UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
FORM 20-F
_________________
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g) OF THE SECURITIES EXCHANGE ACT OF
1934
OR
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR
THE FISCAL YEAR ENDED FEBRUARY 29, 2016
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
Commission file number: 001-35776
______________________
Acasti Pharma Inc .
(Exact name of Registrant as specified in its charter)
______________________
N/A
(Translation of Registrant's name into English)
Québec, Canada
(Jurisdiction of incorporation or organization)
545, Promenade du Centropolis, Suite 100, Laval, Québec H7T 0A3
(Address of principal executive office)
Mario Paradis, Chief Financial Officer
Acasti Pharma Inc.
545, Promenade du Centropolis, Suite 100
Laval, Québec H7T 0A3
Tel: 450-687-2262
Fax: 450-687-2272
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class
Name of each exchange on which registered
Common Shares, no par value
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.
None
________________
Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period
covered by the annual report.
10,712,038 Common Shares issued and outstanding as of February 29, 2016.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
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 ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☐
Other ☐
International Financial Reporting Standards as
issued by the International Accounting Standards Board ☒
If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has
elected to follow.
Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ☐ No ☒
TABLE OF CONTENTS
INTRODUCTION AND USE OF CERTAIN TERMS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
PART I
Item
1.
Item
2.
Item
3.
Item
4.
Item
4A.
Item
5.
Identity of Directors, Senior Management and Advisers
Offer Statistics and Expected Timetable
Key Information
Information on the Company
Unresolved Staff Comments
Operating and Financial Review and Prospects
Directors, Senior Management and Employees
Major Shareholders and Related Party Transactions
Financial Statements
SELECTED QUARTERLY FINANCIAL DATA
Item
6.
Item
7.
Item
8.
Item
9.
Item
10.
Item
11.
Item
12.
Additional Information
The Offer and Listing
Description of Securities other than Equity Securities
Quantitative and Qualitative Disclosure about Market Risk
PART II
Item
13.
Item
14.
Item
15.
Item
16.
Item
16A.
Item
16B.
Item
16C.
Item
16D.
Item
16E.
Item
16F.
Item
16G.
Item
16H.
PART III
Item
17.
Item
18.
Defaults, Dividend Arrearages and Delinquencies
Material Modification to the Rights of Security Holdings and Use of Proceeds
Controls and Procedures
Reserved
Audit Committee Financial Expert
Code of Ethics
Principal Accountant Fees and Services
Exemptions from the Listing Standards for Audit Committees
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Change in Registrant's Certifying Accountant
Corporation Governance
Mining Safety Disclosure
Financial Statements
Financial Statements
1
2
3
3
3
3
19
36
36
39
46
62
62
63
64
73
74
74
74
74
74
75
75
75
75
76
76
76
76
76
76
76
76
Item
19.
Exhibits
EXHIBITS INDEX
SIGNATURES
76
113
114
INTRODUCTION AND USE OF CERTAIN TERMS
As used in this annual report on Form 20-F, or the Annual Report, unless the context otherwise requires, references to
"Acasti", "Acasti Pharma", "Corporation", "it", "its", "we", "our", "us" or similar terms refer to Acasti Pharma Inc., and references to
"Neptune" refer to Acasti's parent company, Neptune Technologies & Bioressources Inc.,
Market data and certain industry data and forecasts included in this Annual Report were obtained from internal company
surveys, market research, publicly available information, reports of governmental agencies and industry publications and surveys. We
have relied upon industry publications as our 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. We have not independently verified any of the data from third-party
sources, nor have we ascertained the underlying economic assumptions relied upon therein. Similarly, internal surveys, industry forecasts
and market research, which we believe to be reliable based upon management's knowledge of the industry, have not been independently
verified. Our estimates involve risks and uncertainties including assumptions that may prove not to be true, and these estimates and certain
industry data are subject to change based on various factors, including those discussed under "Risk Factors" in this Annual Report. While
we believe our internal business research is reliable and market definitions are appropriate, neither such research nor definitions have
been verified by any independent source. This Annual Report may only be used for the purpose for which it has been published.
Financial Information
All financial information is presented in accordance with International Financial Reporting Standards, or IFRS, as issued by
the International Accounting Standards Board, or IASB, other than certain non-IFRS financial measures which are defined under "Non-
IFRS operating loss (loss from operating activities before interest, taxes, depreciation and amortization (Non-IFRS operating loss)", in our
Management's Analysis of the financial situation and Operating Results, or MD&A below.
In this Annual Report, all references to "CAD" or "$" are to Canadian Dollars unless expressly otherwise stated.
Exchange Rate Table
The following table sets forth the average exchange rate for one Canadian dollar expressed in terms of one U.S. dollar for
each of the last five fiscal years. The average rate is calculated using the average of the exchange rates on the last day of each month
during the period.
2011
2012
2013
2014
2015
2016
Average
1.0151
1.0008
0.9903
0.9555
0.8003
0.7645
The following table sets forth the high and low exchange rates for each month during the previous six months.
November 2015
December 2015
January 2016
February 2016
March 2016
April 2016
May 2016
Low
0.7485
0.7148
0.6854
0.7123
0.7425
0.7593
0.7613
High
0.7637
0.7485
0.7159
0.7395
0.7715
0.7972
0.7969
The exchange rates are based upon the noon buying rate as quoted by the Bank of Canada. At May 27, 2016, the exchange
rate for one Canadian dollar expressed in terms of one U.S. dollar, as quoted by The Bank of Canada Eastern Time, equaled $0.7691.
1
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains certain information that may constitute forward-looking statements within the meaning of U.S.
federal securities laws, which we refer to in this Annual Report 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 Annual Report includes, but is not limited to, information or statements about:
· Acasti's ability to conduct all required clinical and nonclinical 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, medical food and natural health
products markets, respectively;
· Acasti's ability to maintain and defend its intellectual property rights;
· Acasti's ability to maintain its supply of raw materials, including krill oil, from its parent company;
· Acasti's ability to secure a third-party supplier to provide Acasti, as needed, with raw materials to supplement its operations,
including raw krill oil ("RKO"), used to manufacture CaPre® and ONEMIA®;
· Acasti's ability to secure and maintain 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, medical food and natural health products 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 Annual Report 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 Annual Report is subject to a number of known and unknown risks,
uncertainties and other factors, including those described in this Annual Report 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 RKO 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;
2
·
·
·
·
·
·
·
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, medical food and natural health product industries;
the Corporation's ability to secure and defend its intellectual property rights and to avoid infringing upon the intellectual
property rights of third parties; and
the Corporation's status as a foreign private issuer/emerging growth company.
Consequently, all the forward-looking information in this Annual Report 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 Annual Report.
PART I
Item 1.
Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2.
Offer Statistics and Expected Timetable
Not applicable.
Item 3.
Key Information
A.
Selected Financial Data
The following information should be read in conjunction with our MD&A and our audited financial statements and the
related notes for the year ended February 29, 2016, which are prepared in accordance with IFRS as issued by the IASB. The selected
financial information includes financial information derived from the audited financial statements. Our historical results from any prior
period are not necessarily indicative of results to be expected for any future period.
The following table is a summary of selected consolidated financial information of the Corporation for each of the five most
recently completed fiscal years in accordance with IFRS as issued by the IASB.
February 29,
2016
February 28,
2015
February 28,
2014
February
28, 2013
February
29, 2012
Revenue from sales
Loss from operating activities
Net loss and total comprehensive loss
Basic and diluted loss per share
Total assets
Total liabilities
Share capital
Warrants and rights
Weighted average number of shares outstanding
Dividends declared per share
B. Capitalization and Indebtedness
Not applicable.
(0.59) $
37,656 $
724,196 $
500,875 $
270,615 $
$
10,415
$ (9,611,418) $ (12,394,461) $ (10,799,706) $ (6,979,733) $ (6,512,842)
$ (6,316,731) $ (1,654,724) $ (11,611,649) $ (6,892,360) $ (6,500,933)
$
(0.97)
$ 28,517,322 $ 37,208,105 $ 45,631,803 $ 12,170,048 $ 15,728,860
$
3,979,786 $ 12,352,303 $ 2,446,372 $ 1,259,518
61,972,841 61,627,743 61,027,307 28,922,710 28,614,550
313,315
6,723,164
—
–
10,659,936 10,617,704
—
406,687
8,436,893
—
406,687
7,275,444
—
1,297,290 $
(1.38) $
(0.16) $
(0.95) $
—
–
3
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. 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 Annual Report, 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 and the market price of the Common Shares could decline significantly if one or more of these risks or
uncertainties actually occur. Unknown risks or risks that Acasti currently believes to be immaterial may also impair its business,
financial condition or results of operations. Certain statements below are forward-looking information. See "Special Note Regarding
Forward-Looking Statements".
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 conduct additional 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 the Corporation's fiscal year
2021 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 treatment of 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 additional clinical trials, are not successful for the treatment of 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;
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®;
4
·
·
·
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 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.
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;
effective pricing of CaPre®;
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;
negative perception of market regarding limitations or warnings contained in FDA-approved labeling;
5
·
·
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 physicians, health insurance providers and patients, the Corporation
may not generate sufficient revenue and the Corporation may not be able to ever achieve profitability.
We may not be able to compete effectively against our competitors' pharmaceutical products.
The biotechnology and pharmaceutical industries are highly competitive. There are many pharmaceutical companies,
biotechnology companies, public and private universities and research organizations actively engaged in the research and development of
products that may be similar to our products. It is probable that the number of companies seeking to develop products and therapies similar
to our products will increase. Many of these and other existing or potential competitors have substantially greater financial, technical and
human resources than we do 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 ours. In addition, other technologies or products may be developed that
have an entirely different approach or means of accomplishing the intended purposes of our products, which might render our technology
and products non-competitive or obsolete.
Our 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. GlaxoSmithKline plc, which
currently sells Lovaza ®, a prescription-only omega-3 fatty acid indicated for patients with severe hypertriglyceridemia was approved by
FDA in 2004 and has been on the market in the United States since 2005. As described below, multiple generic versions of Lovaza are
now available in the United States. Other large companies with competitive products include AbbVie, Inc., which currently sells Tricor ®
and Trilipix ® for the treatment of severe hypertriglyceridemia and Niaspan ®, which is primarily used to raise HDL-C, but is also used to
lower triglycerides. Generic versions of Tricor, Trilipix, and Niaspan are also now available in the United States. In addition, in May
2014, Epanova ® (omega-3-carboxylic acids) capsules, a free fatty acid form of omega-3 (comprised of 55% EPA and 20% DHA), was
approved by the FDA for patients with severe hypertriglyceridemia. Epanova was developed by Omthera Pharmaceuticals, Inc., and is
now owned by AstraZeneca Pharmaceuticals LP (AstraZeneca). Also, in April 2014, Omtryg, another omega-3-acid fatty acid
composition developed by Trygg Pharma AS, received FDA approval for severe hypertriglyceridemia. Neither Epanova nor Omtryg have
been commercially launched, but could launch at any time. Each of these competitors, other than potentially Trygg, has greater resources
than we do, including financial, product development, marketing, personnel and other resources.
In addition, we are aware of other pharmaceutical companies that are developing products that, if approved and marketed,
would compete with CaPre®. We believe Catabasis Pharmaceuticals, or Catabasis, and Sancilio & Company, or Sancilio, are also
developing potential treatments for hypertriglyceridemia based on omega-3 fatty acids. To our knowledge, Catabasis initiated a Phase 2
clinical trial in October 2015 to evaluate the safety and efficacy of its product in combination with atorvastatin in patients with
hypercholesterolemia, and Sancilio also is pursuing a regulatory pathway under section 505(b)(2) of the FDCA for its product and
submitted an IND in July 2015. Sancilio completed two pivotal pharmacokinetic studies, and we expect the company to initiate a pivotal
clinical endpoint study as the next step in development. In addition, we are aware that Matinas BioPharma, Inc. is developing an omega-3-
based therapeutic for the treatment of severe hypertriglyceridemia and mixed dyslipidemia. Matinas BioPharma, Inc. has filed an
Investigational New Drug Application with the FDA to conduct a human study in the treatment of severe hypertriglyceridemia. Akcea
Therapeutics/Ionis Pharmaceuticals (formerly Isis Pharmaceuticals) announced favorable Phase 2 results of volanesorsen (formerly ISIS-
APOCIII Rx), a drug candidate administered through weekly subcutaneous injections, in patients with high triglycerides and type 2
diabetes and in patients with moderate to severe high triglycerides. Finally, Madrigal Pharmaceuticals has completed Phase 1 clinical
testing of MGL-3196 for the treatment of high triglycerides and various lipid parameters in patients.
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.
6
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 or natural health products. 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 or
natural health products, 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 treatment of 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 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:
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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.
7
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 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.
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, has broadened access to health insurance, reduced or
constrained the growth of healthcare spending, enhanced remedies against fraud and abuse, added new transparency requirements for
healthcare and health insurance industries, imposed new taxes and fees on the health industry and imposed additional health policy
reforms. 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 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.
8
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:
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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.
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 and non-clinical studies for CaPre® can be delayed for a number of reasons,
including delays related to:
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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;
9
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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;
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 re-examination, 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. 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 will demonstrate sufficient safety and efficacy for the FDA to approve CaPre® for the treatment of
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.
10
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 Neptune and other
third party manufacturers and key suppliers
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. Acasti is currently acquiring its krill oil from Neptune and through purchases in the
open market in order to meet production requirements for ONEMIA™, and is also relying on a third party to provide manufacturing
services for the production of CaPre® in accordance with cGMP regulations imposed by the FDA. Furthermore, the Corporation may
have to source additional quantities of krill oil for the continued production of ONEMIA™ and its planned Phase III clinical program for
CaPre®, and, if regulatory approval is obtained, larger quantities for the commercialization and distribution of CaPre® may be needed by
the Corporation.
Acasti may not be able to acquire krill oil in sufficient quantities from Neptune, in which case, Acasti may need to seek
alternative suppliers of krill oil and may be required to pay higher prices for krill oil (in comparison to what it currently pays to Neptune).
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®. 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.
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:
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becomes unavailable for any reason, including as a result of the failure to comply with current good manufacturing practices,
or cGMP regulations;
11
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experiences manufacturing problems or other operational failures, such as equipment failures or unplanned facility
shutdowns required to comply with cGMP 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.
If the Corporation's third-party manufacturers fail to achieve and maintain high manufacturing standards in compliance with
cGMP regulations, Acasti may be subject to sanctions, including fines, product recalls or seizures, injunctions, total or partial suspension
of production, civil penalties, withdrawals of previously granted regulatory approvals, and criminal prosecution. Any of these penalties
could delay the initiation of the Corporation's planned Phase III clinical trial for CaPre®, which could have a material adverse effect on
Acasti's business prospects and result of operations.
The FDA could challenge Onemia®'s classification as a "medical food".
Our offering of Onemia® as "medical food" could be challenged by the FDA. The FDA has previously issued warning letters
to other companies challenging the classification of their products as "medical food" and may be applying a more narrow interpretation of
what qualifies as "medical food." Given this enhanced focus on medical food companies, we cannot provide any assurance that Acasti will
not receive such a letter and the FDA could prohibit the sale of one or more of our potential future "medical food" products in the United
States .If the FDA challenges our classification of Onemia® or other potential "medical food" products, Acasti would likely incur
significant costs responding to such a claim and defending our product's status as a medical food. The re-position of our product as a
"dietary supplement" would require new labels, labeling and revised claims for the products, and would impose other regulatory
requirements on Acasti that would be costly and time consuming and could divert management attention, all of which could have a
negative impact on our business and results of operations.
The Corporation may be subject to Product Liability Claims and Recalls of its Products.
Drug development involves the testing of experimental drugs on human subjects. These studies subject the Corporation to
liability risks relating to personal injury or, in extreme cases, death to participants as a result of an unexpected adverse reaction to the
tested drug. Furthermore, the administration of these experimental drugs to humans after marketing clearance is obtained can result in
product liability claims which may result from claims made directly by consumers or by regulatory agencies, pharmaceutical companies or
others. There can be no assurance that insurance will be adequate or will continue to be available on terms acceptable to the Corporation.
Insurance will generally not protect the Corporation against negligence.
The obligation to pay any product liability claim in excess of whatever insurance the Corporation is able to acquire, or the
recall of any of its products, could have a material adverse effect on the business, financial condition and future prospects of the
Corporation.
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
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:
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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;
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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 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 effect on its
business and financial condition. See "Acasti's Products – Intellectual Property".
13
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:
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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.
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 USPTO, 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 29, 2016 was
approximately $6.32 million. As of February 29, 2016, the Corporation had an accumulated deficit of approximately $39.63 million.
14
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.
The Corporation may not be able to maintain its operations and research and development without additional funding.
The Corporation will require substantial additional funds to conduct further research and development, scheduled clinical
testing, regulatory approvals and the commercialization of CaPre®. In addition to completing nonclinical and 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. To date, the Corporation has financed its
operations through public offering and private placement of Common Shares, proceeds from exercises of warrants, rights and options and
research tax credits. The Corporation's cash and short term investments were approximately $10.47 million as of February 29,
2016. 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. To achieve the objectives of its business plan, the Corporation plans to establish
strategic alliances and raise the necessary capital. The Corporation may also seek additional funding for these purposes through public or
private equity or debt financing, joint venture arrangements, and collaborative arrangements with other pharmaceutical companies, and/or
from other sources.
The Corporation has incurred operating losses and negative cash flows from operations since inception. 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. There can be no assurance that any additional funding from 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®. The
failure to obtain additional financing on favourable terms, or at all, could have a material adverse effect on Acasti's business, financial
condition and results of operations.
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 29, 2016, the Corporation had eleven employees in Canada, ten of whom have biology, chemistry,
biochemistry or microbiology credentials and one administrative staff with a pharmaceutical industry background. 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 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.
15
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, shared with Neptune, in the amount of $10.0 million in the aggregate, which also covers its
clinical trials. Although the Corporation maintains such insurance, any claim that may be brought 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 it will
conduct a Phase III clinical trial 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.
16
Neptune could lose its control of Acasti
Neptune currently owns approximately 47.28% of Acasti's outstanding Common Shares, two members of Neptune's Board of
Directors are also members of Acasti's Board of Directors, and Neptune's Chief Financial Officer is also the Chief Financial Officer of
Acasti. As a result, Neptune exercises control over Acasti as of February 29, 2016. However, if all outstanding warrants, call options and
restrictive share units of Acasti were to be exercised, Neptune's ownership interest in Acasti's Common Shares would fall to approximately
37%. If Neptune's ownership of Acasti's Common Shares declines, Neptune may lose its ability to elect members of its Board of Directors
to Acasti's Board of Directors and to otherwise exercise control over Acasti. A loss of Neptune's control over Acasti, could, among other
things result in:
·
investors and analysts placing a different, and possibly lower, value on the Common Shares to reflect a lower degree of
exposure by Neptune to Acasti's krill oil-based pharmaceutical business;
· Acasti making decisions in connection with the development and commercialization of Acasti's products with less or no
involvement and approval from Neptune; and
Neptune does not expect to provide material capital to Acasti in the short term and therefore, its ownership interest in Acasti
may continue to decline.
If we fail to meet the applicable listing requirements, NASDAQ may delist our securities from trading on its exchange in which case
the liquidity and market price of our securities could decline.
Our common stock is currently listed on the NASDAQ Stock Market, but we cannot assure you that our securities will
continue to be listed on NASDAQ in the future. Following the resignation of Jerald D. Wenker, Harlan W. Waksal, Adrian Montgomery,
and Reed V. Tuckson's from our Board, the audit committee of our Board no longer had three independent members as required by
NASDAQ Listing Rule 5605(c)(2). On March 21, 2016, we notified NASDAQ's Listing Qualifications Department that we were not
currently in compliance with Listing Rule 5605(c)(2). On March 22, 2016, we received a written notice from NASDAQ's Listing
Qualifications Department that we had until: (i) the earlier of our next annual shareholders' meeting or March 1, 2017; or (ii) if the next
annual shareholders' meeting is held before August 29, 2016, then no later than August 29, 2016, in order to regain compliance with the
audit committee composition requirement. In the event we do not regain compliance by this date, NASDAQ will provide written
notification to us that our Common Shares will be delisted, subject to an unsuccessful appeal of the delisting determination to a Hearings
Panel.
If NASDAQ delists our securities from trading on its exchange and we are not able to successfully appeal or list our securities
on another national securities exchange, we expect our securities could be quoted on an over-the-counter market. If this were to occur, we
could face significant material adverse consequences, including:
·
·
·
·
·
a limited availability of market quotations for our securities;
reduced liquidity for our securities;
a determination that our common stock is a "penny stock" which will require brokers trading in our Common Shares to adhere
to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our
securities;
a limited amount of news and analyst coverage; and
a decreased ability to issue additional equity securities or obtain additional equity or debt financing in the future.
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.
17
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. If the Corporation is not a foreign private issuer, it would not be eligible to use
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, 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.
Currently, the Corporation does not satisfy the eligibility criteria to use MJDS to conduct public securities offerings and to
meet its periodic disclosure requirements in the United States. As a result, if the Company conducts future public securities offerings in
the United States, it may have do so without the use of MJDS, which could involve additional time and cost.
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 Start-ups 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.
The Corporation is a company existing under the Business Corporations Act (Québec). A majority of the Corporation's
officers are resident 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.
18
Item 4.
Information on the Company
A. History and Development of the Company
We were 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, we changed our name to "Acasti Pharma Inc.", our share
capital, the provisions regarding the restrictions on securities transfers and the borrowing powers of the Corporation. On November 7,
2008, pursuant to a Certificate of Amendment, we further revised our provisions regarding our borrowing powers. We 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). We are now governed by the Business Corporations Act (Québec).
Our head office and registered office is located at 545 Promenade du Centropolis, Suite 100, Laval, Québec H7T 0A3, and
the phone number of our head and registered office is (450) 687-2262. Our website address is http://www.acastipharma.com. We do not
incorporate the information on or accessible through our website into this Annual Report, and you should not consider any information
on, or that can be accessed through, our website as part of this Annual Report. Our registered agent in the United States is CT Corporation
System, 111 Eighth Avenue, New York, NY 10011.
The following is a summary of significant events related to the development of our business that have occurred in the last
financial year.
Fiscal Year Ended February 29, 2016
CaPre® - Clinical Trials Update
TRIFECTA Trial
The TRIFECTA trial, a 12-week, randomized, placebo-controlled, double-blind, dose-ranging trial, was designed to assess the safety and
efficacy of CaPre®, at a dose of 1 or 2 g, on fasting plasma triglycerides as compared to a placebo in patients with mild to severe
hypertriglyceridemia. A total of 387 patients were randomized and 365 patients completed the 12-week study, in line with the targeted
number of evaluable patients. From this patient population, approximately 90% had mild to moderate hypertriglyceridemia with baseline
triglycerides between 200 and 499 mg/dL (2.28 to 5.69 mmol/L). The remainder had very high baseline triglycerides between 500 and 877
mg/dL (> 5.7 and < 10 mmol/L). Approximately 30% of patients were on lipid lowering medications, such as statins, and approximately
10% were diabetic.
Similar to the COLT trial, the primary objective of the TRIFECTA trial was to evaluate the effect of CaPre® on fasting plasma
triglycerides in patients with triglycerides between 2.28 and 10.0 mmol/L (200-877 mg/dL) and to assess the tolerability and safety of
CaPre®. The secondary objectives of the TRIFECTA trial were to evaluate the effect of CaPre® on fasting plasma triglycerides in
patients with triglycerides between 2.28 and 5.69 mmol/L (200-499 mg/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); and to evaluate the effect of CaPre® in patients with
mild to moderate hypertriglyceridemia and severe hypertriglyceridemia on fasting plasma levels of LDL-C (direct measurement), and on
fasting plasma levels of HDL-C, non-HDL-C, hs-CRP and omega-3 index.
In Fiscal 2016, the Corporation received the full data for its TRIFECTA trial which confirmed and supported the positive Phase II
TRIFECTA results announced in September 2014, on the safety and efficacy of CaPre® in the treatment of patients with
hypertriglyceridemia. The TRIFECTA trial's primary endpoint was met, with patients on 1 g or 2 g of CaPre® achieving a statistically
significant mean placebo-adjusted decrease in triglycerides from baseline. In addition, benefits in other key cholesterol markers were
announced, including slight increases in HDL-C (good cholesterol), no deleterious effect on LDL-C (bad cholesterol) and no safety
concerns.
PK Trial
During the same period, Acasti announced top-line results for its PK trial. The PK trial was an open-label, randomized, multiple-dose,
single-center, parallel-design study in healthy volunteers. Forty-two male and female individuals, at least 18 years of age, were enrolled
into three groups of 14 subjects who took 1, 2 or 4 grams of CaPre®, administered once a day 30 minutes after breakfast. The objectives
of the study were to determine the pharmacokinetic profile and safety on Day 1 following a single oral dose and Day 14 following
multiple oral doses of CaPre® on individuals pursuing a low-fat diet (therapeutic lifestyle changes diet). The effect of a high-fat meal on
the bioavailability of CaPre® was also evaluated at Day 15. Blood samples were collected for assessment of EPA and DHA total lipids in
plasma to derive the pharmacokinetic parameters.
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CaPre® pharmacokinetics appear to be approximately dose-proportional over the 1 to 4 gram a day dose range. Following a single daily
dose, CaPre® reached steady state (EPA and DHA levels plateaued) within seven days of dosing. The bioavailability of CaPre® was not
significantly reduced when taken with a low-fat meal versus high-fat meal; a significant advantage for the management of
hypertriglyceridemic patients on low fat diets. CaPre® was safe and well tolerated, with no safety concerns.
Following receipt of data for the Phase I PK Study and the Phase II clinical trials – COLT and TRIFECTA – Acasti provided a data
package to the FDA to receive direction on requirements for the pivotal Phase III clinical program.
Strengthening Our Patent Estate
During the year, Acasti announced that the Japanese, Taiwanese and Mexican patent offices have each granted Acasti a composition and
use patent. The patents are all valid until 2030 and relate to concentrated therapeutic phospholipid omega-3 compositions covering
methods for
inflammation,
treating or preventing diseases associated with cardiovascular diseases, metabolic syndrome,
neurodevelopmental diseases, and neurodegenerative diseases. They are in addition to multiple other patents that Acasti has been granted
in the United States, Australia, Mexico, Saudi Arabia, Panama, and South Africa for phospholipid composition. As well, similar patent
applications are being pursued in many jurisdictions worldwide. During the same period, the Chinese Patent Office also granted Acasti a
composition and use patent. The Patent (ZL 201080059930.4), which is valid until 2030, relates also to concentrated therapeutic
phospholipid omega-3 compositions.
The granting of these patents is a value-enhancing milestone, which further heightens the potential commercial implications, including
possible licensing and partnership opportunities for CaPre®. Acasti is committed to building a global portfolio of patents to ensure a long-
lasting and comprehensive protection, while also safeguarding valuable market expansion opportunities.
NASDAQ Continuous Listing Rules – Minimum Bid Price Requirements
On November 7, 2014 Acasti received notification from the NASDAQ Listing Qualifications Department for failing to maintain
a minimum bid price of US$1.00 per share for 30 consecutive business days. To regain compliance, Acasti's shares had to close at
US$1.00 per share or more for a minimum of ten (10) consecutive business days. The Corporation was able to cure the listing
requirement violation during the fiscal year ended February 29, 2016. On September 29, 2015, Acasti announced a compliance plan to
meet the NASDAQ Minimum Bid Price Rules, by consolidating the issued and outstanding Class A Common Shares of the Corporation.
The reverse split became effective at the open of trading on October 14, 2015 and the Common Shares began trading on
NASDAQ and TSX on a reverse split-adjusted basis on such date. There were currently 106,616,262 Common Shares issued and
outstanding on a pre-Consolidation basis, which resulted into approximately 10,661,626 Common Shares issued and outstanding on a
post-Consolidation basis. The exercise price in effect on October 14, 2015, in the case of incentive stock options, warrants and other
securities convertible into Common Shares, was increased proportionally to reflect the reverse split. The number of Common Shares
subject to a right of purchase upon the exercise of convertible securities was also decreased proportionally to reflect the reverse split.
B. Business Overview
Acasti is an emerging biopharmaceutical company focused on the research, development and commercialization of new krill
oil-based forms of omega-3 phospholipid therapies for the treatment of certain cardiometabolic disorders, in particular abnormalities in
blood lipids, also known as dyslipidemia. Krill is a major source of phospholipids and polyunsaturated fatty acids, 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.
Pursuant to a license agreement entered into with Neptune in August 2008, Acasti has been granted a license to rights on
Neptune's intellectual property portfolio related to cardiovascular pharmaceutical applications (the "License Agreement"). In December
2013, the Corporation 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 in fiscal 2014. The royalty- free license
allows Acasti to exploit the intellectual property rights in order to develop novel active pharmaceutical ingredients ("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 APIs, as well as required regulatory submissions and approvals and intellectual property filings relating to the
cardiovascular applications. The products developed by Acasti require the approval of the FDA before clinical studies are conducted and
approval from similar regulatory organizations before sales are authorized.
