A biopharmaceutical companyhelixbiopharma.comT - 905 841 2300F - 905 841 2244E - helix@helixbiopharma.com305 Industrial Parkway South, Unit 3Aurora, Ontario L4G 6X7CanadaAnnual Report 2014 new directions incancer therapy Message to Shareholders
Dear Shareholder;
Corporate Information
DIRECTORS AND OFFICERS
TRANSFER AGENT
Fiscal 2014 has been an important year for Helix BioPharma Corp. The Company has refocused its energy into the continued development of the
DOS47 platform to build a valuable and sustainable pipeline, an important part of which is the clinical development of our lead drug candidate,
L-DOS47.
Yvon Bastien
Director & Chairman
In October 2013 we announced the completion of the first interim review of our ongoing Phase I/II clinical trial of L-DOS47 in Poland (“LDOS002”)
in patients with non-small cell lung cancer (“NSCLC”), where we observed a good safety profile, and noted that one patient from the low dose
cohorts had remained stable for six cycles of treatment. We had planned to increase the enrollment rate of the trial through the addition of two
new sites in 2014. However, after adding one site and working to better coordinate communication, we are now enrolling into LDOS002 at
the highest rate possible for this study. We completed 8 cohorts (24 patients) and applied to the Polish regulatory authorities to continue dose
escalation, which was approved and we are currently enrolling patients in Cohort 10 of LDOS002.
On September 30th 2014, we completed and reported upon a second interim data review of the first 24 patients from LDOS002, and observed
that the drug candidate remained safe, and that half the patients in the study had at least one stable response. While we continue to increase
dosage in the Phase I/II trial to maximize the chance of success, these observations make us confident in moving forward with our development
plan for L-DOS47 through 2015, focussing on providing evidence of its utility in combination with leading cancer therapeutics in NSCLC and
potentially other indications such as breast or colon cancers.
This year we also began planning for additional clinical studies that would build the greatest support for L-DOS47 from a scientific, clinical,
regulatory, and market perspective. We submitted an investigational new drug (“IND”) to the US Food and Drug Administration (“FDA”) for the
initiation of a study combining L-DOS47 with the leading combination used for the treatment of first line patients in NSCLC and we reported that
we were approved to commence in April 2014. We continue to work towards additional studies with other combinations in jurisdictions such as
Canada in order to create a comprehensive package of information regarding the utility of L-DOS47.
We look forward to the coming year. Our goals for 2015 are to:
•
•
•
Build a strong body of clinical evidence for L-DOS47 through initiating (a) the Polish Phase II monotherapy study for LDOS002 after
completion of dose escalation in Phase I of this study; (b) a US study of L-DOS47 in combination with Pemetrexed and Carboplatin, and; (c)
at least one other combination study in NSCLC. We intend to build a body of evidence that would build value in L-DOS47, as our lead product
drug candidate, in addition to providing utility and value of the DOS47 platform as a potential generator of additional clinical drug candidates;
Build a strong body of scientific evidence for the DOS47 platform by entering into strategic collaborations through 2015 with both
academic institutions and industrial partners to build our pipeline and add key information to increase the value of this platform;
Evaluate growth opportunities for the Company through licensing, mergers, or acquisitions that will expand the asset base of the
Company and allow us to increase our public profile, access new capital markets, and potentially increase our liquidity to ensure long
term growth.
As we work towards these goals, the Company expects to begin discussions with potential partners that may work with us to complete mid-
and late-stage trials and market introduction. We believe that having strong evidence on the utility of our lead L-DOS47 candidate, showing
the potential of the DO47 platform to create new drug candidates that have a higher probability of success, will maximize the value of our
achievements. We also believe that building a solid corporate foundation, including through the potential addition of new assets and better access
to capital markets, we can ensure that this value is reflected within our valuation.
The Company would like to sincerely thank our shareholders for their support.
Best regards,
Robert A. Verhagen
President and Chief Executive Officer
This letter contains certain forward-looking statements. By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties. Please refer to the caution
regarding Forward-Looking Statements and Information on page 2 of this Annual Report for a discussion of such risks and uncertainties and the material factors and assumptions related to these statements.
Computershare
100 University Avenue
9th Floor, North Tower
Toronto, Ontario
Canada M5J 2Y1
Tel: 800-564-6253
EXCHANGE SYMBOLS
TSX: HBP
Frankfurt: HBP
Robert A. Verhagen
Director, Chief Executive Officer & President
Sven Rohmann, MD. Ph.D.
Director
Marek Orlowski, MD.
Director
Slawomir Majewski, MD.
Director
Stacy L. Wills
Director
Sylwester Cacek
Director
Photios (Frank) Michalargias, CPA, CA
Chief Financial Officer & Corporate Secretary
Heman Chao, Ph.D.
Chief Scientific Officer
TABLE OF CONTENTS
MESSAGE TO SHAREHOLDERS………………………………………….…………………………..……. Inside Front Cover
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 2
FORWARD LOOKING STATEMENTS AND INFORMATION……...………………………………………….….… 2
4
OVERVIEW…………………………………………………………………………………......………….…….……….
5
RESEARCH AND DEVELOPMENT ACTIVITIES…….……………………….……………………….…………..…
9
DRUG DISTRIBUTION BUSINESS IN CANADA…….……………………….……………………….…………..…
SELECTED FINANCIAL INFORMATION AND SUMMARY OF QUARTERLY RESULTS ……………….…….
9
RESULTS FROM OPERATIONS ………………………………………………………………………….…….……. 10
SIGNIFICANT ACCOUNTING POLICIES……………………………………………………………………….….… 11
NEW ACCOUNTING STANDARDS AND PRONOUNCEMENTS NOT YET ADOPTED …………………….… 14
LIQUIDITY AND CAPITAL RESOURCES…………………………………………………………………..……...… 14
PROPERTY, PLANT AND EQUIPMENT EXPENDITURES……………………………………………………...… 15
RELATED PARTY TRANSACTIONS ……………………………………………………………………………….… 15
FINANCIAL INSTRUMENTS ……………………………………………………………………………..………….… 15
CASH FLOWS ……………………………………………………………………………………………..………….… 16
INTELLECTUAL PROPERTY…...…………………………………………………………………………………….. 16
OFF BALANCE SHEET ARRANGEMENTS ……………………………………………………………………….… 17
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS………………………………………..……….… 17
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS………………………….….… 18
OUTSTANDING SHARE DATA …………………………………………………………………………….……….… 19
DISCLOSURE CONTROLS AND PROCEDURES AND
INTERNAL CONTROL OVER FINANCIAL REPORTING …………………………………….…………….… 19
RISKS AND UNCERTAINTIES …………………………………………………………...…………….….……….… 20
RISK FACTORS IN OTHER PUBLIC FILINGS………………………………………...…………….….……..….… 26
ADDITIONAL INFORMATION ………………………………………...…………….….……..…………………….... 26
CONSOLIDATED FINANCIAL STATEMENTS OF HELIX BIOPHARMA CORP
27
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL INFORMATION ……...…………………………..…..… 28
INDEPENDENT AUDITORS’ REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM ……...……….….… 29
CONSOLIDATED STATEMENT OF FINANCIAL POSITION ……...……………………………….…………....… 30
CONSOLIDATED STATEMENT OF NET LOSS AND COMPREHENSIVE LOSS ……...……………….…....… 31
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY ……...…………………..…… 32
CONSOLIDATED STATEMENT OF CASH FLOWS ……...…………………………………………………...….… 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ……...…………………………………..……....….… 34
CORPORATE INFORMATION……………………………………………………………...……………....… Inside Back Cover
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated financial statements of Helix BioPharma Corp. (the
“Company” or “Helix”) for the years ended July 31, 2014, and 2013 and the accompanying notes thereto, which have been
prepared in accordance with International Financial Reporting Standards (“IFRS”) and depict values that are in Canadian
currency unless otherwise noted.
Additional information relating to the Company can be found in the Company’s Annual Information Form for the fiscal year
ended July 31, 2014, which is available on SEDAR at www.sedar.com.
FORWARD-LOOKING STATEMENTS AND INFORMATION
This Annual Report contains forward-looking statements and information (collectively, “forward-looking statements”) within the
meaning of applicable Canadian securities laws. Forward-looking statements are statements and information that are not
historical facts but instead include financial projections and estimates; statements regarding plans, goals, objectives, intentions
and expectations with respect to the Company’s future business, operations, research and development, including the focus of
the Company on its two drug candidates, L-DOS47 and Topical Interferon Alpha-2b (cervical lesions indication) and other
information relating to future periods. Forward-looking statements include, without limitation, statements concerning (i) the
Company’s ability to operate on a going concern being dependent mainly on obtaining additional financing; (ii) the Company’s
growth and future prospects being dependent on the success of one or both of L-DOS47 and Topical Interferon Alpha-2b; (iii)
the Company’s priority continuing to be L-DOS47; (iv) the Company’s development programs for Topical Interferon Alpha-2b,
DOS47 and L-DOS47, including but not limited to, extension of the drug candidates to other indications and the identification
and development of further tumor-targeting antibodies for DOS47; (v) the anticipated timeline for completion of enrolment and
other matters relating to the Company’s European Phase I/II clinical trial for L-DOS47 in Poland, including the number of cohorts
required to reach Maximum Tolerable Dose (“MTD”); (vi) the Company’s planned future U.S. Phase I clinical trial for L-DOS47
and the Company’s anticipated resubmission of its Clinical Trial Application (“CTA”) in Canada or possible similar submissions in
other jurisdictions, (vii) U.S. Phase II/III and European Phase III clinical trials for Topical Interferon Alpha-2b (low-grade cervical
dysplasia); (viii) seeking strategic partner support and therapeutic and market opportunities for the two drug candidates; (ix) the
nature, design and timing of future clinical trials and commercialization plans; (x) future expenditures, insufficiency of the
Company’s current cash resources and the need for financing; and (xi) future financing requirements, the seeking of additional
funding and anticipated future operating losses. Forward-looking statements can further be identified by the use of forward-
looking terminology such as “expects”, “plans”, “designed to”, “potential”, “believe”, “intended”, “continues”, “opportunities”,
“anticipated”, “2015”, “next”, “ongoing”, “to seek”, “proceed”, “objective”, “estimate”, “future”, or the negative thereof or any other
variations thereon or comparable terminology referring to future events or results, or that events or conditions “will”, “may”,
“could”, “would”, or “should” occur or be achieved, or comparable terminology referring to future events or results.
Forward-looking statements are statements about the future and are inherently uncertain, and are necessarily based upon a
number of estimates and assumptions that are also uncertain. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, such statements involve risks and uncertainties, and undue reliance should not
be placed on such statements. Forward-looking statements, including financial outlooks, are intended to provide information
about management’s current plans and expectations regarding future operations, including without limitation, future financing
requirements, and may not be appropriate for other purposes. The Company’s actual results could differ materially from those
anticipated in the forward-looking statements contained in this Annual Report as a result of numerous known and unknown risks
and uncertainties, including, but not limited to:
the Company’s need for additional capital which may not be available in a timely manner or at all and which, if not
obtained, will have a material adverse impact on the Company and its ability to continue as a going concern;
the risk that the Company may have to suspend or terminate one or more of its clinical trials for lack of funding, as the
Company does not have sufficient funds to complete them and will need to raise additional funding, which is not
assured;
the possibility of dilution of current shareholders from future equity financings;
the possibility of a change of control of the Company, which could impact the Company’s plans and result in existing
key personnel leaving the Company;
the impact of the ongoing volatility in the economic environment which has negatively affected the availability and terms
of debt and equity financings and may have a negative effect on the Company’s ability to raise further financing and its
research and development initiatives;
uncertainty as to whether Topical Interferon Alpha-2b or L-DOS47 will be successfully developed and marketed;
intellectual property risks, including the possibility that patent applications may not result in issued patents, that issued
patents may be circumvented or challenged and ultimately struck down, that any expiry of an issued patent, may
negatively impact the further development or commercialization of the underlying technology, and that the Company
may not be able to protect its trade secrets or other confidential proprietary information;
Page | 2
research and development risks, including without limitation, the fact that L-DOS47 and Topical Interferon Alpha-2b are
complex compounds and the Company faces difficult challenges in connection with the manufacture of clinical batches
of L-DOS47 and Topical Interferon Alpha-2b, and the risk of obtaining negative findings or factors that may become
apparent during the course of research or development, any of which may result in the delay or discontinuation of the
research or development projects;
partnership/strategic alliance risks, including without limitation, the need for strategic partner support prior to initiating
our planned clinical trials for Topical Interferon Alpha-2b, which is not assured, and the need to secure new strategic
relationships, which are not assured, to commercialize L-DOS47 and any other drug candidates which may arise out of
DOS47;
the Company’s dependence on its contractors, consultants, clinical trial investigators, advisors and licensees, including
without limitation, contract research organizations, contract manufacturing organizations, clinical trial consultants,
collaborative research consultants, regulatory affairs advisors, and others, whose performance and interdependence
can critically affect the Company’s performance and the achievement of its milestones;
the Company’s dependence on assurances from third parties regarding licensing of proprietary technology owned by
others, including the Company’s dependence on its license of the L-DOS47 antibody;
the need for future clinical trials, the occurrence and success of which cannot be assured, and the fact that results seen
in earlier clinical trials may not be repeated in later trials;
manufacturing risks, the need to manufacture to regulatory standards, uncertainty whether the manufacturing process
for the Company’s drug candidates can be further scaled-up successfully or at all and the risk that clinical batches of
the Company’s drug candidate may not be able to be produced in a timely manner or at all, which would have a
negative effect on the timing and/or occurrence of planned clinical trials and the potential commercialization of the drug
candidates;
uncertainty as to the size and existence of a market opportunity for, and market acceptance of, the Company’s
products;
uncertainty as to the availability of raw materials that the Company utilizes to manufacture its products, and in
particular, Good Manufacturing Practice (“GMP”) grade materials, on acceptable terms or at all, and that the Company
may not be able to timely obtain alternative suppliers upon commercially viable terms or at all, which could have a
material adverse effect on the further development and commercialization of any or all of the Company’s drug
candidates;
product liability and insurance risks;
government regulation, including drug price regulation, and the need for regulatory approvals for both the development
the risk of lawsuits and other legal proceedings against the Company;
the effect of competition;
the risk of unknown side effects arising from the development, manufacture or use of the Company’s products;
the need to attract and retain key personnel;
that the Company has limited sales, marketing and distribution experience;
and profitable commercialization of products, which are not assured;
risks associated with the fact that the U.S. Food and Drug Administration (the “FDA”) and any other regulatory agency
that the Company has consulted are not bound by their scientific advice, nor are any approvals given by one regulatory
body binding on another;
rapid technological change and competition from pharmaceutical companies, biotechnology companies and
universities, which may make the Company’s technology or products obsolete or uncompetitive;
risks associated with claims, or potential claims, of infringement of third party intellectual property and other proprietary
rights;
the risk of unanticipated expenses;
the impact on the Company’s finances resulting from shifts in foreign exchange rates,
and other risk factors that are discussed under Risks and Uncertainties and elsewhere in this Annual Report or identified in the
Company’s other public filings under the Company’s profile on SEDAR at www.sedar.com, including under the headings
“Forward-Looking Statements” and “Risk Factors” in the Company’s most recent Annual Information Form (together the “Helix
Risk Factors”), any of which could cause actual results to vary materially from current results or the Company’s anticipated
future results. Certain material factors, estimates or assumptions have been applied in making forward-looking statements in
this Annual Report, including, but not limited to, the safety and efficacy of L-DOS47 and Topical Interferon Alpha-2b (low-grade
cervical lesions); the Company’s ability to commence the Phase I U.S. clinical trial for L-DOS47; the success of the Company’s
anticipated resubmission of its Canadian CTA application or possible similar submissions in other jurisdictions; the cost and
timing for achieving MTD in the Company’s European Phase I/II clinical trial for L-DOS47 in Poland; that sufficient financing will
be obtained in a timely manner to allow the Company to continue operations; the timely provision of services and supplies,
including Interferon Alpha-2b raw materials, or other performance of contracts by third parties; future costs; the absence of any
material changes in business strategy or plans, the timely receipt of required regulatory approvals, strategic partner support; and
Page | 3
that the Helix Risk Factors will not cause the Company’s actual results or events to differ materially from the forward-looking
statements.
