interest method.
(iii) Share capital:
Common shares
Class A common shares are classified as equity. Incremental costs directly attributable to the issue of common shares and
share options are recognized as a deduction from equity, net of any tax effects.
Preference share capital
Preference share capital is classified as equity if it is non-redeemable, or redeemable only at the Corporation’s option, and
any dividends are discretionary. Dividends thereon are recognized as distributions within equity.
Preference share capital is classified as a liability if it is redeemable on a specific date or at the option of the shareholders,
or if dividend payments are not discretionary. Dividends thereon are recognized as interest expense in profit or loss as
accrued.
(iv) Compound financial instruments:
Compound financial instruments issued by the Corporation comprise convertible redeemable shares that can be converted
to share capital at the option of the holder, and the number of shares to be issued does not vary with changes in their fair
value.
The liability component of a compound financial instrument is recognized initially at the fair value of a similar liability that
does not have an equity conversion option. The equity component is recognized initially as the difference between the fair
value of the compound financial instrument as a whole and the fair value of the liability component. Any directly
attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying
amounts.
Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortized cost
using the effective interest method. The equity component of a compound financial instrument is not remeasured
subsequent to initial recognition.
Interest, dividends, losses and gains relating to the financial liability are recognized in profit or loss. Distributions to the
equity holders are recognized in equity, net of any tax benefit.
7
ACASTI PHARMA INC.
Notes to Financial Statements, Continued
Years ended February 28, 2013 and February 29, 2012
3.
Significant accounting policies (continued):
(a) Financial instruments (continued):
(v) Other equity instruments:
Warrants, options and rights issued outside of share-based payment transactions that do not meet the definition of a
derivative financial instrument are recognized initially at fair value in equity. Upon simultaneous issuance of multiple
equity instruments, consideration received, net of issue costs, is allocated based on their relative fair values. Equity
instruments are not subsequently remeasured.
(b) Inventories:
Inventories are measured at the lower of cost and net realizable value. The cost of raw materials and spare parts is based on the
weighted-average cost method. The cost of finished goods and work in progress is determined per project and includes
expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to
their existing location and condition, as well as production overheads based on normal operating capacity.
Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and
selling expenses.
(c) Equipment:
(i) Recognition and measurement:
Equipment is measured at cost less accumulated depreciation and accumulated impairment losses.
Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets
includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working
condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are
located, and borrowing costs on qualifying assets for which the commencement date for capitalization is on or after March
1, 2010.
Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment.
When parts of an equipment have different useful lives, they are accounted for as separate items (major components) of
equipment.
Gains and losses on disposal of equipment are determined by comparing the proceeds from disposal with the carrying
amount of equipment, and are recognized net within ''other income or expenses'' in profit or loss.
(ii) Subsequent costs:
The cost of replacing a part of an equipment is recognized in the carrying amount of the item if it is probable that the
future economic benefits embodied within the part will flow to the Corporation, and its cost can be measured reliably. The
carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing of equipment are recognized in
profit or loss as incurred.
8
ACASTI PHARMA INC.
Notes to Financial Statements, Continued
Years ended February 28, 2013 and February 29, 2012
3.
Significant accounting policies (continued):
(c) Equipment (continued):
(iii) Depreciation:
Depreciation is recognized in profit or loss on either a straight-line basis or a declining basis over the estimated useful lives
of each part of an item of equipment, since this most closely reflects the expected pattern of consumption of the future
economic benefits embodied in the asset.
The estimated useful lives and rates for the current and comparative years are as follows:
Assets
Furniture and office equipment
Computer equipment
Method
Diminishing balance
Straight-line
Period/Rate
20% to 30%
3 - 4 years
Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted prospectively
if appropriate.
(d) Intangible assets:
(i) Research and development:
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and
understanding, is recognized in profit or loss as incurred.
Development activities involve a plan or design for the production of new or substantially improved products and
processes. Development expenditure is capitalized only if development costs can be measured reliably, the product or
process is technically and commercially feasible, future economic benefits are probable, and the Corporation intends to and
has sufficient resources to complete development and to use or sell the asset. The expenditure capitalized includes the cost
of materials, direct labour, overhead costs that are directly attributable to preparing the asset for its intended use, and
borrowing costs on qualifying assets for which the commencement date for capitalization is on or after March 1, 2010.
Other development expenditures are recognized in profit or loss as incurred.
Capitalized development expenditure is measured at cost less accumulated amortization and accumulated impairment
losses. As of the reporting years presented, the Corporation has not capitalized any development expenditure.
(ii) Other intangible assets:
Licenses
Licenses that are acquired by the Corporation and have finite useful lives are measured at cost less accumulated
amortization and accumulated impairment losses.
Patent costs
Patents for technologies that are no longer in the research phase are recorded at cost. Patent costs include legal fees to
obtain patents and patent application fees. When the technology is still in the research phase, those costs are expensed as
incurred.
(iii) Subsequent expenditure:
Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to
which it relates. All other expenditures, including expenditure on internally generated goodwill and brands, are recognized
in profit or loss as incurred.
9
ACASTI PHARMA INC.
Notes to Financial Statements, Continued
Years ended February 28, 2013 and February 29, 2012
3.
Significant accounting policies (continued):
(d) Intangible assets (continued):
(iv) Amortization:
Amortization is calculated over the cost of the asset less its residual value.
Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of intangible assets from
the date that they are available for use, since this most closely reflects the expected pattern of consumption of the future
economic benefits embodied in the asset. The estimated useful lives for the current and comparative years are as follows:
Assets
License
Patents
(e) Leased assets:
Period
14 years
20 years
Leases where the lessor retains the risks and rewards of ownership are treated as operating leases. Payments on operating lease
agreements are recognized as an expense on a straight-line basis over the lease term. Associated costs, such as maintenance
and insurance, are expensed as incurred.
(f)
Impairment:
(i) Financial assets (including receivables):
A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether
there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event
has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future
cash flows of that asset that can be estimated reliably.
Objective evidence that financial assets are impaired can include default or delinquency by a debtor, restructuring of an
amount due to the Corporation on terms that the Corporation would not consider otherwise, indications that a debtor or
issuer will enter bankruptcy, or the disappearance of an active market for a security.
The Corporation considers evidence of impairment for receivables at both a specific asset and collective level. All
individually significant receivables are assessed for specific impairment. All individually significant receivables found not
to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified.
Receivables that are not individually significant are collectively assessed for impairment by grouping together receivables
with similar risk characteristics.
In assessing collective impairment, the Corporation uses historical trends of the probability of default, timing of recoveries
and the amount of loss incurred, adjusted for management’s judgement as to whether current economic and credit
conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its
carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest
rate. Losses are recognized in profit or loss and reflected in an allowance account against receivables. When a subsequent
event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.
(ii) Non-financial assets:
The carrying amounts of the Corporation’s non-financial assets, other than inventories and tax credits receivable are
reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists,
then the asset’s recoverable amount is estimated. For intangible assets that have indefinite useful lives or that are not yet
available for use, the recoverable amount is estimated each year at the same time.
10
ACASTI PHARMA INC.
Notes to Financial Statements, Continued
Years ended February 28, 2013 and February 29, 2012
3. Significant accounting policies (continued):
(f)
Impairment (continued):
(ii) Non-financial assets (continued):
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to
sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose
of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that
generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of
assets (the “cash-generating unit, or CGU”).
The Corporation’s corporate assets do not generate separate cash inflows. If there is an indication that a corporate asset
may be impaired, then the recoverable amount is determined for the CGU to which the corporate asset belongs.
An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount.
Impairment losses are recognized in profit or loss.
Impairment losses recognized in prior years are assessed at each reporting date for any indications that the loss has
decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine
the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed
the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been
recognized.
(g) Employee benefits:
(i) Short-term employee benefits:
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is
provided.
A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the
Corporation has a present legal or constructive obligation to pay this amount as a result of past service provided by the
employee, and the obligation can be estimated reliably.
(ii) Share-based payment transactions:
The grant date fair value of share-based payment awards granted to employees is recognized as an employee expense, with
a corresponding increase in contributed surplus, over the period that the employees unconditionally become entitled to the
awards. The grant date fair value takes into consideration market performance conditions when applicable. The amount
recognized as an expense is adjusted to reflect the number of awards for which the related service and non-market vesting
conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of
awards that do meet the related service and non-market performance conditions at the vesting date.
Share-based payment arrangements in which the Corporation receives goods or services as consideration for its own equity
instruments are accounted for as equity-settled share-based payment transactions, regardless of how the equity instruments
are obtained by the Corporation.
Share-based payment transactions include those initiated by Neptune for the benefit of administrators, officers, employees
and consultants that provide services to the consolidated group. The Corporation is under no obligation to settle these
arrangements and, therefore, also accounts for them as equity-settled share-based payment transactions.
The expense recognized by the Corporation under these arrangements corresponds to the estimated fraction of services that
the grantees provide to the Corporation out of the total services they provide to the Neptune group of corporations.
11
ACASTI PHARMA INC.
Notes to Financial Statements, Continued
Years ended February 28, 2013 and February 29, 2012
3.
Significant accounting policies (continued):
(g) Employee benefits (continued):
(iii) Termination benefits:
Termination benefits are recognized as an expense when the Corporation is committed demonstrably, without realistic
possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to
provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for
voluntary redundancies are recognized as an expense if the Corporation has made an offer of voluntary redundancy, it is
probable that the offer will be accepted, and the number of acceptances can be estimated reliably. If benefits are payable
more than 12 months after the reporting year, then they are discounted to their present value.
(h) Provisions:
A provision is recognized if, as a result of a past event, the Corporation has a present legal or constructive obligation that can be
estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions
are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the
time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance cost.
(i) Onerous contracts:
A provision for onerous contracts is recognized when the expected benefits to be derived by the Corporation from a
contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the
present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the
contract. Before a provision is established, the Corporation recognizes any impairment loss on the assets associated with
that contract.
(ii) Contingent liability:
A contingent liability is a possible obligation that arises from past events and of which the existence will be confirmed only
by the occurrence or non-occurrence of one or more uncertain future events not within the control of the Corporation; or a
present obligation that arises from past events (and therefore exists), but is not recognized because it is not probable that a
transfer or use of assets, provision of services or any other transfer of economic benefits will be required to settle the
obligation; or the amount of the obligation cannot be estimated reliably.
(i) Revenue:
(i) Sale of goods:
Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration
received or receivable, net of returns. Revenue is recognized when the significant risks and rewards of ownership have
been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods
can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can
be measured reliably. If it is probable that discounts will be granted and the amount can be measured reliably, then the
discount is recognized as a reduction of revenue as the sales are recognized.
The timing of the transfers of risks and rewards varies depending on the individual terms of the contract of sale.
(ii) Research services:
Revenue from research contracts is recognized in profit or loss when services to be provided are rendered and all
conditions under the terms of the underlying agreement are met.
(j) Government grants:
Government grants consisting of investment tax credits are recorded as a reduction of the related expense or cost of the asset
acquired. Government grants are recognized when there is reasonable assurance that the Corporation has met the requirements
of the approved grant program and there is reasonable assurance that the grant will be received.
12
ACASTI PHARMA INC.
Notes to Financial Statements, Continued
Years ended February 28, 2013 and February 29, 2012
3. Significant accounting policies (continued):
(j) Government grants (continued):
Grants that compensate the Corporation for expenses incurred are recognized in profit or loss in reduction thereof on a
systematic basis in the same years in which the expenses are recognized. Grants that compensate the Corporation for the cost of
an asset are recognized in profit or loss on a systematic basis over the useful life of the asset.
(k) Lease payments:
Payments made under operating leases are recognized in profit or loss on a straight-line basis over the term of the lease. Lease
incentives received are recognized as an integral part of the total lease expense, over the term of the lease.
Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the
outstanding liability. The finance expense is allocated to each year during the lease term so as to produce a constant periodic
rate of interest on the remaining balance of the liability.
Contingent lease payments are accounted for in the year in which they are incurred.
(l) Foreign currency:
Transactions in foreign currencies are translated into the functional currency at exchange rates at the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional
currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between
amortized cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the
period, and the amortized cost in foreign currency translated at the exchange rate at the end of the reporting period. Non-
monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the
functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on
retranslation are recognized in profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign
currency are translated using the exchange rate at the date of the transaction.
(m) Finance income and finance costs:
Finance income comprises interest income on funds invested. Interest income is recognized as it accrues in profit or loss, using
the effective interest method.
Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions, changes in the fair value of
financial derivative liabilities at fair value through profit or loss, and impairment losses recognized on financial assets.
Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are
recognized in profit or loss using the effective interest method.
Foreign currency gains and losses are reported on a net basis.
The Corporation recognizes interest income as a component of investing activities and interest expense as a component of
financing activities in the statements of cash flows.
(n) Income tax:
Income tax expense comprises current and deferred taxes. Current and deferred taxes are recognized in profit or loss except to
the extent that they relate to a business combination, or items recognized directly in equity or in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or
substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
13
ACASTI PHARMA INC.
Notes to Financial Statements, Continued
Years ended February 28, 2013 and February 29, 2012
3.
Significant accounting policies (continued):
(n) Income tax (continued):
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for temporary differences arising
from the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither
accounting nor taxable profit or loss. Deferred tax is measured at the tax rates that are expected to be applied to temporary
differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred
tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to
income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current
tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously. A deferred tax asset is
recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future
taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are
reduced to the extent that it is no longer probable that the related tax benefit will be realized.
(o) Earnings per share:
The Corporation presents basic and diluted earnings per share (“EPS”) data for its Class A shares. Basic EPS is calculated by
dividing the profit or loss attributable to the holders of Class A shares of the Corporation by the weighted average number of
common shares outstanding during the year, adjusted for own shares held. Diluted EPS is determined by adjusting the profit or loss
attributable to the holders of Class A shares and the weighted average number of Class A shares outstanding, adjusted for own
shares held, for the effects of all dilutive potential common shares, which comprise convertible debentures, redeemable shares,
warrants, rights and share options granted to employees.