CaPre®, Acasti's prescription drug candidate, is a highly purified omega-3 phospholipid concentrate derived from krill oil and
is being developed to treat severe hypertriglyceridemia, a condition characterized by abnormally very high levels of triglycerides in the
bloodstream. In 2011, two Phase II clinical trials in Canada were initiated and now completed (TRIFECTA trial and COLT trial) to
evaluate the safety and efficacy of CaPre® for the management of mild to severe hypertriglyceridemia (high triglycerides with levels
ranging from 200 to 877 mg/dL). Both trials also include the secondary objective of evaluating the effect of CaPre® in patients with mild
to moderate hypertriglyceridemia (high triglycerides levels ranging from 200 to 499 mg/dL) as well as in patients with severe
hypertriglyceridemia (very high triglycerides levels ranging from 500 to 877 mg/dL). The open-label COLT trial was completed during
the second quarter of fiscal 2014 and the TRIFECTA trial was completed in the second quarter of fiscal 2015. Based on the positive
results of these trials, Acasti filed an investigational new drug submission to the U.S. Food and Drug Administration to conduct a
pharmacokinetic study in the U.S. Acasti subsequently received approval to conduct this trial and it was completed in the second quarter
of fiscal 2015.
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Due to a decision by the FDA not to grant authorization to commercialize a competitor's drug in the mild to moderate patient
population before the demonstration of clinical outcome benefits, Acasti is reassessing its clinical strategy and primarily focusing on the
severe hypertriglyceridemia population.
Onemia®, Acasti's commercialized product, has been marketed in the United States since 2011 as a medical food supplement
and as a natural health product (NHP) in Canada since 2012. An NHP is the equivalent of a dietary supplement in the US. Onemia® is
only administered in the U.S. under the supervision of a physician and is intended for the dietary management of omega-3 phospholipid
deficiency related to abnormal lipid profiles and cardiometabolic disorders.
As previously disclosed, Acasti decided to find strategic alternatives for Onemia® and focus its energy and resources on the
development of CaPre®. Acasti has entered into a non-exclusive licensing agreement for Onemia® with Neptune in which Neptune has to
engage in best commercial efforts to expand the marketing of Onemia®. Acasti will receive a royalty of 17.5% on net sales of Onemia®
and Acasti believes given Neptune's sales and marketing leadership in the krill oil market that Neptune represents the best partner for
Onemia®. As of February 29, 2016, no sales have been realized by Neptune.
Next Steps
Acasti is now corresponding with the FDA about the next steps proposed for the clinical development plan of CaPre®. Such
correspondence is meant to allow the FDA to provide feedback on Acasti's plans and to clarify or answer specific questions that the FDA
may have prior to such next steps toward the pivotal Phase III clinical program. Such correspondence can take the form of written
correspondence, discussions and potential in person meetings with the FDA.
Acasti intends to conduct a Phase III clinical trial in the United States, with potentially a few Canadian clinical trial sites, in a
patient population with very high triglycerides (> or = 500 mg/dL). In addition to conducting a Phase III clinical trial, Acasti expects that
additional time and capital will be required to complete the filing of a New Drug Application ("NDA") to obtain FDA approval for
CaPre® in the United States before reaching commercialization, which may initially be only for the treatment of severe
hypertriglyceridemia.
Acasti intends to pursue the regulatory pathway for CaPre® under section 505(b)(2) of the Federal Food, Drug, and Cosmetic
Act and conduct a pivotal bioavailability bridging study, comparing CaPre® to an omega-3 prescription drug as a means of establishing a
scientific bridge between the two. This will help determine the feasibility of a 505(b)(2) regulatory pathway, while also optimizing the
protocol design of a Phase III clinical program. The 505(b)(2) approval pathway has been used by many other companies and Acasti's
regulatory and clinical experts believe such a strategy is best for CaPre®. This should allow Acasti to further optimize the advancement of
CaPre® while benefiting most importantly from the substantial clinical and nonclinical data already available with another FDA-approved
omega-3 prescription drug. In addition, this should reduce the expected expenses and streamline the overall CaPre® development program
required to support a NDA submission.
The finalization and execution of Acasti's comprehensive Capre® development plan and definitive Phase III program, overall
costs and timelines are contingent upon FDA review and direction. Acasti has recently received a response from the FDA on the CaPre®
clinical development program. With this endorsement Acasti has submitted an amendment to its current IND application to commence a
bioavailability bridging study, while continuing to work closely with the FDA to ensure the Corporation is aligned with their views on
Capre®'s clinical development.
As planned, Acasti initiated and recently completed subject enrollment for the bioavailability bridging study. Acasti is
expecting results of the study before the end of the year which should confirm Acasti's chosen regulatory pathway.
Business Strategy
Key elements of Acasti's strategy to commercialize therapies for dyslipidemia include: (i) completing its clinical program as
per FDA recommendations and guidelines such as initiating a Phase III clinical trial 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 possibly for
the treatment of mild to moderate hypertriglyceridemia); (ii) strengthening Acasti's patent portfolio and other means of protecting
intellectual property exclusivity; and (iii) pursuing distribution partnerships to commercialize CaPre® in the United States and elsewhere.
Acasti 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 pursue any such strategic opportunities.
Treatments for Cardiometabolic Disorders – Acasti's Market
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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 bloodstream, is an important risk factor for cardiovascular disease.
According to the American Heart Association, the prevalence of hypertriglyceridemia is increasing in the United States and
globally, correlating to the increasing incidence of obesity and diabetes. Market participants, including the American Heart Association,
have estimated that one-third of the population in the United States has elevated levels of triglycerides, including over 40 million people
diagnosed with mild to moderate 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 chronic renal failure, pancreatitis, nephrotic
syndrome and diabetes.
Patients with type 2 diabetes are more susceptible to cardiovascular disease. Cardiovascular disease may be preventable in
some patients with appropriate treatment of lipid abnormalities. Diabetic dyslipidemia most commonly manifests as elevated triglycerides
and low levels of HDL-C, with a predominance of small, dense LDL-C particles amid relatively normal LDL-C levels. Non-HDL-C
reduction is a key secondary goal of therapy under the National Cholesterol Education Program Adult Treatment Panel III national lipid
treatment guidelines and, according to the American Diabetes Association and the American College of Cardiology, has been emphasized
as a major goal of therapy in the consensus guidelines for lipoprotein management in patients with cardiometabolic risk. Acasti believes,
based in part on a study published by Blaha MJ et al. in The Journal of Clinical Lipidology in 2008, that non-HDL-C levels may be a
better indicator than LDL-C for the prediction of cardiovascular events and that non-HDL-C reduction has many other compelling
advantages over LDL-C and other traditional lipid parameters. Studies have established the clinical utility of non-HDL-C as a
comprehensive measure of atherogenic lipoproteins. In diabetic patients, non-HDL-C levels may be a stronger predictor of cardiovascular
disease than LDL-C levels or triglycerides because it correlates highly with atherogenic lipoproteins. Target goals for LDL-C levels and
non-HDL-C levels in patients with diabetes are < 100 and < 130 mg/dL, respectively. Failure to consider the importance of non-HDL-C in
type 2 diabetes may result in under treatment of patients with diabetes.
Red blood cells are made of a molecule called haemoglobin that glucose adheres to in the bloodstream. The more glucose in
the blood, the more it will adhere to haemoglobin to make a glycosylated haemoglobin molecule, called haemoglobin A1C (or HbA1c).
HbA1c is measured primarily to identify the average plasma glucose concentration over prolonged periods of time. This serves as a
marker for average blood glucose levels over the previous months prior to the measurement.
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 a recent report released by the NCEP Expert Panel has claimed 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 2005, in which 18,645 hypercholesterolemic patients
randomly received EPA plus a statin or statin control, patients with baseline triglycerides >150 mg/dL and HDL-C <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, in 2001, 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 of treatment. A similarly significant, although more delayed, pattern after six to eight months of treatment was observed for
cardiovascular, cardiac and coronary deaths.
A meta-analysis by Sarwar et al. in 2007 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. In addition, there are two
outcome trials ongoing (REDUCE-IT and STRENGTH) designed to evaluate long-term benefit of lowering triglycerides with prescription
omega-3 fatty acids on cardiovascular risks.
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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 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.
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 their triglyceride 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). Based on the results of the COLT and
TRIFECTA trials and other data collected by the Corporation, 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 (such as Lovaza, Vascepa, Epanova, Omtryg and some generic
of Lovaza) currently approved for treatment of dyslipidemia in the United States (in severe hypertriglyceridemia) and elsewhere.
According to the Frost Sullivan 2012 Global Overview of the EPA and DHA Omega-3 Ingredients Markets, the global revenue for the
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. A market research report published by Amadee & Company Inc. estimates 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 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.
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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 the
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.
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 bloodstream compared to some other omega-3 sources, including those derived from fish oil. CaPre® (predominantly EPA
and DHA) is a mixture of phospholipid conjugates and free fatty acids. Except for Epanova® that is a mixture of EPA and DHA as FFA,
all the other products are ethyl esters of EPA with or without DHA (" OM3:EE"). Because OM3:EE requires an additional de-
esterification step during digestion by the carboxyl ester lipase, their bioavailability is negatively affected when compared to EPA and
DHA conjugated to phospholipids or triglycerides
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 when taken with a low fat meal compared to those formulated as omega-3 phospholipids where absorption
is not meaningfully affected by the fat content of a meal.
CaPre®
CaPre® is being developed for the treatment of severe hypertriglyceridemia and eventually mild to moderate
hypertriglyceridemia. In addition to targeting the reduction of triglyceride levels, clinical data collected by Acasti to date has indicated that
CaPre® may also normalize blood lipids by increasing HDL-C (good cholesterol) and reducing non-HDL-C, which includes all
cholesterol contained in the bloodstream except HDL‑C. In addition, clinical data collected and reviewed by Acasti to date indicates that
CaPre® has no significant deleterious effect on LDL-C (bad cholesterol) levels. Obtaining regulatory approval for the commercialization
of CaPre® requires that safety is confirmed and it is effective at reducing triglycerides at a level that would medically benefit the patient.
ONEMIA®
ONEMIA®, has a natural health product status in Canada and is commercialized as a medical food in the US. Onemia is
currently Acasti's only commercialized product, is a purified omega-3 phospholipids concentrate derived from krill oil with lower levels of
phospholipids, 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 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 some pharmacies. During the fiscal years 2016, 2015 and 2014, Acasti
generated revenues of approximately $38,000, $271,000 and $501,000, respectively, from sales of ONEMIA®.
Acasti decided to find strategic alternatives for Onemia® and focus its energy and resources on the development of CaPre®.
Acasti has entered into a non-exclusive licensing agreement for Onemia® with Neptune in which Neptune has to engage in best
commercial efforts to expand the marketing of Onemia®. Acasti will receive a royalty of 17.5% on net sales of Onemia® and Acasti
believes given Neptune's sales and marketing leadership in the krill oil market that Neptune represents the best partner for Onemia®. As
of February 29, 2016, no sales have been realized by Neptune.
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Clinical and Nonclinical Research
Nonclinical
In preparation of its planned amendment of its Investigational New Drug ("IND") application with the FDA to conduct a
Phase III clinical trial and for its New Drug Application (" NDA"), Acasti carried out an extensive nonclinical program to demonstrate the
safety of CaPre® in a defined set of studies required by the FDA. 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 the studies conducted to date 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 1.0g-4.0g daily.
In parallel to its proposed Phase III clinical trial, Acasti may complete additional sets of nonclinical studies depending on the
regulatory pathway approved by FDA and followed by the Corporation, i.e. 505(b)(1) or 505(b)(2) as described below.
The first set of studies, the developmental and reproductive toxicology ("Dart"), is designed to assess safety on male and
female fertility, developmental toxicity (embryo-fetal development) and pre and postnatal development in rodents and non-rodents. The
second set of studies, the CARCINO, will consist of carcinogenicity testing in both rats and mice to identify a tumorigenic potential in
animals and to assess the relevant risk in humans. Carcinogenicity testing is usually required under the rules of the FDA prior to
commercialization. Acasti believes that it will be necessary to complete the DART and CARCINO nonclinical studies prior to the filing of
its NDA submission for CaPre® in the United States and expects to do so in the allocated time frame. The third set of studies, the long
term animal toxicity studies, as defined by six month rodent and nine month non-rodent, will be conducted as a requirement to support
clinical trials to be done during the same extent of time or to support NDA. In these studies, we investigate the effects of CaPre® on blood
parameters (hematology, biochemistry, coagulation), urinanalysis, opthamological and ECG testing.
Clinical
The Phase II COLT and TRIFECTA clinical trials were initiated during the Corporation's fiscal year ended February 29, 2012
under Canada's Natural Health Product Directorate ("NHPD") guidelines. The open-label COLT trial was completed during the second
quarter of the 2014 fiscal year and the double-blind TRIFECTA trial was completed in the second quarter of fiscal 2015. Based on the
positive results of the COLT trial, Acasti filed an IND submission with the FDA to conduct a pharmacokinetic (" PK") study in the U.S.
Acasti subsequently received approval to conduct the PK trial which was completed in the second quarter of fiscal 2015.
The COLT and TRIFECTA trials were conducted, by JSS Medical Research (" JSS"), a clinical research organization
("CRO") specializing in the pharmaceutical, biotechnology, nutraceutical and medical device industries, which is both owned and
managed by Dr. John Sampalis, brother of Dr. Tina Sampalis, previously President and Chief Global Strategy Officer of Acasti. JSS was
selected by Acasti following a rigorous due diligence process conducted by the Corporation. Acasti's board of directors appointed an
external independent auditor, SNC Lavalin Pharma, to confirm and validate the clinical trials' achievements, milestones and payments.
COLT Trial
The COLT trial, a randomized, open-label, dose-ranging, multi-center trial, was designed to assess the safety and efficacy of
CaPre® in the treatment of patients with triglycerides levels between 2.28 and 10.0 mmol/L (200-877 mg/dL) (clinical trial.gov identifier
NCT01516151). The primary objectives of the COLT trial were to evaluate the safety and efficacy of 0.5, 1.0, 2.0 and 4.0g of CaPre® per
day in reducing fasting plasma triglycerides over 4 and 8 weeks as compared to the standard of care alone.
The secondary objectives of the COLT trial were to evaluate the effect of CaPre® on fasting plasma triglycerides in patients
with triglycerides between 2.28 and 5.69 mmol/L (200-499 mg/dL) (mild to moderate hypertriglyceridemia); to evaluate the dose
dependent effect on fasting plasma triglycerides in patients with triglycerides > 5.7 and <10 mmol/L (500-877 mg/dL); and to evaluate the
effect of CaPre® on fasting plasma levels of LDL-C (direct measurement), HDL-C, non-HDL-C, hs-CRP and omega-3 index. Non-HDL-
C is the total cholesterol minus the HDL-C.
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The final results of the COLT trial indicated that CaPre® was safe and effective in reducing triglycerides in patients with mild
to severe hypertriglyceridemia with significant mean (average) triglyceride reductions above 20% after 8 weeks of treatment with both
daily doses of 4.0g and 2.0g. Demographics and baseline characteristics of the patient population were balanced in terms of age, race and
gender. A total of 288 patients were enrolled and randomized and 270 patients completed the study, which exceeded the targeted number
of evaluable patients. From this patient population, approximately 90% had mild to moderate hypertriglyceridemia.
CaPre® was safe and well tolerated. The proportion of patients treated with CaPre® that experienced one or more adverse
events in the COLT trial was similar to that of the standard of care group (30.0% versus 34.5%, respectively). A substantial majority of
adverse events were mild (82.3%) and no severe treatment-related adverse effects have been reported. Only one patient was discontinued
from the study due to an adverse event of moderate intensity. It was noted that the rate of gastrointestinal side effects were higher in the
CaPre® groups compared to standard of care alone and appeared to increase in a dose-related manner. However, none of the subjects
participating in the study suffered from a serious adverse event. The report concludes that even at higher doses, CaPre® is safe and well
tolerated with only transient and predominantly mild adverse events occurring at low rates.
The COLT trial met its primary objective showing CaPre® to be safe and effective in reducing triglycerides in patients with
mild to severe hypertriglyceridemia. After only a 4-week treatment, CaPre® achieved a statistically significant triglyceride reduction as
compared to standard of care alone. Standard of care could be any treatment physicians considered appropriate in a real-life clinical
setting and included lifestyle modifications as well as lipid modifying agents, such as statins, ezetimibe and fibrates. Patients treated with
4.0g of CaPre® a day over 4 weeks reached a mean triglyceride decrease of 15.4% from baseline and a mean improvement of 18.0% over
the standard of care. Results also showed increased benefits after 8 weeks of treatment, with patients on a daily dose of 4.0g of CaPre®
registering a mean triglyceride decrease of 21.6% from baseline and a mean improvement of 14.4% over the standard of care. It is
noteworthy that a mean triglyceride reduction of 7.1% was observed for the standard of care group at week 8, which may be explained by
lipid lowering medication adjustments during the study, which was allowed to be administered in the standard of care group alone.
Moreover, after 8 weeks of treatment, patients treated with 1.0g for the first 4 weeks of treatment and 2.0g for the following 4
weeks, showed a statistically significant triglycerides mean improvement of 16.2% over the standard of care, corresponding to a 23.3%
reduction for the 1.0-2.0g as compared to a 7.1% reduction for the standard of care. After a 8 week treatment, patients treated with 2.0g of
CaPre® for the entire 8 weeks showed statistically significant triglycerides mean improvements of 14.8% over the standard of care,
corresponding to a 22.0% reduction for the 2.0g as compared to a 7.1% reduction for the standard of care. Also, after 8 weeks of
treatment, patients treated with 4.0g for the entire 8 weeks, showed statistically significant triglycerides, non-HDL-C and HbA1C mean
improvements of, respectively, 14.4% and 9.8% and 15.0% as compared to standard of care. The 4.0g group mean improvements in (i)
triglycerides of 14.4% corresponds to a reduction of 21.6% as compared to a reduction of a 7.1% for the standard of care group, (ii) non-
HDL-C of 9.8% corresponds to a reduction of 12.0% as compared to a reduction of 2.3% for the standard of care group, and (iii) HbA1C
of 15.0% corresponds to a reduction of 3.5% as compared to an increase of 11.5% for the standard of care group. In addition, all combined
doses of CaPre® showed a statistically significant treatment effect on HDL-C levels, with an increase of 7.4% as compared to standard of
care. Trends (p-value < 0.1) were also noted on patients treated with 4.0g of CaPre® for the entire 8-week treatment period with mean
reduction of total cholesterol of 7.0% and increase of HDL-C levels of 7.7% as compared to the standard of care. Furthermore, after
doubling the daily dosage of CaPre® after an initial period of 4 weeks, the results indicate a dose response relationship corresponding to a
maintained and improved efficacy of CaPre® after an 8-week period. The efficacy of CaPre® at all doses in reducing triglyceride levels
and increased effect with dose escalation suggests that CaPre® may be titrable, allowing physicians to adjust dosage in order to better
manage patients' medical needs. In addition, the results of the COLT trial indicate that CaPre® has no significant deleterious effect on
LDL-C (bad cholesterol) levels.
Acasti presented the results of the COLT trial at two scientific forums, the National Lipid Association Scientific Session in
Orlando in May 2014, and the 82nd Congress of European Atherosclerosis Society in Madrid in June 2014. Acasti also presented at the
World Congress of Heart Disease in Boston in July 2014.
TRIFECTA Trial
The TRIFECTA trial (clinical trial gov identifier NCT01455844), a 12-week, randomized, placebo-controlled, double-blind,
dose-ranging trial, is designed to assess the safety and efficacy of CaPre®, at a dose of 1.0 or 2.0g, on fasting plasma triglycerides as
compared to a placebo in patients with mild to severe hypertriglyceridemia. A total of 387 patients were randomized and 365 patients
completed the 12-week study, in line with the targeted number of evaluable patients. From this patient population, approximately 90% had
mild to moderate hypertriglyceridemia with baseline triglycerides between 200 and 499 mg/dL (2.28 to 5.69 mmol/L). The remainder had
very high baseline triglycerides between 500 and 877 mg/dL (> 5.7 and < 10 mmol/L). Approximately 30% of patients were on lipid
lowering medications, such as statins, and approximately 10% were diabetic.
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 (200-877 mg/dL) and to assess the tolerability and safety of
CaPre®. 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 (200-499 mg/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 mild to moderate
hypertriglyceridemia and severe hypertriglyceridemia on fasting plasma levels of LDL-C (direct measurement), and on fasting plasma
levels of HDL-C, non-HDL-C, hs-CRP and omega-3 index.
26
On September 29, 2014, Acasti announced successful top-line results for its Phase II double blind, placebo controlled trial
(TRIFECTA) assessing the safety and efficacy of CaPre® for the treatment of patients with hypertriglyceridemia. CaPre®, Acasti's
investigational new drug candidate, is composed of a patent-protected highly concentrated novel omega-3 phospholipid for the treatment
of certain cardiometabolic disorders.
CaPre® successfully met the trial's primary endpoint achieving a statistically significant (p < 0.001) mean placebo-adjusted
decrease in triglycerides from baseline to week-12, with reductions of 36.4% for 1 gram and 38.6% for 2 grams.
Along with material triglyceride reductions, all key secondary endpoints were met. This is a notable achievement as the trial
was not designed to show a statistical significance on any other lipid than triglycerides. Nevertheless, there was a statistically significant
decrease in non-HDL-C versus placebo (p=0.038), with the 2 gram per day CaPre® group decreasing by 5.3% from baseline versus
placebo over the 12-week period. Non-HDL is considered the most accurate risk marker for cardiovascular disease.
CaPre® was also shown to have a slight increase in HDL-C (good cholesterol) at both the 1 gram and 2 gram levels and
decrease in LDL-C (bad cholesterol) at 2 grams. As well, there was a clinically meaningful mean placebo-adjusted reduction in VLDL-C
of 10.9% and 13.5% at 1 gram and 2 gram daily doses of CaPre®, respectively. VLDL-C is considered a highly significant predictor of
coronary artery disease.
Finally, a statistically significant dose response increase in the Omega-3 Index for patients on 1 gram and 2 grams of CaPre®
versus placebo was noted. The Omega-3 Index reflects the percentage of EPA and DHA in red blood cell fatty acids. The risk of
cardiovascular disease is considered to be lower as the Omega-3 Index increases.
CaPre® was found to be safe and well tolerated at all doses tested, with no serious adverse events that were considered
treatment related. Out of 387 randomized patients, a total of 7 (1.8%) were discontinued as a result of adverse events, three were on
placebo, two were on 1 gram of CaPre® and two were on 2 grams of CaPre®. The predominant incidence was gastrointestinal related,
with no difference between CaPre® and placebo. The safety profiles of patients on CaPre® and placebo were similar.
On March 2, 2015, the Corporation announced that it had received the full data for its Phase II double blind, placebo
controlled (TRIFECTA) trial which confirms and supports the positive Phase II TRIFECTA results announced in September 2014, on the
safety and efficacy of CaPre® in the treatment of patients with hypertriglyceridemia. The TRIFECTA trial's primary endpoint was met,
with patients on 1 gram or 2 grams of CaPre® achieving a statistically significant mean placebo-adjusted decrease in triglycerides from
baseline. In addition, benefits in other key cholesterol markers were announced, including slight increases in HDL-C (good cholesterol),
no deleterious effect on LDL-C (bad cholesterol) and no safety concerns.
PK Trial
On November 11, 2013, the Corporation announced that it submitted an investigational new drug application to the FDA to
initiate a PK trial of CaPre® in the United States. The PK trial was an open-label, randomized, multiple-dose, single-center, parallel-
design study to evaluate blood profiles and bioavailability of omega-3 phospholipids on healthy volunteers taking single and multiple
daily oral doses of 1.0g, 2.0g and 4.0g of CaPre®.
On January 9, 2014, the Corporation announced that the FDA granted Acasti approval to conduct its PK trial, having found
no objections with the proposed PK trial design, protocol or safety profile of CaPre®. Acasti also announced that Quintiles, the world's
largest provider of biopharmaceutical development and commercial outsourcing services, has been hired to conduct the PK trial. On July
9, 2014, Acasti announced the completion of the PK trial.
On September 30, 2014, Acasti announced top-line results for its PK trial. The PK trial was an open-label, randomized,
multiple-dose, single-center, parallel-design study in healthy volunteers. Forty-two male and female individuals, at least 18 years of age,
were enrolled into three groups of 14 subjects who took 1, 2 or 4 grams of CaPre®, administered once a day 30 minutes after breakfast.
The objectives of the study were to determine the pharmacokinetic profile and safety on Day 1 following a single oral dose and Day 14
following multiple oral doses of CaPre® on individuals pursuing a low-fat diet (therapeutic lifestyle changes diet). The effect of a high-fat
meal on the bioavailability of CaPre® was also evaluated at Day 15. Blood samples were collected for assessment of EPA and DHA total
lipids in plasma to derive the pharmacokinetic parameters.
CaPre® pharmacokinetics results appeared to be approximately dose proportional over the 1 to 4 gram a day dose range.
Following a single daily dose, CaPre® reached steady state (EPA and DHA levels plateaued) within seven days of dosing. The
bioavailability of CaPre® did not appear to be meaningfully affected by the fat content of the meal consumed prior to dose administration.
CaPre® was found to be safe and well tolerated at all doses tested, with all subjects completing the study. Three adverse
events were reported and considered relating to CaPre®, all of which were mild. The final clinical study report ("CSR") is completed.
27
Next Steps
Acasti is now corresponding with the FDA about the next steps proposed for the clinical development plan of CaPre®. Such
correspondence is meant to allow the FDA to provide feedback on Acasti's plans and to clarify or answer specific questions that the FDA
may have prior to such next steps (including an end of Phase II meeting, special protocol assessment and IND amendment) toward the
pivotal Phase III clinical program. Such correspondence can take the form of written correspondence, discussions and potential in person
meetings with the FDA.
Acasti intends to conduct a Phase III clinical trial in the United States, with potentially a few Canadian clinical trial sites, in a
patient population with very high triglycerides (> or = 500 mg/dL). In addition to conducting a Phase III clinical trial, Acasti expects that
additional time and capital will be required to complete the filing of a New Drug Application ("NDA") to obtain FDA approval for
CaPre® in the United States before reaching commercialization, which may initially be only for the treatment of severe
hypertriglyceridemia. The FDA may require Acasti to conduct additional clinical studies to obtain FDA approval for the treatment of mild
to moderate hypertriglyceridemia, which may include a cardiovascular outcomes study.
More recently, the FDA has been providing Acasti with guidance and recommendations regarding the next steps in the
clinical development of CaPre®. Acasti is incorporating these comments into its development plan to be better aligned with current FDA
views on CaPre® and to ensure it is well positioned to move towards regulatory approval.
Acasti intends to pursue the regulatory pathway for CaPre® under section 505(b)(2) of the Federal Food, Drug, and Cosmetic
Act and conduct a pivotal bioavailability bridging study, comparing CaPre® to an omega-3 prescription drug as a means of establishing a
scientific bridge between the two. This will help determine the feasibility of a 505(b)(2) regulatory pathway, while also optimizing the
protocol design of a Phase III program. The 505(b)(2) approval pathway has been used by many other companies and Acasti's regulatory
and clinical experts believe such a strategy is best for CaPre®. This should allow Acasti to further optimize the advancement of CaPre®
while benefiting most importantly from the substantial clinical and nonclinical data already available with another FDA-approved omega-
3 prescription drug. In addition, this should reduce the expected expenses and streamline the overall CaPre® development program
required to support a NDA submission. The 505(b)(2) application also enables regulatory submission of a New Chemical Entity (NCE)
approval when some part of the data application is derived from studies not conducted by the applicant.
The finalization and execution of Acasti's comprehensive Capre® development plan and definitive Phase III program, overall
costs and timelines are contingent upon FDA review and direction. Acasti has recently received a response from the FDA on the CaPre®
clinical development program. With this endorsement Acasti has submitted an amendment to its current IND application to commence a
bioavailability bridging study, while continuing to work closely with the FDA to ensure the Corporation is aligned with their views on
Capre®'s clinical development.
In addition to conducting a Phase III clinical program, Acasti 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 before reaching commercialization, which may
initially be only for the treatment of severe hypertriglyceridemia. The FDA may require Acasti to conduct additional clinical or
nonclinical studies to obtain FDA approval in severe hypertriglyceridemia and for the treatment of mild to moderate hypertriglyceridemia
which may include a cardiovascular outcomes study.
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. In addition to completing a Phase III clinical trial and the nonclinical studies, 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 before reaching commercialization, which will
initially be only for the treatment of severe hypertriglyceridemia. The FDA may also require Acasti to conduct additional clinical studies
to obtain FDA approval for the treatment of mild to moderate hypertriglyceridemia, which may include a cardiovascular outcomes study.
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®.
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 some 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 additional
distribution partners to commercialize ONEMIA® outside of the United States. Revenues of Acasti for the fiscal years 2016, 2015 and
2014 were all derived from the sale of ONEMIA® and amounted to approximately $38,000, $271,000 and $501,000, respectively.
28
Acasti decided to find strategic alternatives for Onemia® and focus its energy and resources on the development of CaPre®.
Acasti has entered into a non-exclusive licensing agreement for Onemia® with Neptune in which Neptune has to engage in best
commercial efforts to expand the marketing of Onemia®. Acasti will receive a royalty of 17.5% on net sales of Onemia® and Acasti
believes given Neptune's sales and marketing leadership in the krill oil market that Neptune represents the best partner for Onemia®. As
of February 29, 2016, no sales have been realized by Neptune.