For all of the reasons set forth above, which do not represent an exhaustive list of factors that may affect the forward-looking
statements, investors should not place undue reliance on forward-looking statements. These forward-looking statements are
based on the beliefs, assumptions, opinions and expectations of the Company’s management at the time they are made, and
the Company does not assume any obligation to update any forward-looking statement should those beliefs, assumptions,
opinions or expectations, or other circumstances change, except as required by law.
Data relevant to estimated market sizes and penetration for the Company’s lead products under development are presented in
this Annual Report. These data have been obtained from a variety of published resources, including published scientific
literature, websites and information generally available through publicized means. The Company attempts to source reference
data from multiple sources whenever possible for confirmatory purposes. Although the Company believes the foregoing data is
reliable, the Company has not independently verified the accuracy and completeness of this data.
OVERVIEW
Helix is a biopharmaceutical company mainly focused in the field of cancer therapy.
The Company is actively developing products for the treatment and prevention of cancer based on its proprietary technologies.
The Company’s product development initiatives are focused primarily on its DOS47 and Topical Interferon Alpha-2b BiPhasix
platforms for creating new drug candidates. Two clinical stage drug candidates have been developed; L-DOS47, which is
currently under study in a European Phase I/II clinical trial in Poland for the treatment of non-small cell lung cancer (“NSCLC”)
and Topical Interferon Alpha-2b for the treatment of cervical lesions associated with HPV infection. The Company believes that
its growth and future prospects are largely dependent on the success of its DOS47 drug product candidates.
L-DOS47 has completed extensive preclinical testing and manufacturing development, following which, regulatory approvals
were obtained in Poland and the U.S. to conduct Phase I/II and Phase I clinical studies, respectively. The European Phase I/II
clinical study in Poland continues to enrol patients and the U.S. Phase I study in NSCLC, involving L-DOS47 in combination with
pemetrexed/carboplatin chemotherapy, is currently under development.
Topical Interferon Alpha-2b is a clinical stage drug candidate that has undergone Phase II level clinical testing for two
prospective therapeutic indications, low-grade cervical dysplasia and ano-genital warts. Of these, efficacy was demonstrated
only against low-grade cervical dysplasia. Due to a lack of funding, a decision was made by the Company to downsize and
eventually close the Saskatoon laboratory which supported the Topical Interferon Alpha-2b drug development program and to
focus any ongoing activities to sourcing and qualifying alternative interferon alpha-2b raw material samples and finding suitable
strategic partner(s) who would be willing to license or acquire the product and support the remaining development costs through
to commercial launch.
Prior to January 25, 2013, the Company had product revenue from the distribution in Canada of Klean-Prep™1, Orthovisc®1,
Monovisc®1, Immunovir®1 and Normacol®.1 On January 25, 2013, the Company completed the sale of its distribution business
and as a result will no longer have any revenue from product distribution activities (nor will it incur the associated expenses).
See “Drug Distribution Business in Canada” below.
The Company expects to incur additional losses for the foreseeable future and will require additional financial resources to fund
the Company’s ongoing research and development activities. The Company finances its research and development programs
primarily from the issuance of its securities.
The Company recently completed a private placement on July 10, 2014 for net proceeds of approximately $5,481,000.
However, the Company does not have sufficient cash reserves to meet anticipated cash needs for working capital and capital
expenditures through the next twelve months. Since the Company’s cash and cash equivalents as at July 31, 2014 of
$6,980,000 are not sufficient to see the current research and development initiates through to completion, the Company will
require additional financing in the near term. Securing additional financing continues to be of utmost importance to the
Company.
1 Klean-Prep™ is a registered trademark in the U.S. and Canada owned by Pharmascience Inc. Orthovisc® is a U.S. and Canadian registered trademark of
Anika Therapeutics Inc. Monovisc® is a Canadian registered trademark of Anika Therapeutics Inc. Imunovir® is a U.S. and Canadian registered
trademark of Newport Pharmaceuticals Ltd. Normacol® is a Canadian registered trademark of Norgine Limited.
Page | 4
RESEARCH AND DEVELOPMENT ACTIVITIES
DOS47 – A broad anti-cancer therapeutic platform
DOS47 is based upon a naturally occurring enzyme called urease which breaks down urea into ammonia. DOS47 candidates
are produced by conjugating urease with a targeting antibody or antibody fragment that can specifically direct the urease to the
surface of a cancer cell. Once docked to the cell, the urease produces ammonia enzymatically through the conversion of urea
found throughout the body. These conjugates of antibodies to urease are called DOS47 candidates. By selecting antibodies
that are selective to different tumour cell surface receptors, the Company believes that DOS47 candidates can be used in
several types of solid tumours.
The Company believes that its DOS47 candidates may have potential anti-cancer activity because it stimulates an increase in
the pH of the microenvironment surrounding the cancerous cells. The local production of ammonia at the site of
cancerous tissues is thought to readily diffuse into the cancer cells and may exert a potent cytotoxic effect by interfering with
their critical metabolic functions. In addition, the Company believes that the use of DOS47 candidates may also have a
synergistic effect on the efficacy of other marketed chemotherapeutics, such as vinka alkyloid analogues, where low pH can
inhibit the cellular uptake of these agents. The Company believes the enzymatic action of urease to increase the pH at the site
of cancerous cells is repetitive and sustainable due to the plentiful supply of urea that is furnished by the body.
L-DOS47
L-DOS47 is the Company’s first targeted therapeutic immunoconjugate under development based on the DOS47 technology.
L-DOS47 is an antibody protein conjugate where the urease component enzymatically converts naturally occurring urea to
ammonia. The L-DOS47 drug molecule includes a highly specialized camelid-derived single domain antibody, designed to
identify a unique CEACAM6 antigenic site associated with NSCLC cells. By delivering the conjugate in a targeted manner, the
Company believes L-DOS47 stimulates an increase in the pH of the microenvironment surrounding the NSCLC cells,
effectively reversing the acidic extra-cellular conditions that are known to be necessary for cancer cell survival.
L-DOS47 is intended to offer an innovative approach to the first-line treatment of inoperable, locally advanced, recurrent or
metastatic NSCLC.
In 2005, the Company entered into a worldwide exclusive license with the National Research Council of Canada (“NRC”),
through which it obtained the rights to combine this highly specialized camelid-derived single domain antibody with Helix’s
DOS47 technology. As a result, the Company has certain royalty and milestone payment obligations pursuant to the license
agreement. The license agreement with the NRC has been filed under the Company’s profile on SEDAR at www.sedar.com.
The NRC filed patent applications in respect of the antibody in Canada, the United States and other countries. On March 2,
2011, the NRC was issued a U.S. patent in respect of the antibody.
The Company has prioritized the European Phase I/II clinical study with L-DOS47 in Poland while deferring the commencement
of previously-approved U.S. Phase I clinical study with L-DOS47. The Company has since received approval for a new Phase I
study from the FDA but, as of the date of this Annual Report, the Company does not have sufficient cash resources to see either
the remainder of the European Phase I/II clinical study through to completion or to commence enrolment into the U.S. Phase I
clinical study.
European Phase I/II clinical study in Poland (“LDOS002”)
On July 25, 2011, Helix announced that the Company had received approval from the Central Register of Clinical Trials at the
Polish Ministry of Health to perform a European Phase I/II clinical study with L-DOS47 and, on May 14, 2012, announced that
clinical site initiation and patient recruitment activities had commenced for its European Phase I/II clinical study of L-DOS47. On
October 23, 2012, the Company announced that its first patient had been enrolled and the first dose had been administered in
this study.
The study is being conducted at five Polish centers under the direction of Dr. Dariusz Kowalski at The Maria Sklodowska-Curie
Memorial Cancer Centre & Institute of Oncology as the overall coordinating investigator, together with three other principal
investigators: Prof. Cezary Szczylik, MD, PhD at the Military Medical Institute, Prof. Elzbieta Wiatr, MD, PhD at the National
Tuberculosis and Lung Diseases Research Institute, Dr. Aleksandra Szczensa, MD, PhD at the Mazovian Center of Pulmonary
Diseases and Tuberculosis in Otwock and Prof. Rodryg Ramlau, MD, PhD at Med. Polonia Hospital Poznan.
The study is being conducted in patients with inoperable, locally advanced, recurrent or metastatic, non-squamous stage IIIb/IV
NSCLC.
Page | 5
The study, which is now well underway, recruits patients eligible for inclusion into escalating doses of L-DOS47 given as a
monotherapy. The study utilizes an open-label design, allowing for periodic status updates through its course. The study is
intended to demonstrate valuable safety and proof-of-concept efficacy data for L-DOS47.
Doses of 0.12, 0.21, 0.33, 0.46, 0.59, 0.78, 1.04, 1.38 and 1.84 micrograms of L-DOS47 per kilogram of patient body weight
have been successfully administered to study patients with no dose limiting toxicities. Patients in the study receive weekly
doses of L-DOS47, administered as an intravenous infusion over 14 days, followed by seven days' rest (one treatment cycle is
three weeks). Once the MTD of L-DOS47 has been determined in Phase I, an estimated 20 patients will be enrolled to evaluate
the preliminary efficacy of L-DOS47 in the Phase II portion of the study.
The total number of patients to be enrolled in the Phase I portion of the study will depend on how many escalating dose levels
are required to reach MTD. The Company originally estimated that MTD would be reached after enrolling eight cohorts of three
patients each. Management also originally assumed that there would be two DLT events requiring a further six patients to be
enrolled, for a total of up to 30 patients by the time the study dosed patients in Cohort 8. However, the Company has now
enrolled 29 patients, and intends to enrol further patients in additional cohorts until MTD is reached. Study patients are male or
female, at least 18 years of age, with histologically confirmed non-squamous NSCLC. Patients have an Eastern Cooperative
Oncology Group performance status of 0 – 2 at the screening visit for this study, and have at least one site of measurable
disease per RECIST v1.1.
Efficacy evaluation of L-DOS47 is based upon response rate using the RECIST version 1.1 criteria, disease progression and
survival. Monitoring includes radiologic evaluations prior to the first dose to establish a baseline and every six weeks thereafter
(“Radiologic Evaluations”). For all patients (Phase I and II), treatment with L-DOS47 will continue until the patient experiences
disease progression or unacceptable toxicity, the patient withdraws consent, or the patient has completed four treatment cycles
and does not wish to continue with additional cycles, whichever occurs first. After four treatment cycles, at the discretion of the
investigator and in consultation with the medical monitor, patients who experience clinical benefit may be eligible to continue L-
DOS47 for as long as the treatment is well tolerated and the clinical benefit is sustained.
On May 20, 2014 the central ethics committee overseeing the Phase I clinical study in Poland approved additional dose levels in
the Phase I component of the LDOS002 study in anticipation of continued dose escalation beyond the 1.38 µg/kg administered
to patients in Cohort 8. The additional four approved dose levels include 1.84, 2.45, 3.26 and 4.33 µg/kg. The Phase II
component will start after the maximum tolerated dose of L-DOS47 is determined in Phase I and is expected to enrol 20 patients
to evaluate the preliminary efficacy of L-DOS47.