(p) Segment reporting:
An operating segment is a component of the Corporation that engages in business activities from which it may earn revenues and
incur expenses. The Corporation has one reportable operating segment: the development and commercialization of pharmaceutical
applications of its licensed rights for cardiovascular diseases. All of the Corporation’s assets are located in Canada.
(q) New standards and interpretations not yet adopted:
A number of new standards, and amendments to standards and interpretations, are not yet effective for the year ended February
28, 2013, and have not been applied in preparing these financial statements.
(i) Financial instruments:
In November 2009 the IASB issued IFRS 9 Financial Instruments (IFRS 9 (2009)), and in October 2010, the IASB
published amendments to IFRS 9 (IFRS 9 (2010)).
IFRS 9 (2009) replaces the guidance in IAS 39 Financial Instruments: Recognition and Measurement, on the classification
and measurement of financial assets. The Standard eliminates the existing IAS 39 categories of held-to-maturity, available-
for-sale and loans and receivable. Financial assets will be classified into one of two categories on initial recognition:
· financial assets measured at amortized cost; or
· financial assets measured at fair value.
Gains and losses on remeasurement of financial assets measured at fair value will be recognized in profit or loss, except
that for an investment in an equity instrument which is not held-for-trading. IFRS 9 provides, on initial recognition, an
irrevocable election to present all fair value changes from the investment in other comprehensive income (“OCI”). The
election is available on an individual share-by-share basis. Amounts presented in OCI will not be reclassified to profit or
loss at a later date.
IFRS 9 (2010) added guidance to IFRS 9 (2009) on the classification and measurement of financial liabilities, and this
guidance is consistent with the guidance in IAS 39, except as described below.
14
ACASTI PHARMA INC.
Notes to Financial Statements, Continued
Years ended February 28, 2013 and February 29, 2012
3.
Significant accounting policies (continued):
(q) New standards and interpretations not yet adopted (continued):
(i) Financial instruments (continued):
Under IFRS 9 (2010), for financial liabilities measured at fair value under the fair value option, changes in fair value
attributable to changes in credit risk will be recognized in OCI, with the remainder of the change recognized in profit or
loss. However, if this requirement creates or enlarges an accounting mismatch in profit or loss, the entire change in fair
value will be recognized in profit or loss. Amounts presented in OCI will not be reclassified to profit or loss at a later date.
IFRS 9 (2010) supersedes IFRS 9 (2009) and is effective for annual periods beginning on or after January 1, 2015, with
early adoption permitted. The extent of the impact of adoption of IFRS 9 (2010) has not yet been determined.
(ii) Fair value:
In May 2011, the IASB published IFRS 13, Fair Value Measurement, which is effective prospectively for annual periods
beginning on or after January 1, 2013. The disclosure requirements of IFRS 13 need not be applied in comparative
information for years before initial application.
IFRS 13 replaces the fair value measurement guidance contained in individual IFRS with a single source of fair value
measurement guidance. It defines fair value as the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date, i.e. an exit price. The standard also
establishes a framework for measuring fair value and sets out disclosure requirements for fair value measurements to
provide information that enables financial statement users to assess the methods and inputs used to develop fair value
measurements and, for recurring fair value measurements that use significant unobservable inputs (Level 3), the effect of
the measurements on profit or loss or other comprehensive income.
IFRS 13 explains ‘how’ to measure fair value when it is required or permitted by other IFRS. IFRS 13 does not introduce
new requirements to measure assets or liabilities at fair value, nor does it eliminate the practicability exceptions to fair
value measurements that currently exist in certain standards.
The Corporation intends to adopt IFRS 13 prospectively in its financial statements for the annual period beginning on
March 1, 2013. The extent of the impact of adoption of IFRS 13 has not yet been determined.
(iii) Amendments to IAS 19, Employee Benefits:
In June 2011, the IASB published an amended version of IAS 19, Employee Benefits. Adoption of the amendment is
required for annual periods beginning on or after January 1, 2013, with early adoption permitted. The amendment is
generally applied retrospectively with certain exceptions.
The amendments change the definition of short-term employee benefits and also impacts termination benefits, which
would now be recognized at the earlier of when the entity recognizes costs for a restructuring within the scope of IAS 37,
Provisions, and when the entity can no longer withdraw the offer of the termination benefits.
The Corporation intends to adopt the amendments in its financial statements for the annual period beginning on March 1,
2013. The extent of the impact of adoption of the amendments has not yet been determined.
15
ACASTI PHARMA INC.
Notes to Financial Statements, Continued
Years ended February 28, 2013 and February 29, 2012
4.
Trade and other receivables:
Trade receivables
Sales taxes receivable
Accrued and other receivables
February 28,
2013
February 29,
2012
$
$
175,420 $
92,213
183,205
450,838 $
5,446
253,344
183,928
442,718
The Corporation’s exposure to credit and currency risks related to trade and other receivables is presented in Note 17.
5.
Related parties:
The Corporation was charged by Neptune for certain costs incurred by Neptune for the benefit of the Corporation and for royalties,
as follows:
February 28,
2013
February 29,
2012
Administrative costs
Research and development costs, before tax credits
Royalties (note 18)
$
943,264 $
678,439
450,342
949,728
731,851
257,807
$ 2,072,045 $ 1,939,386
Where Neptune incurs specific incremental costs for the benefit of the Corporation, it charges those amounts directly. Costs that
benefit more than one entity of the Neptune group are being charged by allocating a fraction of costs incurred by Neptune that is
commensurate to the estimated fraction of services or benefits received by each entity for those items.
These charges do not represent all charges incurred by Neptune that may have benefited the Corporation, because, amongst others,
Neptune does not allocate certain common office expenses and does not charge interest on indebtedness. Also, these charges do not
necessarily represent the cost that the Corporation would otherwise need to incur, should it not receive these services or benefits
through the shared resources of Neptune or receive financing from Neptune.
Revenue from sales:
The Corporation recognized sales to Neptune in the amount of $41,000 during the year ended February 28, 2013 (nil in 2012).
These transactions are in the normal course of operations.
Revenue from research contracts:
The Corporation charged Neptune and a corporation under common control for research and development work performed for their
benefit in the amount of $92,703 and $23,263, respectively, during the year ended February 29, 2012, (nil in 2013). These
transactions are in the normal course of operations.
Payable to parent corporation:
Payable to parent corporation has no specified maturity date for payment or reimbursement and does not bear interest.
Key management personnel compensation:
The key management personnel of the Corporation are the members of the Board of Directors and certain officers. They control
3% of the voting shares of the Corporation.
16
ACASTI PHARMA INC.
Notes to Financial Statements, Continued
Years ended February 28, 2013 and February 29, 2012
5.
Related parties (continued):
Key management personnel compensation includes the following for the years ended February 28, 2013 and February 29, 2012:
Short-term employee benefits
Share-based compensation costs
6.
Tax credits receivable:
February 28,
2013
February 29,
2012
698,382
$
806,596 $
1,504,471
546,939
$ 2,311,067 $ 1,245,321
Tax credits comprise research and development investment tax credits receivable from the provincial government which relate to
qualifiable research and development expenditures under the applicable tax laws. The amounts recorded as receivables are subject
to a government tax audit and the final amounts received may differ from those recorded.
Unrecognized federal tax credits may be used to reduce future income tax and expire as follows:
2029
2030
2031
2032
2033
7.
Inventories:
Raw materials
Work in progress
Finished goods
$
11,000
40,000
45,000
431,000
330,000
$ 857,000
February 28,
2013
February 29,
2012
$
$
44,772 $
1,033
176,320
222,125 $
57,950
311,378
230,128
599,456
For the year ended February 28, 2013, the cost of sales of $406,371 ($5,077 in 2012) was comprised of inventory costs of
$391,821 ($5,077 in 2012) which consisted of raw materials, changes in work in progress and finished goods, and other costs of
$14,550 (nil in 2012).
17
ACASTI PHARMA INC.
Notes to Financial Statements, Continued
Years ended February 28, 2013 and February 29, 2012
8.
Equipment:
Cost:
Balance at February 28, 2011, February 29, 2012 and February 28, 2013
Accumulated depreciation:
Balance at February 28, 2011
Depreciation for the year
Balance at February 29, 2012
Depreciation for the year
Balance at February 28, 2013
Net carrying amounts:
February 29, 2012
February 28, 2013
Furniture
and office
equipment
Computer
equipment
Total
$
58,706 $
3,691 $
62,397
23,143
9,638
32,781
6,952
39,733 $
1,345
1,107
2,452
934
3,386 $
24,488
10,745
35,233
7,886
43,119
25,925 $
18,973
1,239 $
305
27,164
19,278
$
$
Depreciation expense for the years ended February 28, 2013 and February 29, 2012 has been recorded in “general and
administrative expenses” in the statements of earnings and comprehensive loss.
9.
Intangible assets:
Cost:
Balance at February 28, 2011 and February 29, 2012
Additions
Balance at February 28, 2013
Accumulated amortization:
Balance at February 28, 2011
Amortization for the year
Balance at February 29, 2012
Amortization for the year
Balance at February 28, 2013
Net carrying amounts:
February 29, 2012
February 28, 2013
Patents
License
Total
– $9,200,000 $
$
103,068
–
103,068 9,200,000
9,200,000
103,068
9,303,068
– 1,697,620
–
657,142
– 2,354,762
1,697,620
657,142
2,354,762
$
–
657,144
– $3,011,906 $
657,144
3,011,906
– $6,845,238 $
$
103,068 6,188,094
6,845,238
6,291,162
Amortization expense for the years ended February 28, 2013 and February 29, 2012 has been recorded in “general and
administrative expenses” in the statements of earnings and comprehensive loss.
18
ACASTI PHARMA INC.
Notes to Financial Statements, Continued
Years ended February 28, 2013 and February 29, 2012
10.
Trade and other payables:
Trade payables
Accrued liabilities and other payables
Employee salaries and benefits payable
February 28,
2013
February 29,
2012
$
$
325,115 $
160,572
221,196
706,883 $
549,241
170,098
276,323
995,662
The Corporation’s exposure to currency and liquidity risks related to trade and other payables is presented in Note 17.
11.
Capital and other components of equity
(a) Share capital:
Authorized capital stock:
Unlimited number of shares:
Ø Ø Class A shares, voting (one vote per share), participating and without par value
Ø Ø Class B shares, voting (ten votes per share), non-participating, without par value and maximum annual non-
cumulative dividend of 5% on the amount paid for said shares. Class B shares are convertible, at the holder’s
discretion, into Class A shares, on a one-for-one basis, and Class B shares are redeemable at the holder’s
discretion for $0.80 per share, subject to certain conditions.
Ø Ø Class C shares, non-voting, non-participating, without par value and maximum annual non-cumulative dividend
of 5% on the amount paid for said shares. Class C shares are convertible, at the holder’s discretion, into Class A
shares, on a one-for-one basis, and Class C shares are redeemable at the holder’s discretion for $0.20 per share,
subject to certain conditions.
Ø Class D and E shares, non-voting, non-participating, without par value and maximum monthly non-cumulative
dividend between 0.5% and 2% on the amount paid for said shares. Class D and E shares are convertible, at the
holder’s discretion, into Class A shares, on a one-for-one basis, and Class D and E shares are redeemable at the
holder’s discretion, subject to certain conditions.
Balance February 28, 2013
Balance February 29, 2012
Class A shares
(classified as equity)
Number
outstanding
Amount
73,107,538 $28,922,710
72,636,888
28,614,550
On March 21, 2011, the outstanding Class B and Class C shares, 5,000,000 and 260,000, respectively, were converted into
Class A shares by their holders on a 1:1 basis (the “Conversion”). Following the Conversion, the liability for convertible
redeemable shares in the amount of $4,052,000 was extinguished, and the number of issued and outstanding Class A shares of
the Corporation was 64,434,444.
19
ACASTI PHARMA INC.
Notes to Financial Statements, Continued
Years ended February 28, 2013 and February 29, 2012
11.
Capital and other components of equity (continued):
(b) Private placement:
On February 13, 2012, the Corporation closed a private placement financing for gross proceeds of $1,993,600 from Neptune
and an officer of the Corporation.
Half of the proceeds came from Neptune for 750,000 common shares at $1.33 per share. The other portion of the proceeds
came from an officer of the Corporation for 750,000 common shares at $1.33 per share and warrants (the “Series 6” and “Series
7” warrants) to purchase 750,000 additional shares. The warrants to purchase additional shares will be exercisable at a price of
$1.50 per share for 36 months following their issue date. Total issue costs related to these transactions amounted to $15,000.
The warrants issued to the officer were determined to constitute stock-based compensation. Series 7 warrants are subject to
vesting in equal installments over four semesters, subject to continued service and attainment of market (187,500 warrants) and
non-market performance conditions (187,500 warrants).
The fair value of the warrants that are not subject to market condition was estimated according to the Black-Scholes option
pricing model based on the following assumptions:
Dividend yield
Risk-free interest rate
Estimated life
Expected volatility
2012
–
1.13%
3 years
85.77%
The fair value of the warrants subject to market conditions was estimated using a binomial model using the same assumptions
as above, as well as factors that reflect the probability of the conditions being met.
The fair value of warrants granted was determined to be $0.83 per warrant. The Corporation recognized an expense of $93,372
for this grant during the year ended February 28, 2013 ($313,315 in 2012).
(c) Warrants:
The warrants of the Corporation are composed of the following as at February 28, 2013 and February 29, 2012:
Equity
Series 4 warrants
Private placement warrants
Series 6 warrants
Series 7 warrants
February 28,
2013
February 29,
2012
Number
outstanding
Amount
Number
outstanding
Amount
5,432,350 $
– 5,785,500 $
–
375,000
375,000
6,182,350 $
375,000
306,288
100,399
375,000
406,687 6,535,500 $
306,288
7,027
313,315
20
ACASTI PHARMA INC.