Competition
The biotechnology and pharmaceutical industries are highly competitive. There are many pharmaceutical companies,
biotechnology companies, public and private universities and research organizations actively engaged in the research and development of
products that may be similar to our products. It is probable that the number of companies seeking to develop products and therapies similar
to our products will increase. Many of these and other existing or potential competitors have substantially greater financial, technical and
human resources than we do 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 ours. In addition, other technologies or products may be developed that
have an entirely different approach or means of accomplishing the intended purposes of our products, which might render our technology
and products non-competitive or obsolete.
Our 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. GlaxoSmithKline plc, which
currently sells Lovaza ®, a prescription-only omega-3 fatty acid indicated for patients with severe hypertriglyceridemia was approved by
FDA in 2004 and has been on the market in the United States since 2005. As described below, multiple generic versions of Lovaza are
now available in the United States. Other large companies with competitive products include AbbVie, Inc., which currently sells Tricor ®
and Trilipix ® for the treatment of severe hypertriglyceridemia and Niaspan ®, which is primarily used to raise HDL-C, but is also used to
lower triglycerides. Generic versions of Tricor, Trilipix, and Niaspan are also now available in the United States. In addition, in May
2014, Epanova ® (omega-3-carboxylic acids) capsules, a free fatty acid form of omega-3 (comprised of 55% EPA and 20% DHA), was
approved by the FDA for patients with severe hypertriglyceridemia. Epanova was developed by Omthera Pharmaceuticals, Inc., and is
now owned by AstraZeneca Pharmaceuticals LP (AstraZeneca). Also, in April 2014, Omtryg, another omega-3-acid fatty acid
composition developed by Trygg Pharma AS, received FDA approval for severe hypertriglyceridemia. Neither Epanova nor Omtryg have
been commercially launched, but could launch at any time. Each of these competitors, other than potentially Trygg, has greater resources
than we do, including financial, product development, marketing, personnel and other resources.
In addition, we are aware of other pharmaceutical companies that are developing products that, if approved and marketed,
would compete with CaPre®. We believe Catabasis Pharmaceuticals, or Catabasis, and Sancilio & Company, or Sancilio, are also
developing potential treatments for hypertriglyceridemia based on omega-3 fatty acids. To our knowledge, Catabasis initiated a Phase 2
clinical trial in October 2015 to evaluate the safety and efficacy of its product in combination with atorvastatin in patients with
hypercholesterolemia, and Sancilio also is pursuing a regulatory pathway under section 505(b)(2) of the FDCA for its product and
submitted an IND in July 2015. Sancilio completed two pivotal pharmacokinetic studies, and we expect the company to initiate a pivotal
clinical endpoint study as the next step in development. In addition, we are aware that Matinas BioPharma, Inc. is developing an omega-3-
based therapeutic for the treatment of severe hypertriglyceridemia and mixed dyslipidemia. Matinas BioPharma, Inc. has filed an
Investigational New Drug Application with the FDA to conduct a human study in the treatment of severe hypertriglyceridemia. Akcea
Therapeutics/Ionis Pharmaceuticals (formerly Isis Pharmaceuticals) announced favorable Phase 2 results of volanesorsen (formerly ISIS-
APOCIII Rx), a drug candidate administered through weekly subcutaneous injections, in patients with high triglycerides and type 2
diabetes and in patients with moderate to severe high triglycerides. Finally, Madrigal Pharmaceuticals has completed Phase 1 clinical
testing of MGL-3196 for the treatment of high triglycerides and various lipid parameters in patients. In addition, Acasti is aware of the
existence of omega-4 3 generic drugs and of other pharmaceutical companies (e.g Matinas Biopharma) that are developing products that,
if approved, would compete with CaPre®. CaPre® may also compete with omega-3 dietary supplements that are available without a
prescription.
There are also competitors in the medical food market. 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. In
addition, Vaya Pharma, a division of Enzymotec Ltd has in its pipeline 3 medical food containing either fish or krill oil.
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
Acasti owns the following portfolio of patents, filed in various jurisdictions worldwide, including the United States, Canada,
China, Japan, Australia and Europe:
29
Patent Family Description
Description
Concentrated Therapeutic
Phospholipid Composition
Composition of Matter
WO (PCT)
Application Number
&
U.S. Patent
Number
WO2011050474 &
US8,586,567;
Expiration Date of
the Patent Family
Number
of Patents
Worldwide
2028**
14*
(pending in approx. 38
countries)
*
Five Australian innovation patents are valid until 2018 and patent (ZL 201080059930.4) granted by the Chinese Patent Office is
valid until 2030
On November 19, 2013, the United States Patent and Trademark Office granted Acasti a concentrated phospholipid
composition patent (US8,586,567) covering concentrated therapeutic phospholipid compositions useful for treating or preventing diseases
associated with cardiovascular disease, metabolic syndrome, inflammation and diseases associated therewith, neurodevelopmental
diseases, and neurodegenerative diseases, comprising administering an effective amount of a concentrated therapeutic phospholipid
composition. The patent is valid until 2028, covers specific omega-3 phospholipid compositions, synthetic and/or natural, regardless of
the extraction process, suitable for human consumption. The patent protects Acasti's phospholipid compositions, namely CaPre ® and
Onemia®.
The corresponding US8,586,567 Acasti patent has also been granted in South Africa and Japan while continuations have
been filed in the US.
On March 25, 2015, Acasti announced that the Chinese Patent Office had granted Acasti a composition and use patent. The
Patent (ZL 201080059930.4), which is valid until 2030, relates to concentrated therapeutic phospholipid omega-3 compositions and
covers methods for treating or preventing diseases associated with cardiovascular diseases, metabolic syndrome, inflammation,
neurodevelopmental diseases, and neurodegenerative diseases. On December 1st, 2015, Acasti announced that the patent had also been
granted in Japan, Mexico and Taiwan.
To this day, Acasti's patents and pending patent applications have not been opposed and/or challenged by third parties, in
Canada, the United States and Europe. The patent is currently under opposition by BIO-MER Ltd. in New Zealand. Acasti filed its
Counter‑Statement of Opposition in October 2015.
A patent is generally valid for 20 years from the date of first filing. Patent terms can vary slightly for other jurisdictions, with
20 years from filing being the norm. In certain jurisdictions exclusivity can be formally extended beyond the normal patent term to
compensate for regulatory delays during the pre-market approval process.
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 active
pharmaceutical ingredients ("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 APIs, 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)
Method of Extraction
(Method of extracting lipids from marine and aquatic animal tissues)
US Patent #
US8,030,348 (1)
Expiration Date of
the Patent
2022
Holder
Neptune
US8,057,825
2022
Neptune
US6,800,299
2019
Neptune
Note:
(1)Three continuations also stem from U.S. Pat. 8,030,348 (U.S. Pat. 8,278,351; and 8,383,675).
The license agreement provides that the products developed by Acasti must comply with the ranges specified in the license
agreement pertaining to specific concentrations of phospholipids.
30
As a result of the royalty prepayment transaction entered into between Neptune and Acasti on December 4, 2012, Acasti is no
longer required to pay any royalties to Neptune under the license agreement during its term for the use of the intellectual property under
license.
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.
Brand names and trademarks
Acasti has applied for 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.
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 tons. The World Health Organization estimates that approximately 271,000 metric tons of both krill species are
harvested annually. From 2002 to 2011, between 105,000 to 212,000 metric tons originated from the Southern Ocean and, on average,
60,000 harvested metric tons 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.
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 RKO and drug substance and products and, if approved for distribution by the FDA, Acasti expects to rely on cGMP-
compliant third parties to manufacture NKPL66, encapsulate, bottle and package clinical supplies of CaPre®. The Corporation entered
into contractual agreements with a third party for the manufacturing, in accordance with cGMP regulations imposed by the FDA, of
CaPre® clinical material for the purposes of Acasti's upcoming clinical trials.
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
29, 2016, the Corporation employed eleven people in Canada, ten of whom have biology, chemistry, biochemistry or microbiology
credentials, and one administrative staff with a pharmaceutical industry background. 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.
Government Regulation
United States Drug Development
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.
31
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 in the United States;
performance of adequate and well-controlled clinical trials in accordance with the applicable IND and other clinical study-
related regulations, such as current Good Clinical Practices, 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 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.
32
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. A clinical trial may be terminated or
suspended 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.
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 with the FDA.
33
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 cGMP. 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 cGCP 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 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 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 USPTO 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, the sponsor (Acasti) must satisfy many regulatory conditions. The sponsor must first complete
preclinical studies in order to file a clinical trial application ("CTA") in Canada. The sponsor will then receive different clearance
authorizations to proceed with Phase I clinical trials, which can then lead to Phase II and Phase III clinical trials. Once all three phases of
trials are completed, the sponsor must file 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 the sponsor 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 process of new drug
approvals by regulators in the United States, Canada and the European Union are generally considered to be among the most rigorous in
the world.
34
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, the U.S. 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; however, 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.
C. Organizational Structure
The Corporation has no subsidiaries. As of May 25, 2016, Neptune owns 5,064,694 Class A shares of Acasti (the "Common
Shares"), representing approximately 47.28% 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 59,250 Common Shares.
D. Property, Plants and Equipment
The Corporation's head office and operations are located at 545, Promenade Centropolis, suite 100, Laval, Québec, Canada,
H7T 0A3.
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 RKO and drug substance and products and, if approved for distribution by the FDA, Acasti expects to rely on cGMP-
compliant third parties to manufacture NKPL66, encapsulate, bottle and package clinical supplies of CaPre®.
The Corporation entered into contractual agreements with a third party for the manufacturing, in accordance with cGMP
regulations imposed by the FDA, of CaPre® clinical material for the purposes of Acasti's upcoming clinical trials. See "Risk Factors –
Risks Related to Product Development, Regulatory Approval and Commercialization – The Corporation's supply of krill oil for
commercial supply and clinical trials is dependent upon relationships with Neptune and other third party manufacturers and key suppliers"
and "Risk Factors - Risks Related to Product Development, Regulatory Approval and Commercialization - 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." We are not subject to any material environmental risk in connection with our property,
plants or equipment.
35
Item 4A. Unresolved Staff Comments
Not applicable.
Item 5.
Operating and Financial Review and Prospects
Information relating to our operating and financial review and prospects are detailed in the MD&A, for the years ended
February 29, 2016, February 28, 2015 and February 28, 2014 included herein, and in conjunction with the audited consolidated financial
statements and related notes included at "Item 17 – Financial Statements" of this Annual Report.
A. Operating Results
Refer to our MD&A included below in this Annual Report.
B. Liquidity and Capital Resources
Refer to our MD&A included below in this Annual Report.
C. Research and Development, Patents and Licenses, etc.
We incurred research and development costs net of tax credits amounting to $7,389,415, $8,856,941 and $6,059,311 in the
years ended February 29, 2016, February 28, 2015 and February 29, 2014, respectively. Refer to the MD&A included below and to "Item
4.B – Business Overview" of this Annual Report.
D. Trend Information
The only trend during the current fiscal year reasonably likely to affect our net sales or revenues, income from continuing
operations, profitability, liquidity or capital resources, or that would cause our reported financial information not necessarily to be
indicative of future operating results or financial condition is our expectation that research and development expenses will continue to
trend upward as we pursue our product development strategy. Please refer to the MD&A included below.
E. Off-Balance Sheet Arrangements
Refer to our MD&A included below in this Annual Report.
F. Tabular Disclosure of Contractual Obligations
Refer to our MD&A included below in this Annual Report.
G.
Safe Harbor
This annual report contains forward-looking statements, principally in, but not limited to, "Item 4 - Information on the Company"
and "Item 5 - Operating and Financial Review and Prospects". These statements may be identified by the use of words like "plan",
"expect", "aim", believe", "project", "anticipate", "intend", "estimate", "will", "should", "could" and similar expressions in connection with
any discussion, expectation, or projection of future operating or financial performance, events or trends. In particular, these include
statements about the Corporation's strategy for growth, future performance or results of current sales and production, interest rates,
foreign exchange rates, and the outcome of contingencies, such as acquisitions and/or legal proceedings and intellectual property issues.
Forward-looking statements are based on certain assumptions and expectations of future events that are subject to risks and
uncertainties. Actual future results and trends may differ materially from historical results or those projected in any such forward-looking
statements depending on a variety of factors, including, among other things, the factors discussed in this annual report under "Item 3.D -
Risk Factors" and factors described in documents that the Corporation may furnish from time to time to the SEC. Although the forward-
looking information is based upon what the Corporation believes to be reasonable assumptions, no person should place undue reliance on
such information since actual results may vary materially from the forward-looking information. Except as required by law, the
Corporation undertakes no obligation to update publicly or revise any forward-looking statements because of new information. Please
refer to the forward-looking statements section at the beginning of this annual report.
MANAGEMENT'S ANALYSIS OF THE FINANCIAL SITUATION AND OPERATING RESULTS — YEARS ENDED
FEBRUARY 28, 2016 AND FEBRUARY 28, 2015 AND FEBRUARY 28, 2014
36
Introduction
This management 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 29, 2016 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 29, 2016 and February 28, 2015 and 2014. 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.
This MD&A, completed on May 25, 2016, must be read in conjunction with the Corporation's audited financial statements for
the years ended February 29, 2016 and February 28, 2015 and 2014. The Corporation's audited 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.
Caution Regarding Non-IFRS Financial Measures
The Corporation uses adjusted financial measures, including Non-IFRS operating loss (loss from operating activities before interest,
taxes, depreciation and amortization), to assess its operating performance. These non-IFRS financial measures are directly derived from
the Corporation's financial statements and are presented in a consistent manner. The Corporation uses these measures for the purposes of
evaluating its historical and prospective financial performance, as well as its performance relative to competitors. These measures also
help the Corporation to plan and forecast for future periods as well as to make operational and strategic decisions. The Corporation
believes that providing this information to investors, in addition to IFRS measures, allows them to see the Corporation's results through the
eyes of management, and to better understand its historical and future financial 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 Non-IFRS operating loss 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's method
for calculating Non-IFRS operating loss may differ from that used by other corporations.
Acasti calculates its Non-IFRS operating loss measurement by adding to net loss, finance costs, depreciation and amortization,
impairment loss and by subtracting finance income. Other items that do not impact core operating performance of the Corporation are
excluded from the calculation as they may vary significantly from one period to another. Finance income/costs include foreign exchange
gain (loss) and change in fair value of derivative warrant liabilities. Acasti also excludes the effects of certain non-monetary transactions
recorded, such as stock-based compensation, from its Non-IFRS operating loss calculation. The Corporation believes it is useful to
exclude this item as it is a non-cash expense. Excluding this item does not imply it is necessarily non-recurring.
A reconciliation of net loss to Non-IFRS operating loss is presented later in this document.
Basis of presentation of the financial statements
The Corporation's current assets of $11,325 as at February 29, 2016 include cash and short-term investments for an amount of $10,470,
mainly generated by the net proceeds from the public and private offerings of Common Shares and warrants, completed on December 3,
2013 and February 7, 2014, respectively. The Corporation's liabilities at February 29, 2016 are comprised primarily of amounts due to
creditors for $1,126 as well as derivative warrant liabilities of $156, which represents the fair value as at February 29, 2016, of the
warrants issued to the Corporation's public offering participants. The Warrants forming part of the Units are derivative liabilities
("Derivative warrant liabilities") for accounting purposes due to the currency of the exercise price being different from the Corporation's
functional currency. The warrant liabilities will be settled in Class A Common Shares. The fair value of the Warrants issued was
determined to be $0.58 per warrant upon issuance and $0.09 per warrant as at February 29, 2016. The fair value of the Warrants is
revalued at each reporting date.
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 has incurred significant operating losses and negative cash flows from operations
since inception. To date, the Corporation has financed its operations through public offering and private placement of Common Shares,
funds from its parent corporation, proceeds from exercises of warrants, rights and options and research tax credits. To achieve the
objectives of its business plan, the Corporation plans to establish strategic alliances and raise the necessary capital. 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. The ability of the Corporation to ultimately achieve profitable
operations is dependent on a number of factors outside of the Corporation's control.
37
SELECTED FINANCIAL INFORMATION
(In thousands of dollars, except per share data)
Three-month periods ended
February
29, 2016
$
February
28, 2015
$
February
29, 2016
$
Years ended
February
28, 2015
$
February
28, 2014
$
Revenue from sales
Non-IFRS operating Loss(1)
Net loss and comprehensive loss
Basic and diluted loss per share
Total assets
Working capital(2)
Total non-current financial liabilities
Total equity
501
(5,584)
(11,612)
(1.38)
45,632
24,646
11,181
33,280
(1) The Non-IFRS operating loss (loss from operating activities before interest, taxes, depreciation and amortization) is not a standard
21
(1,163)
(1,919)
(0.18)
28,517
12,185
156
27,220
38
(6,569)
(6,317)
(0.59)
28,517
10,184
156
27,220
271
(8,506)
(1,655)
(0.16)
37,208
18,020
2,357
33,228
178
(2,263)
(2,311)
(0.21)
37,208
18,020
2,357
33,228
measure endorsed by IFRS requirements. A reconciliation to the Corporation's net loss is presented below.
(2) 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.
RECONCILIATION OF NET LOSS TO NON-IFRS OPERATING LOSS
(In thousands of dollars, except per share data)
Net loss
Add (deduct)
Finance costs
Finance Income
Change in fair value of derivative warrant liabilities
Depreciation
intangible assets
Stock-based compensation
Non-IFRS operating loss
amortization/Impairment
and
February 29,
2016
$
(1,919)
Three-month periods ended
February 28,
2015
$
(2,311)
February
29, 2016
$
(6,317)
Years ended
February
28, 2015
$
(1,655)
February
28, 2014
$
(11,612)
of
(1)
(175)
(114)
938
108
(1,163)
2
(1,398)
703
584
157
(2,263)
2
(1,096)
(2,201)
2,734
309
(6,569)
4
(1,920)
(8,824)
2,335
1,554
(8,506)
1,118
(814)
508
1,774
3,442
(5,584)
The derivative warrant liability declined in fiscals 2016 and 2015 due to the decline in the Corporation's stock price resulting in gains in
earnings. Finance income also includes foreign exchange gains mainly on the Corporation's short-term investments in US dollars, which
represented $1,022, $1,833, and $782 for the years ended February 29, 2016 and February 28, 2015 and 2014, respectively.
Stock-based compensation expense decreased for the quarter ended February 29, 2016 and the years ended February 29, 2016 and
February 28, 2015 as the 2012 grants have fully vested.
The yearly increase in the depreciation and amortization expense from fiscal 2014 to fiscal 2015 is attributable to the prepayment
agreement entered into in December 2013, whereby Acasti recognized an intangible asset in the amount of $15,130. See section "Issuance
of shares on license prepayment agreement". During the fourth quarter of 2016, the Corporation recorded an asset impairment loss of
$339 relating to patents. The Corporation determined that the recoverable amount of these costs was nil as it is no longer probable that
sufficient future economic benefits will accumulate to the Corporation due to uncertainties related to project level revenues.
38
SELECTED QUARTERLY FINANCIAL DATA
(In thousands of dollars, except per share data)
Fiscal year ended February 29, 2016
Revenue from sales
Non-IFRS operating loss
Net loss
Basic and diluted loss per share
Fiscal year ended February 28, 2015
Revenue from sales
Non-IFRS operating loss
Net (loss) earnings
Basic and diluted loss per share
February 29,
November
August 31,
May 31,
2016
$
21
(1,163)
(1,919)
(0.18)
30,
2015
$
5
(1,988)
(2,191)
(0.20)
2015
$
7
(1,485)
(1,241)
(0.12)
2015
$
5
(1,946)
(966)
(0.09)
February 28,
November
August 31,
May 31,
2015
$
178
(2,263)
(2,311)
(0.21)
30,
2014
$
29
(2,099)
3,012
0.28
2014
$
8
(2,449)
(3,712)
(0.35)
2014
$
56
(1,695)
1,356
0.13
In the first, second, third and fourth quarters of fiscal 2016 the change in fair value of the derivative warrant liability was a loss of $1,708,
$24, $355 and $114, respectively. The net earnings in the first and third quarters of fiscal 2015 are mainly attributable to the gain
resulting from the change in fair value of the derivative warrant liability of $4,634, and $5,211, respectively. In the second and fourth
quarters the change in fair value of the derivative warrant liability was a loss of $318 and $703, respectively.
COMMENTS ON THE SIGNIFICANT VARIATIONS OF RESULTS FROM OPERATIONS FOR THE THREE-MONTH
PERIODS AND YEARS ENDED FEBRUARY 29, 2016 AND FEBRUARY 28, 2015 AND 2014
Revenues
The Corporation generated revenues from sales of $21 from the commercialization of Onemia® during the three-month period ended
February 29, 2016. The Corporation generated revenue from sales of $178 during the corresponding period in 2015.
The Corporation generated revenues from sales of $38 from the commercialization of Onemia® during the year ended February 29, 2016,
a decrease of $233 from the revenues of $271 generated during the corresponding period in 2015. The Corporation generated revenue
from sales of $501 during the corresponding period in 2014. The revenues were generated from sales made directly to customers in the
United States. The decline in sales is due to Acasti deciding to find strategic alternatives for Onemia® and focus its energy and resources
on the development of CaPre®. Acasti has entered into a licensing agreement for Onemia® with Neptune in which Neptune has to engage
in best commercial efforts to market Onemia®. Acasti will receive a royalty of 17.5% on net sales of Onemia®, therefore, revenues from
royalties may vary from period to period. No revenue from royalties has been recognized during the year ended February 29, 2016 and the
Corporation does not expect significant revenues in the future.
Gross Loss
Gross loss 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 loss for the three-month period ended February 29, 2016 amounted
to $53 or 3%. The Corporation realized a gross loss of $3 or 2% during the three-month period ended February 28, 2015.
The gross loss for the year ended February 29, 2016 amounted to $44 or 116%. The Corporation realized a gross profit of $36 or 13%
during the year ended February 28, 2015 and $209 representing a gross profit margin of 42% during the year ended February 28, 2014.
The gross loss for the three-month period ended and year ended February 29, 2016 was lower than the Corporation's target range for its
profit margin because of the change in strategy by the Corporation to shift its focus to the development of CaPre®.
39
Breakdown of Major Components of the Statement of Earnings and Comprehensive Loss for the three-month periods and years
ended February 29, 2016 and February 28, 2015 and 2014
Years ended
February 28,
Research and development expenses
Three-month periods ended
2016
2016
2015
February 28,
February 29,
February 29,
Salaries and benefits
Stock-based compensation
Research contracts
Regulatory expenses
Professional fees(1)
Amortization and depreciation(1)
Impairment of intangible assets
Tax credits
Other
TOTAL
February 28,
2014
$
$
457
332
601
12
3,081
317
141
80
214
223
1,774
599
-
339
(270)
(126)
61
53
6,059
1,829
(1) The Corporation modified the classification on amortization and depreciation as well as certain legal fees from "general and
administrative expenses" to "research and development expenses" to reflect more appropriately the way in which economic benefits
are derived from the use of the expenses, which resulted in $2,335 and $1,762 being reclassed in 2015 and 2014, respectively.
2015
$
465
258
5,062
160
705
2,335
-
(264)
136
8,857
$
86
39
1,463
83
229
584
-
(192)
51
2,343
$
989
53
2,550
472
567
2,395
339
(169)
193
7,389
General and administrative expenses
Three-month periods ended
Years ended
February 29, 2016 February 28, 2015 February 29, 2016 February 28, 2015 February 28, 2014
Salaries and benefits
Administrative fees
Stock-based compensation
Professional fees
Royalties
Sales and marketing
Investor relations
Rent
Other
TOTAL
$
$
143
50
96
34
-
5
33
(12)
(22)
327
$
280
-
118
46
-
14
48
25
127
658
$
938
50
256
650
-
20
78
67
119
2,178
$
1,267
-
1,296
501
-
29
63
99
318
3,573
990
-
2,841
607
228
16
84
100
83
4,949
Operating loss before interest, taxes, depreciation and amortization (Non-IFRS operating loss)
Three-month period ended February 29, 2016 compared to February 28, 2015:
Non-IFRS operating loss decreased by $1,100 for the three-month period ended February 29, 2016 to $1,163 compared to $2,263 for the
three-month period ended February 28, 2015, is mainly due to the decrease in research and development expenses before consideration of
stock-based compensation, amortization and depreciation and impairment of intangible assets.
Research and development expenses decreased by $502 before consideration of stock-based compensation, amortization and depreciation
and impairment of intangible assets. This decrease is mainly attributable to a decrease in research contract expenses related to the
Corporation's clinical trials of $1,146, partially offset by an increase in salaries and benefits of $246 and impairment of intangible assets of
$339.
General and administrative expenses decreased by $309 before consideration of stock-based compensation. This decrease is mainly
attributable to decreases in salaries of $137, rent of $37 and other expenses of $149 partially offset by an increase in administrative fees of
$50.
Year ended February 29, 2016 compared to February 28, 2015:
Non-IFRS operating loss decreased by $1,937 for the year ended February 29, 2016 to $6,569 compared to $8,506 for the year ended
February 28, 2015, mainly due to the increase in research and development expenses as well as general and administrative expenses before
consideration of stock-based compensation and amortization and depreciation, partially offset by the decrease in gross profit of $80.
Research and development expenses decreased by $1,323 before consideration of stock-based compensation and amortization and
depreciation. This decrease is mainly attributable to a significant decrease in contract expenses related to the Corporation's clinical trials
of $2,512 and other expenses of $181, partially offset by an increase in salaries and benefits of $524, regulatory expenses of $312 and
impairment of intangible assets of $339.
40
General and administrative expenses decreased by $355 before consideration of stock-based compensation. This decrease is mainly
attributable to decreases in salaries of $329 and other expenses of $199 partially offset by an increase in professional fees of $149 and
administrative fees of $50.
Year ended February 28, 2015 compared to February 28, 2014:
Non-IFRS operating loss increased by $2,922 for the year ended February 28, 2015 to $8,506 compared to $5,584 for the year ended
February 28, 2014, mainly due to the increase in research and development expenses, before consideration of stock-based compensation
and decrease in gross profit. The increase in research and development expenses before stock based compensation and amortization and
depreciation of $2,580 is mainly attributable to increases in contract expenses of $1,981 and professional fees related to the Corporation's
clinical trials of $491.
Net Loss
The Corporation realized a net loss for the three-month period ended February 29, 2016 of $1,919 or $0.18 per share compared to a net
loss of $2,311 or $0.21 per share for the three-month period ended February 28, 2015. These results are mainly attributable to the factors
described above in the Gross Profit (loss) and Non-IFRS operating loss sections as well as by the decrease in value of the derivative
warrant liabilities of $818 and the decrease in stock-based compensation expenses of $49.
The Corporation realized a net loss for the year ended February 29, 2016 of $6,317 or $0.59 per share compared to a net loss of $1,655 or
$0.16 per share for the year ended February 28, 2015. These results are mainly attributable to the factors described above in the Gross
Loss and Non-IFRS operating loss sections as well as by the decrease in value of the derivative warrant liabilities of $2,201 compared to a
decrease of $8,824 in prior period, a decrease in the foreign exchange gain over the prior period by $810 and a decrease in stock-based
compensation expenses of $1,245, offset by a slight increase in amortization and depreciation of $58. The foreign exchange gain is due
mainly to the strengthening US dollar impact on the Corporation's US dollar short-term investments. Stock-based compensation
decreased as grants provided in 2012 have fully vested.
The Corporation realized a net loss for the year ended February 28, 2015 of $1,655 or $0.16 per share compared to a net loss of $11,612
or $1.38 per share for the year ended February 28, 2014. These results are mainly attributable to the factors described above in the Gross
Profit and Non-IFRS operating loss sections as well as by the decrease in value of the derivative warrant liabilities of $8,824 compared to
an increase of $507 in prior period, an increase in the foreign exchange gain over the prior period by $1,051 and a decrease in stock-based
compensation expenses of $1,888, offset by increases in amortization and depreciation of $561, following the increase in the
Corporation's license asset as a result of the prepayment agreement with Neptune. The foreign exchange gain is due mainly to the
strengthening US dollar impact on the Corporation's US dollar short-term investments. Stock-based compensation decreased as grants
provided in 2012 are fully vested.
LIQUIDITY AND CAPITAL RESOURCES
Share Capital Structure
(In thousands of dollars, except per share data)
The authorized share capital consists of an unlimited number of Class A, Class B, Class C, Class D and Class E shares, without par value.
Issued and outstanding fully paid shares, stock options, restricted shares units and warrants, were as follows as at the years ended:
Class A shares, voting, participating and without par value
Stock options granted and outstanding
Restricted Shares Units granted and outstanding
Series 6 & 7 warrants expired on February 10, 2015
Series 8 warrants exercisable at $1.50 USD, until
December 3, 2018(1)
Series 9 warrants exercisable at $16,00, until
December 3, 2018
Total fully diluted shares
February 29,
February 28, 2015
February 28, 2014
2016
10,712,038
454,151
-
-
10,644,440
429,625
18,398
-
10,586,253
491,100
77,494
75,000
1,840,000
1,840,000
1,840,000
161,654
13,167,843
161,654
13,094,117
161,654
13,231,501
(1) Total of 18,400,000 units, in order to obtain one share of Acasti, 10 units must be exercised.