The Company has now completed two interview data reviews in connection with the LDOS002 study. On October 15, 2013, the
Company announced the completion of an interim data review of the first four cohorts for this study. The release stated that L-
DOS47 was well tolerated for all patients treated within all cohorts. None of the treatment related adverse events reported to
date has met the definition of a dose-limiting toxicity. Adverse events reported as of that date are those normally expected for
the population under study.
A review of available pharmacokinetic (“PK”) and immunogenicity data showed that these data so far are consistent with trends
seen within pre-clinical animal studies of L-DOS47. A formal PK analysis will be conducted pending the collection of all PK data
at the completion of the study.
Based on Radiologic Evaluations, patients assigned a status of “Progressive Disease” following any such assessment were
withdrawn from the study. At least one patient in each of the four cohorts dosed had a radiological assessment of “Stable
Response”. Duration of treatment increased with each dose escalation up to Cohort 4. One patient in Cohort 3 was dosed for 6
cycles without disease progression. None of the patients treated to date have had a partial or complete response as defined by
RECIST v1.1 definition.
On September 30, 2014, the Company announced the completion of a further interim data review for the first eight cohorts for
the LDOS002 study. The review included all available data, including patient demographics, safety assessments, PK data,
immunogenicity and radiological tumour assessments. The following observations were made:
Adverse events reported are those expected for investigational product and population under study;
No dose limiting toxicities have been reported;
Stable disease observed in radiological assessments of 12 of 24 (50%) of patients treated; and
Two patients completed six cycles of treatment each.
The Company continues to have insufficient cash resources to see the entire European Phase I/II clinical study in Poland nor
any part of the U.S. Phase I study or, if approved by Health Canada, the Canadian Phase I study (as discussed below), through
to completion. The Company previously disclosed that it did expect to have sufficient cash to complete the Phase I portion of
the European Phase I/II clinical study, provided the Company did not experience any unforeseen challenges and/or
expenditures. However, because the Company is dosing patients in Cohort 10, exceeding the originally estimated number of
cohorts required to reach MTD, the Company no longer has sufficient funds to complete the European Phase I trial for L-DOS47
in Poland.
Page | 6
U.S. Phase I clinical study (“LDOS001”)
On February 7, 2011 the Company announced it received approval by the FDA to conduct a U.S. Phase I clinical study with L-
DOS47. The Company originally planned to commence the L-DOS47 U.S. Phase I study during fiscal 2012 but, given the
Company’s limited cash resources, the Company has prioritized the European Phase I/II clinical study with L-DOS47 in Poland
while deferring the previously planned commencement of the U.S. Phase I clinical study with L-DOS47.
On April 22, 2014, the Company announced an IND approval by the FDA to commence a study for an L-DOS47 Phase I, open
label, dose escalation study in combination with standard doublet therapy of pemetrexed/carboplatin in patients with Stage IV
recurrent or metastatic non-squamous NSCLC. Commencement of the Phase I L-DOS47 study in the United States is now
dependent on the Company’s ability to raise sufficient capital.
Phase I clinical study (“LDOS003”)
On May 14, 2014, the Company announced the submission, for approval by Health Canada, of a new CTA in Canada and
commencement of a Phase I study for L-DOS47 in combination with the chemotherapy drug vinorelbine in patients with
metastatic NSCLC and metastatic breast cancer. In discussions with Health Canada additional information regarding the
proposed trial was requested, and in order to properly address Health Canada’s questions in the most efficient manner, the
Company voluntarily withdrew the CTA submission on June 11, 2014 and intends to resubmit the CTA, including the additional
information requested by Health Canada. The Company met with Health Canada on October 2, 2014 to discuss questions
submitted as part of a pre-CTA meeting. Commencement of the LDOS003 study in Canada depends on the feedback received
from Health Canada and on the Company’s ability to raise sufficient capital. The Company is also considering the possible
submission of applications to conduct the LDOS003 study in other jurisdictions.
Additional potential therapeutic applications of L-DOS47
The Company is also actively engaged in in vivo animal efficacy testing of L-DOS47 for other potential therapeutic applications
beyond NSCLC, including colorectal and breast cancers. In vitro testing showed promising results in these indications. If the
outcome of the in vivo experiments is positive, and subject to the availability of sufficient cash and other resources, the
Company intends to evaluate the possibility of expanding its clinical testing program of L-DOS47 to include patients with these
cancers.
The Company is also exploring the potential of other combinations that can expand the use of L-DOS47, either in NSCLC as an
alternative to current first-line therapies or use as adjuvant/neoadjuvant, or as a mechanism to show potential for accessing
other tumour types.
New potential DOS47 drug candidates
Several new potential DOS47 conjugates have been advanced by the Company. These potential new drug candidates may
have application in pancreatic, colorectal, ovarian, and breast cancer. However, there is no assurance at this time that the
research work can be completed successfully or whether any of these research candidates are suitable for development. The
Company has prepared laboratory-scale DOS47 immunoconjugate product candidates and continues to conduct in vitro and
pilot animal efficacy research studies with these product candidates. If these studies are positive, the Company intends to
request a pre-IND meeting with the FDA in calendar 2015 to devise a development program. The Company has not yet initiated
any formal preclinical investigations with these new DOS47 immunoconjugate product candidates, pending the research
outcome, a potential meeting with the FDA and the need for further capital before doing so.
The Company also has separate arrangements with the NRC and is in discussion with third parties for the identification of
additional tumor-targeting antibodies for conjugation with DOS47 and testing of the resultant immunoconjugates. In the event
that antibody candidates worthy of further development are identified, the Company will need to discuss development and
licensing with a third party, which licenses may not be available on terms acceptable to the Company or at all.
In fiscal 2012, the Company also entered into a collaborative research agreement with Amorfix Life Science Inc. (“Amorfix”) to
develop therapeutics against cancers associated with misfolded prion protein. As part of this collaboration, Amorfix will provide
tumour specific antibodies identified and developed with its ProMIS discovery technology while the Company will utilize its
technology to produce antibody-urease conjugates which are toxic to cells. Amorfix has announced preliminary efficacy results
in animal studies of an ovarian cancer conjugate and the Company understands work is ongoing to confirm these results and
optimize the conjugate.
Commercialization
The Company’s commercialization objective with DOS47 is to eventually enter into a strategic partnering alliance with a large
pharmaceutical company, on an individual or multiple drug candidate basis, such as L-DOS47 or any potential new DOS47 drug
product candidate. In the meantime, the Company’s objective is to continue generating value-adding clinical findings, which
Page | 7
demonstrate the safety and efficacy of L-DOS47 in patients or any other new potential DOS47 drug candidate so as to maximize
value for shareholders when entering into a strategic partnering alliance.
Market and Competition
Histological subtype mutation testing in choosing first and second line treatments for advanced or metastatic NSCLC are
becoming increasingly important. Disease progression, even with targeted therapies, is highly likely to occur, and there are no
clear guidelines and/or indications once such therapies fail. Maintenance therapy following the induction of first-line therapy is
also a treatment strategy gaining support.
Based on information published in “Cancer Facts and Figures 2014” by the American Cancer Society (www.cancer.org), lung
cancer remains the leading cause of death for both females and males in the U.S. and it is estimated that in 2014 there will be
over 180,000 new cases of NSCLC diagnosed.
Treatment strategies today for patients with advanced stage NSCLC are of limited effectiveness. If detected early, surgical
removal of the cancerous tissue is currently a patient’s best option. However, in the vast majority of cases, the cancer is not
typically identified until it has advanced to a level at which surgical intervention is no longer an option. In the cases of
inoperable, locally advanced, recurrent or metastatic NSCLC and with no known targetable mutations, treatment strategies
consist of one or more of today’s leading chemotherapeutic drug regimens for lung cancer (e.g. platinum therapy together with
certain leading chemotherapeutic drugs). Typically, these regimens relieve symptoms and, at best, delay progression of the
disease.
As a result, the Company believes that there is a substantial market opportunity for L-DOS47 given that (a) its target therapeutic
indication, inoperable, locally-advanced, recurrent or metastatic NSCLC, represents a significant and unmet medical need
worldwide; and (b) leading therapeutics for such oncology applications have commonly been high revenue generators for the
pharmaceutical sector.
However, technological competition from pharmaceutical companies, biotechnology companies and university researchers is
intense and is expected to increase. Many competitors and potential competitors have substantially greater product
development capabilities and financial, scientific, marketing and human resources than the Company, providing them with a
competitive advantage over the Company.
The BiphasixTM Topical Formulation System
The Biphasix™ Topical Formulation System is a platform technology which the Company acquired and further developed for
microencapsulating therapeutic compounds in multilayered, lipid-based microvesicles. These microvesicles have complex
structures that include a variety of compartments into which drug molecules can be integrated. The principal application of the
technology is in the preparation of topical dosage forms for the dermal (into the skin) or mucosal (into the mucosal tissues)
delivery of large molecular weight drug compounds.
The Company’s issued patents relating to Biphasix™ technology have expiration dates ranging from 2017 through 2020 in the
United States. Without patent protection, Biphasix™ could be genericized by others interested in copying the technology for
other uses which could further limit the Company’s ability to advance the Topical Interferon Alpha-2b program and/or other
prospective Biphasix™ initiatives, and fuel divestiture of any assets associated with the Biphasix™ technology.
Topical Interferon Alpha-2b
Topical Interferon Alpha-2b is a developmental product candidate for the treatment of certain skin/mucosal lesions caused by
human papilloma virus (“HPV”), based on the Company’s proprietary Biphasix™ technology (see “Biphasix™ Topical
Formulation System” above). To date, the Company has completed three Phase II clinical studies with Topical Interferon Alpha-
2b; two in patients with HPV-positive, low-grade cervical dysplasia and one in patients with HPV-positive ano-genital warts.
The Company has received IND approval by the FDA to conduct a U.S. Phase II/III clinical trial of Topical Interferon Alpha-2b in
low-grade cervical dysplasia patients, as well as CTA approval by the Bundesinstitut fur Arzneimittel und Medizinprodukte
(“BfArM”) and conditional CTA approval by the Medicines and Healthcare Regulatory Authority (“MHRA”) to conduct an identical,
European Phase III confirmatory trial in Germany and/or the United Kingdom respectively.
Due to a lack of funding, a decision was made by the Company to downsize and eventually close the Saskatoon laboratory
which supported the Topical Interferon Alpha-2b drug development program, and focus any ongoing activities to sourcing and
qualifying alternative interferon alpha-2b raw material samples, and finding suitable strategic partner(s) who would be willing to
license or acquire the product and support the remaining development costs through to commercial launch.
Page | 8
Market and Competition
Merck and GlaxoSmithKline, two large pharmaceutical companies, have developed and commercialized vaccines (Gardasil®
and Cervarix®, respectively) that are designed to protect against infection from several specific subtypes of HPV. Merck is also
developing a new broad spectrum HPV vaccine, V503, which is presently under advanced clinical development.
The Company is not aware of any other interferon alpha-2b cream product under development but is aware of other companies
having also recognized the need for effective therapies for HPV-induced lesions. The following is a non-exhaustive list of some
of the companies which are, based on publicly available information, developing products which offer a competitive alternative to
the Company’s Topical Interferon Alpha-2b: Photocure Inc., Erimos Pharmaceuticals LLC, Foamix Pharmaceuticals Ltd.,
BioMAS Ltd. and Nanovir LLC.
DRUG DISTRIBUTION BUSINESS IN CANADA
On December 10, 2012, the Company announced that it had entered into a definitive agreement for the sale of the Company’s
Rivex Pharma division for gross cash proceeds of up to $8.5 million (the “Rivex Transaction”). The Rivex Transaction was
approved at the annual general and special meeting of the Company’s shareholders on January 24, 2013 and the Rivex
Transaction closed on January 25, 2013.
The details of the Rivex Transaction are as follows:
Gross proceeds
Initial sale price
Add: Inventory assumed by buyer
Add: Trade accounts receivable assumed by buyer
Less: Accounts payable assumed by buyer
Less: Accruals assumed by buyer
Less: Holdback by buyer
Costs
Supplier contract extension fee
Transaction advisory fee
Legal costs
Employee termination costs
Other costs
Net assets disposed of at carrying value
$
7,600,000
748,000
368,000
(363,000)
(5,000)
(200,000)
8,148,000
500,000
425,000
173,000
150,000
133,000
748,000
2,129,000
Gain on sale from discontinued operations
$
6,019,000
As security for the fulfillment of certain obligations by the buyer of the Company’s distribution business to a key supplier, a
holdback amount of $200,000 was applied to the proceeds upon closing the Rivex Transaction. This holdback amount will be
paid to the Company in tranches starting at the end of calendar 2014, subject to the achievement of certain sales objectives by
the purchaser of the Rivex Pharma division under a distribution agreement assumed by the purchaser in connection with the
Rivex Transaction. The Company has not included the $200,000 holdback amount as consideration as at the closing date of the
Rivex Transaction and will not do so until such amounts are received by the Company.
As a result of the Rivex Transaction, the Company no longer has any revenue from product distribution activities (nor will it incur
the associated expenses).
SELECTED FINANCIAL INFORMATION AND SUMMARY OF QUARTERLY RESULTS
The tables below reflect only selected annual and quarterly financial information of the Company’s continuing operations.
Prior to January 25, 2013, the Company earned revenue, primarily from its drug distribution business in Canada. On
January 25, 2013, the Company completed the sale of its Rivex Pharma drug distribution business and as a result no longer had
any revenue from product distribution activities (nor will it incur the associated expenses). The Company received gross
proceeds of $8,148,000 in the second quarter of 2013 from the sale of the distribution business. See “Drug Distribution
Business in Canada” above.