Notes to Financial Statements, Continued
Years ended February 28, 2013 and February 29, 2012
11.
Capital and other components of equity (continued):
(c) Warrants (continued):
- Series 4 allows the holder to purchase one Class A share for $0.25 per share until October 8, 2013.
- Series 6 allows the holder to purchase one Class A share for $1.50 per share until February 10, 2015.
- Series 7 allows the holder to purchase one Class A share for $1.50 per share until February 10, 2015 subject to the
achievement of certain agreed upon and predefined milestones.
(d) Rights:
On July 5, 2011, the Corporation issued to the holders of outstanding Class A shares transferable rights to subscribe to Class A
shares. Each registered holder of Class A shares received one right for each Class A share held, representing a total of
64,454,444 rights. Ten rights plus the sum of $1.25 are required to subscribe to one Class A share. On September 14, 2011, the
offering expired oversubscribed and, accordingly, the maximum number of shares available for issuance was issued for a total
of 6,445,444 shares representing gross proceeds of $8,056,805. Transaction costs related to the rights offering amounted to
$206,788.
12.
Personnel expenses:
Salaries and other short-term employee benefits
Share-based compensation
February 28,
2013
February 29,
2012
$ 1,486,391 $ 1,507,026
1,728,982 1,228,466
$ 3,215,373 $ 2,735,492
Share-based compensation does not include $188,235 (2012 - $92,105) of compensation to non-employee directors and
consultants.
13.
Finance income and finance costs:
(a) Finance income:
Interest income
(b) Finance costs:
Interest charges
21
February 28,
2013
February 29,
2012
$
47,241 $
43,143
February 28, February 29,
2012
2013
$
(2,685) $
(8,962)
ACASTI PHARMA INC.
Notes to Financial Statements, Continued
Years ended February 28, 2013 and February 29, 2012
14.
Share-based payment:
Description of the share-based payment arrangements:
At February 28, 2013, the Corporation has the following share-based payment arrangements:
(a) Corporation stock-based compensation plan:
The Corporation has established a stock-based compensation plan for administrators, officers, employees and
consultants. The plan provides for the granting of options to purchase Acasti Class A shares. The exercise price of the stock
options granted under the plan is not lower than the closing price of the shares listed on the eve of the grant. Under this plan,
the maximum number of options that can be issued equal the lower of 1,530,000 or 10% of Acasti Class A shares held by
public shareholders, as approved annually by such shareholders. On March 21, 2011, the Corporation’s Board of Directors
amended the incentive stock option plan (the “Plan”). The amendments to the Plan were approved by the shareholders on June
22, 2011. The main modification to the Plan consists of an increase in the number of shares reserved for issuance of incentive
stock options under the Plan to 6,443,444. On June 21, 2012, the Corporation’s shareholders approved the renewal of the
Corporation stock option plan, under which the maximum number of options that can be issued is 7,269,379, corresponding to
10% of the shares outstanding as of the date of shareholders’ approval. The terms and conditions for acquiring and exercising
options are set by the Corporation’s Board of Directors, subject, among others, to the following limitations: the term of the
options cannot exceed ten years and every stock option granted under the stock option plan will be subject to conditions no
less restrictive than a minimal vesting period of 18 months, a gradual and equal acquisition of vesting rights, at least on a
quarterly basis. The total number of shares issued to a single person cannot exceed 5% of the Corporation’s total issued and
outstanding shares, with the maximum being 2% for any one consultant.
Activities within the plan are detailed as follows:
Year ended
February 28, 2013
Year ended
February 29, 2012
Weighted
average
exercise
price
Weighted
average
exercise
Number of
options
price
3,347,500 $
2,350,000
(117,500)
(363,750)
5,216,250 $
0.25
1.42
0.25
1.43
1.15
Number of
options
800,000
2,660,000
(42,500)
(70,000)
3,347,500
2,421,832 $
0.69
1,172,500
Outstanding at beginning of year
Granted
Exercised
Forfeited
Outstanding at end of year
Exercisable at end of year
1.15
2.14
1.20
1.80
1.55
1.14
$
$
$
22
ACASTI PHARMA INC.
Notes to Financial Statements, Continued
Years ended February 28, 2013 and February 29, 2012
14.
Share-based payment (continued):
(a) Corporation stock-based compensation plan (continued):
Exercise price
$0.25 - $1.00
$1.01 - $1.50
$1.51 - $2.00
$2.01 - $2.50
$2.51 - $3.00
Options outstanding
Weighted
remaining
contractual life
outstanding
Number of
options
outstanding
2013
Exercisable options
Number of
options
exercisable
Weighed
average
exercise price
$
5.57
3.30
1.45
3.97
2.81
3.86
756,250
2,200,000
100,000
2,090,000
737,500
1,344,750
100,000
239,582
70,000
-
5,216,250
2,421,832
0.25
1.40
1.80
2.11
-
1.14
The options outstanding under the plan have a weighted average remaining life of 3.86 years as at February 28, 2013 (2012 –
4.78 years).
The fair value of options granted has been estimated according to the Black-Scholes option pricing model and based on the
weighted average of the following assumptions for options granted during the year:
Share price
Dividend
Risk-free interest
Estimated life
Expected volatility
2013
2012
$
$
2.13
-
1.32%
1.39
-
1.86%
4.04 years
4.01 years
71.48%
76.28%
The weighted average of the fair value of the options granted to employees during the year ended February 28, 2013 is $1.14
(2012 - $0.79).
The weighted average share price at the date of exercise for share options exercised during the year ended February 28, 2013
was $2.44 (2012 - $1.62). The portion of services employees provided to the Corporation was estimated to be 50% of services
provided to the group (2012 - 43%). Accordingly, stock-based compensation recognized under this plan amounted to $977,690
for the year ended February 28, 2013 (2012 - $393,798).
23
ACASTI PHARMA INC.
Notes to Financial Statements, Continued
Years ended February 28, 2013 and February 29, 2012
14.
Share-based payment (continued):
(b) Neptune stock-based compensation plan:
Neptune maintains various stock-based compensation plans for the benefit of administrators, officers, employees and
consultants that provide services to its consolidated group, including the Corporation. The Corporation records as stock-based
compensation expense a portion of the expense being recorded by Neptune that is commensurate to the fraction of overall
services that the grantees provide directly to the Corporation.
(i) Neptune stock options:
During the year ended February 28, 2013, Neptune granted 5,520,000 Neptune stock options to group employees (2012 -
1,575,000). The options granted had a weighted average exercise price of $3.23 per share and are vesting over a period
of 18 months, subject to continued service (2012 - $3.05). The fair value of the options granted has been estimated
according to the Black-Scholes option pricing model based on the following weighted average assumptions:
Share price
Dividend yield
Risk-free interest rate
Estimated life
Expected volatility
2013
2012
$
3.06
$
0.01%
1.15%
2.82
0.02%
1.17%
2.71 years
2.67 years
65.18%
72.52%
The weighted average of the fair value of the options granted to employees during the year is $1.15 per share (2012 -
$1.23). The portion of services provided to the Corporation was estimated to be 13% of the total services provided to the
group (2012 - 25%), representing stock-based compensation in the amount of $663,484 for the year ended February 28,
2013 (2012 - $487,894).
(ii) Neptune-owned NeuroBioPharm Inc. warrants:
During the year ended February 28, 2013, Neptune granted rights over 875,000 NeuroBioPharm Inc. Series 2011-2
warrants to group employees (2012 – 2,174,279). NeuroBioPharm Inc. is also a subsidiary of Neptune. The rights granted
had a weighted average exercise price of $0.75 per share (2012 - $0.67) and are vesting gradually until April 12, 2016,
subject to continued service or having reached four years of continued service for directors. The fair value of the rights
granted has been estimated according to the Black-Scholes option pricing model based on the following weighted average
assumptions:
Share price
Dividend yield
Risk-free interest rate
Estimated life
Expected volatility
2013
2012
$
$
0.10
-
1.21%
0.10
-
1.81%
2.95 years
3.09 years
73.30%
75%
The weighted average of the fair value of the rights granted to employees during the year ended February 28, 2013 is $0.01
per share (2012 - $0.01). The portion of services those employees provide to the Corporation was estimated to be 49% of
the total services they provide to the group (2012 - 34%), representing stock-based compensation in the amount of $24,025
for the year ended February 28, 2013 (2012 - $27,931).
24
ACASTI PHARMA INC.
Notes to Financial Statements, Continued
Years ended February 28, 2013 and February 29, 2012
14.
Share-based payment (continued):
(b) Neptune stock-based compensation plan (continued):
(iii) Neptune-owned Acasti warrants:
During the year ended February 28, 2013, no rights were granted over Neptune-owned Acasti warrants or shares to group
employees (2012 - 540,000). The rights granted in the year ended February 29, 2012 had a weighted average exercise price
of $1.42 per share and are vesting gradually until February 10, 2015, subject to continued service or having reached four
years of continued service for directors. The fair value of the rights granted in 2012 has been estimated according to the
Black-Scholes option pricing model based on the weighted average of the following assumptions:
Share price
Dividend yield
Risk-free interest rate
Estimated life
Expected volatility
$
2012
1.21
-
1.71%
2.38 years
71.56%
The weighted average of the fair value of the rights granted to employees during the year ended February 29, 2012 is $0.51
per share. The portion of services those employees provide to the Corporation was estimated to be 88% of the total
services they provide to the group (2012 - 65%), representing stock-based compensation in the amount of $144,438 for the
year ended February 28, 2013 (2012 - $97,633).
(iv) Neptune-owned NeuroBioPharm Inc. call-options:
During the year ended February 28, 2013, Neptune granted 2,500,000 call-options on NeuroBioPharm shares to group
employees. The call-options granted in the year had a weighted average exercise price of $0.75 per share. The fair value of
the call-options granted during the year has been estimated according to the Black-Scholes option pricing model based on
the weighted average of the following assumptions:
Share price
Dividend yield
Risk-free interest rate
Estimated life
Expected volatility
$
2013
0.10
-
1.12%
2.89 years
64.71%
The weighted average of the fair value of the call-options granted to employees during the year ended February 28, 2013 is
nil. The portion of services those employees provide to the Corporation was estimated to be 21% of the total services they
provide to the group, representing stock-based compensation in the amount of $390 for the year ended February 28, 2013.
25
ACASTI PHARMA INC.
Notes to Financial Statements, Continued
Years ended February 28, 2013 and February 29, 2012
14.
Share-based payment (continued):
(b) Neptune stock-based compensation plan (continued):
(v) Neptune-owned Acasti call-options:
During the year ended February 28, 2013, Neptune granted 2,345,000 call-options on Acasti shares to group employees.
The call-options granted in the year had a weighted average exercise price of $2.75 per share. The fair value of the call-
options granted during the year has been estimated according to the Black-Scholes option pricing model based on the
weighted average of the following assumptions:
Share price
Dividend yield
Risk-free interest rate
Estimated life
Expected volatility
$
2013
2.69
-
1.13%
2.89 years
82.25%
The weighted average of the fair value of the call-options granted to employees during the year ended February 28, 2013 is
$1.39 per share. The portion of services those employees provide to the Corporation was estimated to be 26% of the total
services they provide to the group, representing stock-based compensation in the amount of $107,190 for the year ended
February 28, 2013.
15.
Earnings (loss) per share:
The calculation of basic loss per share at February 28, 2013 was based on the net loss attributable to owners of the Corporation of
$6,892,360 (2012 - $6,500,933) and a weighted average number of common shares outstanding of 72,754,436 (2012 – 67,231,636).
Diluted loss per share was the same amount as basic loss per share, as the effect of options would have been anti-dilutive, because
the Corporation incurred losses in each of the years presented. All outstanding options and warrants could potentially be dilutive in
the future.
16.
Income taxes:
Deferred tax expense:
Origination and reversal of temporary differences
Change in unrecognized deductible temporary differences
Deferred tax expense
26
2013
2012
$ 1,235,673
$ 865,847
(1,235,673) (865,847)
-
- $
$
ACASTI PHARMA INC.
Notes to Financial Statements, Continued
Years ended February 28, 2013 and February 29, 2012
16.
Income taxes (continued):
Reconciliation of effective tax rate:
Loss before income taxes
Income tax at the combined Canadian statutory rate
Increase resulting from:
Change in unrecognized deductible temporary differences
Non-deductible stock-based compensation
Permanent differences and other
Total tax expense
2013
2012
$(6,892,360) $(6,500,933)
$(1,854,045) $(1,830,013)
1,235,673
515,732
102,640
$
- $
865,847
371,741
592,425
-
The applicable statutory tax rates are 26.9% in 2013 and 28.15% in 2012. The Corporation’s applicable tax rate is the Canadian
combined rates applicable in the jurisdiction in which the Corporation operates. The decrease is due to the reduction of the Federal
income tax rate in 2013.
Unrecognized deferred tax assets:
At February 28, 2013 and February 29, 2012, the deferred tax assets, which have not been recognized in these financial statements
because the criteria for recognition of these assets were not met, were as follows:
Tax losses carried forward
Research and development expenses
Intangible assets
Other deductible temporary differences
Unrecognized deferred tax assets
2013
2012
$2,570,000
1,185,000
186,000
40,000
$3,981,000
$1,852,000
709,000
146,000
38,000
$2,745,000
As at February 28, 2013, the amounts and expiry dates of tax attributes and temporary differences, which are available to reduce
future years’ taxable income, were as follows:
Tax losses carried forward
2029
2030
2031
2032
2033
Research and development expenses, without time limitation
Other deductible temporary differences, without time limitation
27
Federal Provincial
$ 714,000
1,627,000
2,071,000
2,262,000
2,894,000
$9,568,000
$ 714,000
1,621,000
2,063,000
2,241,000
2,894,000
$9,533,000
$3,954,000
$4,970,000
$ 841,600
$ 841,600
ACASTI PHARMA INC.
Notes to Financial Statements, Continued
Years ended February 28, 2013 and February 29, 2012
17.