41
Issuance of shares on license prepayment agreement
On July 12, 2013, the Corporation issued 675,000 Class A shares, at a price of $23.00 per share to Neptune to pay in advance all of the
future royalties' payable under the intellectual property license it had with Neptune.
The value of the prepayment, determined with the assistance of outside valuations specialists, using the pre-established formula set forth
in the license agreement (adjusted to reflect the royalties of $395 accrued from December 4, 2012, the date at which the Corporation
entered into the prepayment agreement to July 12, 2013, the date of issuance of the shares) totalling $15,130, was recognized as an
intangible asset. The shares issued as a result of this transaction corresponded to an increase in share capital of $15,525, net of $29 of
share issue costs. The Corporation no longer has a royalty payment commitment under the License Agreement.
CASH FLOWS AND FINANCIAL CONDITION BETWEEN THE THREE-MONTH PERIODS AND YEARS ENDED
FEBRUARY 29, 2016, AND FEBRUARY 28, 2015 AND 2014
Operating Activities
During the three-month periods ended February 29, 2016 and February 28, 2015, the Corporation's activities generated decreases in
liquidities of $1,691 and $2,622, respectively. The decrease in the cash flows from operating activities for the three-month period ended
February 29, 2016 is mainly attributable to the changes in non-cash working capital items.
During the years ended February 29, 2016 and February 28, 2015 and 2014, the Corporation's operating activities resulted in decreases in
liquidities of $6,575, $7,198 and $6,805 respectively. The decrease in the cash flows used in operating activities for the year ended
February 29, 2016 is mainly attributable to the decreased loss from operating activities after adjustments for non-cash items. The increase
in the cash flows used in operating activities for the year ended February 28, 2015 compared to prior period is mainly attributable to the
higher loss from operating activities after adjustments for non-cash items offset by the changes in non-cash working capital items,
primarily by decreases in trade and other receivables of $534 and prepaid expenses of $385, and an increase in payable to parent
corporation of $539. The comparative changes in non-cash working capital were due to increases in trade and other receivables of $469
and prepaid expenses of $687, and decrease in payable to the parent corporation of $417.
Investing Activities
During the years ended February 29, 2016 and February 28, 2015 and 2014, the Corporation's investing activities generated an increase in
liquidities of $8,229, an increase in liquidities of $7,627 and a decrease in liquidities of $19,446, respectively. These variations are mainly
explained by changes in short-term investments which increased in 2014 following the public and private offerings and decreased in
following periods.
Financing Activities
During the years ended February 29, 2016 and February 28, 2015 and 2014, the Corporation's financing activities generated a decrease in
liquidities of $2 and an increase in liquidities of $46 and $24,963, respectively. The increase in liquidities generated from financing
activity during the year ended February 28, 2014 resulted mainly from the net proceeds from a public offering of $21,953 and net
proceeds from a private placement of $2,068. Acasti has continued to allocate the proceeds obtained through public offering and private
placement to the current and future clinical trials of CaPre®. The Corporation did not raise any additional funding during the years ended
February 29, 2016 and February 28, 2015.
Overall, as a result, the Corporation's cash increased by $1,716 and $635 and decreased by $521, respectively, for the years ended
February 29, 2016 and February 28, 2015 and 2014. Total liquidities as at February 29, 2016, comprised of cash and short-term
investments, amounted to $10,470. See basis of presentation for additional discussion of the Corporation's financial condition.
On January 7, 2016 Neptune announced the acquisition of Biodroga Inc. As part of this transaction, the Corporation has pledged an
amount of 2 million dollars to partly guarantee the financing for the said transaction. Consequently, the corresponding amount shall be
considered as restricted cash until released by the lender or reduced by Neptune. Neptune has agreed to pay Acasti an annual fee on the
Committed Funds outstanding at an annual rate of (i) 9% during the first six months and (ii) 11% for the remaining term of the Pledge
Agreement. Neptune's intention is to release the pledged amount within the next twelve months.
To date, the Corporation has financed its operations through public offering and private placement of Common Shares, funds from its
parent corporation, proceeds from the exercise of warrants, rights and options and research tax credits. 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 and sell and distribute products and the ability to
obtain the necessary financing to do so. The Corporation believes that its available cash and short-term investments, expected interest
income and research tax credits should be sufficient to finance the Corporation's operations and capital needs during the ensuing twelve-
month period.
42
Financial Position
(In thousands of dollars)
The following table details the significant changes to the statements of financial position as at February 29, 2016 compared to February
28, 2015:
Accounts
Cash
Short-term investments
Trade and other receivables
Tax credits receivable
Prepaid expenses
Inventories
Intangible assets
Trade and other payables
Payable to parent corporation
Derivative warrant liabilities
Increase
(Decrease)
1,716
(7,628)
(47)
(359)
138
(87)
(2,323)
42
(474)
(2,201)
Comments
See cash flow statement
Maturity of investments held
Payments received
Payments received
Increase in prepaid portion of expenses
Onemia® sales and write-off of inventory
Amortization
Increase in expenses
Payments made
Change in fair value
Contractual Obligations, Off-Balance-Sheet Arrangements and Commitments
The Corporation has no off-balance sheet arrangements. As of February 29, 2016, the Corporation's liabilities are $1,297, of which
$1,141 is due within twelve months and $156 relates to derivative warrant liabilities that will be settled in shares and thus are excluded
from the table below.
A summary of Acasti's contractual obligations at February 29, 2016 is as follows:
Payables
Research and development contracts
Purchase obligation
Total
Significant commitments as of February 29, 2016 include:
Research and development agreements
$
Total
Less than 1 year
$
1,141
5,358
2,271
8,770
1,141
5,358
2,271
8,770
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 cost of $7,776,
of which an amount of $1,967 has been paid to date. As at February 29, 2016, an amount of $451 is included in ''Trade and other
payables'' in relation to these projects.
During the year, the Corporation entered into a contract to purchase research and development equipment for $2,271 to be used in the
clinical and future commercial supply of CaPre.®
Related Party Transactions
The Corporation was charged by Neptune for certain costs incurred by Neptune for the benefit of the Corporation and for royalties, as
follows:
Administrative costs
Research and development costs
Royalties1
(1) Refer to Issuance of shares on license prepayment agreement section above.
43
2015
2016
February 29, February 28, February 28,
2014
128
24
228
380
485
347
-
832
226
188
-
414
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 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 as Acasti benefits from certain cost synergies through shared services with Neptune.
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.
Payable to parent corporation amounts to $15 as at February 29, 2016 and has no specified maturity date for payment or reimbursement
and does not bear interest.
The key management personnel of the Corporation are the members of the Board of Directors and certain officers. They control 1% of
the voting shares of the Corporation. See note 5 (e) to the financial statements for disclosures of key management personnel
compensation.
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 identification
of triggering events indicating that intangible assets might be impaired and the use of the going concern basis of preparation of the
financial statements. At each reporting period, management assesses the basis of preparation of the financial statements. The financial
statements have been prepared on a going concern basis in accordance with IFRS. The going concern basis of presentation assumes that
the Corporation will continue its operations for the foreseeable future and be able to realize its assets and discharge its liabilities and
commitments in the normal course of business. Assumptions and estimation uncertainties that have a significant risk of resulting in a
material adjustment within the next financial year include the measurement derivative warrant liabilities (note 21 to the financial
statements), of stock-based compensation (note 15 to the financial statements) and the determination of the recoverable amount of the
Corporation's cash generating unit ("CGU") (note 3(e) (ii) to the financial statements). Also, the management uses judgment 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
Impairment of non-financial assets
The carrying value of the Corporation's license asset is reviewed at each reporting date to determine whether there is any indication of
impairment. If any such indication exists, then the CGU's recoverable amount is estimated. The identification of impairment indicators
and the estimation of recoverable amounts require the use of judgment.
Derivative warrant liabilities
The warrants forming part of the Units issued from the 2014 public offering are derivative liabilities for accounting purposes due to the
currency of the exercise price being different from the Corporation's functional currency. The derivative warrant liabilities are required to
be measure at fair value at each reporting date with changes in fair value recognized in earnings. The Corporation's uses Black-Scholes
pricing model to determine the fair value. The model requires the assumption of future stock price volatility, which is estimated based on
weighted average historic volatility. Changes to the expected volatility could cause significant variations in the estimated fair value of the
derivative warrant liabilities.
Stock-based compensation
The Corporation has a stock-based compensation plan, which is described in note 15 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. The Black Scholes model requires certain assumptions such as future stock price volatility and expected life of the instrument.
Expected volatility is estimated based on weighted average historic volatility. The expected life of the instrument is estimated based on
historical experience and general holder behavior. 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 Corporation
obtains the goods or the counterparty renders the service.
44
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 with the offset to contributed surplus
reflecting Neptune's contribution to the Corporation. Stock-based compensation recognized under these plans amounted to $10,349 for the
year ended February 29, 2016 compared to $561,347 and $2,194,684 for the years ended February 28, 2015 and 2014, respectively.
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.
Future Accounting change
New standard and interpretation not yet adopted:
Financial instruments:
On July 24, 2014, the International Accounting Standards Board (IASB) issued the final version of IFRS 9, Financial Instruments, which
addresses the classification and measurement of financial assets and liabilities, impairment and hedge accounting, replacing IAS 39,
Financial Instruments: Recognition and Measurement. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with
earlier adoption permitted. The Corporation has not yet assessed the impact of adoption of IFRS 9, and does not intend to early adopt
IFRS 9 in its financial statements.
Financial Instruments
Credit Risk
Credit Credit risk is the risk of a loss if a customer or counterparty to a financial asset fails to meet its contractual obligations. The
Corporation has 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.
Currency risk
The Corporation is exposed to the financial risk related to the fluctuation of foreign exchange rates and the degrees of volatility of those
rates. Foreign currency risk is limited to the portion of the Corporation's business transactions denominated in currencies other than the
Canadian dollar. Fluctuations related to foreign exchange rates could cause unforeseen fluctuations in the Corporation's operating results.
All of the Corporation's revenues are in US dollars. A portion of the expenses, mainly related to research contracts, is made in US dollars.
There is a financial risk involved related to the fluctuation in the value of the US dollar in relation to the Canadian dollar.
Furthermore, a significant portion of the Corporation's cash and short-term investments are denominated in US dollars, further exposing
the Corporation to fluctuations in the value of the US dollar in relation to the Canadian dollar presented in Note 19 of the financial
statements.
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 February 29, 2016 and February 28, 2015 is as follows:
45
Cash Short-term fixed interest rate
Short-term investments
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. Management believes that the risk that the Corporation will realize a loss as a result of the
decline in the fair value of its short-term investments is limited because these investments have short-term liabilities and are generally
held to maturity.
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 21 to the financial statements. 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 material transactions outside the normal course of business.
The Corporation's contractual obligations related to financial instruments and other obligations and liquidity resources are presented in the
liquidity and capital resources of this MD&A.
The Corporation has a significant financial instrument measured at fair value, the derivative warrant liabilities. Significant assumptions in
determining this fair value is disclosed in Note 21 of the financial statements. The carrying value of all other financial assets and
liabilities of the Corporation approximate their fair value given the short-term nature of these investments. The carrying value of the
restricted short-term investment also approximates its fair value given the short-term maturity of the reinvested funds.
Item 6.
Directors, Senior Management and Employees
A. Directors and Senior Management
The following table sets out the name and the province and country of residence of each of the persons proposed for election as Directors
at its next Annual General Meeting, and all other positions and offices with the Corporation held by such person, his or her principal
occupation, the year in which the person became a director of the Corporation, and the number of Common Shares of the Corporation that
such person has declared to beneficially own, directly or indirectly, or over which control or direction is exercised by such person as at
the date indicated below. The Corporation is currently searching for an additional independent director nominee which it intends to
include on the slate of directors being nominated for election at its next Annual General Meeting.
Name, province or state, as the case may be, and
country of residence of each director and proposed
director
Roderick N. Carter
California, United States
Executive Chairman of the Board
Janelle D'Alvise
California, United States
James S. Hamilton
Québec, Canada
Leendert H. Staal
Maryland, United States
Principal Occupation
Principal, Aquila Life
Sciences LLC
President and CEO of the
Corporation
President and CEO of
Neptune Technologies &
Bioressources Inc.
Independent consultant and
owner of Staal Consulting
LLC.
The following is a brief biography of the directors:
Dr. Roderick N. Carter
First year as
director
Number of Common Shares
beneficially owned or controlled or
directed by each proposed director
2015
2016
2015
2016
-
-
-
-
Dr. Carter has a strong history of contributions to healthcare through clinical, research, business and people leadership. He has significant
experience developing and commercializing nutraceutical and pharmaceutical products and has successfully led clinical research and
business development strategies for cardiovascular and inflammation related diseases. Dr. Carter is currently Principal at Aquila Life
Sciences LLC, a consulting firm he founded in April 2008 focusing on pharmaceutical development and commercialization. Prior to this
he was Vice President of Clinical Development at Reliant Pharmaceuticals, which developed the omega-3 cardiovascular drug Lovaza,
and today is a wholly owned subsidiary of GlaxoSmithKline. He also served as Executive Director at Merck and Co., USA, President and
Chief Executive Officer of WellGen and Senior Medical Director at Pfizer Inc., USA. Dr. Carter received his Medical Degree from the
University of Witwatersrand, Johannesburg, along with a Master of Science degree in Sports Medicine from Trinity College, Dublin.
46
Jannelle D'Alvise
Ms. D'Alvise has extensive experience in diagnostics, medical devices, pharmaceuticals and drug discovery research tools. Until recently,
Ms. D'Alvise was the President and Chairman of Pediatric Bioscience. Before that, she was the CEO of Gish Biomedical, a
cardiopulmonary medical device company. Prior to Gish, Ms. D'Alvise was the CEO of the Sidney Kimmel Cancer Center (SKCC), a
drug discovery research institute. From 1995, she was also the Co-Founder and Executive VP/COO of Metrika Inc., and in 1999 was the
Co- Founder/President/CEO/ Chairman of NuGEN, Inc. Ms. D'Alvise built both companies from technology concept through to
successful regulatory approvals, product introduction and sustainable revenue growth. Prior to 1995, Ms. D'Alvise was a VP of Drug
Development at Syntex/Roche and Business Unit Director of their Pain and Inflammation business, and also VP of Commercial
Operations at SYVA, (Syntex's clinical diagnostics division), and began her career with Diagnostic Products Corporation (DPC). Ms.
D'Alvise has a B.S. in Biochemistry from Michigan Technological University. She has completed post- graduate work at the University
of Michigan, Stanford University, and the Wharton Business Schools. Jan has served on the board of numerous private companies and
non-profits, and is an Entrepreneur-in-Residence for the von Liebig Institute for Entrepreneurship at the University of California, San
Diego.
James S. Hamilton
Mr. Hamilton is currently President and Chief Executive Officer of Neptune Technologies & Bioressources Inc., Acasti's parent company.
Prior to joining Neptune, from 2006 to 2015, Mr. Hamilton served as Vice President Human Nutrition and Health, North America, and
President of DSM Nutritional Products USA, Inc., based in Parsippany, New Jersey. He was serving on the global management team of
DSM Nutritional Products' Human Nutrition & Health business, an organization with over $2 billion in global sales and operations in
more than 40 countries. DSM Nutritional Products is an important division of the life sciences and material sciences corporation, DSM
N.V. of the Netherlands. Mr. Hamilton's industry knowledge has made him a valuable contributor to several trade associations and he a
director and is the immediate past chairman of the board of directors of the Council for Responsible Nutrition, the dietary supplement
industry's leading trade association. Mr. Hamilton is a graduate of Concordia University in Montreal, Canada and has attended a number
of business education and leadership programs at the London Business School and INSEAD.
Leendert H. Staal
Dr. Staal is a seasoned and accomplished senior executive with a strong track record of value creation. Dr. Staal has held numerous senior
level positions within the DSM group, most recently as President and Chief Executive Officer of DSM Nutritional Products from January
2008 to March 2013 and previously as President and Chief Executive Officer of DSM Pharmaceuticals. Dr. Staal also held the position of
Group Vice President of Quest International and was Chairman of Unipath (a wholly owned subsidiary of Unilever). He is currently an
independent consultant and owner of Staal Consulting LLC, focusing on Mergers & Acquisitions and business strategy. Recently, he has
been providing consulting services in connection with Neptune's Sherbrooke plant, where he is part of a team enhancing and optimizing
plant output. Dr. Staal has a Ph.D. in Chemistry from the University of Amsterdam.
Name, Province and Country
of
Residence
Pierre Lemieux
Québec, Canada
Principal Occupation
Position Within the Corporation
Chief Operating Officer of Acasti
Chief Operating Officer
Following are brief biographies of our senior managers:
Dr. Pierre Lemieux – 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. Dr. Lemieux
cumulates 20 years of experience in pharmaceutical development and has occupied a variety of high management positions in the
pharmaceutical industry.
Mr. Laurent Harvey B.Pharm.,M.Sc. – Vice President, Clinical and Non-Clinical Affairs
47
Laurent has more than 25 years' experience in the biopharmaceutical industry, primarily in drug development and clinical research. Before
joining Acasti Pharma, he occupied different management positions at Bristol-Myers Squibb, Æterna-Zentaris, Innodia, Bellus Health and
KLOX Technologies. During his career, he participated in many national and international clinical programs in various therapeutic fields
such as cardiovascular, endocrinology, oncology and neurology. Laurent holds a Bachelor's degree in pharmacy and M.Sc in hospital
pharmacy, both from Université de Montréal.
B. Compensation
Summary of the Corporation's Compensation Programs
The key components of our compensation programs are highlighted in the table below:
What are the
key features?
Primary objective
ANNUAL
BASE SALARY
Fixed compensation
· Payable in cash
· Revised annually and
adjusted, as necessary
SHORT-TERM
INCENTIVE
PLAN (STIP)
Variable compensation
· Payable in cash following
the end of each fiscal year
Provides a market
competitive fixed rate of
pay
Encourages performance
against our annual
corporate and individual
objectives
What does the
compensation
element reward?
Rewards skills,
knowledge,
responsibilities and
experience
Rewards the
achievement of our
annual objectives
How is the annual value or
target determined?
Targets are set at the 50th
percentile of what is paid in
the reference market for
similar positions
Targets are set at the 50th
percentile of what is paid in
the reference market for
similar positions
LONG-TERM
INCENTIVE
PLAN (LTIP)
EMPLOYEE
BENEFITS AND
PERQUISITES
Variable compensation
· In forms of stock options,
which vest over three years
at a rate of 1/3 per year and
expire after five to seven
years
· Generally granted annually
at the beginning of each
financial year
· Equity incentive grants
Fixed compensation
Group Benefits
· Life, medical, dental and
disability insurance
Perquisites
· RRSP Matching Program
PENSION
The Corporation does not
have any pension plan
available for its executives
or Directors
---
48
Aligns interests of
executives and
shareholders
Rewards the creation of
shareholder value
Targets are set at the 50th
percentile of what is paid in
the reference market for
similar positions
Group Benefits
· Provides employees and
their families with
assistance and security
Perquisites
· Complements
executives' total
compensation
---
---
Competitive overall with
programs offered in
comparable organizations
----
The Corporation's executive compensation program is intended to attract, motivate and retain high performing senior executives,
encourage and reward superior performance and align the executives' interests with those of the Corporation by providing a compensation
which is competitive with the compensation received by executives employed by comparable companies and ensuring that the
achievement of annual objectives is rewarded through the payment of bonuses and providing executives with long-term incentive through
the grant of stock options.
The GHR Committee has authority to retain the services of independent compensation consultants to advise its members on executive
compensation and related matters, and to determine the fees and the terms and conditions of the engagement of such consultants. During
the financial year ended February 28, 2015, the GHR Committee retained the services of Hexarem Inc. ("Hexarem") to review the
Corporation's executive compensation programs, including base salary, short-term and long-term incentives, total cash compensation
levels and total direct compensation of certain senior positions, against those of peer groups of similar and larger size, as measured by
market capitalization, biotechnology and pharmaceutical companies listed or headquartered in North America.
All of the services provided by Hexarem were provided to the GHR Committee. The GHR Committee has assessed the independence of
Hexarem and concluded that its engagement of Hexarem does not raise any conflict of interest with the Corporation or any of the
Directors or executive officers.
Use of Fixed and Variable Pay Components
Compensation of NEOs is revised each year and has been structured to encourage and reward the executive officers on the bases of short-
term and long-term corporate performance. In the context of the analysis of the compensation for Fiscal 2016, the following components
were examined:
(i)
(ii)
(iii)
base salary;
short term incentive plan, consisting of a cash bonus;
long term incentive plan, consisting of stock options and equity incentive grants based on performance and/or time vesting
conditions; and
(iv)
other elements of compensation, consisting of group benefits and perquisites.
Base Salary
Actual base salary paid to executives is set within a salary structure consistent with the Corporation's pay equity policy with a mid-point
aligned with the 50th percentile value of the job within the comparator group. The actual paid salary is set in recognition of the
individual's skills, experience and contribution.
Short Term Incentive Plan ("STIP")
STIP targets are aligned with the 50th percentile of our reference market and set as a percentage of the executive's base salary. Mr. Pierre
Lemieux, COO of Acasti, is eligible for up to a 25% bonus of his annual base salary, and Mr. Laurent Harvey, Vice President, Clinical
and Non-Clinical Affairs is eligible for up to a 20% bonus. Mr. Mario Paradis, CFO, did not receive any compensation from the
Corporation in his capacity as CFO other than the compensation he receives from Neptune, Acasti's parent company, in his capacity of
CFO of Neptune. Please refer to the June 2016 proxy circular of Neptune, for more information on his compensation as CFO of Neptune,
a copy of which is available on SEDAR at www.sedar.com.
The STIP is revised by the GHR Committee and its independent advisor every 2 to 3 years as market conditions evolve. The annual bonus
provides an opportunity for management and executive employees to earn an annual cash incentive based on the global financial results of
the Corporation and the degree of achievement of objectives set by the Board of Directors, generally based on actual versus budgeted
results.
These performance goals will take into account (1) the achievement of R&D milestones within timelines and budget and (2) individual
objectives determined annually by the Board according to short-term priorities. The detail of these goals is not disclosed herein as the
disclosure of the specific goals could be detrimental to the Corporation and its shareholders by providing competitors with proprietary and
extremely sensitive information.
Long Term incentive Plan ("LITP")
LTIP targets are aligned with the 50th percentile of our reference market and set as a percentage of the executive base salary. LTIP targets
are revised by the GHR Committee and its independent advisor every 2 to 3 years as market conditions evolve. The grant of stock options
by the Corporation to executives and management aims to recognize and reward the impact of longer-term strategic actions undertaken by
management, offering an added incentive for the retention of the Corporation's executives as well as aligning the interests of the
Corporation's executives with that of its Shareholders.
The GHR Committee is responsible for overseeing and managing the Corporation's stock option plan (the " Stock Option Plan"). Grants
of stock options to executives and management are approved by the Board of Directors. Generally, new stock option grants do not take
into account previous grants of stock options when considering new awards. The terms of the Stock Option Plan are described below
under the heading "Stock Option Plan ". The GHR Committee may also determine, in its sole discretion and taking into consideration a
wide variety of qualitative and quantitative factors, ad hoc numbers of stock options to be granted to participants in order to address
extraordinary situation affecting the Corporation's overall activities.
The CEO is also provided with a pool of Stock Options for ad hoc grants to a limited number of other contributors. The CEO has the
discretion, with the concomitant support of the GHR Committee to allocate none or all the pool at his/her discretion to:
49
·
·
·
·
reward top performers;
new hires;
retain high-potential contributors; and
address special needs.
Each ad hoc grant must be ratified and approved by the Board of Directors in order to give full effect to the issuance of such securities
under the Stock Option Plan.
An Equity Incentive Plan was adopted by the Board of Directors in order to provide the Corporation with a share-related mechanism to
attract, retain and motivate qualified Directors, employees and consultants of the Corporation and its subsidiaries. The adoption of the
Equity Incentive Plan was approved initially by the Shareholders at the 2013 Shareholders' meeting held on June 27, 2013. See section
"Compensation Discussion & Analysis – Equity Incentive Plan" below.
The Directors and executive officers are not permitted to purchase financial instruments, including for greater certainty, prepaid variable
forward contracts, equity swaps, collars or units of exchange funds that are designed to hedge or offset a decrease in market value of
equity securities granted as compensation or held, directly or indirectly, by the Director or officer.
Stock Option Plan
The following is a summary of important provisions of the Stock Option Plan. It is not a comprehensive discussion of all of the terms and
conditions of the Stock Option Plan. Readers are advised to review the full text of the Stock Option Plan to fully understand all terms and
conditions of the Stock Option Plan. A copy of the Stock Option Plan can be obtained by contacting Acasti's Corporate Secretary.
The Corporation's Stock Option Plan was adopted by the Board of Directors on October 8, 2008 and was amended from time to time,
including most recently on May 25, 2016.
The grant of options is part of the long-term incentive component of executive and Director compensation and an essential part of
compensation. Qualified Directors, employees and consultants of the Corporation and its subsidiaries may participate in the Stock Option
Plan, which is designed to encourage optionnees to link their interests with those of Shareholders, in order to promote an increase in
Shareholder value. Awards and the determination of any exercise price are made by the Board of Directors, after recommendation by the
GHR Committee. Awards are established, among other things, according to the role and responsibilities associated with the participant's
position and his or her influence over appreciation in Shareholder value. Any award grants a participant the right to purchase a certain
number of Common Shares during a specified term in the future, after a vesting period and/or specific performance conditions, at an
exercise price equal to at least 100% of the Market Price (as defined below) of our Common Shares on the grant date. The "Market Price"
of Common Shares as of a particular date shall generally mean the closing price per Common Share on the TSXV or any other exchange
on which the Common Shares are listed from time to time, for the last preceding date on which there was a sale of such Common Shares
on such exchange (subject to certain exceptions set forth in the Stock Option Plan in the event that the Company is no longer traded on
any stock exchange). Previous awards may sometimes be taken into account when new awards are considered.
On May 25, 2016, the Board of Directors approved an amendment to the Stock Option Plan pursuant to which all of an option holder's
options will immediately vest on the date of a Change of Control event (as such term is defined in the Stock Option Plan), subject to the
terms of any employment agreement or other contractual arrangement between the option holder and the Corporation. On the same date
the Board of Directors also approved amendment to extend to 12 months the period during which an option holder can exercise its vested
options, in the case of death, disability or retirement. Shareholder approval was not required for the May 25, 2016 amendments as the
Stock Option Plan contains specific amendment provisions pursuant to which such amendments may be made to the Stock Option Plan
upon approval of the Board, without Shareholder approval.
Options for Common Shares of the Corporation representing, from time to time, up to 10% of the outstanding issued Common Shares of
the Corporation then outstanding may be granted by the Board pursuant to the Stock Option Plan. As at the Record Date, there were
1,071,203 Common Shares reserved for issuance pursuant to the Stock Options Plan, representing 10% of the Common Shares of the
Corporation issued and outstanding at that date. As of the Record Date, there are 886,151 options outstanding under the Corporation's
Stock Option Plan.
50
Not more than 5% of Common Shares issued by the Corporation pursuant to the Stock Option Plan may be granted to any single optionee
during a 12 month period (not more than 2% if such optionee is a consultant or an employee providing investor relations services). In
addition, the Stock Option Plan, together with any other plan to be established or any options already granted, will not result in either
(i) the number of Common Shares reserved for issuance in connection with options granted to insiders representing more than 10% of the
number of Common Shares of the Corporation issued and outstanding, or (ii) the issuance to insiders, during a 12 month period, of a
number of options representing more than 10% of the number of Common Shares of the Corporation issued and outstanding.
Options granted under the Stock Option Plan are non-transferable and are subject to a minimum vesting period of 18 months, with gradual
and equal vesting on no less than a quarterly basis. They are exercisable, subject to vesting and/or performance conditions, at a price
equal to the closing price of the Common Shares on the TSXV on the day prior to the grant of such options. In addition, and unless
otherwise provided for in the agreement between the Corporation and the holder, options will also lapse upon termination of employment
or the end of the business relationship with the Corporation except that they may be exercised for 60 days after termination or the end of
the business relationship (30 days for investor relations services employees), to the extent that they will have vested on such date of
termination of employment.
Subject to the approval of the relevant authorities, including the TSXV if applicable, and compliance with any conditions attached to such
approval (including, in certain circumstances, approval by disinterested Shareholders) if applicable, the Board of Directors has the right to
amend or terminate the Stock Option Plan. However, unless option holders consent to the amendment or termination of the Stock Option
Plan in writing, any such amendment or termination of the Stock Option Plan cannot affect the conditions of options that have already
been granted and that have not been exercised under the Stock Option Plan. Pursuant to the rules of the TSXV, the Stock Option Plan must
be approved each year by the Shareholders of the Corporation at its annual meeting.
Equity Incentive Plan
The following is a summary of important provisions of the Equity Incentive Plan. It is not a comprehensive discussion of all of the terms
and conditions of the Equity Incentive Plan. Readers are advised to review the full text of the Equity Incentive Plan to fully understand all
terms and conditions of the Equity Incentive Plan. A copy of the Equity Incentive Plan can be obtained by contacting Acasti's Corporate
Secretary.