Net loss and total comprehensive loss from continuing operations, over the last eight quarters, ranged from a high of $2,660,000
in fiscal Q2 2014 to a low of $1,726,000 in fiscal Q2 of 2013 with fluctuations mainly dependant on the level of research and
development activities and lower operating, general and administration expenses. Included in research and development
expense for Q2 F2014 is a one-time payout of $500,000 related to the termination of the Company’s former President and Chief
Operating Officer.
Page | 9
In fiscal Q4 2014, the Company closed a private placement for net proceeds of $5,481,000. In fiscal Q4 2014 operating, general
and administration expenditures remained in line with previous fiscal quarters while research and development expenditures
were slightly lower as a result of the Company recording an investment tax credit totalling $219,000.
The following table depicts selected quarterly data from continuing operations for the fiscal year ended July 31, 2014:
Revenue
Research and development
Operating, general and administration
Special committee and settlement agreement
Q4
–
973,000
830,000
–
$
$
$
$
Q3
$
–
$ 1,285,000
829,000
$
–
$
Q2
$
–
$ 1,649,000
$ 1,011,000
–
$
Q1
$
–
$ 1,332,000
826,000
$
–
$
Net loss and total comprehensive loss
Basic and diluted loss per common share
Weighted average number of common shares
$ (1,750,000)
(0.02)
$
72,816,467
$ (2,114,000)
(0.03)
$
71,904,337
$ (2,660,000)
(0.04)
$
71,904,337
$ (2,158,000)
(0.03)
$
67,226,337
Cash
$ 6,980,000
$ 2,832,000
$ 4,386,000
$ 2,482,000
The following table depicts selected quarterly data from continuing operations for the fiscal year ended July 31, 2013:
Revenue
Research and development
Operating, general and administration
Special committee and settlement agreement
Q4
–
$
$ 1,072,000
817,000
$
–
$
Q3
–
$
$ 1,303,000
911,000
$
–
$
Q2
–
$
$ 1,049,000
704,000
$
–
$
Q1
–
$
$ 1,608,000
764,000
$
–
$
Net loss and total comprehensive loss
Basic and diluted loss per common share
Weighted average number of common shares
$ (1,844,000)
(0.03)
$
67,226,337
$ (2,224,000)
(0.03)
$
67,226,337
$ (1,726,000)
(0.03)
$
67,226,337
$ (2,400,000)
(0.03)
$
67,226,337
Cash
$ 4,493,000
$ 6,674,000
$ 8,478,000
$ 3,313,000
The following table depicts selected annual data from continuing operations for the fiscal years ended July 31:
Revenue
Research and development expense
Operating, general and administration expense
Special committee and settlement agreement expense
Net loss and total comprehensive loss
Deficit, end of year
Basic and diluted loss per common share
Weighted average number of common shares
Cash
Working capital
Total assets
2014
-
5,239,000
3,496,000
–
2013
1,868,000
5,032,000
3,196,000
–
2012
4,260,000
7,450,000
4,580,000
6,536,000
$
$
$
$
$
$
$
$
$
$
$
$
$
8,682,000
$ 126,926,000
$
8,194,000
$ 118,244,000
18,854,000
$
$ 116,699,000
$
$
$
$
0.12
70,955,132
6,980,000
6,363,000
7,853,000
$
$
$
$
0.12
67,226,337
4,493,000
4,243,000
5,868,000
$
$
$
$
0.28
67,213,802
4,862,000
4,754,000
7,616,000
In fiscal 2012, the Company agreed to reimburse the reasonable costs and expenses incurred by the Concerned Shareholders
in respect of all matters in connection with the Special Committee and the 2012 AGM, including costs associated with the
shareholder proposal and requisition for a shareholder meeting by such shareholders, the Special Committee’s investigation and
the Respondents’ proxy solicitation. The total expenses associated with the 2012 AGM, the Special Committee and the
Settlement totalled $6,536,000 in fiscal 2012.
RESULTS FROM OPERATIONS
Net loss and total comprehensive loss from continuing operations
The Company recorded a net loss and total comprehensive loss of $8,682,000 ($0.12 loss per common share) and $1,545,000
($0.12 loss per common share) for the fiscal years ended 2014 and 2013, respectively.
Excluding the gain on sale and the net income and total comprehensive income from discontinued operations, the Company
realized a net loss and total comprehensive loss from continuing operations of $8,194,000 ($0.12 loss per common share) for
Page | 10
the fiscal year ended 2013. On January 25, 2013, the Company announced the sale of its distribution business in Canada. See
“Drug Distribution Business in Canada”, above.
Research & development
Research and development costs for fiscal 2014 and 2013 totalled $5,239,000 and $5,032,000, respectively.
The following table outlines research and development costs expensed and investment tax credits for the Company’s significant
research and development projects for the fiscal years ended July 31:
L-DOS47
Topical Interferon Alpha-2b
Corporate research and development expenses
Trademark and patent related expenses
Stock-based compensation expense
Depreciation expense
Research and development investment tax credit
$
2014
2,730
383
1,407
612
83
222
(198)
2013
$ 2,771
774
1,081
278
130
336
(338)
$
5,239
$ 5,032
L-DOS47 research and development expenses for fiscal 2014 and 2013 totalled $2,730,000 and $2,771,000, respectively. L-
DOS47 research and development expenditures relate primarily to expenditures associated with the ongoing European Phase
I/II clinical study in Poland and costs associated with the preparation of an IND and CTA applications with the FDA and Health
Canada.
Topical Interferon Alpha-2b research and development expenses for fiscal 2014 and 2013 totalled $383,000 and $774,000,
respectively. Beginning in June 2012, the Company initiated a downsizing of the staff in the Saskatoon laboratory which
resulted in the closure of the Saskatoon laboratory at the end of November 2012. In fiscal 2014, the Company focused ongoing
activities with respect to its Topical Interferon Alpha-2b program to sourcing and qualifying alternative interferon alpha-2b raw
material samples, strengthening the BiPhasix™ patent portfolio and finding a suitable strategic partner(s) who would be willing
to license or acquire the product and support the remaining development costs.
Corporate research and development expenses for fiscal 2014 and 2013 totalled $1,407,000 and $1,081,000, respectively.
Included in corporate research and development expense for fiscal 2014 is a one-time payout of $500,000 related to the
termination of the Company’s former President and Chief Operating Officer.
Trademark and patent related expenses for fiscal 2014 and 2013 totalled $612,000 and $278,000, respectively. The increase
reflects additional efforts taken by the Company to strengthen the DOS47 and Biphasix™ patent portfolio.
The Company is entitled to claim Canadian federal and provincial investment tax credits, which are earned as a percentage of
eligible research and development expenditures incurred in each taxation year. Investment tax credits are accounted for as a
reduction of research and development expenditures incurred. These investment tax credits resulted in a reduction of research
and development expenditures of $198,000 and $338,000 for fiscal periods 2014 and 2013, respectively.
Operating, general and administration
Operating, general and administration expenses for the fiscal 2014 and 2013 totalled $3,496,000 and $3,196,000, respectively.
Lower director and audit fees were offset by higher legal fees in defense of a legal claim which management believes is without
merit, higher stock based compensation expense and higher consulting fees.
SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial
statements.
Use of estimates and assumptions
The preparation of financial statements requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the year. Actual results could differ from those estimates. Significant areas
requiring the use of estimates include research and development tax credits associated with research and development
expenditures, the determination of fair value of stock options granted for estimating stock-based compensation, the allocation of
proceeds to share purchase warrants, estimates related to the determination of useful lives and assessment of impairment of
long-lived assets such as property, plant and equipment. In determining these estimates, the Company relies on assumptions
Page | 11
regarding applicable industry performance and prospects, as well as general business and economic conditions that prevail and
are expected to prevail. These assumptions are limited by the availability of reliable comparable data and the uncertainty of
predictions concerning future events. Actual results could differ from these estimates.
Functional and presentation currency
The functional and presentation currency of the Company is the Canadian dollar.
Basis of consolidation
The consolidated financial statements include the assets and liabilities and results of operations of all subsidiaries after
elimination of intercompany transactions and balances.
Cash
The Company considers cash on hand, deposits in banks and bank term deposits with maturities of 90 days or less as cash.
Property, plant and equipment
Property, plant and equipment are recorded at cost less accumulated depreciation. Impairment charges are included in
accumulated depreciation. Depreciation is provided using the following methods and estimated useful life:
Asset
Computer equipment and software
Furniture and fixtures
Research and manufacturing equipment
Leasehold improvements
Research and development costs
Basis
Straight line
Straight line
Straight line
Straight line
Rate
3 years
5 years
10 years
Lease term
Research costs are expensed as incurred. Development costs are expensed as incurred except for those which meet the
criteria for deferral, in which case, the costs are capitalized and amortized to operations over the estimated period of benefit. No
costs have been deferred to date.
Investment tax credits
The Company is entitled to Canadian federal and provincial investment tax credits, which are earned as a percentage of eligible
research and development expenditures incurred in each taxation year. Investment tax credits are accounted for as a reduction
of the related expenditure for items of a current nature and a reduction of the related asset cost for items of a capital nature,
provided that the Company has reasonable assurance that the tax credits will be realized.
Stock-based compensation
The Company accounts for stock-based compensation and other stock-based payments made in exchange for goods and
services provided by employees and non-employees in accordance with the fair value method. The fair value of stock options
granted is determined at the appropriate measurement date using the Black-Scholes option pricing model, and generally
expensed over the options’ vesting period for employee awards and non-employee awards. Awards with graded vesting are
considered multiple awards for fair value measurement and stock-based compensation calculation. In determining the expense,
the Company accounts for forfeitures using an estimate based on historical trends.
Foreign currency translation
The Company’s currency of presentation is the Canadian dollar, which is also the Company’s functional currency. Foreign
currency-denominated items are translated into Canadian dollars. Monetary assets and liabilities in foreign currencies are
translated into Canadian dollars at the rates of exchange in effect at the balance sheet dates. Non-monetary items are
translated at historical exchange rates. Revenue and expenses are translated at the exchange rates prevailing at their
respective transaction dates. Exchange gains and losses arising on translation are included in income.
Income taxes
The Company follows the asset and liability method of accounting for income taxes. Under this method, deferred income tax
assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement
carrying amounts of certain existing assets and liabilities and their respective tax bases. Deferred income tax assets and
liabilities are measured using enacted or substantively enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a
Page | 12
change in tax rates is recognized in income in the period that includes the date of substantive enactment. Given the Company’s
history of net losses and expected future losses, the Company is of the opinion that it is probable that these tax assets will not
be realized in the foreseeable future and therefore, the deferred tax asset has not been recognized.
Financial instruments
Financial assets and financial liabilities are initially recorded at fair value and their subsequent measurements are determined in
accordance with their classification. The classification depends on the purpose for which the financial instruments were
acquired or issued and their characteristics. Cash and cash equivalents are classified as held-for-trading assets and are
accounted for at fair value. Accounts receivable are classified as loans and receivables, and after initial recognition are
recorded at amortized cost. Accounts payable and accrued liabilities are classified as other financial liabilities, and after initial
recognition are recorded at amortized cost.
Impairment
(i) Financial assets:
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.
An impairment test is performed, on an individual basis, for each material financial asset. Other individually non-material
financial assets are tested as groups of financial assets with similar risk characteristics. Impairment losses are recognized in
income.
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 assets original effective interest rate.
Losses are recognized in income and reflected in an allowance account against the respective financial asset. Interest on the
impaired asset continues to be recognized through the unwinding of the discount. When a subsequent event causes the
amount of impairment loss to decrease, the decrease in impairment loss is reversed through income for all financial assets
except available-for-sale equity securities.
(ii) Non-financial assets:
The carrying amounts of the Company’s non-financial assets are reviewed at each reporting date to determine whether there is
any indication of impairment. If such an indication exists, the recoverable amount is estimated.
The recoverable amount of an asset or a 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 or cash-generating
unit. 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 cash inflows of other assets or
cash-generating units. An impairment loss is recognized if the carrying amount of an asset or its related cash-generating unit
exceeds its estimated recoverable amount.
Impairment losses recognized in prior periods are assessed 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, if no impairment loss had been recognized.
Basic and diluted loss per common share
Basic loss per share is computed by dividing the net loss available to common shareholders by the weighted average number of
shares outstanding during the reporting period. Diluted loss per share is computed similarly to basic loss per share, except that
the weighted average shares outstanding are increased to include additional shares for the assumed exercise of stock options
and warrants, if dilutive. The number of additional shares is calculated by assuming that outstanding stock options and warrants
were exercised and that the proceeds from such exercises were used to acquire common stock at the average market price
during the reporting periods. The inclusion of the Company’s stock options and warrants in the computation of diluted loss per
share has an anti-dilutive effect on the loss per share and, therefore, they have been excluded from the calculation of diluted
loss per share.
Page | 13
NEW ACCOUNTING STANDARDS AND PRONOUNCEMENTS NOT YET ADOPTED
Standards issued but not yet effective up to the date of issuance of the Company's consolidated financial statements are listed
below. This listing includes standards and interpretations issued, which the Company reasonably expects to be applicable at a
future date. The Company intends to adopt those standards when they become effective.
Certain pronouncements were issued by the International Accounting Standards Board (“IASB”) or International Financial
Reporting Interpretations Committee that are mandatory for annual periods beginning on or after January 1, 2011 or later
periods. Many of these updates are not applicable or are inconsequential to the Company and have been excluded from the
discussion below.
IFRS 7, Financial Instruments: Disclosures
The IASB has issued amendments to the disclosure requirements in IFRS 7, Financial Instruments: Disclosures (“IFRS 7”). The
amendments require information about all recognized financial instruments that are set off in accordance with paragraph 42 of
IAS 32, Financial Instruments: Presentation (“IAS 32”). The amendments also require disclosure of information about
recognized financial instruments subject to enforceable master netting arrangements and similar agreements even if they are
not set off under IAS 32. These amendments are effective for annual periods beginning on or after January 1, 2015. The
Company has yet to assess the impact of the new standard on its results of operations, financial position and disclosures.