Financial instruments:
This note provides disclosures relating to the nature and extent of the Corporation’s exposure to risks arising from financial
instruments, including credit risk, exchange risk, interest rate risk and liquidity risk, and how the Corporation manages those risks.
(a) Credit risk:
Credit risk is the risk of a loss if a customer or counterparty to a financial asset fails to meet its contractual obligations, and
arises primarily from the Corporation’s trade receivables. The Corporation may also have credit risk relating to cash and short-
term investments, which it manages by dealing only with highly-rated Canadian institutions. The carrying amount of financial
assets, as disclosed in the statements of financial position, represents the Corporation’s credit exposure at the reporting
date. The Corporation’s trade receivables and credit exposure fluctuate throughout the year. The Corporation’s average trade
receivables and credit exposure during the year may be higher than the balance at the end of that reporting year.
The Corporation’s credit risk for trade receivables is concentrated, as the majority of its sales are to one customer. As at
February 28, 2013, the Corporation had seven trade debtors. Most sales' payment terms are set in accordance with industry
practice. One customer represents 97% of total trade accounts included in trade and other receivables as at February 28, 2013.
Most of the Corporation's clients are distributors for a given territory and are privately-held enterprises. The profile and credit
quality of the Corporation’s retail customers vary significantly. Adverse changes in a customer’s financial position could cause
the Corporation to limit or discontinue conducting business with that customer, require the Corporation to assume more credit
risk relating to that customer’s future purchases or result in uncollectible accounts receivable from that customer. Such changes
could have a material adverse effect on business, results of operations, financial condition and cash flows.
The Corporation’s extension of credit to customers involves considerable judgment and is based on an evaluation of each
customer’s financial condition and payment history. The Corporation has established various internal controls designed to
mitigate credit risk, including a credit analysis by the insurer which recommends customers' credit limits and payment terms that
are reviewed and approved by the Corporation. The Corporation reviews periodically the insurer's maximum credit quotation
for each of its clients. New clients are subject to the same process as regular clients. The Corporation has also established
procedures to obtain approval by senior management to release goods for shipment when customers have fully-utilized
approved insurers credit limits. From time to time, the Corporation will temporarily transact with customers on a prepayment
basis where circumstances warrant.
While the Corporation’s credit controls and processes have been effective in mitigating credit risk, these controls cannot
eliminate credit risk and there can be no assurance that these controls will continue to be effective, or that the Corporation’s
low credit loss experience will continue.
Customers do not provide collateral in exchange for credit, except in unusual circumstances. Receivables from selected
customers are covered by credit insurance, with coverage amount usually of 100% of the invoicing, with the exception of some
customers under specific terms. The information available through the insurers is the main element in the decision process to
determine the credit limits assigned to customers.
The Corporation provides for trade receivable accounts to their expected realizable value as soon as the account is determined
not to be fully collectible, with such write-offs charged to earnings unless the loss has been provided for in prior yeas, in which
case the write-off is applied to reduce the allowance for doubtful accounts. The Corporation updates its estimate of the
allowance for doubtful accounts, based on evaluations of the collectability of trade receivable balances at each reporting date,
taking into account amounts which are past due, and any available information indicating that a customer could be experiencing
liquidity or going concern problems.
28
ACASTI PHARMA INC.
Notes to Financial Statements, Continued
Years ended February 28, 2013 and February 29, 2012
17.
Financial instruments (continued):
(a) Credit risk (continued):
The aging of trade receivable balances and the allowance for doubtful accounts as at February 28, 2013 were as follows:
Current
Past due 0-30 days
Past due 31-120 days
Past due 121-180 days
Trade receivables
Less allowance for doubtful accounts
February 28,
2013
$
185
-
174,860
2,945
177,990
(2,570)
175,420
$
The allowance for doubtful accounts is for customer accounts over 121 days past due.
There was no movement in allowance for doubtful accounts in respect of trade receivables during the year ended February 28,
2013.
(b) Exchange risk:
The Corporation is not exposed to any significant exchange risks, as it did not have any significant assets or liabilities
denominated in foreign currencies.
(c) Interest rate risk:
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in
market rates.
The Corporation’s exposure to interest rate risk as at the following dates is as follows:
Cash
Short-term investments
Cash
Short-term investments
February 28,
2013
Short-term fixed interest rate
Short-term fixed interest rate
February 29,
2012
Short-term fixed interest rate
Short-term fixed interest rate
The capacity of the Corporation to reinvest the short-term amounts with equivalent return will be impacted by variations in
short-term fixed interest rates available on the market.
29
ACASTI PHARMA INC.
Notes to Financial Statements, Continued
Years ended February 28, 2013 and February 29, 2012
17.
Financial instruments (continued):
(d) Liquidity risk:
Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they fall due. The Corporation
manages liquidity risk through the management of its capital structure and financial leverage, as outlined in Note 20. It also
manages liquidity risk by continuously monitoring actual and projected cash flows. The Board of Directors reviews and
approves the Corporation's operating budgets, and reviews the most important material transactions outside the normal course
of business.
The following are the contractual maturities of financial liabilities as at February 28, 2013 and February 29, 2012:
Required payments per year
(in thousands of dollars)
Trade and other payables
Payable to parent corporation
Royalties payable to parent corporation
Required payments per year
(in thousands of dollars)
Trade and other payables
Payable to parent corporation
Royalties payable to parent corporation
Carrying
Less than
Total
amount
1 year
1 to
5 years
February 28,
2013
More than
5 years
707
1,210
529
2,446
$
$
707
1,210
529
2,446
$
$
707 $
1,210
529
2,446 $
- $
-
-
- $
-
-
-
-
Carrying
Less than
Total
amount
1 year
1 to
5 years
February 29,
2012
More than
5 years
996
215
49
1,260
$
$
996
215
49
1,260
$
$
996 $
215
49
1,260 $
- $
-
-
- $
-
-
-
-
$
$
$
$
The Corporation plans to rely on the continued financial support of Neptune to pursue its operations, including obtaining
additional funding, if necessary (see Note 2 (b)).
(e) Short-term investments
As at February 28, 2013, short-term investments are with a Canadian financial institution having a high credit rating. Short-
term investments have a maturity date of May 8, 2013, a weighted average interest rate of 1.21% and are cashable at any time at
the discretion of the Corporation, under certain conditions.
As at February 29, 2012, short-term investments are with a Canadian financial institution having a high credit rating. Short-
term investments have maturity dates of September 26, 2012 and December 20, 2012, a weighted average interest rate of 0.86%
and are cashable at any time at the discretion of the Corporation, under certain conditions.
30
ACASTI PHARMA INC.
Notes to Financial Statements, Continued
Years ended February 28, 2013 and February 29, 2012
18.
Commitments:
License agreement:
The Corporation is committed under a license agreement to pay Neptune until the expiration of Neptune’s patents on licensed
intellectual property, a royalty equal to the greater of the minimum royalty payments and the sum of (a) in relation to sales of
products in the licensed field, the greater of: (i) 7.5% of net sales, and (ii) 15% of the Corporation’s gross margin; and (b) 20% of
revenues from sub-licenses granted by the Corporation to third parties. Minimum royalty payments were initially as follows: year 1
- nil; year 2 - $50,000; year 3 - $200,000; year 4 - $300,000; year 5 - $900,000; and year 6 and thereafter - $1,000,000. Minimum
royalties are based on contract years based on the effective date of the agreement, August 7, 2008, and were adjusted during the
year ended February 28, 2013 as discussed below. After the expiration of Neptune’s patents on licensed intellectual property in
2022, the license agreement will automatically renew for an additional 15 years, during which period royalties will be determined to
be equal to half of those calculated with the above formula.
The Corporation has the option to pay future royalties in advance, in cash or in kind, in whole or in part, based on an established
economic model contained in the license agreement.
The Corporation can also abandon its rights under all or part of the license agreement and consequently remove itself from the
obligation to pay all or part of the minimum royalties by paying a penalty equal to half of the next year’s minimum royalties.
In addition, the Corporation is committed to have its products manufactured by Neptune at prices determined according to different
cost-plus rates for each of the product categories under the license agreement.
During the year ended February 28, 2013, the Corporation’s Board of Directors abandoned the rights to one of the licensed fields,
which relieves the Corporation of any further royalty payments related to this licensed field, retroactively to August 7,
2011. Accordingly, the minimum royalty payments are as follows: year 4 - $225,000; year 5 - $700,000; and year 6 and thereafter -
$750,000.
On December 4, 2012, the Corporation announced that it entered into a Prepayment Agreement with Neptune pursuant to which the
Corporation exercised its option under the exclusive technology license agreement to pay in advance all of the future royalties’
payable under the license agreement.
The value of the prepayment, determined with the assistance of outside valuations specialists, using the pre-established formula set
forth in the license agreement, amounts to approximately $15,500,000, which will be paid through the issuance of 6,750,000 Class
A shares, issuable at a price of $2.30 per share, upon the exercise of a warrant delivered to Neptune at the signature of the
Prepayment Agreement.
The prepayment and the issuance of the shares to Neptune are subject to the approval of the TSX Venture Exchange and of the
disinterested shareholders of the Corporation at the next annual meeting of shareholders of the Corporation. The transaction will
be accounted for when such approval is obtained.
Research and development agreements:
In the normal course of business, the Corporation has signed agreements with various partners and suppliers for them to execute
research projects and to produce and market certain products. The Corporation has reserved certain rights relating to these projects.
The Corporation initiated research and development projects that will be conducted over a 12 to 24 month period for a total cost of
$4,168,000, of which an amount of $2,367,000 has been paid to date. As at February 28, 2013, an amount of $66,000 is included in
''Trade and other payables'' in relation to these projects.
19.
Determination of fair values:
Certain of the Corporation’s accounting policies and disclosures require the determination of fair value, for both financial and non-
financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the
following methods.
Financial assets and liabilities:
In establishing fair value, the Corporation uses a fair value hierarchy based on levels as defined below:
· Level 1: defined as observable inputs such as quoted prices in active markets.
· Level 2: defined as inputs other than quoted prices in active markets that are either directly or indirectly observable.
· Level 3: defined as inputs that are based on little or no little observable market data, therefore requiring entities to develop
their own assumptions.
31
ACASTI PHARMA INC.
Notes to Financial Statements, Continued
Years ended February 28, 2013 and February 29, 2012
19.
Determination of fair values (continued):
Financial assets and liabilities (continued):
The Corporation has determined that the carrying values of its short-term financial assets and liabilities approximate their fair value
given the short-term nature of these instruments.
Share-based payment transactions:
The fair value of the employee stock options is measured based on the Black-Scholes valuation model. Measurement inputs include
share price on measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility
adjusted for changes expected due to publicly available information, when the shares have not been traded on a recognized
exchange for a period of time that is commensurate with estimated life of option, it is estimated using historical volatility of
comparable corporations), weighted average expected life of the instruments (based on historical experience and general option
holder behaviour), expected dividends, and the risk-free interest rate (based on government bonds). Service and non-market
performance conditions attached to the transactions, if any, are not taken into account in determining fair value.
20.
Capital management:
Since inception, the Corporation’s objective in managing capital is to ensure sufficient liquidity to finance its research and
development activities, general and administrative expenses, expenses associated with intellectual property protection and its overall
capital expenditures. The Corporation is not exposed to external requirements by regulatory agencies regarding its capital.
Since the beginning of its operations, the Corporation has financed its liquidity needs from funding provided by its parent
corporation and from the exercise of warrants that were distributed to its parent corporation’s shareholders, from a rights offering
and from the issuance of stock-based compensation to employees. The Corporation attempts to optimize its liquidity needs with
non-dilutive sources whenever possible, including from research and development tax credits.
The Corporation defines capital to include total shareholders’ equity.
The Corporation’s policy is to maintain a minimal level of debt.
As of February 28, 2013, cash amounted to $1,196,568, short-term investments amounted to $3,588,227 and tax credits receivable
amounted to $335,501, for a total of $5,120,296. During the year ended February 28, 2013, the Corporation obtained proceeds of
$229,477 from the exercise of previously issued warrants and options. As stated in Note 2, the Corporation expects to raise
additional financing from Neptune and other sources to pursue its operations within the next 12 months and beyond.
21.
Operating segments:
The Corporation has one reportable operating segment: the development and commercialization of pharmaceutical applications of
its licensed rights for cardiovascular diseases.
All of the Corporation’s assets are located in Canada and in the United States.
The Corporation’s sales are attributed based on the customer’s area of residence. All of the sales, except for the sale made to
Neptune in the amount of $41,000, were made to the United States.
During the year ended February 28, 2013, the Corporation realized sales amounting to $640,975 from one customer accounting for
89% of sales.
32
EXHIBIT 99.3
MANAGEMENT ANALYSIS OF THE FINANCIAL SITUATION
AND OPERATING RESULTS – YEARS ENDED FEBRUARY 28,
2013 AND FEBRUARY 29, 2012
Introduction
This management’s discussion and analysis (“MD&A”) is presented in order to provide the reader with an overview of the financial results
and changes to the financial position of Acasti Pharma Inc. (“Acasti” or the “Corporation”) as at February 28, 2013 and for the year then
ended. This MD&A explains the material variations in the financial statements of operations, financial position and cash flows of Acasti for
the years ended February 28, 2013 and February 29, 2012. The Corporation effectively commenced active operations with the transfer of an
exclusive worldwide license from its parent corporation, Neptune Technologies & Bioressources Inc. (“Neptune”), in August 2008. The
Corporation was inactive prior to that date.
This MD&A, completed on May 21, 2013, must be read in conjunction with the Corporation’s financial statements for the years ended
February 28, 2013 and February 29, 2012. The Corporation’s financial statements were prepared in accordance with International Financing
Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board. The Corporation’s financial results are published
in Canadian dollars. All amounts appearing in this MD&A are in thousands of Canadian dollars, except share and per share amounts or
unless otherwise indicated.