On May 22, 2013, the Equity Incentive Plan was adopted by the Board in order to, amongst other things, provide Acasti with a share-
related mechanism to attract, retain and motivate qualified Directors, employees and consultants of Acasti. The adoption of the Equity
Incentive Plan was initially approved by the Shareholders at its 2013 Shareholders' meeting held on June 27, 2013.
Eligible Persons may participate in the Equity Incentive Plan. "Eligible Persons" under the Equity Incentive Plan consist of any director,
officer, employee or consultant (as defined in the Equity Incentive Plan) of Acasti or of a subsidiary. A participant (" Participant") is an
Eligible Person to whom an award has been granted under the Equity Incentive Plan. The Equity Incentive Plan provides Acasti with the
option to grant to Eligible Persons Bonus Shares, Restricted Shares, Restricted Share Units, Performance Share Units, Deferred Share
Units and other Share-Based Awards.
Subject to the adjustment provisions provided for in the Equity Incentive Plan and the applicable rules and regulations of all regulatory
authorities to which Acasti is subject (including any stock exchange), the total number of Common Shares reserved for issuance pursuant
to awards granted under the Equity Incentive Plan will be equal to a number that (A) if, and for so long as the Common Shares are listed
on the TSXV, shall not exceed either (i) 1,829,282 Common Shares, and (ii) 10% of the issued and outstanding Common Shares, which
number shall include Common Shares issuable pursuant to the Acasti Stock Option Plan, or (B) if, and for so long as the Common Shares
are listed on the TSX, shall not exceed 2.5% of the issued and outstanding Common Shares from time to time.
If, and for so long as the Common Shares are listed on the TSXV, no more than 5% of the issued and outstanding Common Shares may
be granted to any one individual Participant in any 12 month period (unless Acasti has obtained disinterested approval for such grant) and
no more than 2% of the issued and outstanding Common Shares may be granted to any one consultant or employee conducting investor
relations activities in any 12 month period.
If, and for so long as the Common Shares are listed on the TSX, the number of Common Shares (A) issuable, at any time, to Participants
that are insiders, and (B) issued to Participants that are insiders within any 12 month period, pursuant to the Equity Incentive Plan, or
when combined with all of Acasti's other security based share compensation arrangements shall not, in aggregate, exceed 10% of the total
number of outstanding Common Shares on a non-diluted basis.
The Board has the right to determine that any unvested or unearned Restricted Share Units, Deferred Share Units, Performance Share
Units or other Share-Based Awards or Restricted Shares subject to a Restricted Period outstanding immediately prior to the occurrence of
a change in control shall become fully vested or earned or free of restriction upon the occurrence of such change in control. The Board
may also determine that any vested or earned Restricted Share Units, Deferred Share Units, Performance Share Units or other Share-
Based Awards shall be cashed out at the market price as of the date such change in control is deemed to have occurred, or as of such other
date as the Board may determine prior to the change in control. Further, the Board shall have the right to provide for the conversion or
exchange of any Restricted Share Unit, Deferred Share Unit, Performance Share Unit or other Share-Based Award into or for rights or
other securities in any entity participating in or resulting from the change in control.
51
The Equity Incentive Plan is administered by the Board and the Board has sole and complete authority, in its discretion, to determine the
type of awards under the Equity Incentive Plan relating to the issuance of Common Shares (including any combination of Bonus Shares,
Restricted Share Units, Performance Share Units, Deferred Share Units, Restricted Shares or other Share-Based Awards) in such amounts,
to such persons and under such terms and conditions as the Board may determine, in accordance with the provisions of the Equity
Incentive Plan and the recommendations made by the GHR Committee.
Other Forms of Compensation
RRSP Matching Program
Effective June 1, 2016, the Corporation sponsors a voluntary RRSP matching program (the " RRSP Matching Program" which is open to
all eligible employees, including NEOs. The RRSP Matching Program matches employees' contributions up to a maximum of $1,000 per
fiscal year for eligible employees who participate in the program.
Other than matching contributions under the RRSP Matching Program (which amounts are disclosed in the column entitled "All Other
Compensation" in the summary compensation table below, the Corporation does not provide pension or retirement benefits to its
executive or Directors.
Other Benefits and Perquisites
The Corporation's executive employee benefit program also includes life, medical, dental and disability insurance. These benefits and
perquisites are designed to be competitive overall with equivalent positions in comparable organizations. The Corporation does not have
any pension plan available for its employees, executives or Directors.
COMPENSATION TO NAMED EXECUTIVE OFFICERS
Compensation paid by the Corporation to Named Executive Officers
The following compensation table sets forth the compensation information for the named executive officers (NEOs) for services rendered
during the financial year ended February 29, 2016. Mr. Mario Paradis, CFO, did not receive any compensation from the Corporation in his
capacity as CFO other than the compensation he receives from Neptune, Acasti's parent company, in his capacity of CFO of Neptune.
Name and
Principal Position
Pierre Lemieux
COO
Year
ended
February
28/29
Salary
($)
Share-Based
Awards(1)(2)
($)
2016
2015
2014
2016
2015
239,565
186,115
170,308
159,808
107,977
-
-
207,000
-
-
Option-
based/Warrant-
based awards
(1) (2)
($)
33,320
22,163
102,505
17,153
7,388
Annual
incentive
plans
($)
All other
compensation
($)(3)(4)
Total
compensation
($)
42,000
12,000
-
16,000
8,000
-
16,000
-
-
-
314,885
236,278
479,813
192,961
123,365
-
2014
33,600
Laurent Harvey
Vice President,
Clinical and Non-
Clinical Affairs
André Godin(5)
Former Interim
President, CEO and
CFO
The Corporation has adopted the IFRS 2 Shared-based payment to account for the issuance of stock options to employees and
non-employees. The fair value of stock options is estimated at the grant date using the Black-Scholes Option Pricing Model. This
model requires the input of a number of parameters, including stock price, stock exercise price, expected stock price volatility,
expected time until exercise and risk-free interest rates. Although the assumptions used reflect management's best estimates, they
involve inherent uncertainties based on market conditions generally outside of the Corporation's control.
147,451
117,732
90,487
132,653
19,419
-
-
-
54,790
-
14,775
12,255
14,798
63,538
23,442
-
20,000
-
2016
2015
2014
47,334
13,734
-
-
(1)
52
(2)
For the period ended on February 29, 2016, the fair market value of the June 1, 2015 option-based awards of the Corporation
is based on a fair value of $1.97 per option granted to the NEOs of the Corporation. No additional grants were awarded to the
NEOs during the 2015-2016 financial year.
For the period ended on February 28, 2015, the fair market value of the October 20, 2014 option-based award granted to Mr.
André Godin and Mr. Pierre Lemieux is based on a fair value of $3.00 per option.
For the period ended on February 28, 2014, the fair market value of the June 27, 2013 Acasti share-based awards is based on
a fair value of $28.90 per restricted share unit ("RSU") granted to Mr. Pierre Lemieux and Mr. André Godin.
For the period ended on February 28, 2014, the fair market value of the June 21, 2013 Acasti call-option based awards
granted by Neptune is based on a fair value of $11.40 per Acasti call-option granted to Mr. Pierre Lemieux, and $1.22 per
Acasti call‑option granted to Mr. André Godin.
For the period ended on February 28, 2014, the fair market value of the October 1, 2013 option-based awards granted to Mr.
Laurent Harvey is based on a fair value of $9.16 per option.
(3)
(4)
(5)
The value of perquisites and other personal benefits received by these executives did not total an aggregate value of $50,000 or
more, and does not represent 10% or more of their total salary during the financial year ended February 29, 2016.
These amounts include severance payments, vacation time accumulated and paid during the financial year ended
February 29, 2016.
Mr. André Godin became Interim President and CEO of the Corporation on May 23, 2014 and CFO of the Corporation on
June 16, 2014. Mr. Godin's functions with the Corporation were terminated on April 29, 2015.
Outstanding Share-Based and Option-Based Awards
The following tables provide information on the number and value of the outstanding option-based awards held by the NEOs as of the
date of this Annual Report. There are no share-based awards outstanding as of the date of this Annual Report.
Option-Based Awards
Name / Grant Date
Pierre Lemieux
June 1, 2015
October 20, 2014
April 11, 2012
June 16, 2011
Laurent Harvey
June 1, 2015
October 20, 2014
André Godin(3)
October 20, 2014
April 11, 2012
June 16, 2011
October 8, 2008
Number of securities
underlying
unexercised options(1)
(#)
Option exercise
price ($)(1)
Option expiration
date
Value of unexercised
in-the-money
options(2)
($)
16,900
7,500
15,000
20,000
8,700
2,500
5,000
10,000
15,000
10,000
4.50
6.50
21.00
14.00
4.50
6.50
6.50
21.00
14.00
2.50
June 1, 2022
October 19, 2019
April 11, 2017
June 16, 2016
June 1, 2022
October 19, 2019
April 29, 2017
April 11, 2017
June 16, 2016
April 29, 2017
-
-
-
-
-
-
-
-
-
-
(1)
(2)
(3)
Acasti option-based awards were consolidated following the Reverse-Split. The exercise price was increased proportionally to
reflect the consolidation.
Calculation is based on a trading price of $2.02 for the Common Shares on the TSXV, as at closing on February 29, 2016.
Mr. André Godin became Interim President and CEO of the Corporation on May 23, 2014 and CFO of the Corporation on
June 16, 2014. Mr. Godin's functions with the Corporation were terminated on April 29, 2015.
53
Share-based and Option-based Awards of the Corporation – value vested during the financial year ended on February 29, 2016
The following table sets out the value of share-based awards and the value of option-based and warrant-based awards of the Corporation
held by the NEOs of the Corporation that vested during the financial year ended on February 29, 2016:
Name
Pierre Lemieux
André Godin
Share-based Awards of the Corporation –
value vested during the financial year ended
on February 29, 2016
($)
4,500
4,500
Option-based Awards of the Corporation –
value vested during the financial year ended
on February 29, 2016
($)
-
-
None of the stock options held by NEOs of the Corporation that vested during the financial year ended on February 29, 2016 were in-the-
money at their respective vesting date.
COMPENSATION OF DIRECTORS
The Directors' compensation consists of an annual fixed compensation in the amount of $30,000 and fees per meeting in the amount of
$2,500 per meeting attended in person and $750 per meeting attended by teleconference. In addition, the chairman of the Board and each
chairperson of the Audit and the Governance and Human Resources Committees receive an additional compensation of $50,000 (reduced
to $30,000 for the current fiscal year) and $3,000, respectively, for their additional work during the financial year ended February 29,
2016.
Compensation Paid to Directors
The total compensation paid to the non-executive Directors by the Corporation and its subsidiaries during the financial year ended on
February 29, 2016 is set out in the following table:
Financial Year
Ended February
29
2016
2016
2016
Name
Jerald J. Wenker(4)
Roderick N. Carter
James S. Hamilton
Adrian T.
Montgomery(4)
Reed V. Tuckson(4)
2016
2016
2016
Harlan W.
Waksal(4)
Fees earned
($)
Option-based awards(1)(2)
($)
62,167
28,500
-
28,750
25,750
21,500
23,111
23,111
-
23,111
23,111
23,111
54
All other
compensation(3)
($)
-
-
-
-
-
-
Total
($)
85,278
51,611
-
51,861
48,861
44,611
(1) The Corporation has adopted the IFRS 2 Shared-based payment to account for the issuance of stock options to employees and non-
employees. The fair value of the awards is estimated at the grant date using the Black-Scholes Option Pricing Model. This model
requires the input of a number of parameters, including stock price, stock exercise price, expected stock price volatility, expected
time until exercise and risk-free interest rates. Although the assumptions used reflect management's best estimates, they involve
inherent uncertainties based on market conditions generally outside of the Corporation's control.
(2) For the period ended on February 29, 2016, (i) the fair market value of the August 19, 2015 option-based awards of the
Corporation is based on a fair value of $2.31 per option granted to Mr. Wenker, Dr. Carter, Mr. Montgomery, Dr. Tuckson and Dr.
Waksal. No additional grants were awarded to the Directors during the 2015-2016 financial year.
(3) The value of the perquisites and other personal benefits received by these Directors did not total an aggregate value of $50,000 or
more, and does not represent more than 10% of the compensation paid during financial year ended February 29, 2016. The
Directors do not receive pension benefits or other non-equity based annual compensation.
(4) On February 29, 2016, Messrs. Wenker, Montgomery, Tuckson and Waksal resigned as Directors of the Corporation.
Outstanding Share-Based and Option-Based Awards for Directors
The following tables provides information on the number and value of the outstanding share-based and option-based awards held by non-
executive Directors of the Corporation as of the date of this Annual Report. There were no share-based awards outstanding as of the date
of this Annual Report.
Option-Based Awards
Name / Grant Date
Jerald J. Wenker(5)
June 26, 2014
December 19, 2013
Roderick N. Carter
August 19, 2015
Adrian T. Montgomery(4)
June 26, 2014
Reed V. Tuckson(4)
December 19, 2013
Harlan W. Waksal(4)
April 11, 2012
June 16, 2011
Number of securities
underlying unexercised
options(1)
Option exercise
price ($)(1)
Option expiration date
Value of unexercised in-
the-money options
($)(2)
2,813
3,750
10,000
5,625
7,500
20,000(3)
20,000(3)
12.00
21.00
4.80
12.00
21.00
21.00
14.00
February 28, 2017
December 19, 2016
August 19, 2022
February 28, 2017
December 19, 2016
February 28, 2017
June 16, 2016
-
-
-
-
-
-
-
(1) Acasti option-based awards were consolidated following the consolidation of Acasti's issued and outstanding Common Shares in
a proportion of ten (10) pre-consolidation shares for (1) post-consolidation shares dated October 15, 2015. The exercise price was
increased proportionally to reflect the consolidation.
(2) Calculation is based on a trading price of $2.02 for the Common Shares on the TSXV, as at closing on February 29, 2016.
(3) Awards received for his role as former Vice-President, Business and Scientific Affairs.
(4) On February 29, 2016, Mr. Wenker, Mr. Montgomery, Dr. Tuckson and Dr. Waksal resigned as directors of the Corporation.
55
Share-based and Option-based Awards of the Corporation – value vested during the financial year ended on February 29, 2016
The following table sets out the value of share-based and option-awards of the Corporation held by non-executive Directors of the
Corporation that vested during the financial year ended on February 29, 2016:
Name
Harlan W. Waksal
Share-based Awards of the
Corporation – value vested
during the financial year ended
on February 29, 2016 ($)
13,500
Option-based Awards of the
Corporation – value vested
during the financial year ended
on February 29, 2016 ($)
-
None of the stock options of the Corporation held by non-executive Directors that vested during the financial year ended on February 29,
2016 were in-the-money at their respective vesting date.
C. Board Practices
Board of Directors
Director Independence
The Board of Directors believes that, in order to maximize effectiveness, the Board of Directors must be able to operate independently. A
majority of Directors must satisfy the applicable tests of independence, such that the Board of Directors complies with all independence
requirements under applicable corporate and securities laws and stock exchange requirements applicable to the Corporation. No Director
will be independent unless the Board of Directors has affirmatively determined that the Director has no material relationship with the
Corporation or any of its affiliates, either directly or indirectly or as a partner, shareholder or officer of an organization that has a
relationship with the Corporation or its Affiliates. Such determinations will be made on an annual basis and, if a Director joins the Board
of Directors between annual meetings, at such time.
Independent Directors.
The Board of Directors considers that Mr. Fitzgibbon and Dr. Carter are "independent" within the meaning of NI 52-110 and NASDAQ
Stock Market rules.
Directors who are not independent.
The Board of Directors considers that Mr. James S. Hamilton is not "independent" within the meaning of NI 52-110 and NASDAQ rules
given that he is President and CEO of Neptune as well as a member of the board of directors of Neptune.
Majority of Directors will be independent.
As of the date of this Annual Report, the Board of Directors considers that currently two out of three members of the Board of Directors
are independent within the meaning of NI 52-110 and NASDAQ Stock Market rules, as it applies to the Board of Directors. Upon the
election of the proposed directors listed in this Annual Report, two out of four members of the Board for the ensuing year will be
independent within the meaning of NI 52-110 and NASDAQ Stock Market rules, as it applies to the Board of Directors. However, the
Corporation is currently searching for an additional independent director nominee which it intends to include on the slate of directors
being nominated for election at the next Annual General Meeting.
Independent Directors hold regularly scheduled closed meetings.
During the last completed financial year ended February 29, 2016, the independent Directors held at least five (5) scheduled meetings at
which non-independent. Directors and members of management were not in attendance.
Attendance record of Directors for Board meetings
During the financial year ended February 28, 2016, the Board of Directors held 8 meetings. Attendance of Directors at the meetings is
indicated in the table below:
56
Board Members
Jerald J. Wenker
Roderick N. Carter
James S. Hamilton
Adrian T. Montgomery
Reed V. Tuckson
CHAIRMAN OF THE BOARD
Meeting Attendance in
Person
4/5
2/3
2/3
1/5
0/5
Telephone Meeting
Attendance
1/5
1/3
0/3
4/5
5/5
Total Attendance
5/5
3/3
2/3
5/5
5/5
Mr. Jerald J. Wenker, an independent director, acted as Chairman of the Board until February 29, 2016. His duties and responsibilities
consisted in the oversight of the quality and integrity of the Board of Directors' practices. Starting March 1, 2016, Dr. Roderick N. Carter
acted as Executive Chairman of the Board until the appointment of the Corporation's President and CEO, effective June 1, 2016. As of the
date of this Annual Report, Dr. Carter act as Chairman of the Board His duties and responsibilities consisted in the oversight of the
quality and integrity of the Board of Directors' practices.
BOARD MANDATE
How the Board delineates its role and responsibilities
There is no specific mandate for the Board of Directors, since the Board has plenary power. Any responsibility that is not delegated to
senior management or a committee of the Board remains with the full Board of Directors.
POSITION DESCRIPTIONS
How the Board delineates the role and responsibilities of the chair and the chair of each Board committee
No written position description has been developed for the chair of the Board of Directors and for the chairs of each committee. The
primary role and responsibility of the chair of each committee of the Board of Directors is to: (i) in general, ensure that the committee
fulfills its mandate, as determined by the Board of Directors; (ii) chair meetings of the committee; (iii) report thereon to the Board of
Directors; and (iv) act as liaison between the committee and the Board of Directors and, if necessary, management of the Corporation.
How the Board delineates the role and responsibilities of the CEO
The Board of Directors has not developed a written position description for the CEO. The CEO's objectives are discussed and decided
during a Board of Directors meeting following the CEO's presentation of the Corporation's annual plan. These objectives include a
general mandate to maximize Shareholder value. The Board of Directors approves the CEO's objectives for the Corporation on an annual
basis.
ORIENTATION AND CONTINUING EDUCATION
Measures the Board takes to orient new Directors
The Corporation provides orientation for new appointees to the Board of Directors and committees in the form of informal meetings with
members of the Board and senior management, complemented by presentations on the main areas of the Corporation's business.
Measures the Board takes to ensure that its directors maintain the skill and knowledge necessary to meet their obligations as
directors
The Board does not formally provide continuing education to its directors. The directors are experienced members. The Board of directors
relies on professional assistance when judged necessary in order to be educated/updated on a particular topic.
ETHICAL BUSINESS CONDUCT
Code of Business Conduct and Ethics
57
The Board of Directors adopted a Code of Business Conduct and Ethics (the "Code of Conduct") for its directors, officers and employees
on May 31, 2007, as amended from time to time, which can be found on SEDAR at www.sedar.com and on the Corporation's web site on
www.acastipharma.com. A copy of the Code of Conduct can also be obtained by contacting the Corporate Secretary of the Corporation.
Since its adoption by the Board of Directors, any breach of the Code of Ethics must be brought to the attention of the Board of Directors
by the CEO or other senior executive of the Corporation. No material change report has ever been filed which pertains to any conduct of a
director or executive officer that constitutes a breach to the Code of Conduct.
The Board of Directors also adopted the following policies: (i) disclosure policy, (ii) insider trading policy, (iii) majority voting policy,
(iv) management compensation policy, and (vi) whistleblower policy.
Steps the Board takes to ensure directors exercise independent judgement
Since the adoption of the Code of Conduct and the following policies, the Board of Directors actively monitors compliance with the Code
Conduct and promotes a business environment where employees are encouraged to report malfeasance, irregularities and other concerns.
The Code of Conduct provides for specific procedures for reporting non-compliant practices in a manner which, in the opinion of the
Board of Directors, encourages and promotes a culture of ethical business conduct.
In addition, under the Civil Code of Québec, to which the Corporation is subject as a legal person incorporated under the Business
Corporations Act (Québec) (L.R.Q., c. S-31), a director of the Corporation must immediately disclose to the Board of Corporation any
situation that may place him in a conflict of interest. Any such declaration of interest is recorded in the minutes of proceeding of the Board
of Directors of the Corporation. The director abstains, except if required, from the discussion and voting on the question. In addition, it is
the policy of the Corporation that an interested director recuse himself or herself from the decision-making process pertaining to a
contract or transaction in which he or she has an interest.
NOMINATION OF DIRECTORS
The Board of Directors receives recommendations from the GHR Committee, but retains responsibility for managing its own affairs by,
among other things, giving its approval for the composition and size of the Board of Directors, and the selection of candidates nominated
for election to the Board of Directors. The GHR Committee shall initially evaluate candidates for nomination for election as directors,
having regard to the background, employment and qualifications of possible candidates.
The selection of the nominees for the Board of Directors is made by the other members of the Board, based on the needs of the
Corporation and the qualities required to sit on the Board of Directors, including ethical character, integrity and maturity of judgment of
the candidates; the level of experience of the candidates, their ideas regarding the material aspects of the business of the Corporation, the
expertise of the candidates in fields relevant to the Corporation while complementing the training and experience of the other members of
the Board of Directors; the will and ability of the candidates to devote the necessary time to their duties to the Board of Directors and its
committees, the will of the candidates to serve on the Board of Directors for numerous consecutive financial periods and finally, the will
of the candidates to refrain from engaging in activities which conflict with the responsibilities and duties of a director of the Corporation
and its Shareholders. The Corporation researches the training and qualifications of potential new directors which seem to correspond to
the selection criteria of the Board of Directors and, depending on the results of said research, organizes meetings with the potential
candidates.
In the case of incumbent directors whose terms of office are set to expire, the Corporation will review such directors' overall service to
the Corporation during their term of office, including the number of meetings attended, level of participation, quality of performance and
any transactions of such directors with the Corporation during their term of office.
The Corporation may use various sources in order to identify the candidates for the Board of Directors, including its own contacts and the
references of other directors, officers, advisors of the Corporation and executive placement agencies. The Corporation will consider
director candidates recommended by Shareholders and will evaluate such director candidates in the same manner in which it evaluates
candidates recommended by other sources. In making recommendations for director nominees for the annual meeting of Shareholders, the
Corporation will consider any written recommendations of director candidates by Shareholders received by the Corporate Secretary of the
Corporation not later than 120 days before the anniversary of the previous year's annual meeting of Shareholders. Recommendations must
include the candidate's name, contact information and a statement of the candidate's background and qualifications, and must be mailed to
the Corporation.
Following the selection of the candidates by the Board of Directors, the Corporation will propose a list of candidates to the Shareholders,
for the annual meeting of the Corporation.
The Board of Directors does not have a nominating committee and has not adopted any formal written director term limit policy.
COMPENSATION
The GHR Committee has the responsibility of evaluating the compensation, performance incentives as well as the benefits granted to the
Corporation's upper management in accordance with their responsibilities and performance as well as to recommend the necessary
adjustments to the Board of Directors of the Corporation. This committee also reviews the amount and method of compensation granted to
the directors. The GHR Committee may mandate an external firm in order to assist it during the execution of its mandate. The GHR
Committee considers time commitment, comparative fees and responsibilities in determining compensation. With respect to the
compensation of the Corporation's officers, see "Report on Executive Compensation" above.
58
The GHR Committee is only composed of independent members within the meaning of NI 52-110 and NASDAQ rules, namely Messrs.
Pierre Fitzgibbon and Roderick N. Carter.
OTHER BOARD COMMITTEES
the proposed nominations of senior executives and director candidates
Other than the Audit Committee, the Corporation also has a GHR Committee. The mandate of the GHR Committee consists of the
evaluation of
the Corporation's Board of
Directors, recommending for Board approval, if appropriate, revisions of our corporate governance practices and procedures, developing
new charters for any new committees established by the Board of Directors, monitoring relationships and communication between
management and the Board of Directors, monitoring emerging best practices in corporate governance and oversight of governance matters
and assessing the Board of Directors and its committees. The GHR Committee is also in charge of establishing the procedure which must
be followed by the Corporation in order for it to comply with the guidelines of the TSXV regarding corporate governance.
to
ASSESSMENTS
The Board of Directors, its committees and each director of the Corporation are subject to periodic evaluations of their efficacy and
contribution. The evaluation procedure consists in identifying any shortcomings and implementing adjustments proposed by directors at
the beginning and during meetings of the Board of Directors and of each of its committees. Among other things, these adjustments deal
with the level of preparation of directors, management and consultants employed by the Corporation, the relevance and sufficiency of the
documentation provided to directors and the time allowed to directors for discussion and debate of items on the agenda.
DIRECTOR TERM LIMITS
The Board has actively considered the issue of term limits for directors and will continue to do so. At this time, the Board does not believe
that it is in the best interests of the Corporation to establish a limit on the number of times a director may stand for election. While such a
limit could help create an environment where fresh ideas and viewpoints are available to the Board, a director term limit could also
disadvantage the Corporation through the loss of the beneficial contribution of directors who have developed increasing knowledge of,
and insight into, the Corporation and its operations, over a period of time. As the Corporation operates in a unique industry, it is difficult
to find qualified directors with the appropriate background and experience and the introduction of a director term limit would impose
further difficulty.
POLICIES REGARDING THE REPRESENTATION OF WOMEN ON THE BOARD AND AMONGST EXECUTIVE OFFICERS
The Corporation has not adopted a formal written policy regarding diversity amongst executive officers and members of the Board of
Directors, including mechanisms for Board renewal, in connection with, among other things, the identification and nomination of women
directors. Nevertheless, the Corporation recognizes that gender diversity is a significant aspect of diversity and acknowledges the
important role that women with appropriate and relevant skills and experience can play in contributing to the diversity of perspective on
the Board of Directors.
Rather than considering the level of representation of women for directorship and executive officer positions when making Board or
executive officer appointments, Acasti considers all candidates based on their merit and qualifications relevant to the specific role. While
Acasti recognizes the benefits of diversity at all levels within its organization, it does not currently have any targets, rules or formal
policies that specifically require the identification, consideration, nomination or appointment of candidates for directorship or executive
management positions or that would otherwise force the composition of the Corporation's Board of Directors and executive management
team. Currently, Acasti does not have any women who are executive officers or directors.
Chairman of the Board
Mr. Jerald Wenker, an independent director, acts as Chairman of the Board. His duties and responsibilities consist in the oversight of the
quality and integrity of the Board of Directors' practices.
Board Mandate
How the Board delineates its role and responsibilities
59
There is no specific mandate for the Board of Directors, since the Board has plenary power. Any responsibility that is not delegated to
senior management or a committee of the Board remains with the full Board of Directors.
Position Descriptions
How the Board delineates the role and responsibilities of the chair and the chair of each Board committee
No written position description has been developed for the chair of the Board of Directors and for the chairs of each committee. The
primary role and responsibility of the chair of each committee of the Board of Directors is to: (i) in general, ensure that the committee
fulfills its mandate, as determined by the Board of Directors; (ii) chair meetings of the committee; (iii) report thereon to the Board to the
Board of Directors; and (iv) act as liaison between the committee and the Board of Directors and, if necessary, management of the
Corporation.
How the Board delineates the role and responsibilities of the CEO
The Board of Directors has not developed a written position description for the Chief Executive Officer. The Chief Executive Officer's
objectives are discussed and decided during a Board of Directors meeting following the Chief Executive Officer's presentation of the
Corporation's annual plan. These objectives include a general mandate to maximize Shareholder value. The Board of Directors approves
the Chief Executive Officer's objectives for the Corporation on an annual basis
Orientation and Continuing Education
Measures the Board takes to orient new directors
The Corporation provides orientation for new appointees to the Board of Directors and committees in the form of informal meetings with
members of the Board and senior management, complemented by presentations on the main areas of the Corporation's business.
Measures the Board takes to ensure that its directors maintain the skill and knowledge necessary to meet their obligations as
directors
The Board does not formally provide continuing education to its directors. The directors are experienced members. The Board of
Directors relies on professional assistance when judged necessary in order to be educated/updated on a particular topic.
Audit Committee Information
The Audit Committee is responsible for assisting the Board of Directors in fulfilling its oversight responsibilities with respect to financial
reporting, including (i) reviewing the Corporation's procedures for internal control with the Corporation's auditor and management
performing financial functions; (ii) reviewing and approving the engagement of the auditor; (iii) reviewing annual and quarterly financial
statements and all other material continuous disclosure documents, including the Corporation's annual information form and
management's discussion and analysis; (iv) assessing the Corporation's financial and accounting personnel; (v) assessing the Corporation's
accounting policies; (vi) reviewing the Corporation's risk management procedures; and (vii) reviewing any significant transactions outside
the Corporation's ordinary course of business and any pending litigation involving the Corporation.