IFRS 9, Financial Instruments
The IASB has issued a new standard, IFRS 9, Financial Instruments (“IFRS 9”), which will ultimately replace IAS 39, Financial
Instruments: Recognition and Measurement (“IAS 39”). IFRS 9 uses a single approach to determine whether a financial asset
or liability is measured at amortized cost or fair value. The approach in IFRS 9 is based on how an entity manages its financial
instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. The new
standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39. IFRS 9 is
effective for annual period beginning on or after January 1, 2015. Early adoption is permitted. The Company is evaluating the
impact of the new standard on its results of operations, financial position and disclosures.
IAS 32, Financial Instruments: Presentation
The IASB has issued amendments to IAS 32. The amendments require entities to disclose gross amounts subject to rights of
set-off, amounts set off in accordance with the accounting standards followed, and the related net credit exposure. This
information will help investors understand the extent to which an entity has set off in its balance sheet and the effects of rights of
set-off on the company’s rights and obligations. These amendments are effective for annual periods beginning on or after
January 1, 2014 and are required to be applied retrospectively. The Company is evaluating the impact of the amendment on its
results of operations, financial position and disclosures.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has mainly relied on financing its operations from public and private sales of equity. The
Company does not have any credit facilities and is therefore not subject to any externally imposed capital requirements or
covenants.
The Company manages its liquidity risk by continuously monitoring forecasts and actual cash flow from operations and
anticipated investing and financing activities.
The Company’s cash reserves of $6,980,000 as at July 31, 2014 are insufficient to meet anticipated cash needs for working
capital and capital expenditures through the next twelve months, nor are they sufficient to see the current research and
development initiatives through to completion. To the extent that the Company does not believe it has sufficient liquidity to meet
its current obligations, management considers securing additional funds, primarily through the issuance of equity securities of
the Company, to be of the utmost importance.
The Company’s long-term liquidity depends on its ability to access the capital markets, which depends substantially on the
success of the Company’s ongoing research and development programs, as well as economic conditions relating to the state of
the capital markets generally. Accessing the capital markets can be particularly challenging for companies that operate in the
biotechnology industry.
While the Company has been able to raise equity financing in recent years, there can be no assurance that additional funding by
way of equity financing will continue to be available. Any additional equity financing, if secured, would result in dilution to the
existing shareholders and such dilution may be significant. The Company may also seek additional funding from or through
other sources, including technology licensing, co-development collaborations, mergers and acquisitions, joint ventures, and
other strategic alliances, which, if obtained, may reduce the Company’s interest in its projects or products or result in significant
Page | 14
dilution to existing shareholders. The Company may also seek additional funding from government grants. There can be no
assurance, however, that any alternative sources of funding will be available. The failure of the Company to obtain additional
financing on a timely basis may result in the Company reducing, delaying or cancelling one or more of its planned research,
development and/or marketing programs, including clinical trials, further reducing overhead, or monetizing non-core assets, any
of which could impair the current and future value of the business or cause the Company to consider ceasing operations and
undergoing liquidation.
Given the Company’s conclusion about the insufficiency of its cash reserves, significant doubt may be cast about the
Company’s ability to continue operating as a going concern. The continuation of the Company as a going concern for the
foreseeable future depends mainly on raising sufficient capital, and in the interim, reducing, where possible, operating expenses
(including making changes to the Company’s research and development plans), including the delay of one or more of the
Company’s research and development programs, further reducing overhead and the possible disposition of assets.
At July 31, 2014 and 2013, the total number of common shares issued was 75,900,337, respectively and the Company’s
working capital was $6,363,000 and $4,243,000, respectively.
PROPERTY, PLANT AND EQUIPMENT EXPENDITURES
There were no major purchases of capital equipment in fiscal 2014 and 2013. Any purchases of property, plant and equipment
in fiscal 2015 is expected to be limited.
The following table summarizes the capital expenditures made by the Company in the fiscal years ended July 31:
Fiscal 2014
Fiscal 2013
RELATED PARTY TRANSACTIONS
Amount
$
3,000
$ 24,000
Type
General IT purchases
General IT purchases
The key management personnel of the Company are the President and Chief Executive Officer, former President and Chief
Operating Officer, Chief Scientific Officer, Chief Financial Officer and Director of Clinical Development.
The following table summarizes for key management personnel compensation for the fiscal years ended:
Compensation
Stock-based compensation
$
2014
1,750
238
2013
$ 1,324
291
Included in compensation expense in the above table is a one-time payout of $500,000 related to the termination of the
Company’s former President and Chief Operating Officer.
The following table summarizes Directors’ compensation for the fiscal years ended:
Directors’ fees
Stock-based compensation
$
2014
291
182
$
2013
369
16
Related party transactions are at arm’s length and recorded at the amount agreed to by the related parties.
FINANCIAL INSTRUMENTS
The Company has classified its financial instruments as follows:
Cash
2014
2013
Fair Value
$ 6,980
Fair value
hierarchy
Level 1
Fair Value
$ 4,493
Fair value
hierarchy
Level 1
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Fair value hierarchy
Financial instruments recorded at fair value on the balance sheet are classified using a fair value hierarchy that reflects the
significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:
Level 1 reflects valuation based on quoted prices observed in active markets for identical assets or liabilities;
Level 2 reflects valuation techniques based on inputs that are quoted prices of similar instruments in active markets;
quoted prices for identical or similar instruments in markets that are not active; inputs other than quoted prices used in
a valuation model that are observable for that instrument; and inputs that are derived principally from or corroborated
by observable market data by correlation or other means; and
Level 3 reflects valuation techniques with significant unobservable market inputs.
A financial instrument is classified to the lowest level of the hierarchy for which a significant input has been considered in
measuring fair value. The financial instrument in the Company’s financial statements, measured at fair value, is cash.
Fair value
The fair value of financial instruments as at July 31, 2014 and 2013 approximates their carrying value because of the near-term
maturity of these instruments.
CASH FLOWS
The following table presents the Company’s consolidated statement of cash flows:
Used in operating activities
Provided by in financing activities
Used in investing activities
Impact of foreign exchange on cash balances
Net decrease in cash from continuing operations
Net increase in cash from discontinued operations
Cash, beginning of period
Cash, end of period
$
2014
(7,692,000)
10,153,000
(3,000)
29,000
2,487,000
–
4,493,000
$
2013
(7,814,000)
–
(6,000)
(9,000)
(7,829,000)
7,460,000
4,862,000
$
6,980,000
$
4,493,000
Cash used in operating activities of $7,692,000 in fiscal 2014 includes a net loss and total comprehensive loss from continuing
operations of $8,682,000 with significant adjustments in operating activities related to depreciation of property, plant and
equipment of $232,000; stock-based compensation of $420,000; and a net increase to non-cash working capital of $390,000.
Cash used in operating activities of $7,814,000 in fiscal 2013 includes a net loss and total comprehensive loss from continuing
operations of $8,194,000 with significant adjustments in operating activities related to depreciation of property, plant and
equipment of $396,000; stock-based compensation of $241,000; and a net decrease to non-cash working capital of $223,000.
Cash provided from financing activities in fiscal 2014 of $10,153,000 is the result of closing two private placements (2013 – nil).
Investing activities in fiscal 2014 and 2013 represent a use of cash of $3,000 and $6,000, respectively which mainly represent
purchases of property, plant and equipment.
In fiscal 2013, as a result of the Rivex Transaction, (See “Drug Distribution Business in Canada” above), the Company recorded
a net increase in cash from discontinued operations of $7,460,000.
INTELLECTUAL PROPERTY
Patents and other proprietary rights are very valuable to the Company, even though the patent positions of biotechnology
companies may be uncertain and involve complex legal and factual issues. The Company has no assurance that any of its
patent applications will result in the issuance of any patents. Even issued patents may not provide the Company with a
competitive advantage against competitors with similar technologies, or who have designed around the Company’s patents.
Furthermore, the Company’s patents may be struck down if challenged. Intellectual property laws do not protect intellectual
property to the same extent from one country to another.
Because of the substantial length of time and expense associated with developing new products, the pharmaceutical, medical
device, and biotechnology industries place considerable importance on obtaining patent protection for new technologies,
Page | 16
products, and processes. The Company’s policy is to file patent applications to protect inventions, technology, and
improvements that are important to the development of our business and with respect to the application of our products and
technologies to the treatment of a number of disease indications. The Company’s policy also includes regular reviews related to
the development of each technology and product in light of its intellectual property protection, with the goal of protecting all key
research and developments by patent.
The Company seeks intellectual property protection in various jurisdictions around the world and owns patents and patent
applications relating to products and technologies in the United States, Canada, Europe, and other jurisdictions. The scope and
duration of our intellectual property rights vary from country to country depending on the nature and extent of our intellectual
property filings, the applicable statutory provisions governing the intellectual property, and the nature and extent of our legal
rights. The Company will continue to seek intellectual property protection as appropriate and require our employees,
consultants, outside scientific collaborators, and sponsored researchers to enter into confidentiality agreements with us that
contain assignment of invention clauses outlining ownership of any intellectual property developed during the course of the
individual’s relationship with us.
DOS47
The Company currently owns two U.S. patents in respect of the DOS47 technology, and also has also licensed patent rights
from the NRC for the antibody component of L-DOS47. With respect to non-US patents, the Company owns 18 DOS47 related
patents in other jurisdictions with a number of patent applications in countries around the world. The Company has recently filed
a joint patent application in the U.S. with Amorfix to cover the antibody-DOS47 conjugates derived from their collaboration (see
“New Potential DOS47 Candidates” above). A new U.S. patent application to cover new features of the DOS47 technology was
also filed by the Company during fiscal 2013.
BiphasixTM
The Company currently owns four U.S. BiphasixTM patents which includes one application claiming a priority date of 2007. This
application was subject to a final office response received in May 2012 and a "Request for a Continuing Application” amendment
with prioritized examination (track1) was filed with the United States Patent Trademark Office (“USPTO”) in July 2012. Final
correspondence from the Company was filed in September 2014 with an expectation that an allowance will be granted by the
USPTO if the Company’s response is satisfactory. The Company has three other U.S. BiphasixTM patent applications. The
Company is prosecuting these three applications with a view to further strengthening its patent portfolio for BiphasixTM and
Topical Interferon 2b.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no material off-balance sheet arrangements.
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
The Company’s commitments are summarized as follows:
Royalty and in-licensing (1)
Clinical research organizations (2)
Contract manufacturing organizations (3) 96,000
72,000
R&D distribution services (4)
84,000
Operating leases (5)
119,000
Financial and investor relations (6)
2015
2016
10,000 $ 10,000
2,527,000 1,828,000
113,000
48,000
–
–
$
2017
$ 10,000
–
76,000
–
–
–
2020 and
beyond
2019
2018
Total
$ 10,000 $ 10,000 $ 40,000 $ 90,000
4,355,000
301,000
120,000
84,000
119,000
–
16,000
–
–
–
–
–
–
–
–
–
–
–
–
–
$ 2,908,000 $1,999,000
$ 86,000
$ 26,000 $ 10,000
$ 40,000 $5,069,000
(1) Represents future minimum royalties.
(2) The Company has a Clinical Research Organization supplier agreement in place for clinical research services related to the
management of the Company’s Phase I clinical studies in both Europe and the U.S. of L-DOS47.
(3) The Company has three separate contract manufacturing organization supplier agreements related to the Company’s L-
DOS47 program, all of which are interdependent in the manufacturing of L-DOS47.
(4) The Company has a distribution services agreement associated with the fulfillment of L-DOS47 and ancillary medical items
in support of the Company’s Phase I clinical studies in both Europe and the U.S. of L-DOS47.
(5) The Company owes $84,000 under various operating lease agreements with remaining terms of up to February 2015 for
office and warehouse and research premises.
(6) The Company has a non-exclusive financial and investor relations agreement. The financial and investor relations
agreement expired on May 1, 2013 with provisions to continue on a month-to-month basis where notice to terminate
requires a ninety day written notice.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company’s main objectives when managing capital are to ensure sufficient liquidity to finance research and development
activities, clinical trials, ongoing administrative costs, working capital and capital expenditures. The Company includes cash and
components of shareholders’ equity, in the definition of capital. The Company endeavours not to unnecessarily dilute
shareholders when managing the liquidity of its capital structure.
Currency risk
The Company operates internationally and is exposed to foreign exchange risks from various currencies, primarily the Euro and
U.S. dollar. Foreign exchange risks arise from the foreign currency translation of the Company’s integrated foreign operation in
Ireland. In addition, foreign exchange risks arise from purchase transactions, as well as recognized financial assets and
liabilities denominated in foreign currencies.
The Company has maintained minimal cash balances denominated in both Euro and U.S. dollars due to Canadian dollar
stability and strength against foreign currencies. Any fluctuation in the exchange rates of the foreign currencies listed could
have an impact on the Company’s results from operations; however, they would not impair or enhance the ability of the
Company to pay its foreign-denominated expenses.
Balances in foreign currencies at July 31, 2014 and 2013 are as follows:
2014
2013
Cash
Accounts payable
Accruals
Net foreign currencies
Euros
102
(64)
(65)
(27)
Closing exchange rate
Impact of 1% change in exchange rate
1.4581
+/- 1
US
Dollars
162
(242)
–
(80)
1.0890
+/- 1
Euros
314
(35)
(3)
276
1.3665
+/- 4
US
Dollars
3
(39)
–
(36)
1.0272
+/- 1
Any fluctuation in the exchange rates of the foreign currencies listed above could have an impact on the Company’s results from
operations; however, they would not impair or enhance the ability of the Company to pay its foreign-denominated expenses.