Additional information on the Corporation can be found on the SEDAR website at www.sedar.com and on the EDGAR website at
www.sec.gov/edgar.shtml under Acasti Pharma Inc.
On March 31, 2011, following the submission of an initial listing application, the Class A shares of the Corporation were listed for trading
on the TSX Venture Exchange under the ticker symbol “APO”. In January 2013, the Corporation had its Class A shares listed on the
NASDAQ Capital Market exchange, under the symbol “ACST”.
Forward-Looking Statements
This MD&A contains certain information that may constitute forward-looking information within the meaning of Canadian securities laws
and forward-looking statements within the meaning of U.S. federal securities laws, both of which Acasti refers to as forward-looking
information. Forward-looking information can be identified by the use of terms such as “may”, “will”, “should”, “expect”, “plan”,
“anticipate”, “believe”, “intend”, “estimate”, “predict”, “potential”, “continue” or other similar expressions concerning matters that are not
statements about the present or historical facts. Forward-looking information in this MD&A includes, but is not limited to, information
about:
1
management analysis of the financial situation and operating results
· Acasti’s ability to conduct current and new clinical trials for its product candidate, including the timing and results of these
clinical trials;
· Acasti’s ability to commercialize its products and product candidate;
· Acasti’s ability to secure third-party manufacturer arrangements to provide Acasti with sufficient raw materials for its operations,
including, but not limited to, Acasti’s ability to retain a third-party to manufacture CaPre® under good manufacturing practice
(“GMP”) standards;
· Acasti’s ability to obtain and maintain regulatory approval of CaPre®; and
· Acasti’s expectations regarding its financial performance, including its revenues, expenses, gross margins, liquidity, capital
resources and capital expenditures.
Although the forward-looking information is based upon what Acasti believes are reasonable assumptions, no person should place undue
reliance on such information since actual results may vary materially from the forward-looking information.
In addition, the forward-looking information is subject to a number of known and unknown risks, uncertainties and other factors, including
those described in this MD&A under the heading “Risk Factors”, many of which are beyond the Corporation’s control, that could cause
actual results and developments to differ materially from those that are disclosed in or implied by the forward-looking information,
including, without limitation:
· the success of current and future clinical trials by the Corporation;
· the successful commercialization of CaPre® and Onemia™;
· the Corporation’s history of net losses and inability to achieve profitability;
· the Corporation’s reliance on third parties for the manufacture, supply and distribution of its products and for the supply of raw
materials, including the ability to find a third party to produce CaPre® under GMP standards;
· the Corporation’s reliance on a limited number of distribution partners for Onemia™;
· the Corporation’s ability to manage its growth efficiently;
· the Corporation’s ability to further penetrate core or new markets;
· the Corporation’s ability to attract and retain skilled labour;
· the Corporation’s ability to attract, hire and retain key management and personnel;
· the Corporation’s ability to achieve its publicly announced milestones on time;
· the Corporation’s ability to successfully defend product liability lawsuits brought against it;
· intense competition from other companies in the pharmaceutical and medical food industries; and
· the Corporation’s ability to secure and defend its intellectual property rights.
Consequently, all the forward-looking information is qualified by this cautionary statement and there can be no guarantee that the results or
developments that the Corporation anticipates will be realized or, even if substantially realized, that they will have the expected
consequences or effects on the Corporation’s business, financial condition or results of operations. Accordingly, you should not place undue
reliance on the forward-looking information. Except as required by applicable law, Acasti does not undertake to update or amend any
forward-looking information, whether as a result of new information, future events or otherwise. These forward-looking statements are
made as of the date of this MD&A.
2
management analysis of the financial situation and operating results
Business Overview
Acasti is an emerging biopharmaceutical company focused on the research, development and commercialization of new therapies for
abnormalities in blood lipids, referred to as dyslipidemia, and the treatment and prevention of cardiovascular disorders. Acasti’s products are
derived from krill oil.
CaPre®, currently Acasti’s sole drug product candidate, is being developed to address the prevention and treatment of cardiometabolic
disorders, including hypertriglyceridemia, which is characterized by abnormally high plasma levels of triglycerides. CaPre® is currently
being evaluated in two Phase II clinical trials initiated in 2011 in Canada. Following the completion of the trials, Acasti intends to file an
investigational new drug submission to conduct a Phase III clinical trial for CaPre® in the United States under the guidelines and rules of
the U.S. Food & Drug Administration (“FDA”).
Onemia™ is Acasti’s sole commercialized product and has been marketed in the United States since 2011 as a “medical food”. Onemia™
is only administered under the supervision of a physician and is intended for the dietary management of illnesses associated with omega-3
phospholipids deficiency related to cardiometabolic disorders.
Pursuant to the license agreement entered into with Neptune in August 2008, Acasti has been granted a license to use Neptune’s intellectual
property rights for the development, distribution and sale of products for use in the human cardiovascular field. The Corporation has to
finance its activities of research and development, including its clinical studies. The products developed by Acasti require the approval from
the FDA before clinical studies are conducted and approval from similar regulatory organizations before sales are authorized.
Operations
During the year ended February 28, 2013, Acasti made progress in its research and pharmaceutical product development, advancing with its
prescription drug candidate, CaPre®, while expanding its commercialization efforts for its medical food Onemia™. The following is a
summary of the period’s highlights.
Neptune, Acasti’s parent company, reported that in the afternoon of November 8, 2012, an explosion and fire destroyed Neptune’s
production plant located in Sherbrooke, Québec, Canada. Acasti announced that its day-to-day operations and business were not interrupted
as a result of this tragic event and that all CaPre® materials required for its two Phase II clinical trials had already been produced and stored
in facilities outside Neptune’s affected plant. The production of CaPre® and Onemia™ are a multi-step processes and involve a complex
supply chain. Acasti does not own its own manufacturing facility for the production of krill oil, CaPre® and Onemia™, nor does it have
plans to develop its own manufacturing operations for the commercial manufacture of its products in the foreseeable future. Acasti depends
on third party suppliers and manufacturers for all of its required raw materials and drug substance. Prior to the explosion at Neptune’s
production plant, Acasti acquired substantially all of its krill oil for the production of CaPre® and Onemia™ from its parent company,
Neptune. However, due to the incident, Acasti is currently seeking out another provider of krill oil to be used in the future production of
CaPre® and Onemia™. Furthermore, Acasti is currently searching for a third-party manufacturer to produce CaPre® from current and
future supply of krill oil. Because of FDA requirements, any third party manufactures retained by Acasti to produce CaPre® must ensure
their compliance with GMP certification.
In December 2012, Acasti reported that it had entered into a prepayment agreement with Neptune pursuant to which Acasti has exercised its
option under its license agreement dated August 7, 2008 entered into between Acasti and Neptune to pay in advance all of the future
royalties payable under the license agreement. (See section “Contractual Obligations, Off-Balance Sheet Arrangements and Commitments
– License Agreement” for more information concerning this agreement).
3
management analysis of the financial situation and operating results
Clinical Trials Update
During the fiscal year ended February 29, 2012, Acasti initiated two Phase II clinical trials: (i) the “ TRIFECTA trial ”, a prospective
randomized double-blind placebo controlled clinical study designed to evaluate the safety and efficacy of CaPre® for the management of
moderate to severe hypertriglyceridemia, for which the first patients were enrolled in October 2011, and (ii) the “COLT trial”, a prospective
randomized open-label clinical trial designed to assess the safety, efficacy and dose response of CaPre® for patients with moderate to high
hypertriglyceridemia, for which the first patients were enrolled in December 2011. Acasti’s clinical trials’ recruitment has continued and
progressed during the year ended February 28, 2013.
In December 2012, the TRIFECTA trial completed its first of two interim analysis. The review committee assembled to evaluate the
progress of the study reviewed the interim analysis relative to drug safety and efficacy, and unanimously agreed, that the study
should continue as planned. All committee members agreed that there were no concerning toxicity issues related to the intake of the drug
candidate and that the signals of possible CaPre® therapeutic effect, noted as reduction of triglyceride in the groups evaluated, were
reassuring and clinically significant to allow the further continuation of the study. As it is customary, the data was provided to the
committee members blind, meaning that the identity of the three groups was not revealed. Since the data showed no safety concerns and a
significant clinical signal the decision was made, by the committee, that it is safe to continue the study and that there is no need to unblind
the data.
Also in December 2012, Acasti was able to obtain completed clinical data in its COLT trial from a group of patients who completed an
eight-week treatment with 2g CaPre® per day, which will not be included in the primary analysis of the final results. Test results of 23
patients were analysed of whom 19 had baseline triglyceride levels between 200 and 500mg/dl (2.28 to 5.7 mmol/L). The data showed
a statistically significant 25% (p<0.05) reduction in triglycerides after eight weeks of treatment. Besides the important decrease in
triglycerides, CaPre® also decreased low density lipoprotein, very low density lipoprotein and non-high density lipoprotein lipids and
increased high density lipoprotein.
More recently, after the year ended February 28, 2013, in March, preliminary clinical data from 157 patients enrolled in the COLT trial who
have completed four weeks of treatment with 0.5, 1, 2 or 4 grams of CaPre® per day were assessed and CaPre® achieved a clinically
important and statistically significant triglyceride reduction of up to 23% (p < 0.05) as compared to the normal standard of care. The study
assesses the effectiveness of CaPre® in patients based on a real-life, routine - clinical setting since the standard of care may be any treatment
the treating physicians considered as appropriate and included life-style modification as well as lipid modifying agents such as statins and
fibrates, that most of the patients analysed (i.e. 86%) had baseline triglycerides between 200 and 500mg/dl (2.28 to 5.7 mmol/L) and that no
serious adverse events were reported. To date, the results of this preliminary analysis suggest that CaPre® is safe and effective for the
treatment of patients with triglyceride levels ranging from 200 to 500 mg/dL.
OnemiaTM
During the fiscal year ended February 28, 2013, Acasti furthered its business development and direct commercialization activities in the
U.S. for its medical food Onemia™. Acasti made its first sales to a U.S. medical food distributor, which initiated distribution of Onemia™
through its U.S. nationwide network of physicians, under its own brand name. Also, physicians initiated and/or continued their
recommendations of Onemia™ for patients diagnosed with cardiometabolic disorders. Acasti expects continued sales of Onemia™ to
provide short-term revenues that will contribute, in part, to finance Acasti’s research and development projects while establishing Acasti’s
omega-3 phospholipids product credentials.
Basis of presentation of the financial statements
The Corporation’s assets as at February 28, 2013 include cash and short-term investments for an amount of $4,785, mainly generated by the
exercise on September 14, 2011 of the rights issued by the Corporation to its shareholders as well as by the net proceeds from a $1,979
private financing completed on February 13, 2012. The Corporation also has trade and other receivables of $451, receivable from a
corporation under common control of $50 and tax credits receivable for an amount of $336 as at February 28, 2013. The Corporation’s
liabilities at February 28, 2013 are comprised primarily of amounts due to Neptune of $1,211 and other creditors for $707 as well as
royalties payable to Neptune for $529. The Corporation has incurred operating losses and negative cash flows from operations since
inception. As at February 28, 2013, the Corporation’s current liabilities and expected level of expenses in the research and development
phase of its drug candidate significantly exceed current assets. The Corporation plans to rely on the continued support of Neptune to pursue
its operations, including obtaining additional funding, if required. The continuance of this support is outside of the Corporation’s control. If
the Corporation does not receive the continued financial support from its parent or the Corporation does not raise additional funds, it may
not be able to realize its assets and discharge its liabilities in the normal course of business. As a result, there exists a material uncertainty
that casts substantial doubt about the Corporation’s ability to continue as a going concern and, therefore, realize its assets and discharge its
liabilities in the normal course of business.
4
management analysis of the financial situation and operating results
The financial statements have been prepared on a going concern basis, which assumes the Corporation will continue its operations in the
foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the ordinary course of
business. These financial statements do not include any adjustments to the carrying values and classification of assets and liabilities and
reported revenues and expenses that may be necessary if the going concern basis was not appropriate for these financial statements.
The Corporation is subject to a number of risks associated with the successful development of new products and their marketing, the
conduct of its clinical studies and their results, the meeting of development objectives set by Neptune in its license agreement, and the
establishment of strategic alliances. The Corporation will have to finance its research and development activities and its clinical studies. To
achieve the objectives of its business plan, the Corporation plans to establish strategic alliances, raise the necessary capital and make sales.
It is anticipated that the products developed by the Corporation will require approval from the U.S. Food and Drug Administration and
equivalent organizations in other countries before their sale can be authorized.
SELECTED FINANCIAL INFORMATION
(In thousands of dollars, except per share data)
Revenue from sales
Adjusted EBITDA(1)
Net loss and comprehensive loss
Net loss per share and diluted loss per share
Total assets
Working capital(2)
Total equity
Book value per Class A share(3)
Three-month periods ended
February 28,
2013
$
49
(1,361)
(1,953)
(0.03)
February 29,
2012
$
10
(857)
(1,547)
(0.02)
February 28,
2013
$
724
(4,350)
(6,892)
(0.09)
Years ended
February 29,
2012
$
10
(4,481)
(6,501)
(0.10)
12,170
3,413
9,724
0.13
15,729
7,597
14,469
0.20
12,170
3,413
9,724
0.13
15,729
7,597
14,469
0.20
February 28,
2011
$
-
(2,255)
(3,008)
(0.06)
10,831
(1,835)
5,705
0.10
(1)
(2)
(3)
The Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is presented for information
purposes only and represents a financial performance measurement tool mostly used in financial circles. Because there is no
standard method endorsed by IFRS requirements, the results are unlikely to be comparable to similar measurements
presented by other public companies. Acasti obtains Adjusted EBITDA measurement by adding to net loss finance costs,
depreciation and amortization and income taxes. Acasti also excludes the effects of certain non-monetary transactions
recorded, such as gain or loss on foreign exchange and stock-based compensation, for its Adjusted EBITDA calculation.