The Audit Committee has direct communication channels with Acasti's management performing financial functions and the external
auditor of Acasti to discuss and review such issues as the Audit Committee may deem appropriate.
Until February 29, 2016, the Audit Committee was comprised of Adrian T. Montgomery, acting as chairperson, Roderick N. Carter and
Jerald J. Wenker. Following the resignation of Jerald D. Wenker and Adrian Montgomery from the Board, the Audit Committee no longer
had three independent members as required by NI 52 110 and NASDAQ rules. As of March 1, 2016, the Audit Committee is comprised of
Mr. Pierre Fitzgibbon, acting as chairperson, and Roderick N. Carter. Each of these individuals is "financially literate" and "independent"
within the meaning of NI 52-110 and the Exchange Act. See "Risk Factors – General Risks Related to the Corporation - If we fail to meet
the applicable listing requirements, NASDAQ may delist our securities from trading on its exchange in which case the liquidity and
market price of our securities could decline."
Compensation Governance
Compensation of executive officers and directors of the Corporation is recommended to the Board of Directors by the Governance and
Human Resources Committee (the "GHR Committee"). In its review process, the GHR Committee relies on input from management on
the assessment of executives and Corporation performance.
60
During Fiscal 2016, the GHR Committee was composed of the following members, each of whom is independent: Dr. Reed V. Tuckson,
acting as chairperson, Mr. Roderick N. Carter and Mr. Jerald J. Wenker. The GHR Committee establishes management compensation
policies and oversees their general implementation. All members of the GHR Committee have direct experience which is relevant to their
responsibilities as GHR Committee members. All members are or have held senior executive or director roles within significant
businesses, several also having public companies experience, and have a good financial understanding which allows them to assess the
costs versus benefits of compensation plans. The members combined experience in the Corporation's sector provides them with the
understanding of the Corporation's success factors and risks, which is very important when determining metrics for measuring success.
Risk management is a primary consideration of the GHR Committee when implementing its compensation program. It does not believe
that its compensation program results in unnecessary or inappropriate risk taking, including risks that are likely to have a material adverse
effect on the Corporation. Payments of bonuses, if any, are not made unless performance goals are met.
For executives, more than half of target direct compensation (base salary + target STIP (as defined below) + target LTIP (as defined
below)) is considered "at risk". This mix results in a strong pay-for-performance relationship and an alignment with Shareholders and is
competitive with other firms of comparable size in similar fields. The CEO (or any person acting in that capacity) makes
recommendations to the GHR Committee as to the compensation of the Corporation's executive officers, other than himself, for approval
by the Board. The GHR Committee makes recommendations to the Board of Directors as to the compensation of the CEO, for approval.
The CEO's salary is based on comparable market consideration and the GHR Committee's assessment of his performance, with regard to
the Corporation's financial performance and progress in achieving strategic performance.
Qualitative factors beyond the quantitative financial metrics are also a key consideration in determination of individual executive
compensation payments. How executives achieve their financial results and demonstrate leadership consistent with the Corporation's
values are key to individual compensation decisions.
D. Employees
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, 2016,
the Corporation had 11 full-time employees all located in Canada. 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. We consider
our relations with our employees to be good and our operations have never been interrupted as the result of a labor dispute.
E.
Share Ownership
The following table shows the total number of Common Shares beneficially owned by each of our directors and senior management and
the percentage of the total issued and outstanding Common Shares that such holdings represent.
Name
Common Shares beneficially owned
as of February 29, 2016
Percentage of total issued and
outstanding Common Shares
as of February 29, 2016(1)
Roderick N. Carter
Pierre Fitzgibbon
James S. Hamilton
Mario Paradis
Pierre Lemieux
Laurent Harvey
0
500
0
0
7,000
0
(1) Based on 10,712,038 Common Shares outstanding.
*
Less than 1%.
*
*
*
*
*
*
See "Item 6.B – Compensation" above for information regarding the share-based, option-based, call-option-based, and
warrant-based awards held by our directors and senior managers.
See "Item 6.B – Compensation" above for a description of our Stock Option Plan and Equity Incentive Plan.
61
Item 7.
Major Shareholders and Related Party Transactions
A. Major Shareholders
As of May 25, 2016, Neptune owns 5,064,694 Common Shares representing approximately 47.28% 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 592,500 Common Shares (in order to obtain 1 common share of Acasti, 10 warrants must be exercised). Neptune does not have
different voting rights than other beneficial owners of Common Shares.
To the best of our knowledge, there are no other beneficial owners of 5% or more of any class of our voting securities.
On February 10, 2012, Neptune acquired 750,000 Common Shares through a private placement. As a result, Neptune's equity
participation in Acasti increased from approximately 56% to approximately 57%.
On July 12, 2013, Neptune announced that it had acquired 6,750,000 Common Shares upon the exercise of a warrant issued
to it by Acasti under the prepayment agreement. The prepayment agreement and the issuance of the 6,750,000 Common Shares to
Neptune were approved by the TSX-V and the disinterested shareholders of Acasti (excluding Neptune and non-arm's length parties to
Neptune) at the annual meeting of shareholders of Acasti held on June 27, 2013. As a result, Neptune's equity participation in Acasti
increased from approximately 57% to approximately 60%.
On December 3, 2013, Neptune acquired 592,500 units (each unit consists of one Common Share and one common share
purchase warrant) in our underwritten public unit offering. As a result, Neptune's equity participation in Acasti decreased from
approximately 60% to approximately 49.95%.
All Common Shares of the Corporation, including all those held by Neptune, are Common Shares with similar voting rights.
Based on the records of the Corporation's registrar and transfer agent as of May 25, 2016, Computershare Trust Company of Canada,
there were approximately 25 registered holders (including DTC) of the Corporation's Common Shares resident in the United States
(approximately 10% of all registered holders).
B. Related Party Transactions
Please see the section entitled "Related Party Transactions" in our MD&A included above
C.
Interests of Experts and Counsel
Not applicable.
Item 8.
Financial Statements
A. Consolidated Statements and Other Financial Information
Financial Statements
See "Item 17 – Financial Statements" for our audited consolidated financial statements.
Legal Proceedings
Due to the fact that a significant portion of the Corporation's intellectual property rights are licensed to it by Neptune, the
Corporation relies 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 related to its intellectual property.
Former CEO
A former CEO of the Corporation is claiming the payment of approximately $8,500,000 to Neptune ans its subsidiaries
(including the Corporation) and the issuance of equity instruments. The Corporation's management believes that these claims are not valid
and without merit and, as such, no provision has been recognized in the financial statements. As of the date of this Annual Report, no
agreement or settlement has been reached with the former CEO and the Corporation continues to defend this claim vigorously. Neptune
and its subsidiaries (including the Corporation) also filed an additional claim to recover certain amounts from the officer.
Dividend Policy
We do not anticipate paying any cash dividend on the Common Shares in the foreseeable future. We presently intend to
retain future earnings to finance the expansion and growth of our business. Any future determination to pay dividends will be at the
discretion of the Corporation's Board of Directors and will depend on our 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 us from
paying dividends.
62
Item 9.
The Offer and Listing
A. Listing Details
Since March 31, 2011, the Common Shares have been listed on the TSX-V 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. The following tables set forth,
for the periods indicated, the high and low market prices of our Common Shares as reported on the TSX-V and the NASDAQ Stock
Market.
(a)
For the five most recent full fiscal years:
Fiscal year ended
Feb. 29, 2012
Feb. 28, 2013
Feb. 28, 2014
Feb. 28, 2015
Feb. 29, 2016
TSX-V
High $
Low $
NASDAQ Stock Market
High US$ Low US$
21.50
27.60
43.20
14.90
7.60
5.10
16.00
11.50
11.50
1.83
39.90
42.00
13.40
6.10
20.00
10.90
10.90
1.30
(b)
For each full financial quarter of the two most recent full fiscal years and any subsequent period:
Period
1st Quarter ended May 31, 2014
2nd Quarter ended Aug. 31, 2014
3rd Quarter ended Nov. 30, 2014
4th Quarter ended Feb. 28, 2015
1st Quarter ended May 31, 2015
2nd Quarter ended Aug. 31, 2015
3rd Quarter ended Nov. 30, 2015
4th Quarter ended Feb. 29, 2016
(c)
for the most recent six months:
Period
November 2015
December 2015
January2016
February 2016
March 2016
April 2016
May 2016
TSX-V
High $
Low $
NASDAQ Stock Market
High US$ Low US$
8.00
8.10
3.50
4.00
5.00
3.90
2.01
1.30
13.40
12.20
11.10
6.20
6.10
4.20
3.80
3.20
8.80
8.80
4.00
4.60
4.00
3.50
2.65
1.83
14.90
13.00
12.00
7.80
7.60
5.50
4.70
4.40
TSX-V
High $
Low $
3.54
4.40
3.50
2.20
2.45
1.96
2.00
63
NASDAQ Stock Market
High US$ Low US$
2.20
2.75
1.57
3.20
1.50
2.55
1.30
1.61
1.42
1.88
1.30
1.52
1.20
1.67
2.87
2.16
2.16
1.83
1.80
1.68
1.56
The holders of Common Shares are entitled to vote at all meetings of our shareholders except meetings at which only holders
of a specified class or series of shares are entitled to vote. The holders of Common Shares are entitled to receive dividends as and when
declared by the Board, if any.
No Common Shares have been issued subject to call or assessment. There are no pre-emptive or conversion rights and no
provisions for redemption or purchase for cancellation, surrender, or sinking or purchase funds. The Common Shares must be issued as
fully-paid and non-assessable, and are not subject to further capital calls by us. All of the Common Shares rank equally as to voting rights,
participation in a distribution of the assets of the Corporation on a liquidation, dissolution or winding-up of the Corporation and the
entitlement to dividends.
Common shares are transferable at the offices of our transfer agent and registrar in Toronto, Ontario, Canada and Montreal,
Québec, Canada.
There are no restrictions in our constating documents on the free transferability of the Common Shares.
B. Plan of Distribution
Not applicable.
C. Markets
Since March 31, 2011, the Common Shares have been listed on the TSX-V 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.
D.
Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issuer
Not applicable.
Item 10. Additional Information
A.
Share Capital
Not applicable.
B. Memorandum and Articles of Association
We were 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, we changed our name to "Acasti Pharma Inc.", our
share capital, the provisions regarding the restrictions on securities transfers and the borrowing powers of the Corporation.
On November 7, 2008, pursuant to a Certificate of Amendment, we further revised our provisions regarding our borrowing powers. We
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). We are now governed by the Business Corporations Act (Québec)
(the "BCA").
1.
Register, Entry Number and Purposes
Our articles of incorporation, as amended, or Articles, and general by-laws, or By-laws, do not define any of the
Corporation's objects and purposes. In that respect, the Corporation has no limit on the type of business it can carry out.
2.
Directors' Powers
Our Articles and By-laws do not contain any provision regarding: (a) a director's power to vote on a proposal, arrangement or
contract in which the director is materially interested; (b) a director's power in the absence of an independent quorum, to vote
compensation to itself or any members of the committees of the Board; (c) borrowing powers exercisable by the directors and how such
powers can be varied; (d) retirement or non-retirement of directors under an age limit requirement; and (e) number of shares, if any,
required for a director's qualification. However, the BCA provides that a director shall avoid placing himself in a situation where his
personal interest would conflict with his obligations as a director of the Corporation. If such is the case, the BCA provides that he must
declare to the Corporation any interest he has in an enterprise or other entity that may place him in a situation of conflict of interest.
64
The quorum at every meeting of the Board has been set to the minimum number of directors required under our Articles. In
the absence of a quorum, a director has no power to make any decision regarding, among other things, compensation to himself or to any
member of the committees of the Board.
Our By-laws do not contain any requirements with respect to a mandatory retirement age for our directors and the number of
shares required for directors' qualifications.
3.
Rights, Preferences and Restrictions Attaching to Each Class of Shares
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 29, 2016, there were (i) a total of 10,712,038 Common Shares issued and outstanding and no Preferred Shares
issued and outstanding, (ii) 454,151 options to purchase Common Shares issued and outstanding, at a weighted average exercise price of
$13.52 per Common Share,(iii) 18,400,000 warrants (including 592,500 warrants held by Neptune) to purchase Common Shares issued
and outstanding (in order to obtain 1 common share of Acasti, 10 warrants must be exercised), at a weighted average exercise price of
$1.50 USD per Common Share, and (iv) 161,654 warrants to purchase Common Shares issued and outstanding, at a weighted average
exercise price of $16.00 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.
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 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.
65
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 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.
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.
Dividends
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.
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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 $0.20 per share,
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.
Dividends
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
Fair Market Value of the Common Shares at the date of any conversion of Class D non-voting shares in Common
Shares
Conversion Ratio =
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
Fair Market Value of the Common Shares at the date of any conversion of Class D non-voting shares in Common
Shares
Conversion Ratio =
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.
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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.
Dividends
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:
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
Conversion Ratio =
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.
4.
Procedures to Change the Rights of Shareholders
In order to change the rights attached to all classes of our shares, the vote of at least 66 2/3% of the holders of each class, as
the case may be, must be cast at a shareholders meeting called for amending the rights attached to our Common Shares or Preferred
Shares, as the case may be.
5.
Ordinary and Extraordinary Shareholders' Meetings
Our By-laws provide that the annual meeting of shareholders of the Corporation must be held on a yearly basis on such date
and on such time as may be fixed by the Board.
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Our By-laws provide that special meetings of shareholders may be called at any time as determined by the Board. Our
shareholders are entitled to call special meetings of shareholders provided that they hold at least 10% of the issued and outstanding shares
entitled to vote at the meeting so called.
Our By-laws provide that notice of each annual and special meeting of shareholders must be sent to the shareholders entitled
to attend such meetings at least ten (10) days prior to the date fixed for such meeting.
Our By-laws provide that during any meeting of the shareholders, the attendance, in person or by proxy, of the shareholders
representing ten percent (10%) of the Common Shares shall constitute a quorum.
6.
7.
Limitations on Rights to Own Securities
There exists no limitation on the right to own our securities.
Impediments to Change of Control
Neither our Articles nor By-laws contain any provision that would have an effect of delaying, deferring or preventing a
change in control of the Corporation.
8.
Stockholder Ownership Disclosure Threshold in Bylaws
Our Articles and By-laws do not contain any provision requiring a shareholder to disclose his ownership above a particular
threshold.
9.
Significant Differences with Applicable U.S. Law
Canadian securities regulations, it is necessary for a shareholder to disclose his ownership above the threshold of 10%. This
requirement is less stringent than in the United States where ownership must be reported when a shareholder owns at least 5% of the
outstanding voting securities of an issuer. Accordingly, in Canada, it is easier for a shareholder to accumulate a substantial portion of the
voting securities of an issuer without reporting it. In widely-held corporations such as ours, we believe that we are at a disadvantage
compared to similar US issuers.
10.
Special Conditions for Changes in Capital
The conditions imposed by the Corporation's Articles of Incorporation are not more stringent than required under the
Business Corporations Act (Québec).
A copy of the Corporation's Articles of Incorporation and By-Laws have been incorporated by reference as exhibits to this
Registration Statement.
C. Material Contracts
For the two years preceding the publication of this annual report, we have not entered into any material contracts, other than
contracts entered into in the ordinary course of our business.
D. Exchange Controls
Subject to the following paragraph, there is no law or governmental decree or regulation in Canada that restricts the export or
import of capital, or affects the remittance of dividends, interest or other payments to non-resident holders of our subordinate voting
shares, other than withholding tax requirements.
There is no limitation imposed by Canadian law or by our Articles or our other charter documents on the right of a non-
resident to hold or vote voting shares, other than as provided by the Investment Canada Act (Canada), or Investment Canada Act, the
North American Free trade Agreement Implementation Act (Canada), or North American Free Trade Agreement, and the World Trade
Organization Agreement Implementation Act. The Investment Canada Act requires notification and, in certain cases, advance review and
approval by the Government of Canada of an investment to establish a new Canadian business by a non-Canadian or of the acquisition by
a "non-Canadian" of "control" of a "Canadian business", all as defined in the Investment Canada Act. Generally, the threshold for review
will be higher in monetary terms for a member of the World Trade Organization or North American Free Trade Agreement.
E. Taxation
The following is a summary of certain U.S. federal income tax considerations to a U.S. Holder (as defined below) arising
from and relating to the acquisition, ownership, and disposition of our Common Shares as capital assets.
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This summary provides only general information and does not purport to be a complete analysis or listing of all potential U.S.
federal income tax consequences that may apply to a U.S. Holder as a result of the acquisition, ownership, and disposition of our
Common Shares. In addition, this summary does not take into account the individual facts and circumstances of any particular U.S.
Holder that may affect the U.S. federal income tax consequences applicable to such U.S. Holder. Accordingly, this summary is not
intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any U.S. Holder. Each U.S. Holder
should consult its own tax advisor regarding the U.S. federal, U.S. state and local, and non-U.S. tax consequences arising from or relating
to the acquisition, ownership, and disposition of our Common Shares.
No legal opinion from U.S. legal counsel or ruling from the Internal Revenue Service ("IRS") has been requested, or will be
obtained, regarding the U.S. federal income tax consequences to U.S. Holders of the acquisition, ownership, and disposition of our
Common Shares. This summary is not binding on the IRS, and the IRS is not precluded from taking a position that is different from, and
contrary to, the positions taken in this summary. In addition, because the authorities on which this summary is based are subject to various
interpretations, the IRS and the U.S. courts could disagree with one or more of the positions taken in this summary.
Scope of this Disclosure
Authorities
This summary is based on the Code, U.S. Treasury Regulations promulgated thereunder (whether final, temporary or
proposed), published IRS rulings, judicial decisions, published administrative positions of the IRS, and the Convention between Canada
and the United States of America with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended (the
"Canada-U.S. Tax Treaty"). Any of the authorities on which this summary is based could be changed in a material and adverse manner
at any time, and any such change could be applied on a retroactive basis. Unless otherwise discussed herein, this summary does not
discuss the potential effects, whether adverse or beneficial, of any proposed legislation.
U.S. Holders
For purposes of this summary, a "U.S. Holder" is a beneficial owner of Common Shares that, for U.S. federal income tax
purposes, is (a) an individual who is a citizen or resident of the U.S., (b) a corporation, or other entity classified as a corporation for U.S.
federal income tax purposes, that is created or organized in or under the laws of the U.S., any state in the U.S. or the District of Columbia,
(c) an estate if the income of such estate is subject to U.S. federal income tax regardless of the source of such income, or (d) a trust if
(i) such trust has validly elected to be treated as a U.S. person for U.S. federal income tax purposes or (ii) a U.S. court is able to exercise
primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial
decisions of such trust.
U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed
This summary does not address the U.S. federal income tax consequences applicable to U.S. Holders that are subject to
special provisions under the Code, including, but not limited to, the following U.S. Holders: (a) U.S. Holders that are tax-exempt
organizations, qualified retirement plans, individual retirement accounts, or other tax deferred accounts; (b) U.S. Holders that are financial
institutions, insurance companies, real estate investment trusts, or regulated investment companies; (c) U.S. Holders that are dealers in
securities or currencies or U.S. Holders that are traders in securities that elect to apply a mark-to-market accounting method; (d) U.S.
Holders that have a "functional currency" other than the U.S. dollar; (e) U.S. Holders subject to the alternative minimum tax provisions of
the Code; (f) U.S. Holders that own the Common Shares as part of a straddle, hedging transaction, conversion transaction, integrated
transaction, constructive sale, or other arrangement involving more than one position; (g) U.S. Holders that acquired the Common Shares
through the exercise of employee stock options or otherwise as compensation for services; (h) U.S. Holders that hold the Common Shares
other than as a capital asset within the meaning of Section 1221 of the Code; (i) U.S. Holders that beneficially own (directly, indirectly or
by attribution) 10% or more of our voting securities or otherwise held 10% or more of the total combined voting power of the
Corporation; and (j) U.S. expatriates. U.S. Holders that are subject to special provisions under the Code, including U.S. Holders described
above, should consult their own tax advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S.
state and local, and non-U.S. tax consequences arising from and relating to the acquisition, ownership, and disposition of the Common
Shares.
If an entity or arrangement that is classified as a partnership for U.S. federal income tax purposes holds Common Shares, the
U.S. federal income tax consequences to such partnership and the partners of such partnership generally will depend on the activities of
the partnership and the status of such partners. Partners of entities that are classified as partnerships for U.S. federal income tax purposes
should consult their own tax advisors regarding the U.S. federal income tax consequences arising from and relating to the acquisition,
ownership and disposition of the Common Shares.
Tax Consequences Other than U.S. Federal Income Tax Consequences Not Addressed
70
This summary does not address the U.S. estate and gift, alternative minimum, state, local or non-U.S. tax consequences to
U.S. Holders of the acquisition, ownership, and disposition of the Common Shares. Each U.S. Holder should consult its own tax advisor
regarding the U.S. estate and gift, alternative minimum, state, local and foreign tax consequences arising from and relating to the
acquisition, ownership, and disposition of the Common Shares.
U.S. Federal Income Tax Considerations of the Acquisition, Ownership, and Disposition of Common Shares
Distributions on Common Shares
Subject to the possible application of the passive foreign investment company ("PFIC") rules described below (see more
detailed discussion below at "Passive Foreign Investment Company Rules"), a U.S. Holder that receives a distribution, including a
constructive distribution or a taxable stock distribution, with respect to the Common Shares generally will be required to include the
amount of such distribution in gross income as a dividend (without reduction for any Canadian income tax withheld from such
distribution) to the extent of the current or accumulated "earnings and profits" of the Corporation (as computed for U.S. federal income tax
purposes). To the extent that a distribution exceeds the current and accumulated "earnings and profits" of the Corporation, such excess
amount will be treated (a) first, as a tax-free return of capital to the extent of a U.S. Holder's adjusted tax basis in the Common Shares
with respect to which the distribution is made (resulting in a corresponding reduction in the tax basis of such Common Shares) and,
(b) thereafter, as gain from the sale or exchange of such Common Shares (see more detailed discussion at "Disposition of Common
Shares" below). The Corporation does not intend to calculate its current or accumulated earnings and profits for U.S. federal income tax
purposes and, therefore, will not be able to provide U.S. Holders with such information. U.S. Holders should therefore assume that any
distribution by the Corporation with respect to the Common Shares will constitute a dividend. However, U.S. Holders should consult their
own tax advisors regarding whether distributions from the Corporation should be treated as dividends for U.S. federal income tax
purposes. Dividends paid on the Common Shares generally will not be eligible for the "dividends received deduction" allowed to
corporations under the Code with respect to dividends received from U.S. corporations.
A dividend paid by the Corporation generally will be taxed at the preferential tax rates applicable to long-term capital gains
if, among other requirements, (a) the Corporation is a "qualified foreign corporation" (as defined below), (b) the U.S. Holder receiving
such dividend is an individual, estate, or trust, and (c) such dividend is paid on Common Shares that have been held by such U.S. Holder
for at least 61 days during the 121-day period beginning 60 days before the "ex-dividend date" (i.e., the first date that a purchaser of such
Common Shares will not be entitled to receive such dividend).
For purposes of the rules described in the preceding paragraph, the Corporation generally will be a "qualified foreign
corporation" (a "QFC") if (a) the Corporation is eligible for the benefits of the Canada-U.S. Tax Treaty, or (b) the Common Shares are
readily tradable on an established securities market in the U.S., within the meaning provided in the Code. However, even if the
Corporation satisfies one or more of such requirements, it will not be treated as a QFC if it is classified as a PFIC (as discussed below) for
the taxable year during which the Corporation pays the applicable dividend or for the preceding taxable year. The dividend rules are
complex, and each U.S. Holder should consult its own tax advisor regarding the application of such rules to them in their particular
circumstances. Even if the Corporation satisfies one or more of such requirements, as noted below, there can be no assurance that the
Corporation will not become a PFIC in the future. Thus, there can be no assurance that the Corporation will qualify as a QFC.
Disposition of Common Shares
Subject to the possible application of the PFIC rules described below (see more detailed discussion below at "Passive Foreign
Investment Company Rules"), a U.S. Holder will recognize gain or loss on the sale or other taxable disposition of Common Shares (that
is treated as a sale or exchange for U.S. federal income tax purposes) equal to the difference, if any, between (a) the U.S. dollar value of
the amount realized on the date of such sale or disposition and (b) such U.S. Holder's adjusted tax basis (determined in U.S. dollars) in the
Common Shares sold or otherwise disposed of. Any such gain or loss generally will be capital gain or loss, which will be long-term
capital gain or loss if such Common Shares are held for more than one year. Each U.S. Holder should consult its own tax advisor as to the
tax treatment of dispositions of Common Shares in exchange for Canadian dollars.
Preferential tax rates apply to long-term capital gains of a U.S. Holder that is an individual, estate, or trust. There are currently
no preferential tax rates for long-term capital gains of a U.S. Holder that is a corporation. Deductions for capital losses are subject to
complex limitations.
Passive Foreign Investment Company Rules
Special, generally unfavorable, rules apply to the ownership and disposition of the stock of a PFIC. For U.S. federal income
tax purposes, a non-U.S. corporation is classified as a PFIC for each taxable year in which either:
·
·
at least 75% of its gross income is "passive" income (referred to as the "income test"); or
at least 50% of the average value of its assets is attributable to assets that produce passive income or are held for the
production of passive income (referred to as the "asset test").
71
Passive income includes the following types of income:
·
·
dividends, royalties, rents, annuities, interest, and income equivalent to interest; and
net gains from the sale or exchange of property that gives rise to dividends, interest, royalties, rents, or annuities and certain
gains from the commodities transactions.
In determining whether it is a PFIC, the Corporation will be required to take into account a pro rata portion of the income and
assets of each corporation in which it owns, directly or indirectly, at least 25% by value.
The Corporation has not made a determination as to whether it was a PFIC for the taxable year ended February 28, 2015 or
whether it will be a PFIC for the current taxable year ending February 28, 2016. Accordingly, there can be no assurance that the
Corporation was not a PFIC for the taxable year ended February 28, 2015. Whether the Corporation is a PFIC depends on complex U.S.
federal income tax rules that are subject to differing interpretations and whose application to the Corporation is uncertain. Further, since
the PFIC status of the Corporation will depend upon the composition of its income and assets and the fair market value of its assets from
time to time (including whether the Corporation owns, directly or indirectly, at least 25% by value, of the stock of any subsidiary) and
generally cannot be determined until the end of a taxable year, there can be no assurance that the Corporation will not be a PFIC for the
current taxable year. In addition, the Corporation cannot predict whether the composition of its income and assets (including income and
assets held indirectly) or the fair market value of its assets from time to time may result in it being treated as a PFIC in any future taxable
year. Accordingly, no assurance can be given that the Corporation is not a PFIC or will not become a PFIC in subsequent taxable years.
Generally, if the Corporation is or has been treated as a PFIC for any taxable year during a U.S. Holder's holding period of
Common Shares, any "excess distribution" with respect to the Common Shares would be allocated rateably over the U.S. Holder's holding
period. The amounts allocated to the taxable year of the excess distribution and to any year before the Corporation became a PFIC would
be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for
individuals or corporations in such taxable year, as appropriate, and an interest charge would be imposed on the amount allocated to that
taxable year. Distributions made in respect of Common Shares during a taxable year will be excess distributions to the extent they exceed
125% of the average of the annual distributions on Common Shares received by the U.S. Holder during the preceding three taxable years
or the U.S. Holder's holding period, whichever is shorter.
Generally, if the Corporation is treated as a PFIC for any taxable year during which a U.S. Holder owns Common Shares, any
gain on the disposition of the Common Shares would be treated as an excess distribution and would be allocated rateably over the U.S.
Holder's holding period and subject to taxation in the same manner as described in the preceding paragraph.
Certain elections may be available (including a "mark-to-market" or "qualified electing fund" election) to U.S. Holders in
limited circumstances that may mitigate the adverse consequences resulting from PFIC status, particularly if they are made in the first
taxable year during such holder's holding period in which the Corporation is treated as a PFIC. U.S. Holders should be aware that, for
each tax year, if any, that the Corporation is a PFIC, the Corporation can provide no assurances that it will make available to U.S. Holders
the information such U.S. Holders require to make a "qualified electing fund" election with respect to the Corporation.
If the Corporation were to be treated as a PFIC in any taxable year, a U.S. Holder may be required to file an annual report
with the IRS containing such information as the U.S. Treasury Department may require.
Each current or prospective U.S. Holder should consult its own tax advisor regarding the status of the Corporation as
a PFIC, the possible effect of the PFIC rules to such holder and information reporting required if the Corporation were a PFIC,
as well as the availability of any election that may be available to such holder to mitigate adverse U.S. federal income tax
consequences of holding shares in a PFIC.
Receipt of Foreign Currency
The amount of a distribution paid in Canadian dollars or Canadian dollar proceeds received on the sale or other taxable
disposition of Common Shares will generally be equal to the U.S. dollar value of such currency on the date of receipt. If any Canadian
dollars received with respect to the Common Shares are later converted into U.S. dollars, U.S. Holders may realize gain or loss on the
conversion. Any gain or loss generally will be treated as ordinary income or loss and generally will be from sources within the U.S. for
U.S. foreign tax credit purposes. Each U.S. Holder should consult its own tax advisor concerning the possibility of foreign currency gain
or loss if any such currency is not converted into U.S. dollars on the date of receipt.