Credit risk
Credit risk is the risk of a financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its
contractual obligation. The Company sold its distribution business on January 25, 2013 resulting in a reduction in customer
credit risk going forward. See “Drug Distribution Business in Canada” above.
The table below breaks down the various categories that make up the Company’s accounts receivable balances as at July 31:
Accounts receivable
Government related – HST/VAT
Research and development investment tax credits
Other
Interest rate risk
2014
2013
51
288
4
$ 343
121
434
4
$ 559
Interest rate risk is the risk that future cash flows of a financial instrument will fluctuate because of changes in interest rates,
which are affected by market conditions. The Company is exposed to interest rate risk arising from fluctuations in interest rates
received on its cash balances. The Company does not have any credit facilities and is therefore not subject to any debt related
interest rate risk.
The Company manages its interest rate risk by maximizing the interest income earned on excess funds while maintaining the
liquidity necessary to conduct its operations on a day-to-day basis. Any investment of excess funds is limited to risk-free
financial instruments. Fluctuations in the market rates of interest do not have a significant impact on the Company’s results of
operations due to the relatively short term maturity of any investments held by the Company at any given point in time and the
low global interest rate environment. The Company does not use derivative instruments to reduce its exposure to interest rate
risk.
Page | 18
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its obligations as they come due.
Since inception, the Company has mainly relied on financing its operations from public and private sales of equity. The
Company does not have any credit facilities and is therefore not subject to any externally imposed capital requirements or
covenants.
The Company manages its liquidity risk by continuously monitoring forecasts and actual cash flow from operations and
anticipated investing and financing activities.
The Company’s cash reserves of $6,980,000 as at July 31, 2014 are insufficient to meet anticipated cash needs for working
capital and capital expenditures through the next twelve months, nor are they sufficient to see the current research and
development initiates through to completion. To the extent that the Company does not believe it has sufficient liquidity to meet
its current obligations, management considers securing additional funds primarily through equity arrangements, of utmost
importance.
The Company’s long-term liquidity depends on its ability to access the capital markets, which depends substantially on the
success of the Company’s ongoing research and development programs, as well as economic conditions relating to the state of
the capital markets generally. Accessing the capital markets is particularly challenging for companies that operate in the
biotechnology industry.
OUTSTANDING SHARE DATA
As at July 31, 2014, the Company had outstanding 75,900,337 common shares; warrants to purchase up to 22,400,084
common shares; and incentive stock options to purchase up to 3,338,084 common shares.
DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING
Management has designed the Company’s disclosure controls and procedures to provide reasonable assurance that all relevant
information is gathered, recorded, processed, summarized and reported to the Chief Executive Officer and the Chief Financial
Officer so that appropriate decisions can be made within the time periods specified in securities legislation regarding public
disclosure by the Company in its annual filings, interim filings or other documents or reports required to be filed or submitted by
it under securities legislation.
Management has also designed internal controls over financial reporting (“ICFR”) to provide reasonable assurance regarding
the reliability of the Company’s financial reporting and the preparation of financial statements for external purposes in
accordance with IFRS. Because of its inherent limitations, ICFR can provide only reasonable assurance and may not prevent or
detect misstatements. Further, 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 policies or
procedures may deteriorate.
As of July 31, 2014, management evaluated the effectiveness of the Company’s ICFR and disclosure controls and procedures
and concluded that such ICFR and disclosure controls and procedures are not effective for the reasons set out below.
A change in the Company’s ICFR occurred during fiscal 2013 that has materially affected, or is reasonably likely to materially
affect the Company’s ICFR and is due to the resignation of the Company’s controller. The resignation of the Company’s
controller during the period has resulted in a lack of resources and has in turn impacted the segregation of duties associated
with the financial close and reporting process.
Since the resignation of the controller in 2013, management had concluded, and the board had agreed, that, when taking into
account the Company’s size and financial resources, the Company has not had sufficient scale of resources to warrant the
hiring of additional staff to address this concern and, accordingly, that there is a material weakness in the design of the
Company’s ICFR that has the potential to result in material misstatements in the Company’s financial statements and that this
should also be considered a weakness in the design and operating effectiveness of the Company’s disclosure controls and
procedures.
This material weakness is considered to be a common area of deficiency for many smaller listed companies in Canada.
However, there are several mitigating procedures and other factors which reduce the risk of a material misstatement in the
financial statements, including substantive review of the financial statements by the Chief Executive Officer and Audit
Committee, day-to-day management involvement in operations and reporting, the fact that the Company has a limited number of
transactions and the Company’s access to third party experts to address the reporting of complex or non-routine transactions
when they occur.
Page | 19
With the recent change in the board of directors of the Company, the new board concluded that it was important to eliminate the
material weakness resulting from the lack of segregation of duties due to limited staff, by hiring a full-time controller. The
Company is in the process of searching for a full-time controller.
RISKS AND UNCERTAINTIES
Helix is subject to risks, events and uncertainties, or “risk factors”, associated with being both a publicly traded company
operating in the biopharmaceutical industry, and as an enterprise with several projects in the research and development stage.
As a result of these risk factors, reported information and forward-looking statements may not necessarily be indicative of future
operating results or of future financial position, and actual results may vary from the forward-looking statements or reported
information. The Company cannot predict all of the risk factors, nor can it assess the impact, if any, of such risk factors on the
Company’s business or the extent to which any factor, or combination of factors, may cause future results or financial position to
differ materially from either those reported or those projected in any forward-looking statement. Accordingly, reported financial
information and forward-looking statements should not be relied upon as a prediction of future actual results. Some of the risks
and uncertainties affecting the Company, its business, operations and results which could cause actual results to differ
materially from those reported or from forward-looking statements include, either wholly or in part, those described elsewhere in
this Annual Report, as well as the following:
The Company does not have any source of operating income and is dependent solely on outside sources of financing
The Company’s operations consist of research and development activities, which do not generate any revenue.
Accordingly, the Company has no source of revenue, positive operating cash flow or operating earnings to subsidize its
ongoing research and development and other operating activities. As a result, the Company will have to rely on cash
on hand, and on outside sources of financing to fund its ongoing research and development and other operating
activities. Such sources of financing involve risks, including that the Company will not be able to raise such financing
on terms satisfactory to the Company or at all, and that any additional equity financing, if secured, would result in
dilution to existing shareholders, and that such dilution may be significant.
The Company has a history of losses and expects to continue to incur additional losses for the foreseeable future
The Company’s primary focus continues to be on its research and development of pharmaceutical product candidates.
The research and development of pharmaceutical products requires the expenditure of significant amounts of cash
over a relatively long time period. The Company expects to continue to incur losses from continuing operations, for the
foreseeable future. The Company’s cumulative deficit as at July 31, 2014 was $126,926,000. There can be no
assurance that the Company will record earnings in the future.
The Company requires additional funding
The Company’s cash reserves will not be sufficient for the Company to initiate its planned U.S. Phase I, or, if approved,
Canadian Phase I, clinical trials, or to fully fund its existing European Phase I/II clinical trial with L-DOS47 in Poland
and the Company’s other ongoing research and development, operating activities, working capital or capital
expenditures for the next twelve months.
The Company has no sources of external liquidity, such as a bank loan or line of credit. The Company will therefore
continue to rely on equity financing to fund its ongoing research and development activities and other expenses for the
foreseeable future.
Equity financing has historically been the Company’s primary source of funding, however, the market for equity
financings for companies such as the Company is challenging. While the Company has been able to raise equity
financing in recent years, there can be no assurance that additional funding by way of equity financing will continue to
be available. Any additional equity financing, if secured, would result in dilution to the existing shareholders which may
be significant. The Company may also seek additional funding from or through other sources, including grants,
technology licensing, co-development collaborations, disposition of assets, mergers and acquisitions, joint ventures,
and other strategic alliances, which, if obtained, may reduce the Company’s interest in its projects or products or result
in significant dilution to existing shareholders. There can be no assurance, however, that any alternative sources of
funding will be available.
The failure of the Company to obtain additional financing on a timely basis may result in the Company reducing,
delaying or cancelling one or more of its planned research, development and marketing programs, including any clinical
trials, further reducing overhead, or monetizing non-core assets any of which could impair the current and future value
of the business or cause the Company to consider ceasing operations and undergoing liquidation.
Page | 20
Competition and technological change
The biotechnology and pharmaceutical industries are subject to rapid and substantial technological change. The
Company faces competition from pharmaceutical companies, biotechnology companies and universities. This
competition is intense and is expected to increase.
Many competitors and potential competitors of the Company have substantially greater product development
capabilities and financial, scientific, marketing and human resources than the Company. Developments by others may
render the Company’s products and/or technologies non-competitive, and the Company may not be able to keep pace
with technological developments or its competition.
The Company is conducting early stage research and development initiatives for products under development which
may not be accepted by the market and may never generate revenue and the Company has limited sales, marketing
and distribution experience
The Company is conducting early stage research and development initiatives and is currently in the process of
developing new products that require further time consuming and costly research and development. It will be a number
of years, if ever, before its products in development begin to generate revenues, if at all. There can be no assurance
that any of the drug product candidates will ever be successfully developed or commercialized.
Even with regulatory approval, the Company may not achieve market acceptance, which depends on a number of
factors, including the establishment and demonstration in the medical community of the clinical utility of the Company’s
products, and their potential advantage over alternative treatment methods. There is also the risk that the actual
market size or opportunity for the Company’s drug candidates is not certain. Failure to gain market acceptance of
either of the Company’s products currently under development or an incorrect estimate in the nature and size of their
respective markets could have a material adverse effect on the Company.
The Company has limited sales, marketing and distribution experience, and there is no assurance that the Company
will be able to establish adequate sales, marketing, and distribution capabilities or make arrangements with any
collaborators, strategic partners, licensees, or others to perform such activities, or that such efforts will be successful.
The Company’s objective for its drug candidate products is to enter into strategic alliances with appropriate
pharmaceutical partners. There can be no assurance that any such strategic alliance will be maintained or achieved,
or if achieved, that it will result in revenue to the Company.
The timing of the Company’s internal goals and projected timelines may not be met
The Company sets internal goals for and makes public statements regarding its expected timing of meeting the
objectives material to its success, including the commencement, duration and completion of clinical trials and
anticipated regulatory approvals. The actual timing of these forward-looking events can vary dramatically due to a
number of factors, including, without limitation, delays in scaling-up of drug product candidates, delays or failures in
clinical trials, additional data requirements from the regulators, the Company failing to obtain required financing, and
other risks referred to herein. Without limiting the generality of the foregoing, it is possible that required regulatory
approvals may be delayed or denied, including those related to undertaking clinical trials, manufacturing of drug
products, and marketing.
The Company has expressed certain estimated timelines for its European Phase I//II clinical trials for L-DOS47 in
Poland, the planned U.S. Phase I study and, if approved, the Canadian Phase I study. The timeline for the European
Phase I/II trials and any future timelines are contingent on the Company having adequate financing to complete the
trials and the assumption that the trials will be completed according to the current schedules. A failure to obtain
necessary financing or a change in the schedule of the trials (which may occur if certain cost-deferral measures are
taken, or due to factors beyond the Company’s reasonable control, such as scheduling conflicts, the occurrence of
serious adverse events, interruption of supplies of study drugs, withdrawals of regulatory approvals, or slow patient
recruitment) could delay their commencement or completion, or result in their suspension or early termination, which
could have a material adverse effect on the Company.
Intellectual property risks, including the loss of patent protection, the potential termination of licences, the inability to
protect proprietary property, and possible claims of infringement against the Company or against a third-party from
whom the Company licenses intellectual property
The Company’s success depends, in part, on its ability to secure and protect its intellectual property rights and to
operate without infringing on the proprietary rights of others or having third parties circumvent the rights owned or
licensed by the Company. However, the Company cannot predict the enforceability of its patents or its ability to
maintain trade secrets that may not be protected by patents. Patent risks include the fact that patent applications may
not result in issued patents, issued patents may be circumvented, challenged, invalidated or insufficiently broad to
protect the Company’s products and technologies; blocking patents by third parties could prevent the Company from
Page | 21
using its patented technology; it may be difficult to enforce patent rights, particularly in countries that do not have
adequate legal enforcement mechanisms, and enforcing such rights may divert management attention and may cause
the Company to incur significant expenses; and any expiry of an issued patent, may negatively impact the underlying
technology.
To protect its trade secrets, the Company enters into confidentiality undertakings with parties that have access to them,
such as the Company’s current and prospective distributors, collaborators, employees and consultants, but a party may
breach the undertakings and disclose the Company’s confidential information or competitors might learn of the
information in some other way, which could have a material adverse effect on the Company.
The Company uses processes, technology, products, or information, the rights to certain of which are owned by others,
such as a license from the NRC of the lung antibody used by the Company for L-DOS47. Termination or expiry of any
licenses or rights during critical periods, and an inability to obtain them on commercially favourable terms or at all could
have a material adverse effect on the Company and its drug candidates’ development.
The Company operates in an industry that experiences substantial litigation involving the manufacture, use and sale of
new products that are the subject of conflicting proprietary rights. The Company or one or more of its licensors may be
subject to a claim of infringement of proprietary rights by a third party. It is possible that the Company’s products and
technologies do infringe the rights of third parties, and the Company or such licensor could incur significant expenses,
and diversion of management attention, in defending allegations of infringement of proprietary rights, even if there is no
infringement. Furthermore, the Company or such licensors may be required to modify its products or obtain licenses
for intellectual property rights as a result of any alleged proprietary infringement. The inability to modify products or
obtain licenses on commercially reasonable terms, in a timely manner or at all, could adversely affect the Company’s
business.