The working capital is presented for information purposes only and represents a measurement of the Corporation’s short-
term financial health mostly used in financial circles. The working capital is calculated by subtracting current liabilities
from current assets. Because there is no standard method endorsed by IFRS requirements, the results may not be
comparable to similar measurements presented by other public companies.
The book value per share is presented for information purposes only and is obtained by dividing the shareholders’ equity by
the number of outstanding Class A shares at the end of the period. Because there is no standard method endorsed by IFRS
requirements, the results may not be comparable to similar measurements presented by other public companies.
5
management analysis of the financial situation and operating results
RECONCILIATION OF THE EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION
(ADJUSTED EBITDA)
A reconciliation of Adjusted EBITDA is presented in the table below. The Corporation uses adjusted financial measures to assess its
operating performance. Securities regulations require that companies caution readers that earnings and other measures adjusted to a basis
other than IFRS do not have standardized meanings and are unlikely to be comparable to similar measures used by other companies.
Accordingly, they should not be considered in isolation. The Corporation uses Adjusted EBITDA to measure its performance from one
period to the next without the variation caused by certain adjustments that could potentially distort the analysis of trends in our operating
performance, and because the Corporation believes it provides meaningful information on the Corporation financial condition and operating
results.
Acasti obtains its Adjusted EBITDA measurement by adding to net loss, finance costs, depreciation and amortization and income taxes.
Acasti also excludes the effects of certain non-monetary transactions recorded, such as gain or loss on foreign exchange and stock-based
compensation, from its Adjusted EBITDA calculation. The Corporation believes it is useful to exclude these items as they are either non-
cash expenses, items that cannot be influenced by management in the short term, or items that do not impact core operating performance.
Excluding these items does not imply they are necessarily nonrecurring.
RECONCILIATION OF ADJUSTED EBITDA
(In thousands of dollars, except per share data)
Net loss
Add (deduct):
Finance costs
Depreciation and amortization
Stock-based compensation
Foreign exchange (gain) loss
Gain on expiry of derivative financial liabilities
Adjusted EBITDA
Three-month periods ended
February 28,
2013
$
February 29,
2012
$
February 28,
2013
$
Years ended
February 29,
2012
$
(1,953)
(1,547)
(6,892)
(6,501)
February 28,
2011
$
(3,008)
1
166
453
(28)
-
(1,361)
3
167
519
1
-
(857)
3
665
1,917
(43)
-
9
668
1,321
22
-
(4,350)
(4,481)
177
670
181
(2)
(273)
(2,255)
6
management analysis of the financial situation and operating results
SELECTED QUARTERLY FINANCIAL DATA
(In thousands of dollars, except per share data)
Fiscal year ended February 28, 2013
Revenue from sales
Other Income - Revenue from research contracts
Adjusted EBITDA(1)
Net loss
Loss per share basic and diluted
Fiscal year ended February 29, 2012
Revenue from sales
Other Income - Revenue from research contracts
Adjusted EBITDA(1)
Net loss
Loss per share basic and diluted
Total
$
724
–
(4,350)
(6,892)
(0.09)
First
Quarter
$
14
–
(916)
(1,576)
(0.02)
Total
$
10
116
(4,481)
(6,501)
(0.10)
First
Quarter
$
–
83
(693)
(1,023)
(0.02)
Third
Quarter
$
424
–
Second
Quarter
$
237
–
(1,037)
(1,752)
(0.02)
(1,036)
(1,611)
(0.02)
Fourth
Quarter
$
49
–
(1,361)
(1,953)
(0.03)
Third
Second
Fourth
Quarter Quarter Quarter
$
10
–
(857)
(1,547)
(0.02)
$
–
33
(1,254)
(1,724)
(0.03)
$
–
–
(1,677)
(2,207)
(0.03)
(1)
The Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is presented for information
purposes only and represents a financial performance measurement tool mostly used in financial circles. Because there is no
standard method endorsed by IFRS requirements, the results are unlikely to be comparable to similar measurements
presented by other public companies. Acasti obtains Adjusted EBITDA measurement by adding to net loss, finance costs,
depreciation and amortization and income taxes. Acasti also excludes the effects of certain non-monetary transactions
recorded, such as gain or loss on foreign exchange and stock-based compensation, for its Adjusted EBITDA calculation.
COMMENTS ON THE SIGNIFICANT VARIATIONS OF RESULTS FROM OPERATIONS FOR THE THREE-MONTH
PERIODS AND YEARS ENDED FEBRUARY 28, 2013 AND FEBRUARY 29, 2012
Revenues
The Corporation generated revenues from sales of $49 from the commercialization of OnemiaTM, its medical food product, during the three-
month period ended February 28, 2013. The revenues were generated from a sale made to Neptune ($41), as well as from sales made
directly to customers in the United States. Acasti relies on a limited number of distributors/clients, therefore, revenues from sales may vary
significantly quarter to quarter, as it was experienced in the fourth quarter when comparing it to the third quarter. The Corporation
generated revenue from sales of $10 during the corresponding period in 2012. During the three-month periods ended February 28, 2013 and
February 29, 2012, the Corporation did not generate revenue from research contracts.
The Corporation generated revenues from sales of $724 from the commercialization of OnemiaTM, its medical food product, during the year
ended February 28, 2013. The revenues were generated from a distribution agreement the Corporation entered into with a US distributor
specialized in medical food (accounting for 89% of sales), from a sale made to Neptune (accounting for approximately 6% of sales) as well
as from sales made directly to customers in the United States. The Corporation generated revenue from sales of $10 during the
corresponding period in 2012. During the year ended February 28, 2013, the Corporation did not generate revenues from research
contracts. During the year ended February 29, 2012, the Corporation generated revenues from research contracts of $116.
7
management analysis of the financial situation and operating results
Gross Profit
Gross profit is calculated by deducting the cost of sales from revenue. Cost of sales consists primarily of costs incurred to manufacture
products. It also includes related overheads, such as certain costs related to quality control and quality assurance, inventory management,
sub-contractors and costs for servicing and commissioning.
The gross profit for the three-month period ended February 28, 2013 amounted to $12 or 24%, which is significantly below the
Corporation’s target range for its gross profit margin, being 45 to 55%. The reason for the lower than targeted gross profit margin for the
three-month period ended February 28, 2013 is a special sale of OnemiaTM to Neptune at a significantly lower price than the usual
OnemiaTM selling price because of Neptune’s production situation and product shortage. The Corporation currently does not anticipate
making additional sales to Neptune in the near future. The Corporation realized a gross profit of $5 or 51% during the three-month period
ended February 29, 2012.
The gross profit for the year ended February 28, 2013 amounted to $318 or 44%, which is slightly below the Corporation’s target range for
its gross profit margin of 45% to 55%. The reason for the lower than targeted gross profit margin is the sales of OnemiaTM to Neptune as
described above. The Corporation realized a gross profit of $5 or 51% during the year ended February 29, 2012.
Breakdown of Major Components of the Statement of Operations and Comprehensive Loss for the years ended February 28, 2013
and February 29, 2012
Administrative expenses
Salaries and benefits
Stock-based compensation
Professional fees
Royalties
Amortization and depreciation
Sales and marketing
Investor relations
Rent
Other
TOTAL
Research and development expenses
Salaries and benefits
Stock-based compensation
Contracts
Equipments and laboratory analysis
Regulatory expenses
Rent
Professional fees
Other
Tax credits
TOTAL
Three-month periods ended
Years ended
February 28,
2013
$
158
327
231
173
166
11
4
9
8
1,087
February 29,
2012
$
314
515
-14
75
167
65
19
9
24
1,174
February 28,
2013
$
912
1,462
527
450
665
131
31
54
57
4,289
February 29,
2012
$
960
1,049
276
258
668
154
34
36
95
3,530
Three-month periods ended
Years ended
February 28,
2013
February 29,
2012
February 28,
2013
February 29,
2012
$
163
126
816
–
1
–
6
18
(212)
918
$
195
4
532
3
-31
–
53
17
(386)
387
$
684
455
2,030
–
68
–
67
76
(370)
3,010
$
682
272
2,348
80
-
26
55
96
(453)
3,106
8
management analysis of the financial situation and operating results
Earnings before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA)
Adjusted EBITDA decreased by $504 for the three-month period ended February 28, 2013 to $(1,361) compared to $(857) for the three-
month period ended February 29, 2012, mainly due to increases in administration and research and development expenses before
consideration of stock-based compensation and amortization and depreciation.
The increase in administration expense is mainly due to increases in professional fees and royalties payable to the parent corporation,
principally offset by decreases in salaries and benefits and sales and marketing expenses. Royalties to Neptune will be expensed until the
royalty prepayment agreement is approved by the Corporation’s shareholders. The prepayment agreement is subject to the approval of the
disinterested shareholders of the Corporation at the next annual meeting in June 2013. The increase in research and development expenses
is mainly attributable to the increase in contracts expenses related to the Corporation’s clinical trials as well as to the decrease in tax credits,
principally offset by decreases in professional fees and salaries and benefits.
Adjusted EBITDA improved by $131 for the year ended February 28, 2013 to $(4,350) compared to $(4,481) for the year ended February
29, 2012, mainly due to the increase in revenues (see Revenues and Gross Profit sections) and decrease in research and development
expenses (before consideration of stock-based compensation), offset by the increase in administration expenses (before consideration of
stock-based compensation and amortization and depreciation).
The decrease in research and development expenses is mainly attributable to decreases in contracts expenses related to the Corporation’s
clinical trials and equipment and laboratories analysis, principally offset by the increase in regulatory expenses and tax credits. The increase
in administrative expenses is mainly attributable to increases in professional fees and in royalties payable to the parent corporation.
Net Loss
The Corporation realized a net loss for the three-month period ended February 28, 2013 of $1,953 or $0.03 per share compared to a net loss
of $1,547 or $0.02 per share for the three-month period ended February 29, 2012. These results are mainly attributable to the factors
described above in the Revenues and Adjusted EBITDA sections.
The Corporation realized a net loss for the year ended February 28, 2013 of $6,892 or $0.09 per share compared to a net loss of $6,501 or
$0.10 per share for the year ended February 29, 2012. These results are mainly attributable to the factors described above in the Revenues
and Adjusted EBITDA sections and by the increase in the stock-based compensation expense of $596, principally as a result of additional
stock option grants during the year.
Capital Stock Structure
The authorized capital stock consists of an unlimited number of Class A, Class B, Class C, Class D and E without par value. Issued and
outstanding fully paid shares, outstanding warrants and outstanding stock options were as follows:
Class A shares, voting, participating and without par value
Stock options granted and outstanding
Series 4 warrants exercisable at $0.25 until October 8, 2013
Series 6 & 7 warrants exercisable at $1.50 until February 10, 2015
Total fully diluted shares
February 28, 2013
73,107,538
5,216,250
5,432,350
750,000
84,506,138
February 29, 2012
72,636,888
3,347,500
5,785,500
750,000
82,519,888
Cash Flow and Financial Condition between the Years ended February 28, 2013 and February 29, 2012
Operating activities
During the three-month periods ended February 28, 2013 and February 29, 2012, the Corporation’s operating activities generated an
increase in liquidity of $60 and a decrease of liquidity of $1,263, respectively, consisting of the net loss incurred for the quarter adjusted for
non-cash items, such as depreciation of equipment, amortization of intangible asset, stock-based compensation, finance expenses and
foreign exchange, as well as for the net changes in non-cash operating working capital items for the period. The net changes in non-cash
operating working capital items for the three-month period ended February 28, 2013 amounted to an increase of $1,427 and are mainly due
to decreases in trade and other receivables ($670), tax credits receivables ($310) and inventories ($41), as well as to increases in payable to
parent corporation ($378) and royalties payable to parent corporation ($198), principally offset by the decrease in trade and other payables
($189). The net changes in non-cash operating working capital items for the three-month period ended February 29, 2012, amounted to a
decrease of $402 and are mainly due to increases in tax credits receivable ($392) and inventories ($88), as well as to the decrease royalties
payable to parent corporation ($261), principally offset by increases in trade and other payables ($266) and payable to parent corporation
($72).
9
management analysis of the financial situation and operating results
During the years ended February 28, 2013 and February 29, 2012, the Corporation’s operating activities used cash of $2,549 and $5,615,
respectively, consisting of the net loss incurred for the year adjusted for non-cash items, such as depreciation of equipment, amortization of
intangible asset, stock-based compensation, finance expenses and foreign exchange, as well as for the net changes in non-cash operating
working capital items for the period. The net changes in non-cash operating working capital items for the year ended February 28, 2013
amounted to an increase of $1,836 and are mainly due to decreases in inventories ($377) and tax credit receivable ($255), as well as to the
increases in payable to parent corporation ($996) and royalties payable to parent corporation ($480), principally offset by the decreases in
trade and other payables ($289). The net changes in non-cash operating working capital items for the year ended February 29, 2012,
amounted to a decrease of $1,078 and are mainly due to increases in inventories ($599), tax credits receivable ($349) and trade and other
receivables ($250), as well as the decrease in payable to parent corporation ($221) and royalties payable to parent corporation ($79),
principally offset by an increase in trade and other payables ($485).
Investing activities
During the three-month periods ended February 28, 2013 and February 29, 2012, the Corporation’s investing activities generated increases
in liquidities of $168 and $750, respectively. The increase in liquidity generated by investing activities during the three-month period ended
February 28, 2013 is mainly due to the maturity of short-term investments of $250, offset by the acquisition of intangible assets of $83. The
increase in liquidity generated by investing activities during the three-month period ended February 29, 2012 is mainly due to the maturity
of short-term investment of $750.
During the years ended February 28, 2013 and February 29, 2012, the Corporation’s investing activities generated an increase in liquidities
of $1,899 and a decrease in liquidities of $2,992, respectively. The increase in liquidity generated by investing activities during the year
ended February 28, 2013 is mainly due to the maturity of short-term investments of $2,000, offset by the acquisition of intangible assets of
$103. The decrease in liquidity generated by investing activities during the year ended February 29, 2012 is mainly due to the acquisition of
short-term investments of $7,500, principally offset by the maturity of short-term investments of $4,500.