Foreign Tax Credit
Subject to certain limitations, a U.S. Holder who pays (whether directly or through withholding) Canadian or other foreign
income tax with respect to the Common Shares may be entitled, at the election of such U.S. Holder, to receive either a deduction or a
credit for such Canadian or other foreign income tax paid. Dividends paid on Common Shares generally will constitute income from
sources outside the United States. The foreign tax credit rules (including the limitations with respect thereto) are complex, and each U.S.
Holder should consult its own tax advisor regarding the foreign tax credit rules, having regard to such holder's particular circumstances.
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Information Reporting; Backup Withholding
Generally, information reporting and backup withholding will apply to distributions on, and the payment of proceeds from
the sale or other taxable disposition of, the Common Shares unless (i) the U.S. Holder is a corporation or other exempt entity, or (ii) in the
case of backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that such U.S. Holder is not
subject to backup withholding.
Backup withholding is not an additional tax. Any amount withheld generally will be creditable against a U.S. Holder's U.S.
federal income tax liability or refundable to the extent that it exceeds such liability provided the required information is provided to the
IRS in a timely manner.
In addition, certain categories of U.S. Holders must file information returns with respect to their investment in a non-U.S.
corporation. For example, certain U.S. Holders must file IRS Form 8938 with respect to certain "specified foreign financial assets" (such
as the Common Shares) with an aggregate value in excess of US$50,000 (and, in some circumstances, a higher threshold). Failure to do so
could result in substantial penalties and in the extension of the statute of limitations with respect to such holder's U.S. federal income tax
returns. Each U.S. Holder should consult its own tax advisor regarding application of the information reporting and backup withholding
rules to it in connection with an investment in the Common Shares.
Medicare Contribution Tax
U.S. Holders that are individuals, estates or certain trusts generally will be subject to a 3.8% Medicare contribution tax on,
among other things, dividends on, and capital gains from the sale or other taxable disposition of, the Common Shares, subject to certain
limitations and exceptions. Each U.S. Holder should consult its own tax advisor regarding possible application of this additional tax to
income earned in connection with an investment in the Common Shares.
F. Dividends and Paying Agents
Not applicable.
G.
Statement by Experts
Not applicable.
H. Documents on Display
Any statement in this Annual Report about any of our contracts or other documents is not necessarily complete. If the
contract or document is filed as an exhibit to this Annual Report, the contract or document is deemed to modify the description contained
in this Annual Report. You must review the exhibits themselves for a complete description of the contract or document.
Our SEC filings are available at the SEC's website at www.sec.gov. You may also read and copy any document we file with
the SEC at the public reference facilities maintained by the SEC at SEC Headquarters, Public Reference Section, 100 F Street, N.E.,
Washington D.C. 20549. You may obtain information on the operation of the SEC's public reference facilities by calling the SEC at 1-
800-SEC-0330.
In addition, we are required by Canadian securities laws to file documents electronically with Canadian securities regulatory
authorities and these filings are available on our SEDAR profile at www.sedar.com. Requests for such documents should be directed to
our Corporate Secretary.
I.
Subsidiary Information
Not applicable.
Item 11. Quantitative and Qualitative Disclosure about Market Risk
Information relating to quantitative and qualitative disclosures about market risks is detailed in our MD&A in "Item 5 -
Operating and Financial Review and Prospects" above, as well as in Note 17 to our audited consolidated financial statements contained in
"Item 17 – Financial Statements" below.
73
Item 12. Description of Securities other than Equity Securities
A. Debt Securities
Not applicable.
B. Warrants and Rights
Not applicable.
C. Other Securities
Not applicable.
D. American Depositary Shares
Not applicable.
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
Item 14. Material Modification to the Rights of Security Holdings and Use of Proceeds
None.
Item 15. Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this annual report, our management, with the participation of the persons acting in the
capacity of principal executive officer (CEO) and principal financial officer (CFO), has performed an evaluation of the effectiveness of
our disclosure controls and procedures within the meaning of Rules 13a-15 (e) and 15d-15(e) of the Exchange Act. Based upon this
evaluation, our management has concluded that, as of February 29, 2016, our existing disclosure controls and procedures were effective. It
should be noted that while the CEO and CFO believe that our 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.
Management's Report on Internal Controls over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our
internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation
and fair presentation of its published consolidated financial statements. All internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect misstatements and can provide
only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate. Our management conducted an assessment of the design and
operation effectiveness of our internal control over financial reporting as of February 29, 2016. In making this assessment, we used the
criteria established within the Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). Based on this assessment, our management has concluded that, as of February 29, 2016, our internal
control over financial reporting was effective.
Changes in internal control over financial reporting
No changes were made to our internal controls over financial reporting that occurred during the three month period and fiscal
year ended February 29, 2016 that have materially affected, or are reasonably likely to materially affect, our internal controls over
financial reporting.
We qualify 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, or 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. We qualify as an emerging growth
company and therefore have 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.
74
Item 16. Reserved
Item 16A.
Audit Committee Financial Expert
Our board of directors has determined that Mr. Pierre Fitzgibbon is the "audit committee financial expert" within the meaning of
"Item 16A – Audit Committee Financial Expert" of this Annual Report.
The Commission has indicated that the designation of Mr. Pierre Fitzgibbon as an audit committee financial expert does not
make Mr. Pierre Fitzgibbon an "expert" for any purpose, impose any duties, obligations or liability on Mr. Pierre Fitzgibbon 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.
Item 16B.
Code of Ethics
The Board of Directors adopted a Code of Business Conduct and Ethics for its directors, officers and employees on May 31,
2007 which can be found on SEDAR at www.sedar.com and on the Corporation's web site on www.neptunebiotech.com. A copy of the
Code of Ethics and Conduct can also be obtained by contacting the Secretary of the Corporation. Since its adoption by the Board of
Directors, any breach of the Code of Ethics must be brought to the attention of the Board of Directors by the Chief Executive Officer or
other senior executive of the Corporation. No material change report has ever been filed which pertains to any conduct of a director or
executive officer that constitutes a departure from the Code.
The Board of Directors also adopted an Insider Trading Program for its directors, officers and employees and adopted recently a
majority voting policy for the election of its proposed director candidates at the Corporation's annual Shareholder meeting.
Item 16C.
Principal Accountant Fees and Services
Audit Fees
"Audit fees" consist of fees for professional services for the audit of our annual financial statements, interim reviews and
limited procedures on interim financial statements, securities filings and consultations on accounting or disclosure issues. For the fiscal
year ended February 29, 2016, KPMG LLP, our external auditors, billed $77,250 to the Corporation for audit fees. For the fiscal year
ended February 28, 2015, KPMG LLP billed $99,500 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 our financial statements and which are not reported under "Audit Fees" above. For the fiscal year ended February 29, 2016,
KPMG LLP, our external auditors, billed $14,675 to the Corporation. For the fiscal year ended February 28, 2015, KPMG LLP billed
$10,475 to the Corporation.
Tax Fees
"Tax fees" consist of fees for professional services for tax compliance, tax advice and tax planning. KPMG LLP, our external
auditors, billed a total of $26,600 to the Corporation for tax fees for the fiscal year ended February 29, 2016 and a total of $27,400 to the
Corporation for tax fees for fiscal year ended February 28, 2015. 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,
our external auditors, billed no fees as to this matter the fiscal years ended February 29, 2016 and February 28, 2015.
Pre-Approval Policies and Procedures
The Audit Committee approves all audit, audit-related services, tax services and other non-audit related services provided by
the external auditors in advance of any engagement. Under the Sarbanes-Oxley Act of 2002, audit committees are permitted to approve
certain fees for non-audit related services pursuant to a de minimus exception prior to the completion of an audit engagement. Non-audit
related services satisfy the de minimus exception if the following conditions are met:
75
(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.
None of the services described above under "Principal Accountant Fees and Services" were approved by the Audit Committee
pursuant to the de minimus exception.
Item 16D.
Exemptions from the Listing Standards for Audit Committees
Not applicable.
Item 16E.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Not applicable.
Item 16F.
Change in Registrant's Certifying Accountant
None.
Item 16G.
Corporation Governance
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 SEC, 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.
We do not follow NASDAQ Marketplace Rule 5620(c), but instead follow our 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. Our quorum requirement, as set forth in our by-laws, is that a quorum for a meeting of our holders of Common Shares is the
attendance, in person or by proxy, of the shareholders representing 10% of our Common shares. The foregoing is consistent with the laws,
customs and practices in Québec, Canada, and the rules and policies of the TSX-V.
Item 16H.
Mining Safety Disclosure
Not applicable.
PART III
Item 17.
Financial Statements
Financial Statements of Acasti Pharma Inc. for the years ended February 29, 2016, 2015 and 2014
76
Financial Statements of
ACASTI PHARMA INC.
For the years ended February 29, 2016 and February 28, 2015 and 2014
77
INDEPENDENT AUDITORS’ REPORT OF REGISTERED PUBLIC ACCOUNTING
FIRM
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 29, 2016 and February 28, 2015, the statements of earnings and comprehensive loss, changes in equity and cash flows
for each of the years in the three-year period ended February 29, 2016, 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 as issued by the International Accounting Standards Board, 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 and the standards of the Public Company Accounting Oversight Board (United
States). 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.
78
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of Acasti Pharma Inc. as at
February 29, 2016 and February 28, 2015, and its financial performance and its cash flows for each of the years in the three-year
period ended February 29, 2016 in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board.
May 25, 2016
Montréal, Canada
*CPA auditor, CA, public accountancy permit No. A119178
79
ACASTI PHARMA INC.
Financial Statements
Years ended February 29, 2016 and February 28, 2015 and 2014
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
80
1
2
3
5
6
ACASTI PHARMA INC.
Statements of Financial Position
February 29, 2016 and February 28, 2015
Assets
Current assets:
Cash
Short-term investments (note 19 (e))
Trade and other receivables (note 4)
Receivable from corporation under common control
Tax credits receivable (note 6)
Inventories (note 7)
Prepaid expenses
Restricted short-term investment (note 5(b) and 19(e))
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 (e))
Derivative warrant liabilities (notes 11 (e) and 21)
Total liabilities
Equity:
Share capital (note 11 (a))
Contributed surplus
Deficit
Total equity
Commitments and contingency (note 20)
Total liabilities and equity
See accompanying notes to financial statements.
On behalf of the Board:
/s/ Dr. Roderick Carter
Roderick Carter
Executive Chairman of the Board
February 29, February 28,
2015
2016
$ 3,026,943
7,443,115
337,603
-
61,210
-
456,539
11,325,410
$ 1,310,556
17,071,344
384,886
49,658
419,992
87,370
318,457
19,642,263
2,000,000
287,136
14,904,776
-
69,937
17,495,905
$ 28,517,322
$ 37,208,105
$ 1,125,977
14,936
1,140,913
$ 1,083,847
538,531
1,622,378
156,377
1,297,290
2,357,408
3,979,786
61,972,841
4,874,727
61,627,743
4,911,381
(39,627,536) (33,310,805)
33,228,319
27,220,032
$ 28,517,322
$ 37,208,105
/s/Pierre Fitzgibbon
Pierre Fitzgibbon
Director
81
ACASTI PHARMA INC.
Statements of Earnings and Comprehensive Loss
Years ended February 29, 2016 and February 28, 2015 and 2014
Revenue from sales
Cost of sales (note 7)
Gross (loss) profit
February 29, February 28,
2015
2016
February 28,
2014
$
37,656 $
(81,418)
(43,762)
270,615
$
(235,091)
35,524
500,875
(291,853)
209,022
Research and development expenses,
net of tax credits of $168,795 (2015 - $264,270; 2014 - $269,591)
General and administrative expenses
Loss from operating activities
(6,059,311)
(7,389,415)
(2,178,241)
(4,949,417)
(9,611,418) (12,394,461) (10,799,706)
(8,856,941)
(3,573,044)
Finance income (note 14)
Finance costs (note 14)
Change in fair value of warrant liabilities (note 21)
Net finance income (cost)
1,919,730
1,095,917
(2,261)
2,201,031
8,824,067
3,294,687 10,739,737
(4,060)
813,842
(1,118,355)
(507,430)
(811,943)
Net loss and total comprehensive loss for the year
$ (6,316,731) $ (1,654,724) $ (11,611,649)
Basic and diluted loss per share (note 16)
$
(0.59) $
(0.16) $
(1.38)
Weighted average number of shares outstanding
10,659,936 10,617,704
8,436,893
See accompanying notes to financial statements
82
ACASTI PHARMA INC.
Statements of Changes in Equity
Years ended February 29, 2016 and February 28, 2015 and 2014
Balance, February 28,
2015
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 (note 15)
Issuance of shares (note 11
(b))
Share options exercised
(note 15)
RSUs released (note 15)
Total contributions by and
distributions to owners
Balance at February 29,
2016
Balance, February 28,
2014
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 (note 15)
Share options exercised
(note 15)
RSUs released (note 15)
Expiration of warrants
(note 11 (e))
Total contributions by and
distributions to owners
Balance at February 28,
2015
Share capital
Number
Dollar
Warrants
Contributed
surplus
Deficit
Total
10,644,440 (1) $ 61,627,743
$
-
$
4,911,381
$ (33,310,805)
$
33,228,319
-
10,644,440
-
61,627,743
-
-
-
4,911,381
(6,316,731)
(39,627,536)
(6,316,731)
26,911,588
-
50,000
250
17,348
-
101,712
625
242,761
67,598
345,098
-
-
-
-
-
308,607
(102,500)
-
(242,761)
(36,654)
-
-
-
-
-
308,607
(788)
625
-
308,444
10,712,038
$ 61,972,841
$
-
$
4,874,727
$ (39,627,536)
$
27,220,032
10,586,258 (1) $ 61,027,307
$
406,687
$
3,501,587
$ (31,656,081)
$
33,279,500
-
10,586,258
-
61,027,307
-
406,687
-
3,501,587
(1,654,724)
(33,310,805)
(1,654,724)
31,624,776
-
20,000
38,182
-
-
50,000
550,436
-
-
-
1,553,543
-
(550,436)
-
(406,687)
406,687
58,182
600,436
(406,687)
1,409,794
-
-
-
-
-
1,553,543
50,000
-
-
1,603,543
10,644,440
$ 61,627,743
$
-
$
4,911,381
$ (33,310,805)
$
33,228,319
(1) Adjusted to give effect to the reverse stock split that occurred on October 15, 2015, as detailed in note 11.
See accompanying notes to financial statements.
83
Net loss and total comprehensive
loss for the year
Transactions with owners,
recorded directly in equity
Contributions by and distributions
to owners
Public offering (note 11(b))
Private placement (note 11 (c))
Issuance of shares on
ACASTI PHARMA INC.
Statements of Changes in Equity, continued
Years ended February 29, 2016 and February 28, 2015 and 2014
Share capital
Contributed
Number
Dollar Warrants
surplus
Deficit
Total
Balance, February 28, 2013
7,314,538 (1) $ 28,922,710 $
406,687 $
438,711 $(20,044,432) $ 9,723,676
-
7,314,538
-
28,922,710
-
406,687
- (11,611,649) (11,611,649)
(1,887,973)
438,711 (31,656,081)
1,840,000
161,654
12,396,535
2,067,605
-
-
-
-
-
-
royalty prepayment(note 20)
675,000
15,496,000
Share-based payment
transactions (note 15)
Warrants exercised
Share options exercised (note 15)
RSUs released (note 15)
Total contributions by and
-
539,485
29,650
25,931
-
1,358,088
492,289
294,080
- 3,441,719
-
-
(84,763)
-
(294,080)
-
- 12,396,535
2,067,605
-
- 15,496,000
-
-
-
-
3,441,719
1,358,088
407,526
-
distributions to owners
3,271,720
32,104,597
- 3,062,876
- 35,167,473
Balance at February 28, 2014
10,586,258
$ 61,027,307 $
406,687 $ 3,501,587 $(31,656,081) 33,279,500
(1) Adjusted to give effect to the reverse stock split that occurred on October 15, 2015, as detailed in note 11.
See accompanying notes to financial statements.
84
ACASTI PHARMA INC.
Statements of Cash Flows
Years ended February 29, 2016 and February 28, 2015 and 2014
Cash flows used in operating activities:
Net loss for the year
Adjustments:
Depreciation of equipment
Amortization of intangible asset
Impairment loss related to intangible assets
Stock-based compensation
Net finance (income) cost
Realized foreign exchange gain (loss)
Changes in non-cash operating working capital items:
Changes in non-cash operating items (note 17)
Net cash used in operating activities
Cash flows from (used in) investing activities:
Interest received
Acquisition of equipment
Acquisition of intangible assets
Acquisition of short-term investments
Maturity of short-term investments
February 29, February 28, February 28,
2014
2015
2016
(6,316,731)
(1,654,724) (11,611,649)
58,809
2,335,668
339,106
308,607
3,654
2,331,569
-
1,553,543
(3,294,687) (10,739,737)
1,606
(8,504,089)
36,656
(6,532,572)
5,337
1,768,500
-
3,441,719
811,943
(92,944)
(5,677,094)
(41,969)
(6,574,541)
1,306,404
(7,197,685)
(1,127,443)
(6,804,537)
113,727
(276,008)
(91,572)
98,132
(25,000)
(123,610)
(11,954,050) (14,478,186) (25,395,800)
6,000,000
20,436,500 22,149,888
40,995
(34,650)
(51,270)
Net cash from (used in) investing activities
8,228,597
7,626,777 (19,446,278)
Cash flows from (used in) financing activities:
Net proceeds from public offering (note 11 (b))
Net proceeds from private placement (note 11 (c))
Proceeds from exercise of warrants and options
Share issue costs (note 11(b))
Interest paid
Net cash from (used in) financing activities
Foreign exchange gain on cash held in foreign currencies
Net increase (decrease) in cash
Cash, beginning of year
Cash, end of year
See accompanying notes to financial statements.
85
-
-
625
(788)
(2,261)
(2,424)
- 21,953,200
2,067,605
-
972,177
50,000
(29,000)
-
(4,060)
(975)
45,940 24,963,007
64,755
1,716,387
160,034
635,066
766,730
(521,078)
1,310,556
675,490
1,196,568
3,026,943
1,310,556
675,490
ACASTI PHARMA INC.
Notes to Financial Statements
Years ended February 29, 2016 and February 28, 2015 and 2014
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 subsidiary of Neptune Technologies and Bioressources Inc.
(“Neptune”). The Corporation, the parent and Biodroga Inc., a sister corporation, are collectively referred to as the “group”.
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 has incurred significant operating losses and negative cash flows
from operations since inception. To date, the Corporation has financed its operations through public offering and private placement
of common shares, proceeds from exercises of warrants, rights and options and research tax credits. To achieve the objectives of its
business plan, the Corporation plans to establish strategic alliances and raise the necessary capital. 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. The ability of the Corporation to ultimately achieve profitable
operations is dependent on a number of factors outside of the Corporation’s control.
Refer to note 2(d) for the basis of preparation of the financial statements.
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 approved by the Board of Directors on May 25, 2016.
(b) Basis of measurement:
The financial statements have been prepared on the historical cost basis, except for:
·
Stock-based compensation which is measured pursuant to IFRS 2, Share-based payments (Note 3(f) (ii)); and,
· Derivative warrant liabilities measured at fair value on a recurring basis (Note 21).
(c) Functional and presentation currency:
These financial statements are presented in Canadian dollars, which is the Corporation’s functional currency.
(d) Use of estimates and judgments:
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.
86
ACASTI PHARMA INC.
Notes to Financial Statements, continued
Years ended February 29, 2016 and February 28, 2015 and 2014
2.
Basis of preparation (continued):
(d) Use of estimates and judgments (continued):
Critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the
financial statements include the following:
·
·
Identification of triggering events indicating that the intangible assets might be impaired (Note 3 (e) (ii)).
The use of the going concern basis of preparation of the financial statements. At each reporting period, management
assesses the basis of preparation of the financial statements. These financial statements have been prepared on a going
concern basis in accordance with IFRS. The going concern basis of presentation assumes that the Corporation will
continue its operations for the foreseeable future and be able to realize its assets and discharge its liabilities and
commitments in the normal course of business.
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 derivative warrant liabilities (Note 21) and stock-based compensation (Note 15).
· Determination of the recoverable amount of the Corporation’s cash generating unit (“CGU”) (Note 3 (e) (ii)).
Also, management uses judgment 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 has the following non-derivative financial assets: cash, short-term investments including a restricted
short-term investment and receivables.
The Corporation initially recognizes loans and receivables on the date that they are originated.
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 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.
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, short-term investments including a restricted short-term investment, and receivables
with maturities of less than one year.
Cash and cash equivalents comprise cash balances and highly liquid investments purchased three months or less from
maturity, unless the investment is held for investment purposes rather than meeting short-term cash commitments. Bank
overdrafts that are repayable on demand form an integral part of the Corporation’s cash management and are included as
a component of cash and cash equivalents for the purpose of the statements of cash flows.
87
ACASTI PHARMA INC.
Notes to Financial Statements, continued
Years ended February 29, 2016 and February 28, 2015 and 2014
3.
Significant accounting policies (continued):
(a) Financial instruments (continued):
(ii) Non-derivative financial liabilities:
The Corporation initially recognizes debt securities issued and subordinated liabilities on the date that they are originated.
The Corporation derecognizes a financial liability when its contractual obligations are discharged, cancelled or expire.
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.
(iv) Derivative financial instruments:
The Corporation has issued liability-classified derivatives over its own equity. Derivatives are recognized initially at fair
value; attributable transaction costs are recognized in profit and loss as incurred. Subsequent to initial recognition,
derivatives are measured at fair value, and all changes in their fair value are recognized immediately in profit or loss.
(v) Other equity instruments:
Warrants, options and rights over the Corporation’s equity issued outside of share-based payment transactions that do not
meet the definition of a liability instrument are recognized in equity.
(b)
Inventories:
Inventories are measured at the lower of cost and net realizable value. The cost of raw materials is based on the weighted-
average cost method. The cost of finished goods and work in progress 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 expenditures that are 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.
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.
88
ACASTI PHARMA INC.
Notes to Financial Statements, continued
Years ended February 29, 2016 and February 28, 2015 and 2014
3.
Significant accounting policies (continued):
(c) Equipment (continued):
(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.
(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
Laboratory equipment
Method
Declining balance
Straight-line
Declining balance
Period/Rate
20% to 30%
3 - 4 years
30%
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. 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:
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.
Licenses
Licenses that are acquired by the Corporation and have finite useful lives are measured at cost less accumulated
amortization and accumulated impairment losses.
89
ACASTI PHARMA INC.
Notes to Financial Statements, continued
Years ended February 29, 2016 and February 28, 2015 and 2014
3.
Significant accounting policies (continued):
(d) Intangible assets (continued):
(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.
(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
Patents
License
(e) Impairment:
(i) Financial assets (including receivables):
Period
20 years
8 to 14 years
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 judgment 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.
90
ACASTI PHARMA INC.
Notes to Financial Statements, continued
Years ended February 29, 2016 and February 28, 2015 and 2014
3.
Significant accounting policies (continued):
(e) Impairment (continued):
(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.
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.
(f) 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.
91
ACASTI PHARMA INC.
Notes to Financial Statements, continued
Years ended February 29, 2016 and February 28, 2015 and 2014
3.
Significant accounting policies (continued):
(f) 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.
(g) 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.
(h) Revenue:
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.
92
ACASTI PHARMA INC.
Notes to Financial Statements, continued
Years ended February 29, 2016 and February 28, 2015 and 2014
3.
Significant accounting policies (continued):
(i) Government grants:
Government grants 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.
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.
(j) 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.
(k) 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.
Foreign currency differences arising on retranslation are recognized in profit or loss.
(l) 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 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.
(m) 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 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.
93
ACASTI PHARMA INC.
Notes to Financial Statements, continued
Years ended February 29, 2016 and February 28, 2015 and 2014
3.
Significant accounting policies (continued):
(m) 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.
(n) 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 warrants, rights and share options
granted to employees.
(o) 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. The majority of the Corporation’s assets are
located in Canada and all the sales for the years ended February 29, 2016 and February 28, 2015 and 2014 were made to
customers in the United States.
(p) Change in accounting policy:
Future accounting change:
The following new standard, and amendment to standards and interpretations, is not yet effective for the year ended February
29, 2016, and has not been applied in preparing these financial statements.
Financial instruments:
On July 24, 2014, the International Accounting Standards Board (IASB) issued the final version of IFRS 9, Financial
Instruments, which addresses the classification and measurement of financial assets and liabilities, impairment and hedge
accounting, replacing IAS 39, Financial Instruments: Recognition and Measurement. IFRS 9 is effective for annual
periods beginning on or after January 1, 2018, with earlier adoption permitted. The Corporation has not yet assessed the
impact of adoption of IFRS 9, and does not intend to early adopt IFRS 9 in its financial statements.
94
ACASTI PHARMA INC.
Notes to Financial Statements, continued
Years ended February 29, 2016 and February 28, 2015 and 2014
4.
Trade and other receivables:
Trade receivables
Sales taxes receivable
Government assistance
February 29,
2016
February 28,
2015
$
$
-
181,742
155,861
337,603
$
$
250,313
134,573
-
384,886
The Corporation’s exposure to credit and currency risks related to trade and other receivables is presented in Note 19.
5.
Related parties:
(a) Administrative and research and development expenses:
The Corporation was charged by Neptune for the purchase of research supplies, certain costs incurred by Neptune for the
benefit of the Corporation and for royalties, as follows:
February 29, February 28, February 28,
2014
2016
2015
Research and development expenses
General and administrative expenses
Royalties (note 20)
$
$
368,991 $
485,486
-
854,470 $
188,281 $
225,980
-
414,261 $
23,866
127,504
228,219
379,589
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 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. 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.
(b) Interest revenue:
On January 7, 2016 Neptune announced the acquisition of Biodroga Inc. As part of this transaction, the Corporation has
pledged an amount of 2 million dollars to partly guarantee the financing for the said transaction. Consequently, the
corresponding amount shall be considered as a restricted short-term investment until released by the lender or reduced by
Neptune. Neptune has agreed to pay Acasti an annual fee on the Committed Funds outstanding at an annual rate of (i) 9%
during the first six months and (ii) 11% for the remaining term of the Pledge Agreement. The Corporation recognized interest
revenue in the amount of $26,558 during the year ended February 29, 2016.
95
ACASTI PHARMA INC.
Notes to Financial Statements, continued
Years ended February 29, 2016 and February 28, 2015 and 2014
5.
Related parties (continued):
(c) Revenue from royalties:
On January 7, 2016, the Company entered into an initial three year non-exclusive licencing agreement with the parent
company, Neptune, for the distribution of the product Onemia® in the field of over-the-counter medicine and medical foods.
As consideration, Neptune will pay a royalty rate of 17.5% on net sales. No revenue from royalties has been recognized
during the year ended February 29, 2016.
(d) Payable to parent corporation:
Payable to parent corporation has no specified maturity date for payment or reimbursement and does not bear interest.
(e) Key management personnel compensation:
The key management personnel of the Corporation are the members of the Board of Directors and certain officers. They
control 1% of the voting shares of the Corporation (2% in 2015 and 2014).
Key management personnel compensation includes the following for the years ended February 29, 2016 and February 28,
2015 and 2014:
February 29, February 28, February 28,
2014
2016
2015
Short-term benefits
Severance
Share-based compensation costs
6.
Tax credits receivable:
$
$
680,319
741,639 $
687,740 $
-
174,950
102,900
120,295
2,439,254
1,339,361
910,935 $ 2,255,950 $ 3,119,573
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
2034
2035
2036
7.
Inventories:
$
11,000
30,000
45,000
431,000
441,000
436,000
534,000
318,000
$ 2,246,000
For the year ended February 29, 2016, the cost of sales of $81,418 ($235,091 in 2015 and $291,853 in 2014) was comprised of
inventory costs of $21,433 ($233,821 in 2015 and $284,410 in 2014) which consisted of raw materials, changes in work in
progress and finished goods, an inventory write-down of $59,696 (nil in 2015 and 2014) and other costs of $289 ($1,270 in 2015
and $7,443 in 2014).
96
ACASTI PHARMA INC.
Notes to Financial Statements, continued
Years ended February 29, 2016 and February 28, 2015 and 2014
8.
Equipment:
Cost:
Balance at February 28, 2013
Additions
Balance at February 28, 2014
Additions
Balance at February 28, 2015
Additions
Balance at February 29, 2016
Accumulated depreciation:
Balance at February 29, 2013
Depreciation for the year
Balance at February 28, 2014
Depreciation for the year
Balance at February 28, 2015
Depreciation for the year
Balance at February 28, 2016
Net carrying amounts:
February 28, 2015
February 29, 2016
Furniture and
office
equipment
Computer Laboratory
equipment
equipment
Total
$
$
$
58,706 $
-
58,706
-
58,706
-
58,706
39,733
5,032
44,765
3,654
48,419
2,664
51,083 $
3,691 $
-
3,691
-
3,691
-
3,691
3,386
305
3,691
-
3,691
-
3,691 $
- $
25,000
25,000
34,650
59,650
276,008
335,658
-
-
-
-
-
56,145
56,145 $
62,397
25,000
87,397
34,650
122,047
276,008
398,055
43,119
5,337
48,456
3,654
52,110
58,809
110,919
10,287 $
7,623
- $
-
59,650 $
279,513
69,937
287,136
Depreciation expense for the years ended February 29, 2016, February 28, 2015 and 2014 has been recorded in “research and
development expenses” in the statements of earnings and comprehensive loss.