Research and development risks, including the need to prove the Company’s drug candidates are safe and effective in
clinical trials
The Company’s drug candidates are complex compounds and the Company faces difficult challenges in connection
with the manufacture of clinical batches of each of them, which could further delay or otherwise negatively affect the
Company’s planned clinical trials, or required regulatory approvals.
There is also the risk that the Company could obtain negative findings or factors that may become apparent during the
course of research or development. The results from preclinical and clinical trials may not be predictive of results
obtained in any ongoing or future clinical trials. A number of companies in the biotechnology and pharmaceutical
industry have suffered significant setbacks in advanced clinical trials, even after achieving promising results in earlier
trials and pre-clinical trials.
The timing and success of the Company’s clinical trials also depend on a number of other factors, including, but not
limited to: (i) obtaining additional financing, which is not assured; (ii) sufficient patient enrolment, which may be affected
by the incidence of the disease studied, the size of the patient population, the nature of the protocol, the proximity of
patients to clinical sites, the eligibility criteria for a patient to participate in the study and the rate of patient drop-out; (iii)
regulatory agency policies regarding requirements for approval of a drug, including granting permission to undertake
proposed human testing; (iv) the Company’s capacity to produce sufficient quantities and qualities of clinical trial
materials to meet the trial schedule; (v) performance by third parties, on whom the Company relies to carry out its
clinical trials; and (vi) the approval of protocols and/or protocol amendments.
Clinical trials are complex, expensive and uncertain, and have a high risk of failure, which can occur at any stage. Data
obtained from pre-clinical and clinical trials may be interpreted in different ways, or be incorrectly reported, which could
delay or prevent further development of the drug candidate studied. Failure to complete clinical trials successfully and
to obtain successful results on a timely basis could have a material adverse effect on the Company.
Even if the Company’s drug candidates successfully complete the clinical trials and receive the regulatory approval
necessary to market the drug candidates to the public, there is also the risk of unknown side effects, which may not
appear until the drug candidates are on the market and may result in delay or denial of regulatory approval or
withdrawal of previous approvals, product recalls or other adverse events, which could materially adversely affect the
Company.
While the Company continues to explore opportunities to expand its drug product pipeline with new DOS47-based
therapeutics pending the identification of further tumor targeting agents, there can be no assurance that any such
tumor targeting agents will be identified or that any new DOS47-based therapeutics will be developed.
Page | 22
The Company is dependent on a number of third-parties and the failure or delay in the performance of one of these
third-parties’ obligations may adversely affect the Company
The Company is dependent on third parties to varying degrees in virtually all aspects of its business, including without
limitation, on contract research organizations, contract manufacturing organizations, clinical trial consultants, raw
material suppliers for products such as urease and interferon alpha-2b, collaborative research consultants, regulatory
affairs advisers, medical and scientific advisors, clinical trial investigators, business service providers and other third
parties. Critical supplies may not be available from third parties on acceptable terms, or at all, including GMP grade
materials. Service providers may not perform, or continue to perform, as needed, or be available to provide the
required services on acceptable terms or at all. Any lack of or interruption in supplies of raw materials or services, or
any change in supply or service providers or any inability to secure new supply or service providers, would have an
adverse impact on the development and commercialization of the Company’s products. For example, the Company
has previously experienced delays in the manufacturing of both engineering and clinical batches of L-DOS47, which
have in turn caused delays in the progression of its development program, and there may be further delays. The
Company relies on a third party for its supply of urease and if the contract with the third-party urease supplier is
terminated early, the Company will have to find a new supplier of urease, as well as a new manufacturer of bulk drug
product for future clinical testing programs. There can be no assurance that a new supplier or manufacturer can be
contracted in a timely manner or at all, and this could negatively impact the Company’s development plans for L-
DOS47.
With respect to L-DOS47, the Company is currently dependent on, in addition to third party suppliers, manufacturers
and consultants, the NRC and its license to the Company of a lung cancer antibody in order to develop and
commercialize L-DOS47. Early termination of the license would have a material adverse effect on the further
development of L-DOS47 and may require the cessation of such development, which would have a material adverse
effect on the Company.
In the case of Topical Interferon Alpha-2b, the Company had been dependent on Merck for its supply of interferon
alpha-2b raw material until the termination of its agreement with Merck on December 14, 2012. The Company is now
searching for additional funding through other strategic partner support and additional interferon alpha-2b raw material
from other manufacturers. There can be no assurance that additional funding through other strategic partner support
and additional interferon alpha-2b raw material from other manufacturers can be arranged. Even if a new source of
supply is obtained, there may be challenges from a regulatory perspective in adequately demonstrating the
bioequivalence of such new supplier’s raw material with the interferon alpha-2b previously provided by Merck.
Given the Company`s lack of financing, expertise, infrastructure and other resources to support a new drug product
from clinical development to marketing, the Company also requires strategic partner support to develop and
commercialize its drug candidates. There can be no assurance that such strategic partner support will be obtained
upon acceptable terms or at all.
The Company relies heavily on contract manufacturers for the production of product required for its clinical trials,
product formulation work, scaling-up experiments and commercial production. The Company may not be able to obtain
new, or keep its current, contract manufacturers to provide these services. Even if the Company does, contract
manufacturers may not be reliable in meeting its requirements for cost, quality, quantity or schedule, or the
requirements of any regulatory agencies. The Company may not be able to manufacture products in quantities or
qualities that would enable the Company to meet its business objectives, and failure to do so would materially
adversely affect the Company’s business.
If the Company can successfully develop markets for its products, the Company would have to arrange for their scaled-
up manufacture. There can be no assurance that the Company will, on a timely basis, be able to make the transition
from manufacturing clinical trial quantities to commercial production quantities successfully or be able to arrange for
scaled-up commercial contract manufacturing. Any potential difficulties experienced by the Company in manufacturing
scale-up, including recalls or safety alerts, could have a material adverse effect on the Company’s business, financial
condition, and results of operations.
The marketability of the Company’s products may be affected by delays and the inability to obtain necessary
approvals, and following any market approval, the Company’s products will be subject to ongoing regulatory review
and requirements which may continue to affect their marketability, including but not limited to regulatory review of
drug pricing, healthcare reforms or the payment and reimbursement policies for drugs by the various insurers and
other payors in the industry.
The research, development, manufacture and marketing of pharmaceutical products are subject to regulation by the
FDA, and comparable regulatory authorities in other countries. These agencies and others regulate the testing,
manufacture, safety and promotion of the Company’s products. The Company must receive applicable regulatory
approval of a product candidate before it can be commercialized in any particular jurisdiction. Approval by a regulatory
authority of one country does not ensure the approval by regulatory authorities of other countries. Changes in
Page | 23
regulatory approval policies or regulations during the development period may cause delays in the approval or rejection
of an application. Regulatory authorities have substantial discretion in the approval process and may refuse to accept
any application, or may decide that our data are insufficient for approval, or require additional preclinical, clinical or
other trials and place our IND submissions on hold for an indeterminate amount of time. The development and
regulatory approval process in each jurisdiction takes many years, requires the expenditure of substantial resources, is
uncertain and subject to delays, and can adversely affect the successful development and commercialization of our
drug candidates.
Even if the Company obtains marketing approval in a particular jurisdiction, there may be limits on the approval and the
Company’s products likely will be subject to ongoing regulatory review and regulatory requirements in that jurisdiction.
Pharmaceutical companies are subject to various government regulations, including without limitation, requirements
regarding occupational safety, laboratory practices, environmental protection and hazardous substance control, and
may be subject to other present and future regulations.
The availability of reimbursement by governmental and other third-party payors, such as private insurance plans, will
affect the market for any pharmaceutical product, and such payors tend to continually attempt to contain or reduce the
costs of healthcare. Significant uncertainty exists with respect to the reimbursement status of newly approved
healthcare products.
The Company operates in an industry that is more susceptible than others to legal proceedings, and in particular,
liability claims
The Company operates in a field whose firms are more susceptible to legal proceedings than firms in other industries,
due to the uncertainty involved in the development of pharmaceuticals. Defense and prosecution of legal claims can
be expensive and time consuming, and may adversely affect the Company regardless of the outcome due to the
diversion of financial, management and other resources away from the Company’s primary operations. Negative
judgments against the Company, even if the Company is planning to appeal such a decision, or even a settlement in a
case, could negatively affect the cash reserves of the Company, and could have a material negative effect on the
development of its drug products.
The Company may be exposed, in particular, to liability claims which are uninsured or not sufficiently insured, and any
claims may adversely affect the Company’s ability to obtain insurance in the future or result in negative publicity
regarding the efficacy of its drug products. Such liability insurance is expensive, its ability is limited and it may not be
available on terms that are acceptable to the Company, if at all.
The use of any of the Company’s unapproved products under development, the use of its products in clinical trials, and,
if regulatory approval is received, the sale of such products, may expose the Company to liability claims which could
materially adversely affect the Company’s business. The Company may not be able to maintain or obtain commercially
reasonable liability insurance for future products, and any claims under any insurance policies may adversely affect its
ability to maintain existing policies or to obtain new insurance on existing or future products. Even with adequate
insurance coverage, publicity associated with any such claim could adversely affect public opinion regarding the safety
or efficacy of the Company’s products. As a result, any product liability claim or recall, including in connection with
products previously sold by the Company through its former distribution business, could materially adversely affect the
Company’s business.
The Company is dependent upon key personnel
The Company’s ability to continue its development of potential products depends on its ability to attract and maintain
qualified key management personnel. Competition for such personnel is intense and the Company may not be able to
attract and retain such personnel. In addition, the Company does not carry key-man insurance on any individuals. If
the Company loses and is unable to replace key personnel, its business could be negatively affected.
Indemnification obligations to directors and officers of the Company may adversely affect its finances
The Company has entered into agreements pursuant to which the Company has agreed to indemnify its directors and
senior management in respect of certain claims made against them while acting in their capacity as such. If the
Company is called upon to perform its indemnity obligations, its finances may be adversely affected.
The claims made in connection with the Company’s contested 2012 AGM may adversely affect the Company’s ability to
procure satisfactory insurance for its directors and officers in the future at reasonable rates, which may adversely
affect the Company’s finances
The claims made in connection with the Company’s contested annual general meeting for 2012 may have an adverse
impact on the Company’s ability to procure insurance for its current directors and senior management in the future at
reasonable rates, and these increased costs may adversely affect Company’s finances.
Page | 24
The Company’s finances may fluctuate based on foreign currency exchange rates
The Company operates internationally and is exposed to foreign exchange risks from various currencies, primarily the
Euro and U.S. dollar.
Dilution through exercise of stock options, warrants and future equity financings
To attract and retain key personnel, the Company has granted options to its key employees, directors and consultants
to purchase common shares and share awards as non-cash incentives. In addition, the Company has a significant
number of warrants to purchase common shares outstanding. The issuance of shares pursuant to share awards and
the exercise of a significant number of such options and warrants may result in significant dilution of other stockholders
of the Company.
As noted above, the Company needs additional funding and has historically turned to the equity markets to raise this
funding. The future sale of equity and warrants may also result in significant dilution to the stockholders of the
Company.
Volatility of share price and trading volumes
The price of the Company’s shares, as well as market prices for securities of biopharmaceutical and drug delivery
companies generally, have historically been highly volatile, and have from time to time experienced significant price
and volume fluctuations that are unrelated to the operating performance of particular companies. Sales of substantial
numbers of the Company’s common shares could cause a decline in the market price of such common shares. There
are minimum listing requirements for an issuer to maintain its listing on the Toronto Stock Exchange (“TSX”), and if the
Company fails to maintain these listing requirements, it may be involuntarily delisted from the TSX. De-listing the
Company or the Company shares from any securities exchange could have a negative effect on the liquidity of the
Company shares and/or the ability of a shareholder to trade in shares of the Company, and could have an adverse
effect on the Company’s ability to raise future equity financings. The Company’s common shares trade in a very low
volume compared to the number of common shares outstanding. This means a shareholder could have difficulty
disposing of common shares, especially if there are other shareholders of the Company trying to sell their shares in the
Company at the same time. Volatility in share price and trading volumes could have an adverse effect on the
Company’s ability to raise future equity financings.
Trading in the Company’s shares outside of Canada may be subject to restrictions on trading under foreign securities
laws, and purchasers of securities under private placements by the Company will be subject to certain restrictions on
trading.
The Company’s shares trade on the TSX and are freely tradable only in Canada. As such, shareholders trading the
Company’s shares outside of Canada may be subject to restrictions imposed by foreign securities laws that may
restrict their ability to transfer shares freely or at all. Certain securities offered by the Company pursuant to its private
placements, including the unlisted warrants issued by the Company, are subject to certain initial hold periods and other
restrictions on trading imposed by applicable securities laws and, in the case of the warrants, pursuant to the terms of
the applicable warrant certificates. These restrictions may affect the liquidity of the investment of certain shareholders
in the securities of the Company.
General economic conditions may have an adverse effect on the Company and its business
Continuing global economic volatility and uncertainty may have an adverse effect on the Company and its business,
including without limitation the ability to raise additional financing, to obtain strategic partner support or
commercialization opportunities and alliances for the Company’s new drug candidates, and to obtain continued
services and supplies.
The Company’s business involves environmental risks that could result in accidental contamination, injury, and
significant capital expenditures in order to comply with environmental laws and regulations
The Company and its commercial collaborators are subject to laws and regulations governing the use, manufacture,
storage, handling and disposal of materials and certain waste products. Although the Company believes that its safety
procedures comply with the regulations, the risk of accidental contamination or injury from these materials cannot be
eliminated. In the event of such an accident, the Company could be held liable for any damages that result and any
such liability could exceed the resources of the Company. The Company is not specifically insured with respect to this
liability. The Company (or its collaborators) may be required to incur significant costs to comply with environmental
laws and regulations in the future; and the operations, business or assets of the Company may be materially adversely
affected by current or future environmental laws or regulations.