Financing activities
During the three-month periods ended February 28, 2013 and 2012, the Corporation’s financing activities generated increases in liquidities
of $185 and $1,981, respectively. The increase in liquidities generated from financing activity during the three-month periods ended
February 28, 2013 resulted mainly from proceeds from exercise of warrants and options of $185. The increase in liquidities generated from
financing activity during the three-month periods ended February 29, 2012 resulted mainly from the net proceeds from private placement of
$1,979.
During the years ended February 28, 2013 and February 29, 2012, the Corporation’s financing activities generated increases in liquidities of
$227 and $9,884, respectively. The increase in liquidities generated from financing activity during the year ended February 28, 2013
resulted mainly from proceeds from exercise of warrants and options of $229. The increase in liquidities generated from financing activity
during the year ended February 29, 2012 resulted mainly from net proceeds from exercise of rights of $7,850, net proceeds from private
placement of $1,979 and proceeds from exercise of warrants and options of $64.
Overall, as a result, the Corporation’s cash increased by $434 and decreased by $393, respectively, for the three-month period and year
ended February 28, 2013. Total liquidities as at February 28, 2013, comprised of cash and short-term investments, amounted to $4,785. See
basis of presentation for additional discussion of the Corporation’s financial condition.
10
management analysis of the financial situation and operating results
To date, the Corporation has financed its operations primarily through the exercise of rights and warrants issued to its shareholders as well
as to Neptune and its shareholders, the private offerings of shares, as well as research tax credits, revenues from sales and research contracts,
as well as interest income. The future profitability of the Corporation is dependent upon such factors as the success of the clinical trials, the
approval by regulatory authorities of products developed by the Corporation, the ability of the Corporation to successfully market, sell and
distribute products, and the ability of the Corporation to obtain the necessary financing to complete its projects.
Financial Position
The following table details the significant changes to the balance sheet as at February 28, 2013 compared to February 29, 2012:
Accounts
Cash
Short-term investments
Trade and other receivables
Tax credits receivable
Inventories
Intangible assets
Trade and other payables
Payable to parent corporation
Royalties payable to parent corporation
Increase
(Decrease)
(393)
(1,954)
8
(255)
(377)
(554)
(289)
996
480
Comments
See cash flow statement
Maturity of short-term investments to finance
operations
OnemiaTM sales
Tax credits received
OnemiaTM sales
Additions, offset by amortization
Repayment of trade and other payables
Increase in amount owed
Increase in royalties owed
Contractual Obligations, Off-Balance-Sheet Arrangements and Commitments
The Corporation has no off-balance sheet arrangements. All of the Corporation’s liabilities ($2,446) are due within twelve months.
A summary of Acasti’s contractual obligations at February 28, 2013 is as follows:
Payables
Due to parent corporation
Research and development contracts
Total
Significant commitments include:
Total
$
707
1,739
1,735
4,181
Less than 1
year
$
707
1,739
1,735
4,181
1 – 3 years
3 – 5 years
Greater than
5 years
$
-
-
-
-
$
-
-
-
-
$
-
-
-
-
License agreement
The Corporation is committed under a license agreement to pay Neptune until the expiration of Neptune’s patents on licensed intellectual
property a royalty equal to the sum of (a) in relation to sales of products in the licensed field, if any, the greater of: (i) 7.5% of net sales, and
(ii) 15% of Acasti’s gross margin; and (b) 20% of revenues from sub-licenses granted by Acasti to third parties, if any. After the expiration
of Neptune’s patents on licensed intellectual property in 2022, the license agreement will automatically renew for an additional 15 years,
during which period royalties will be determined to be equal to half of those calculated with the above formula. The license will expire on
the date of expiration of the last-to-expire of the licensed patent claims and/or continuation in part and/or divisional of the licensed patent
claims. After the last-to expire of the licensed patents on licensed intellectual property, which is currently expected to occur in 2022, the
license will automatically renew for an additional period of 15 years, during which period royalties will equal half of those calculated
according to the above formula. In addition, the license agreement provides for minimum royalty payments notwithstanding the above of:
year 1 ‐ nil; year 2 ‐ $50; year 3 ‐ $200; year 4 ‐ $225 (initially $300, but reduced to $225 following Acasti’s abandonment of its rights to
develop products for the over-the-counter market pursuant to the license); year 5 ‐ $700; and year 6 and thereafter - $750. Minimum
royalties are based on contract years based on the effective date of the license agreement, August 7, 2008.
11
management analysis of the financial situation and operating results
On December 4, 2012, the Corporation announced that it entered into a prepayment agreement with Neptune pursuant to which the
Corporation exercised its option under the license agreement to pay in advance all of the future royalties’ payable under the license. The
value of the prepayment, determined with the assistance of outside valuations specialists, using the pre-established formula set forth in the
license agreement, amounts to approximately $15,525, which is intended to be paid through the issuance of 6,750,000 Class A shares,
issuable at a price of $2.30 per share, upon the exercise of a warrant delivered to Neptune at the signature of the prepayment agreement.
The prepayment and the issuance of the Common Shares to Neptune are subject to the final approval of the TSX Venture Exchange and the
approval of the disinterested shareholders of the Corporation at the next annual meeting of shareholders of the Corporation.
Research and development agreements
In the normal course of business, the Corporation has signed agreements with various partners and suppliers for them to execute research
projects and to produce and market certain products.
The Corporation initiated research and development projects that will be conducted over a 12 to 24 month period for a total initial cost of
$4,168, of which an amount of $2,367 has been paid to date. As at February 28, 2013, an amount of $66 is included in ‘‘Trade and other
payables’’ in relation to these projects.
Related Party Transactions
The Corporation was charged by Neptune for certain costs incurred by Neptune for the benefit of the Corporation in the amount of $2,072
during year ended February 28, 2013 ($943 for administrative costs, $678 for research and development costs and $450 for royalties) and
$1,939 during the year ended February 29, 2012 ($950 for administrative costs, $732 for research and development costs and $258 for
royalties). These transactions are in the normal course of operations. Where Neptune incurs specific incremental costs for the benefit of the
Corporation, it charges those amounts directly. Costs that benefit more than one entity of the Neptune group are being charged by allocating
a fraction of costs incurred by Neptune that is commensurate to the estimated fraction of services or benefits received by each entity for
those items. These charges do not represent all charges incurred by Neptune that may have benefited the Corporation, because, amongst
others, Neptune does not allocate certain common office expenses and does not charge interest on indebtedness. Also, these charges do not
necessarily represent the cost that the Corporation would otherwise need to incur should it not receive these services or benefits through the
shared resources of Neptune or receive financing from Neptune.
The Corporation recognized sales to Neptune in the amount of $41 during the year ended February 28, 2013 (2012 – nil). These
transactions are in the normal course of operations.
The Corporation charged Neptune and a corporation under common control for research and development work performed for their benefit
in the amount of $93 and $23, respectively, during the year ended February 29, 2012 (2013 - nil). These transactions are in the normal
course of operations.
Payable to parent corporation has no specified maturity date for payment or reimbursement and does not bear interest. This amount has been
measured at the exchange amount and classified as current liabilities.
12
management analysis of the financial situation and operating results
The key management personnel of the Corporation are the members of the Board of Directors and certain officers. They control 3% of the
voting shares of the Corporation. See note 5 to the financial statements for disclosures of key management personnel compensation.
On December 4, 2012, the Corporation entered into a prepayment agreement with Neptune as detailed under “Contractual Obligations, Off-
Balance Sheet Arrangements and Commitments – License Agreement”.
Use of estimates and measurement of uncertainty
The preparation of the financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions
that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may
differ from these estimates. Estimates are based on the management’s best knowledge of current events and actions that the Corporation
may undertake in the future. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognized in the period in which the estimates are revised and in any future periods affected. Critical judgments in applying accounting
policies that have the most significant effect on the amounts recognized in the financial statements include the use of the going concern
basis (See note 2 (b) of the financial statements). Assumptions and estimation uncertainties that have a significant risk of resulting in a
material adjustment within the next financial year include allocation of shared costs amongst the Neptune group companies (note 5 to
financial statements) and the measurement of stock-based compensation (note 14 to the financial statements). Also, the Corporation uses its
best estimate to determine which research and development (“R&D”) expenses qualify for R&D tax credits and in what amounts. The
Corporation recognizes the tax credits once it has reasonable assurance that they will be realized. Recorded tax credits are subject to review
and approval by tax authorities and therefore, could be different from the amounts recorded.
Critical Accounting Policies
Research and development expenses
Research expenses are charged to income in the period of expenditure less related tax credits. Development costs are charged to income as
incurred unless a development project meets generally accepted accounting criteria for deferral and amortization. The Corporation has not
deferred any development costs since inception.
Tax credits
Tax credits related to eligible expenses are accounted for as a reduction of related costs in the year during which the expenses are incurred
as long as there is reasonable assurance of their realization.
Stock-based compensation
The Corporation has a stock-based compensation plan, which is described in note 14 of the financial statements. The Corporation accounts
for stock options granted to employees based on the fair value method, with fair value determined using the Black-Scholes model. Under the
fair value method, compensation cost is measured at fair value at date of grant and is expensed over the award’s vesting period with a
corresponding increase in contributed surplus. For stock options granted to non-employees, the Corporation measures based on the fair
value of services received, unless those are not reliably estimable, in which case the Corporation measures the fair value of the equity
instruments granted. Compensation cost is measured when the company obtains the goods or the counterparty renders the service.
Also, the Corporation records as stock-based compensation expense a portion of the expense being recorded by Neptune that is
commensurate to the fraction of overall services that the grantees provide directly to the Corporation and the offset to contributed surplus
reflecting Neptune’s contribution to the Corporation.
Income taxes
The Corporation follows the liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities
are determined based on the differences between the carrying value and tax bases of assets and liabilities and they are measured using
substantively enacted tax rates and laws that are expected during the periods when the temporary differences are expected to be realized or
settled. A valuation allowance is provided to the extent that it is more likely than not that all or part of the deferred income tax assets will
not be realized. The Corporation has not recognized any deferred tax assets in its financial statements because it has determined that they
are not probable of being realized.
13
management analysis of the financial situation and operating results
Future Accounting Changes
See note 3 (q): New standards and interpretations not yet adopted, to the financial statements.
Changes in Internal Control over Financial Reporting
During the three-month period ended February 28, 2013, the CEO and the CFO evaluated whether there were any material changes in
internal control over financial reporting pursuant to MI 52-109. They individually concluded that there was no changes during the three-
month period ended February 28, 2013 that affected materially or is reasonably likely to affect materially the Corporation’s internal
controls over financial reporting.
Financial Instruments
Credit risk:
Credit risk is the risk of a loss if a customer or counterparty to a financial asset fails to meet its contractual obligations, and arises primarily
from the Corporation’s trade receivables. The Corporation may also have credit risk relating to cash and short-term investments, which it
manages by dealing only with highly-rated Canadian institutions. The carrying amount of financial assets, as disclosed in the consolidated
statement of financial position, represents the Corporation’s credit exposure at the reporting date. The Corporation’s trade receivables and
credit exposure fluctuate throughout the year. The Corporation’s average trade receivables and credit exposure during the year may be
higher than the balance at the end of that reporting period.
The Corporation’s credit risk for trade receivables is concentrated, as the majority of its sales are to one customer. As at February 28, 2013,
the Corporation had seven trade debtors. Most sales’ payment terms are set in accordance with industry practice. One customer represents
97% of total trade accounts included in trade and other receivables as at February 28, 2013.
Most of the Corporation’s clients are distributors for a given territory and are privately-held enterprises. The profile and credit quality of the
Corporation’s retail customers vary significantly. Adverse changes in a customer’s financial position could cause the Corporation to limit or
discontinue conducting business with that customer, require the Corporation to assume more credit risk relating to that customer’s future
purchases or result in uncollectible accounts receivable from that customer. Such changes could have a material adverse effect on business,
consolidated results of operations, financial condition and cash flows.
14
management analysis of the financial situation and operating results
The Corporation’s extension of credit to customers involves considerable judgment and is based on an evaluation of each customer’s
financial condition and payment history. The Corporation has established various internal controls designed to mitigate credit risk, including
a credit analysis by the insurer which recommends customers’ credit limits and payment terms that are reviewed and approved by the
Corporation. The Corporation reviews periodically the insurer’s maximum credit quotation for each of its clients. New clients are subject to
the same process as regular clients. The Corporation has also established procedures to obtain approval by senior management to release
goods for shipment when customers have fully-utilized approved insurers credit limits. From time to time, the Corporation will temporarily
transact with customers on a prepayment basis where circumstances warrant.
While the Corporation’s credit controls and processes have been effective in mitigating credit risk, these controls cannot eliminate credit
risk and there can be no assurance that these controls will continue to be effective, or that the Corporation’s low credit loss experience will
continue.
Customers do not provide collateral in exchange for credit, except in unusual circumstances. Receivables from selected customers are
covered by credit insurance, with coverage amount usually of 100% of the invoicing, with the exception of some customers under specific
terms. The information available through the insurers is the main element in the decision process to determine the credit limits assigned to
customers.
The Corporation provides for trade receivable accounts to their expected realizable value as soon as the account is determined not to be fully
collectible, with such write-offs charged to consolidated earnings unless the loss has been provided for in prior periods, in which case the
write-off is applied to reduce the allowance for doubtful accounts. The Corporation updates its estimate of the allowance for doubtful
accounts, based on evaluations of the collectability of trade receivable balances at each reporting date, taking into account amounts which
are past due, and any available information indicating that a customer could be experiencing liquidity or going concern problems.
The aging of trade receivable balances and the allowance for doubtful accounts as at February 28, 2013: current was nil; past due 0-30 days
was nil, past due 31-120 days were $175, past due 121-180 days were $3, allowance for doubtful account was $3.