97
ACASTI PHARMA INC.
Notes to Financial Statements, continued
Years ended February 29, 2016 and February 28, 2015 and 2014
9.
Intangible assets:
Cost:
February 28, 2013
Additions (note 20)
Balance at February 28, 2014
Additions (note 20)
Balance at February 28, 2015
Additions
Balance at February 29, 2016
Accumulated amortization:
Balance at February 28, 2013
Amortization for the year
Balance at February 28, 2014
Amortization for the year
Balance at February 28, 2015
Amortization for the year
Impairment loss
Balance at February 29, 2016
Net carrying amounts:
February 28, 2015
February 29, 2016
Patents
License
Total
103,068
123,610
226,678
51,270
277,948
83,645
361,593
$ 9,200,000
15,129,932
24,329,932
-
24,329,932
-
24,329,932
$ 9,303,068
15,253,542
24,556,610
51,270
24,607,880
83,645
24,691,525
-
906
906
8,741
9,647
12,840
339,106
361,593
3,011,906
1,767,594
4,779,500
2,322,828
7,102,328
2,322,828
-
$ 9,425,156
3,011,906
1,768,500
4,780,406
2,331,569
7,111,975
2,335,668
339,106
$ 9,786,749
268,301
-
$ 17,227,604
14,904,776
$ 17,495,905
14,904,776
$
$
$
Amortization expense and impairment loss for the years ended February 29, 2016, February 28, 2015 and 2014 have been recorded
in “research and development expenses” in the statements of earnings and comprehensive loss. During the year, the Corporation
recorded an asset impairment loss of $339,106 relating to the patents. The Company determined that the recoverable amount of
these costs was nil as it is no longer probable that sufficient future economic benefits will accumulate to the Company due to
uncertainties related to project level revenues.
10.
Trade and other payables:
Trade payables
Accrued liabilities and other payables
Employee salaries and benefits payable
$
February 29, February 28,
2015
246,516
661,625
175,706
$ 1,125,977 $ 1,083,847
2016
375,203 $
543,253
207,521
The Corporation’s exposure to currency and liquidity risks related to trade and other payables is presented in Note 19.
98
ACASTI PHARMA INC.
Notes to Financial Statements, continued
Years ended February 29, 2016 and February 28, 2015 and 2014
11.
Capital and other components of equity
(a) Share capital:
All share information for current and comparative periods presented in these financial statements has been adjusted to give
effect to the reverse split that occurred on October 15, 2015, as described below:
On October 15, 2015, the Corporation proceeded with the following transactions affecting its capital structure:
● The Corporation consolidated all classes of its capital stock on a 10:1 basis.
● The exercise price in effect in the case of incentive stock options, warrants and other securities convertible into Common
Shares (the “Convertible Securities”) increased proportionally to reflect the Consolidation. The number of Common
Shares subject to a right of purchase under such Convertible Securities also decreased proportionally to reflect the
Consolidation, provided that no fractional Common Share shall be issued or otherwise provided theretofore upon the
exercise of any Convertible Securities.
Authorized capital stock:
Unlimited number of shares:
› Class A shares, voting (one vote per share), participating and without par value
› 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. (1)
› 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. (1)
› 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. (1)
(1) None issued and outstanding
(b) Issuance of shares:
On February 5, 2016, 50,000 shares were issued on the settlement of a liability. An amount of $101,712, net of share issuance
costs of $788, was recorded in share capital.
(c) Public offering:
On December 3, 2013, the Corporation closed a public offering issuing 1,840,000 units of Acasti (“Units”) at a price of
US$12.50 per Unit for gross proceeds of $24,492,700 (US$23,000,000). Each unit consists of one class A share and ten
common share purchase warrants (“Warrants”). In order to obtain one Common share, 10 warrants must be exercised. Each 10
Warrants entitles the holder to purchase one Class A share at an exercise price of US$15.00, subject to adjustment, at any time
until December 3, 2018.
The Warrants forming part of the Units are derivative liabilities (“Derivative warrant liabilities”) for accounting purposes due
to the currency of the exercise price being different from the Corporation’s functional currency. The proceeds of the offering
are required to be split between the Derivative warrant liabilities and the equity-classified Class A share at the time of issuance
of the Units. The fair value of the Derivative warrant liabilities at the time of issuance was determined to be $10,674,045 and
the residual of the proceeds was allocated to the Class A share. Total issue costs related to this transaction amounted to
$2,539,500. The issue costs have been allocated between the Warrants and Class A shares based on relative value. The portion
allocated to the Warrants was recognized in finance costs whereas the portion allocated to Class A shares was recognized as a
reduction to share capital.
99
ACASTI PHARMA INC.
Notes to Financial Statements, continued
Years ended February 29, 2016 and February 28, 2015 and 2014
11.
Capital and other components of equity (continued):
(d) Private placement 2014:
On February 7, 2014, the Corporation closed a private placement financing for gross proceeds of $2,150,000 from The Fiera
Capital QSSO II Investment Fund Inc. for 161,654 Units at $13.30 per Unit. Each Unit consists of one Class A share and one
Common Share purchase warrant (“Warrant”) of Acasti. Each Warrant entitles the holder to purchase one Class A share at an
exercise price of $16.00, subject to adjustment, at any time until December 3, 2018. The Class A shares and Warrants are
equity-classified for accounting purposes. The proceeds were allocated to Share Capital. Total issue costs related to this
transaction amounted to $82,395 and were recognized as a reduction to share capital.
(e) Warrants:
The warrants of the Corporation are composed of the following as at February 29, 2016 and February 28, 2015 and 2014:
February 29,
2016
February 28,
2015
February 28,
2014
Number
outstanding
Amount
Number
outstanding
Number
Amount outstanding
Amount
Liability
Series 8 Public offering
warrants 2014 ((c) and Note 21)
18,400,000 $
156,377 18,400,000 $ 2,357,408 18,400,000 $ 11,181,475
18,400,000 $
156,377 18,400,000 $ 2,357,408 18,400,000 $ 11,181,475
Equity
Private placement warrants
Series 9 Private placement
warrants 2014 (d)
Series 6 warrants - expired
unexercised February 10,
2015
Series 7 warrants - expired
unexercised February 10,
2015
12.
Change in classification:
161,654 $
-
161,654 $
-
161,654 $
-
-
-
-
-
-
-
-
37,500
306,288
-
37,500
100,399
161,654 $
-
161,654 $
-
236,654 $
406,687
During the current year, the Corporation modified the Statements of Earnings and Comprehensive Loss classification on
amortization expense of equipment and intangible assets as well as certain legal fees from “general and administrative
expenses” to “research and development expenses” to reflect more appropriately the way in which economic benefits are
derived from the use of these expenses. Comparative amounts in the Statements of Earnings and Comprehensive Loss were
reclassified for consistency, which resulted in $2,335,224 and $1,762,116 being reclassed in 2015 and 2014, respectively,
from “general and administrative expenses” to “research and development expenses.”
Since the amounts are reclassifications within the operating activities in the Statement of Earnings and Comprehensive Loss,
this reclassification did not have any effect on the statements of financial position.
100
ACASTI PHARMA INC.
Notes to Financial Statements, continued
Years ended February 29, 2016 and February 28, 2015 and 2014
13.
Personnel expenses:
Salaries and other short-term employee benefits
Share-based compensation
Severance
14.
Finance income and finance costs:
(a)Finance income:
Interest income
Foreign exchange gain
(b)Finance costs:
Interest charges
Warrants issue costs (Note 11 (b))
15.
Share-based payments:
February 29, February 28, February 28,
2014
2016
2015
$ 1,901,742 $
308,607
210,149
$ 2,420,498 $
1,553,687 $
1,553,543
171,364
3,278,594 $
1,417,891
3,423,243
-
4,841,134
February 29, February 28, February 28,
2014
2015
2016
$
73,495 $
1,022,422
$ 1,095,917 $
87,009 $
1,832,721
1,919,730 $
32,256
781,586
813,842
February 29, February 28, February 28,
2014
2016
2015
$
$
(2,261) $
-
(2,261) $
(4,060) $
-
(975)
(1,117,380)
(4,060) $ (1,118,355)
At February 29, 2016, the Corporation has the following share-based payment arrangements:
(a) Corporation stock option plan:
The Corporation has established a stock option plan for directors, officers, employees and consultants of the Corporation. The
plan provides for the granting of options to purchase Acasti Class A shares. The exercise price of the stock options granted
under this 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 is 10% of the number of Acasti Class A shares issued and outstanding from time to time.
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 minimum 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.
101
ACASTI PHARMA INC.
Notes to Financial Statements, continued
Years ended February 29, 2016 and February 28, 2015 and 2014
15.
Share-based payments (continued):
(a) Corporation stock option plan (continued):
Activities within the plan are detailed as follows:
Outstanding at beginning of year
Granted
Exercised
Forfeited
Expired
Cancelled (note 20)
Outstanding at end of year
Exercisable at end of year
Outstanding at beginning of year
Granted
Exercised
Forfeited
Outstanding at end of year
Exercisable at end of year
Exercise price
$2.50 - $4.65
$4.66 - $13.00
$13.01 - $14.50
$14.51 - $21.50
$21.51 - $27.50
Year ended
February 29, 2016
Weighted
Year ended
February 28, 2015
average
exercise price
Number of Weighted average
exercise price
options
Number or
options
$
$
$
15.33
4.65
2.50
9.40
18.57
-
13.52
429,625 $
109,188
(250)
(66,912)
(17,500)
-
454,151 $
15.72
9.51
2.50
14.90
18.00
17.50
15.33
491,100
51,250
(20,000)
(22,750)
(10,000)
(60,000)
429,625
15.28
375,563 $
15.48
332,039
Year ended
February 28, 2014
Weighted average
exercise price
Number or
options
$
$
$
15.51
22.31
13.74
20.56
15.72
521,625
29,750
(29,650)
(30,625)
491,100
13.86
341,217
Options outstanding
Weighted
remaining
contractual life
outstanding
Number of
options
outstanding $
2016
Exercisable options
Weighed
average
exercise price
Number of
options
exercisable
4.59
3.31
0.30
1.07
0.19
1.80
95,800
54,726
150,875
139,750
13,000
454,151
2.50
10.27
14.00
20.92
22.79
15.28
43,000
28,938
150,875
139,750
13,000
375,563
102
ACASTI PHARMA INC.
Notes to Financial Statements, continued
Years ended February 29, 2016 and February 28, 2015 and 2014
15.
Share-based payments (continued):
(a) Corporation stock option plan (continued):
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:
Exercise price
Share price
Dividend
Risk-free interest
Estimated life
Expected volatility
2016
2015
2014
$
$
$
$
4.65
4.39
-
0.66%
$
$
9.51
9.20
-
1.14%
22.31
18.79
-
1.11%
4.20 years
3.00 years
2.49 years
65.63%
60.34%
64.81%
The weighted average of the fair value of the options granted to employees during the year ended February 29, 2016 is $2.14
(2015 - $3.52 and 2014 - $6.69). There were no options granted to non-employees during the years ended February 29, 2016,
2015 and 2014.
The weighted average share price at the date of exercise for share options exercised during the year ended February 29, 2016
was $4.20 (2015 - $9.20 and 2014 - $37.70). Stock-based compensation recognized under this plan amounted to $233,871 for
the year ended February 29, 2016 (2015 - $525,826 and 2014 - $501,479).
(b) Corporation equity incentive plan:
The Corporation established an equity incentive plan for employees, directors and consultants of the group. The plan provides
for the issuance of restricted share units, performance share units, restricted shares, deferred share units and other share-based
awards, subject to restricted conditions as may be determined by the Board of Directors. Upon fulfillment of the restricted
conditions, as the case may be, the plan provides for settlement of the outstanding awards through shares.
The Corporation’s RSUs vest gradually over time with an expiry date of no later than January 15, 2017, based on a specific rate,
depending on each holder’s category. The fair value of the APO RSUs is determined to be the share price at date of grant and
is recognized as stock-based compensation, through contributed surplus, over the vesting period. The fair value of the RSUs
granted was $28.90 per unit.
Activities within the plan are detailed as follows:
RSUs outstanding at beginning of year
Granted
Released
Forfeited
Cancelled (note 20)
RSUs outstanding at end of year
2016
18,398
-
(17,348)
(1,050)
-
-
2015
77,494
-
(38,182)
(1,831)
(19,083)
18,398
2014
-
106,000
(25,931)
(2,575)
-
77,494
Stock-based compensation recognized under this plan amounted to $64,387 for the year ended February 29, 2016 (2015 –
$466,370 and 2014 -$745,556).
103
ACASTI PHARMA INC.
Notes to Financial Statements, continued
Years ended February 29, 2016 and February 28, 2015 and 2014
15.
Share-based payments (continued):
(c) Neptune stock-based compensation plan:
Neptune maintains various stock-based compensation plans for the benefit of directors, 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. Stock-based compensation recognized under these plans
amounted to $10,349 for the year ended February 29, 2016 (2015 - $561,347 and 2014 - $2,194,684).
16.
Loss per share:
Diluted loss per share was the same amount as basic loss per share, as the effect of options, RSUs and warrants would have
been anti-dilutive, because the Corporation incurred losses in each of the years presented. All outstanding options, RSUs and
warrants could potentially be dilutive in the future.
17.
Supplemental cash flow disclosure:
(a) Changes in non-cash operating items:
Trade and other receivables
Receivables from corporation under common control
Tax credits receivable
Inventories
Prepaid expenses
Trade and other payables
Payable to parent corporation
Royalties payable to parent corporation
(b) Non-cash transactions:
Issuance of shares on settlement of a liability (Note 11 (b))
Issuance of common shares
Royalties settled through issuance of shares
Acquisition of intangible asset
Exercise of warrants by Neptune applied against payable
Intangible assets included in trade and other payables
Interest receivable included in payable to parent corporation
104
February
February
29,
2016
28,
2015
February
28,
2014
$
$
47,283 $ 534,485 $ (468,533)
(47,140)
47,140
49,658
201,381
(285,872)
358,782
(39,306)
174,061
87,370
(686,806)
385,040
(138,082)
463,945
(86,981)
50,057
(417,167)
538,531
(497,037)
(133,817)
-
-
(41,969) $ 1,306,404 (1,127,443)
February
February
29,
2016
28,
2015
February
28,
2014
$
102,500 $
-
-
-
-
-
26,558
-
- $
- 15,525,000
-
395,068
- 15,129,932
793,437
-
-
7,927
-
-
ACASTI PHARMA INC.
Notes to Financial Statements, continued
Years ended February 29, 2016 and February 28, 2015 and 2014
18.
Income taxes:
Deferred tax expense:
Origination and reversal of temporary differences
Change in unrecognized deductible temporary differences
Deferred tax expense
$
$
2,065,378 $
(2,065,378)
- $
2,221,229 $
(2,221,229)
- $
1,932,370
(1,932,370)
-
2016
2015
2014
Reconciliation of effective tax rate:
Loss before income taxes
Income tax at the combined Canadian statutory rate of
26.9%
Increase resulting from:
Change in unrecognized deductible temporary
differences
Non-deductible stock-based compensation
Non-deductible change in fair value
Permanent differences and other
Total tax expense
Unrecognized deferred tax assets:
$
$
$
2016
2015
2014
(6,316,731) $
(1,654,724) $
(11,611,649)
(1,699,201) $
(445,121) $
(3,123,534)
2,065,378
83,015
(592,077)
142,885
- $
2,221,229
417,903
(2,373,674)
179,663
- $
1,932,370
925,823
136,499
128,842
‒
At February 29, 2016 and February 28, 2015, 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
Property, plant and equipment and intangible assets
Other deductible temporary differences
Unrecognized deferred tax assets
105
2016
2015
$ 6,020,000 $ 4,492,000
3,866,000 3,332,000
282,000
441,000
$10,614,000 $ 8,547,000
340,000
388,000
ACASTI PHARMA INC.
Notes to Financial Statements, continued
Years ended February 29, 2016 and February 28, 2015 and 2014
18.
Income taxes (continued):
As at February 29, 2016, 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
2034
2035
2036
Research and development expenses, without time limitation
Other deductible temporary differences, without time limitation
19.
Financial instruments:
Federal
Provincial
$
$
$
$
714,000
1,627,000
2,071,000
2,262,000
1,854,000
3,597,000
4,459,000
5,823,000
22,407,000
$
$
714,000
1,620,000
2,063,000
2,241,000
1,825,000
3,597,000
4,459,000
5,823,000
22,342,000
13,883,000 $
14,986,000
2,700,000
$
2,700,000
This note provides disclosures relating to the nature and extent of the Corporation’s exposure to risks arising from financial
instruments, including credit risk, foreign currency 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. The
Corporation has credit risk relating to cash and short-term investments including a restricted short-term investment, 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.
(b) Currency risk:
The Corporation is exposed to the financial risk related to the fluctuation of foreign exchange rates and the degrees of
volatility of those rates. Foreign currency risk is limited to the portion of the Corporation's business transactions denominated
in currencies other than the Canadian dollar. Fluctuations related to foreign exchange rates could cause unforeseen
fluctuations in the Corporation's operating results.
All of the Corporation’s revenues are in US dollars. A portion of the expenses, mainly related to research contracts, is made in
US dollars. There is a financial risk involved related to the fluctuation in the value of the US dollar in relation to the Canadian
dollar.
106
ACASTI PHARMA INC.
Notes to Financial Statements, continued
Years ended February 29, 2016 and February 28, 2015 and 2014
19.
Financial instruments (continued):
(b) Currency risk (continued):
The following table provides an indication of the Corporation’s significant foreign exchange currency exposures as stated in
Canadian dollars at the following dates:
Cash
Short-term investments
Trade and other receivables
Trade and other payables
February 29, 2016
US$
February 28, 2015
US$
2,871,358
7,442,050
1,396
(275,092)
10,039,712
1,102,908
15,007,176
250,313
(398,648)
15,961,749
The following exchange rates are those applicable to the following periods and dates:
February 29,
2016
Average
Reporting Average
February 28,
2015
Reporting
US$ per CAD
1.3071
1.3531
1.1266
1.2503
Based on the Corporation’s foreign currency exposures noted above, varying the above foreign exchange rates to reflect a 5%
strengthening of the US dollar would have increased the net profit as follows, assuming that all other variables remained
constant:
Increase in net profit
107
February 29,
2016
US$
370,989
February 28,
2015
US$
638,317
ACASTI PHARMA INC.
Notes to Financial Statements, continued
Years ended February 29, 2016 and February 28, 2015 and 2014
19.
Financial instruments (continued):
(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 February 29, 2016 and February 28, 2015 is as follows:
Cash
Short-term investments
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. Management believes that the risk that the Corporation will realize a
loss as a result of the decline in the fair value of its short-term investments is limited because these investments have short-
term maturities and are generally held to maturity.
(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 22. 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 material transactions outside the normal course of business.
The following are the contractual maturities of financial liabilities as at February 29, 2016 and February 28, 2015:
Required payments per year
(in thousands of dollars)
Trade and other payables
Payable to parent corporation
Required payments per year
(in thousands of dollars)
Trade and other payables
Payable to parent corporation
February
29,
2016
Carrying Less than
1 year
amount
Total
$
$
1,126 $
15
1,141 $
1,126 $
15
1,141 $
1,126
15
1,141
February
28,
2015
Carrying Less than
1 year
amount
1,084 $
538
1,622 $
1,084
538
1,622
Total
1,084 $
538
1,622 $
$
$
The Derivative warrant liabilities are excluded from the above tables as they will be settled in shares and not by the use of
liquidities.
108
ACASTI PHARMA INC.
Notes to Financial Statements, continued
Years ended February 29, 2016 and February 28, 2015 and 2014
19.
Financial instruments (continued):
(e) Short-term investments
As at February 29, 2016, a short-term investment consisting of a term deposit totaling $7,443,115 (US - $5,500,000) is with a
Canadian financial institution having a high credit rating. The short-term investment has a maturity date of March 29, 2016,
bearing an interest rate of 0.33% per annum, cashable at any time at the discretion of the Corporation, under certain
conditions. The restricted short-term investment has a maturity date of March 14, 2016, bearing an interest rate of 1.08% per
annum, pledged to partly guarantee the financing for the acquisition of Biodroga Inc. by Neptune.
As at February 28, 2015, short-term investments consisting of term deposits were with a Canadian financial institution having
a high credit rating. Short-term investments included two investments with maturity dates from June 30, 2015 to September 2,
2015, bearing an interest rate from 0.15% to 1.05% per annum, cashable at any time at the discretion of the Corporation, under
certain conditions.
20.
Commitments and contingency:
License agreement:
The Corporation was initially committed under a license agreement to pay Neptune until the expiration of Neptune’s patents
on licensed intellectual property, a royalty in relation to sales of products in the licensed field. In fiscal 2014, the Corporation
exercised its option under the License Agreement to pay in advance all of the future royalties payable under the license by
issuing 675,000 Class A shares, at a price of $23.00 per share to Neptune.
The value of the prepayment, determined with the assistance of outside valuations specialists, using the pre-established
formula set forth in the license agreement (adjusted to reflect the royalties of $395,068 accrued from December 4, 2012, the
date at which the Corporation entered into the prepayment agreement to July 12, 2013, the date of issuance of the shares)
totalling $15,129,932, was recognized as an intangible asset. The shares issued as a result of this transaction corresponded to
an increase in share capital of $15,525,000, net of $29,000 of share issue costs. The Corporation no longer has a royalty
payment commitment under the License Agreement.
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 $7,776,061, of which an amount of $1,966,950 has been paid to date. As at February 29, 2016, an amount of $450,931
is included in ''Trade and other payables'' in relation to these projects.
During the year, the Corporation entered into a contract to purchase research and development equipment for $2,271,267 to be
used in the clinical and future commercial supply of CaPre®.
Contingency:
A former CEO of the Corporation is claiming the payment of approximately $8,500,000 and the issuance of equity
instruments. As the Corporation’s management believes that these claims are not valid, no provision has been recognized. As
of the date of these financial statements, no agreement has been reached. Neptune and its subsidiaries also filed an additional
claim to recover certain amounts from the officer. All outstanding share-based payments held by the former CEO have been
cancelled during the year ended February 28, 2015.
109
ACASTI PHARMA INC.
Notes to Financial Statements, continued
Years ended February 29, 2016 and February 28, 2015 and 2014
21.
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 and non-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.
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. The carrying value of the restricted short-term investment also
approximates its fair value given the short-term maturity of the reinvested funds.
Derivative warrant liabilities:
The Corporation measured its Derivative warrant liabilities at fair value on a recurring basis. These financial liabilities were
measured using a level 3 input.
The fair value was estimated according to the Black-Scholes option pricing model and based on the following assumptions:
Exercise price
Share price(1)
Dividend
Risk-free interest
Estimated life
Expected volatility
February 29, 2016
February 28, 2015
US $1.50
US $1.50
-
0.87%
2.76 years
76.34%
US $1.50
US $5.50
-
1.20%
3.76 years
62.94%
(1) In order to obtain one share of Acasti, 10 warrants must be exercised.
The fair value of the Warrants issued was determined to be $0.09 per warrant as at February 29, 2016 ($1.30 per warrant – 2015).
The effect of an increase or a decrease of 5% of the volatility used, which is the significant unobservable input in the fair value
estimate, would result in a loss of $58,636 or a gain of $48,812, respectively.
The reconciliation of changes in level 3 fair value measurements of financial liabilities for the year ended February 29, 2016 and
February 28, 2015 is presented in the following table:
Balance – beginning of year
Change in fair value of derivative warrant liabilities
Closing balance
$
$
2016
2,357,408 $
(2,201,031)
156,377 $
2015
11,181,475
(8,824,067)
2,357,408
110
ACASTI PHARMA INC.
Notes to Financial Statements, continued
Years ended February 29, 2016 and February 28, 2015 and 2014
21.
Determination of fair values (continued):
Share-based payment transactions:
The fair value of share-based payment transaction 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), 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.
22.
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 or third parties
regarding its capital.
Since the beginning of its operations, the Corporation has financed its liquidity needs from funding provided by a public offering, a
private placement, its parent corporation, from the exercise of warrants that were distributed to its parent corporation’s
shareholders, from a rights offering and from the issuance of options to employees. The Corporation attempts to optimize its
liquidity needs with non-dilutive sources whenever possible, including from research and development tax credits or government
assistance.
The Corporation defines capital to include total shareholders’ equity and derivative warrant liabilities.
The Corporation’s policy is to maintain a minimal level of debt.
As of February 29, 2016, cash amounted to $3,026,943, short-term investments amounted to $7,443,115 and tax credits receivable
amounted to $61,210, for a total of $10,531,268.
111
111
Item 18.
Financial Statements
See Item 17.
Item 19.
Exhibits
112
EXHIBITS INDEX
Exhibit
Number
Description of Document
1.1
1.2
1.3
2.1
2.2
4.1
4.2
4.3
11.1
Articles of Incorporation (incorporated by reference to Exhibit 4.1 from Form S-8 (File No. 333-191383) filed with the
Commission on September 25, 2013)
Bylaw No. 1 (incorporated by reference to Exhibit 4.2 from Form S-8 (File No. 333-191383) filed with the Commission on
September 25, 2013)
Bylaw No. 2013-1 (incorporated by reference to Exhibit 4.3 from Form S-8 (File No. 333-191383) filed with the Commission
on September 25, 2013)
Specimen Certificate for Common Shares of Acasti Pharma Inc. (incorporated by reference to Exhibit 2.1 from Form 20-F
(File No. 001-35776) filed with the Commission on June 6, 2014)
Warrant Indenture dated December 3, 2013 between Acasti Pharma Inc. and Computershare Trust Company of Canada
(incorporated by reference to Exhibit 99.1 from Form 6-K (File No. 001-35776) filed with the Commission on December 3,
2013)
Prepayment Agreement, dated December 4, 2012, between Neptune Technologies & Bioressources Inc. and Acasti Pharma
Inc. (incorporated by reference to Exhibit 99.1 from Form 6-K (File No. 001-35776) filed with the Commission on
October 29, 2013)
Equity Incentive Plan (incorporated by reference to Exhibit 4.4 from Form S-8 (File No. 333-191383) filed with the
Commission on September 25, 2013)
Stock Option Plan (incorporated by reference to Exhibit 4.5 from Form S-8 (File No. 333-191383) filed with the Commission
on September 25, 2013)
Code of Business Conduct and Ethics for Directors, Officers and Employees (incorporated by reference to Exhibit 99.4 from
Form 40-F (File No. 001-35776) filed with the Commission on May 30, 2013)
12.1*
Principal Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2*
Principal Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13.1*
Principal Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.2*
Principal Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*
- filed herewith
113
The registrant hereby certifies that it meets all of the requirements for filing on this Annual Report and that it has duly
caused and authorized the undersigned to sign this Annual Report on its behalf.
SIGNATURES
Date: May 30, 2016
ACASTI PHARMA INC.
/s/ Pierre Lemieux
By:
Name:Pierre Lemieux
Title: Principal Executive Officer
114
I, Pierre Lemieux, certify that:
SECTION 302 CERTIFICATION
Exhibit 12.1
1.
2.
3.
4.
I have reviewed this Annual Report on Form 20-F of Acasti Pharma Inc.;
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 registrant as of, and for, the periods
presented in this report;
The registrant'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)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d–15(f)) for the registrant and have:
a)
b)
c)
d)
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 registrant, 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;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant'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 registrant'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
registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant'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 registrant'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
registrant's internal control over financial reporting.
/s/ Pierre Lemieux
Name: Pierre Lemieux
Title: Principal Executive Officer
Date: May 30, 2016
I, Mario Paradis, certify that:
SECTION 302 CERTIFICATION
Exhibit 12.2
1.
2.
3.
4.
I have reviewed this Annual Report on Form 20-F of Acasti Pharma Inc.;
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 registrant as of, and for, the periods
presented in this report;
The registrant'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)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d–15(f)) for the registrant and have:
a)
b)
c)
d)
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 registrant, 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;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant'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 registrant'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
registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant'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 registrant'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
registrant's internal control over financial reporting.
/s/ Mario Paradis
Name: Mario Paradis
Title: Principal Financial Officer
Date: May 30, 2016
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES–OXLEY ACT OF 2002
In connection with the Annual Report on Form 20-F of Acasti Pharma Inc. (the "Company") for the fiscal year ended February 29, 2016, as
filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Pierre Lemieux, Principal Executive Officer of the
Company certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.
2.
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
the Company.
Exhibit 13.1
Date: May 30, 2016
/s/ Pierre Lemieux
Name: Pierre Lemieux
Title: Principal Executive Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES–OXLEY ACT OF 2002
In connection with the Annual Report on Form 20-F of Acasti Pharma Inc. (the "Company") for the fiscal year ended February 29, 2016, as
filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Mario Paradis, Principal Financial Officer of the
Company certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.
2.
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
the Company.
Date: May 30, 2016
Exhibit 13.2
/s/ Mario Paradis
Name: Mario Paradis
Title: Principal Financial Officer