The allowance for doubtful accounts is for customer accounts over 121 days past due. There was no movement in allowance for doubtful
accounts in respect of trade receivables during the year ended February 28, 2013.
Exchange risk:
As at February 28, 2013, the Corporation is not exposed to any significant exchange risk, as it did not have any significant assets or
liabilities denominated in foreign currencies.
Interest rate risk:
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market rates.
The Corporation’s short term investments bear interest at short-term fixed interest rates. The capacity of the Corporation to reinvest the
short-term amounts with equivalent returns will be impacted by variations in short-term fixed interest rates available on the market.
Liquidity risk:
Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they fall due. The Corporation manages
liquidity risk through the management of its capital structure and financial leverage. It also manages liquidity risk by continuously
monitoring actual and projected cash flows. The Board of Directors reviews and approves the Corporation’s operating budgets, and reviews
the most important transactions outside the normal course of business. As discussed in note 17 (d) to the financial statements, the
contractual maturities of all of all the Corporation’s financial liabilities are less than 1 year. See basis of presentation of the financial
statements.
15
management analysis of the financial situation and operating results
Financial risk:
The success of the Corporation is dependent on its ability to bring its products to market, obtain the necessary approvals, and achieve future
profitable operations. This is dependent on the Corporation’s ability to obtain adequate financing through a combination of financing
activities and operations. It is not possible to predict either the outcome of future research and development programs, nor the Corporation’s
ability, to fund these programs going forward.
Fair value of financial instrument risk:
The Corporation has determined that the carrying values of short-term financial assets and liabilities, including cash, trade and other
receivables as well as trade and other payable, approximate their fair value because of the relatively short period to maturity of the
instruments.
Risk Factors
Investing in securities of the Corporation involves a high degree of risk. The information contained in the financial statements for the years
ended February 28, 2013 and February 29, 2012 and this MD&A should be read in conjunction with all of the Corporation and the parent
corporation’s public documentation. In particular, prospective investors should carefully consider the risks and uncertainties described in
our filings with securities regulators, including those described under the heading “Risk Factors” in our listing application and in our latest
annual information form, if any, available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov/edgar.shtml, and the following
risks.
Additional risks and uncertainties, including those of which the Corporation is currently unaware or that it deems immaterial, may also
adversely affect the Corporation’s business, financial condition, liquidity, results of operation and prospects.
Product Liability
The parent corporation Neptune has secured a $5,000 product liability insurance policy, which also covers its subsidiaries, renewable on an
annual basis, to cover civil liability relating to its products. Neptune also maintains a quality-assurance process that is “Quality Management
Program” certified by the Canadian Food Inspection Agency and has obtained GMP accreditation from Health Canada.
Additional Information
Updated and additional information on the Corporation and the parent corporation Neptune Technologies & Bioressources is available from
the SEDAR Website at www.sedar.com or on EDGAR at www.sec.gov/edgar.shtml.
As at May 21, 2013, the total number of class A shares issued by the Corporation and in circulation was 73,181,288. The Corporation also
has 5,292,500 stock options, 5,372,350 Series 4 warrants and 750,000 Series 6 & 7 warrants outstanding.
/s/ Henri Harland
Henri Harland
President & Chief Executive Officer
/s/ Xavier Harland
Xavier Harland
Chief Financial Officer
16
EXHIBIT 99.4
CODE OF BUSINESS CONDUCT AND ETHICS FOR DIRECTORS, OFFICERS AND EMPLOYEES
Acasti Pharma Inc. (the “Company”) has adopted the following Code of Business Conduct and Ethics for its Directors, Officers and
Employees which sets forth the principles of business ethics to be followed by all directors, officers and employees of the Company.
PURPOSE
The purpose of this Code is to establish minimum guidelines of business conduct required of directors, officers and employees of the
Company. The Chief Executive Officer is responsible for designating appropriate officer(s) or director(s), to implement and monitor
compliance with this Code.
REQUIRED BUSINESS CONDUCT OF DIRECTORS, OFFICERS AND EMPLOYEES
The principles that must be complied with by all directors, officers and employees of the Company under this Code are the following:
Conflicts of Interest
The Company reaffirms its confidence in the loyalty and integrity of all members of its staff. It is considered desirable to state the policy
of the Company on the subject of conflicts of interest to serve as a guide to directors, officers and other employees.
No director, officer or other employee shall permit private interests to conflict with the proper discharge of his or her official duties, nor
shall he or she have or acquire any private interest which will give the appearance of such a conflict.
This This Code indicates certain areas in which the policy regarding conflicts of interest has particular application in order that such
situations may be avoided; however, ethical action is expected of all directors, officers and employees in all relevant circumstances,
whether enumerated or not.
Gratuities
No gratuities, whether in the form of gifts or services, should be accepted unless nominal in amount and offered as part of a normal
business courtesy.
Entertainment
Entertainment is, within limits, a normal part of business activity. However, unusual, excessive or unreasonable entertainment should
be avoided.
Business Affiliations
The business affiliation of directors, officers and other employees should be a matter of Company record and, should any Board action
be required on Company business which may be influenced by an affiliation of one of the directors, the director so involved should
bring such affiliation to the attention of the Board and abstain from any vote thereon. Every officer or employee must obtain the
approval of the Chief Executive Officer prior to accepting a position as director, partner, officer, consultant or advisor to any other
insurance or reinsurance organization or to any other business organization.
Industry and Civic Activities
- 2 -
The Company encourages participation in activities of the Nutraceutical and Biotechnology industry and those civic activities which
are for the public good. It is important, however, that the amount of time devoted thereto does not impair the individual’s ability to
fulfill his or her official duties with the Company. With respect to participation in the activities of the Nutraceutical and Biotechnology
industry, the approval of the Chief Executive Officer, or such individual(s) as the Chief Executive Officer may designate, must be
obtained in each case.
Business Interests
Directors, officers and other responsible employees, or members of their immediate families must not have any material interest in any
organization carrying on business with the Company, except as permitted by applicable laws. Nothing contained herein shall prohibit
any corporation or partnership, in which one or more of them is an officer or director or partner, from serving as a depository of the
funds or securities of the Company.
Corporate Opportunities
Directors, officers and employees are prohibited from: (a) taking for themselves personally opportunities that are properly within the
scope of the Company’s activities, (b) using corporate property, information or position for personal gain, and (c) competing with the
Company. The Company’s directors, officers and employees owe a duty to the Company to advance the Company’s legitimate interests
to the best of their abilities.
Confidential Information
Except as required in the performance of the regular corporate duties of a director, officer or employee of the Company, disclosure or
use without authorization of any confidential information relating to the Company is prohibited. Confidential information includes all
non-public information that might be of use to competitors, or harmful to the Company or its customers, if disclosed. This prohibition
applies specifically (but not exclusively) to inquiries made by the press, investment analysts, investors or others in the financial
community. This prohibition also applies to information relating to third parties that the Company has obtained under an obligation of
confidentiality, or as a result of a commercial relationship. The obligation to safeguard confidential information continues after one’s
employment with the Company has ended. The obligation to maintain the confidentiality of information may be subject to legal or
regulatory requirements to disclose that information. In such cases, the Chief Executive Officer will assist in determining what
disclosure is required.
Acquisitions, Loans and Gifts from the Company
Except with the prior written approval of the Chief Executive Officer or individual(s) designated by the Chief Executive Officer, a
director, officer or employee of the Company (or any member of his or her immediate family) may not acquire property, or receive
loans or gifts, from the Company.
Disclosure of Potential Conflicts
Potential conflicts should be discussed with the Chief Executive Officer. In circumstances where it is unclear as to whether or not such
a discussion is required, the director, officer or other employee should err on the side of disclosure. Prior disclosure of a possible
conflict of interest does not in itself suggest wrongdoing, but helps eliminate embarrassing misunderstandings and ensure that the duty
of loyalty is not inadvertently violated.
Compliance with Laws
The Company is committed to being a good corporate citizen of all the jurisdictions in which it conducts business. Because of this
commitment, directors, officers and employees of the Company must comply in
all respects with all applicable laws, rules and regulations, including insider trading, in each jurisdiction in which it does business.
- 3 -
Directors, officers and employees of the Company must cooperate fully with those (including the Chief Financial Officer) responsible for
preparing reports filed with the securities regulatory authorities and all other materials that are made available to the investing public to
ensure those persons are aware in a timely manner of all information that is required to be disclosed. Directors, officers and employees
should also cooperate fully with the independent auditors in their audits and in assisting in the preparation of financial disclosure.
Senior officers of the Company must comply with the Company’s policies on timely disclosure adopted from time to time and provide
full, fair, accurate, understandable and timely disclosure in reports and documents filed with, or submitted to, securities regulatory
authorities and other materials that are made available to the investing public.
Fair Dealing and Integrity
One of the most valuable assets of the Company is its reputation for fairness and integrity. Each director, officer and employee of the
Company should deal fairly with the Company’s customers, suppliers, competitors and employees. Employees, directors and officers
should not take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of
material facts, or any other unfair-dealing practice. Directors, officers and employees must not take any action that could undermine that
reputation in dealings with the Company’s employees, customers, suppliers or governmental officials.
Accounting Controls
All transactions shall be properly approved and accurately reflected on the books and records of the Company. Falsification of
transactions and Company records or off-the-record trading or other off-the-record business transactions are strictly prohibited and subject
to disciplinary action or termination.
Protection and Proper Use of the Company’s Assets
All employees, officers and directors should protect the Company’s assets and ensure their efficient use. Theft, carelessness and waste
have a direct impact on the Company’s profitability. All of the Company’s assets should be used for legitimate business purposes.
Discrimination and Harassment
The diversity of the Company’s employees is a tremendous asset. The Company is firmly committed to providing equal opportunity in all
aspects of employment and will not tolerate any illegal discrimination or harassment of any kind. Derogatory remarks and inappropriate
characterizations of people and companies are prohibited. This applies equally to oral statements, e-mail messages, internal memos and
formal reports.
Reporting of Any Illegal or Unethical Behavior
The Company actively promotes ethical behavior in all its business activities. The Company’s directors, officers and employees are
encouraged to speak to their managers or other appropriate personnel at any time if there is any doubt about the best course of action in a
particular situation. The Company’s directors, officers and employees are required to report violations of law, rules, regulations and this
Code to their managers, senior management or the Board of Directors, as appropriate. Every reasonable effort will be made to ensure the
confidentiality of those furnishing information. The Company will not tolerate retaliation in any form against any person for complaints or
reports made in good faith.
WAIVER FOR EXECUTIVE OFFICERS OR DIRECTORS
- 4 -
A waiver of this Code for executive officers or directors will only be granted by the Board of Directors. Any waiver granted (or implicit
waiver) will be disclosed to the extent required by applicable law or the rules of any applicable stock exchange.
EXHIBIT 99.5
KPMG LLP
600 de Maisonneuve Blvd. West
Suite 1500
Tour KPMG
Montréal, Québec H3A 0A3
Telephone (514) 840-2100
Fax (514) 840-2187
Internet www.kpmg.ca
Consent of Independent Auditors
The Board of Directors
Acasti Pharma Inc.
We consent to the use of our report dated May 21, 2013 with respect to the financial statements of Acasti Pharma Inc. (the “Company”),
which comprise the statements of financial position as at February 28, 2013 and February 29, 2012, the statements of earnings and
comprehensive loss, changes in equity and cash flows for the years then ended and notes, comprising a summary of significant accounting
policies and other explanatory information, included in this annual report on Form 40-F of the Company. Our report contains an
emphasis of matter paragraph that states that the Company has incurred operating losses and negative cash flows from operations since
inception, and the existence of a material uncertainty that casts substantial doubt about the Company’s ability to continue as a going
concern.
May 29, 2013
Montreal, Canada
*CPA, auditor, CA, public accountancy permit No. A110592
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP.
EXHIBIT 99.6
I, Henri Harland, certify that:
1. I have reviewed this annual report on Form 40-F of Acasti Pharma Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this
report;
4. The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the issuer and have:
(a)
(b)
(c)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being
prepared;
Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the
period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the issuer’s
internal control over financial reporting; and
5.
The issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the issuer’s auditors and the audit committee of the issuer’s board of directors (or persons performing the
equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the issuer’s ability to record, process, summarize and report
financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
issuer’s internal control over financial reporting.
Date: May 29, 2013
/s/ Henri Harland
Henri Harland
Chief Executive Officer
EXHIBIT 99.7
I, Xavier Harland, certify that:
1. I have reviewed this annual report on Form 40-F of Acasti Pharma Inc.;
2.
3.
4.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented
in this report;
The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the issuer and have:
(a)
(b)
(c)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being
prepared;
Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the
period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the issuer’s
internal control over financial reporting; and
5.
The issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the issuer’s auditors and the audit committee of the issuer’s board of directors (or persons performing the
equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the issuer’s ability to record, process, summarize and report
financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
issuer’s internal control over financial reporting.
Date: May 29, 2013
/s/ Xavier Harland
Xavier Harland
Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ENACTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 99.8
In connection with the annual report of Acasti Pharma Inc. (the “Company”) on Form 40-F for the year ended February 28, 2013 (the
“Report”) as filed with the U.S. Securities and Exchange Commission,
I, Henri Harland, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906
of the U.S. Sarbanes-Oxley Act of 2002, that to my knowledge:
(i) the Report fully complies with the requirements of Section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company.
Date: May 29, 2013
/s/ Henri Harland
Henri Harland
Chief Executive Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ENACTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 99.9
In connection with the annual report of Acasti Pharma Inc. (the “Company”) on Form 40-F for the year ended February 28, 2013 (the
“Report”) as filed with the U.S. Securities and Exchange Commission,
I, Xavier Harland, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section
906 of the U.S. Sarbanes-Oxley Act of 2002, that to my knowledge:
(i) the Report fully complies with the requirements of Section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company.
Date: May 29, 2013
/s/ Xavier Harland
Xavier Harland
Chief Financial Officer