Page | 25
RISK FACTORS IN OTHER PUBLIC FILINGS
For all of the reasons set forth above, together with those additional risk factors identified under the headings “Forward-Looking
Statements” and “Risk Factors” in the Company’s most recent Annual Information Form filed under the Company’s profile on
SEDAR at www.sedar.com, investors should not place undue reliance on forward-looking statements. Other than any obligation
to disclose material information under applicable securities laws, the Company undertakes no obligation to revise or update any
forward-looking statements after the date hereof.
Data relevant to estimated market sizes and penetration for the Company’s lead products under development are presented in
this Management’s Discussion and Analysis of Financial Condition and Results of Operations. These data have been obtained
from a variety of published resources including published scientific literature, websites and information generally available
through publicized means. The Company attempts to source reference data from multiple sources whenever possible for
confirmatory purposes. Although the Company believes the foregoing data is reliable, the Company has not independently
verified the accuracy and completeness of this data.
ADDITIONAL INFORMATION
Additional information relating to the Company’s fiscal year ended July 31, 2014, is available under the Company’s profile on
SEDAR at www.sedar.com.
Dated October 20, 2014
Page | 26
Consolidated Financial Statements of Helix BioPharma Corp.
Years ended July 31, 2014 and 2013
Page | 27
MANAGEMENT’S RESPONSIBILITY FOR
FINANCIAL INFORMATION
The accompanying consolidated financial statements of Helix BioPharma Corp. and other financial information contained in this
annual report are the responsibility of management. The consolidated financial statements have been prepared in conformity
with International Financial Reporting Standards, using management’s best estimates and judgments, where appropriate. In the
opinion of management, these consolidated financial statements reflect fairly the financial position and the results of operations
and cash flows of the Company within reasonable limits of materiality. The financial information contained elsewhere in this
annual report has been reviewed to ensure consistency with that in the consolidated financial statements.
To assist management in discharging these responsibilities, the Company maintains an effective system of procedures and
internal controls which is designed to provide reasonable assurance that its assets are safeguarded against loss from
unauthorized use or disposition, that transactions are executed in accordance with management’s authorization and that the
financial records form a reliable base for the preparation of accurate and reliable financial information.
The Board of Directors ensures that management fulfills its responsibilities for the financial reporting and internal control. The
Board of Directors exercises this responsibility through its independent Audit Committee comprising a majority of unrelated and
outside directors. The Audit Committee meets periodically with management and annually with the external auditors to review
audit recommendations and any matters that the auditors believe should be brought to the attention of the Board of Directors.
The Audit Committee also reviews the consolidated financial statements and recommends to the Board of Directors that the
statements be approved for issuance to the shareholders.
The consolidated financial statements have been audited by BDO Canada LLP, Chartered Accountants, Licensed Public
Accountants, which has full and unrestricted access to the Audit Committee. BDO Canada LLP’s report on the consolidated
financial statements is presented herein.
/s/ Robert Verhagen
Robert Verhagen
President and Chief Executive Officer
/s/ Photios (Frank) Michalargias
Photios (Frank) Michalargias
Chief Financial Officer
October 20, 2014
Page | 28
BDO Canada LLP
60 Columbia Way, Suite 300
Markham, Ontario, L3R 0C9
Canada
Telephone (905) 946-1066
Fax (905) 946-9524
Internet www.bdo.ca
INDEPENDENT AUDITORS’ REPORT OF
REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of Helix BioPharma Corp.
We have audited the accompanying consolidated financial statements of Helix BioPharma Corp., and its subsidiaries, which
comprise the statements of financial position as at July 31, 2014, the consolidated statements of net loss and comprehensive
loss, changes in shareholders’ equity and cash flows for the year ended July 31, 2014, and a summary of significant accounting
policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance
with International Financial Reporting Standards, and for such internal control as management determines is necessary to
enable the preparation of consolidated 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 consolidated financial statements based on our audits. We conducted our
audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical
requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of
material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated
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 consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Helix
BioPharma Corp., as at July 31, 2014, and its financial performance and its cash flows for the year then ended in accordance
with International Financial Reporting Standards.
Other Matters
The consolidated financial statements of Helix BioPharma Corp. for the year ended July 31, 2013, were audited by another
auditor who expressed an unmodified opinion on those consolidated financial statements on October 23, 2013.
Emphasis of Matter
Without modifying our opinion, we draw attention to Note 1 in the consolidated financial statements, which indicates that Helix
BioPharma Corp’s, cash of $6,980,000 as at July 31, 2014 are insufficient to meet anticipated cash needs for working capital
and capital expenditures through the next twelve months. This condition, along with other matters as set forth in Note 1 in the
consolidated financial statements, indicate the existence of a material uncertainty that may cast significant doubt about Helix
BioPharma Corp.’s ability to continue as a going concern.
/s/ BDO Canada LLP
Chartered Accountants, Licensed Public Accountants
Markham, Ontario
October 20, 2014
Page | 29
HELIX BIOPHARMA CORP.
Consolidated Statement of Financial Position
In thousands of Canadian dollars
As at July 31, 2014 and 2013.
As at:
ASSETS
Non-current assets
Property, plant and equipment (note 4)
Current assets
Prepaid expenses
Accounts receivable
Cash
Total assets
SHAREHOLDERS’ EQUITY AND LIABILITIES
Shareholders’ equity (note 5)
Current liabilities
Deferred lease credit
Accrued liabilities
Accounts payable
July 31, 2014
July 31, 2013
$
448
448
82
343
6,980
7,405
$
677
677
139
559
4,493
5,191
$
7,853
$
5,868
6,811
–
476
566
1,042
4,920
23
621
304
948
Total liabilities and shareholders’ equity
$
7,853
$
5,868
The accompanying notes are an integral part of these consolidated financial statements.
On behalf of the Board of Directors:
/s/ Yvon Bastien
Yvon Bastien,
Chair, Board of Directors
/s/ Sven Rohmann
Sven Rohmann,
Chair, Audit Committee
Page | 30
HELIX BIOPHARMA CORP.
Consolidated Statement of Net Loss and Comprehensive Loss
Years ended July 31, 2014 and 2013 (In thousands of Canadian dollars, except per share amounts)
2014
2013
Expenses
Research and development
Operating, general and administration
Loss (gain) on disposal of property, plant and equipment
Results from operating activities before finance items
Finance items
Finance income
Finance expense
Foreign exchange gain (loss)
5,239
3,496
-
(8,735)
43
(19)
29
53
Loss and total comprehensive loss from continuing operations
(8,682)
Net income and total comprehensive income from discontinued operations (note 13)
Gain from sale of discontinued operations (note 13)
-
-
5,032
3,196
(18)
(8,210)
50
(25)
(9)
16
(8,194)
630
6,019
Net loss and total comprehensive loss
$
(8,682)
$
(1,545)
Loss per common share from continuing operations
Basic
Diluted
Income per common share from discontinued operations
Basic
Diluted
Gain per common share from sale of discontinued operations
Basic
Diluted
Loss per common
Basic
Diluted
$
$
(0.12)
(0.12)
$
$
$
$
-
-
-
-
$
$
(0.12)
(0.12)
$
(0.12)
$ (0.12)
$
0.01
$ 0.01
$
0.09
$ 0.09
$
(0.02)
$ (0.02)
Weighted average number of common shares used in the calculation of
basic and diluted loss per share
70,955,132
67,226,337
The accompanying notes are an integral part of these consolidated financial statements.
Page | 31
HELIX BIOPHARMA CORP.
Consolidated Statement of Changes in Shareholders’ Equity
Years ended July 31, 2014 and 2013 (In thousands of Canadian dollars, except per share amounts)
In thousands of Canadian dollars, except common share and warrant numbers
Common shares warrants
Share purchase
Amount
Number Amount
Contributed
Number Options surplus
Accumulated
other
comprehensive
Total
income shareholders
equity
(loss)
Deficit
Balances, July 31, 2012 $ 102,393 67,226,337 $ 7,167 13,726,084
$6,036 $ 7,327 $(116,699) $ –
$ 6,224
Net loss for the year
Common stock, issued
Warrants, issued
Warrants, expired unexercised
Warrants, amended terms
Stock-based compensation
Options, exercised
Options, expired unexercised
–
–
–
–
(986)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
986
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
241
–
(1,645)
–
–
–
–
–
–
–
1,645
(1,545)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1,545)
–
–
–
–
241
–
–
Balances, July 31, 2013 $ 101,407 67,226,337 $ 8,153 13,726,084
$4,632 $ 8,972 $(118,244) $ –
$ 4,920
Net loss for the year
Common stock, issued
Warrants, issued
Warrants, expired unexercised
Warrants, amended terms
Stock-based compensation
Options, exercised
Options, expired unexercised
–
6,518
–
(846)
–
–
–
–
8,674,000
–
–
–
–
–
–
–
–
–
–
3,635 8,674,000
–
–
–
–
–
–
846
–
–
–
–
–
–
–
–
420
–
(993)
–
–
–
–
–
–
–
993
(8,682)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(8,682)
6,518
3,635
–
–
420
–
–
Balances, July 31, 2014 $ 107,079 75,900,337 $12,634 22,400,084
$4,059 $ 9,965 $(126,926) $ –
$ 6,811
The accompanying notes are an integral part of these consolidated financial statements.
Page | 32
HELIX BIOPHARMA CORP.
Consolidated Statement of Cash Flows
Years ended July 31, 2014 and 2013 (In thousands of Canadian dollars)
Cash flows from operating activities
Net loss and total comprehensive loss
from continuing operations
Items not involving cash:
Depreciation of property, plant and equipment
Deferred lease credit
Stock-based compensation
Foreign exchange loss
Loss (gain) on disposal and impairment on property, plant and equipment
Change in non-cash working capital:
Accounts receivable
Other receivables
Prepaid expenses
Accounts payable
Accrued liabilities
Net cash used in operating activities
Cash flows from financing activities
Proceeds from the issuance of common shares and
share purchase warrants, net of issue costs
Net cash provided by financing activities
Cash flows from investing activities
Purchase of property, plant and equipment
Proceeds from the sale of property, plant and equipment
Net cash used in investing activities
Foreign exchange loss on cash
Net increase (decrease) in cash from continuing operations
Net increase in cash from discontinued operations
Cash, beginning of period
Cash, end of period
2014
2013
$
(8,682)
$
(8,194)
232
(23)
420
(29)
_
216
-
57
262
(145)
(7,692)
10,153
10,153
(3)
-
(3)
29
396
(25)
241
9
(18)
(288)
444
(67)
(277)
(35)
(7,814)
–
–
(24)
18
(6)
(9)
$
$
2,487
-
4,493
$
6,980
$
(7,829)
$
7,460
4,862
4,493
$
The accompanying notes are an integral part of these consolidated financial statements.
Page | 33
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2014 and 2013
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
Helix BioPharma Corp (the “Company”), incorporated under the Canada Business Corporations Act, is a biopharmaceutical
company primarily focused in the areas of cancer prevention and treatment. Until recently, the Company earned revenues from
its drug distribution business in Canada. On January 24, 2013, the Company’s shareholders approved the sale of the
Company’s drug distribution business, Rivex Pharma and the transaction closed on January 25, 2013 (see “Rivex Transaction –
Note 12”, below). The Company has funded its research and development activities, mainly through the issuance of common
shares and warrants. The Company expects to incur additional losses and therefore will require additional financial resources,
on an ongoing basis. It is not possible to predict the outcome of future research and development activities or the financing
thereof.
1. Basis of presentation and going concern
These consolidated financial statements have been prepared on a going-concern basis, which assumes that the Company will
continue in operation for the foreseeable future and, accordingly, will be able to realize its assets and discharge its liabilities in
the normal course of operations. The Company's ability to continue as a going concern is dependent mainly on obtaining
additional financing, which is always challenging for research and development companies. As at July 31, 2014, the Company
does not have sufficient cash to meet anticipated cash needs for working capital and capital expenditures through the next
twelve months. The Company will require additional financing in the near term and in the future to see the current research and
development initiates through to completion. There can be no assurance however, that additional financing can be obtained in a
timely manner, or at all. Not raising sufficient additional financing on a timely basis may result in delays and possible termination
of all or some of the Company’s research and development initiatives, and as a result, may cast significant doubt as to the ability
of the Company to operate as a going concern and accordingly, the appropriateness of the use of the accounting principles
applicable to a going concern. These consolidated financial statements do not include any adjustments to the carrying amount
and classification of reported assets, liabilities and expenses that might be necessary should the Company not be successful in
its aforementioned initiatives. Such adjustments could be material. The Company cannot predict whether it will be able to raise
the necessary funds it needs to continue as a going concern.
Statement of compliance
The Company’s consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) under IAS 34, Interim Financial Reporting (“IAS 34”) as issued by the International Accounting Standards
Board (“IASB”).
The consolidated financial statements of the Company were approved and authorized for issue by the Board of Directors on
October 20, 2014.
Use of estimates and assumptions
The preparation of financial statements requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the year. Actual results could differ from those estimates. Significant areas
requiring the use of estimates include research and development tax credits associated with research and development
expenditures, the determination of fair value of stock options granted for estimating stock-based compensation, the allocation of
proceeds to share purchase warrants, estimates related to the determination of useful lives and assessment of impairment of
long-lived assets such as property, plant and equipment. In determining these estimates, the Company relies on assumptions
regarding applicable industry performance and prospects, as well as general business and economic conditions that prevail and
are expected to prevail. These assumptions are limited by the availability of reliable comparable data and the uncertainty of
predictions concerning future events. Actual results could differ from these estimates.
Functional and presentation currency
The functional and presentation currency of the Company is the Canadian dollar.
2. Significant accounting policies
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial
statements.
Basis of consolidation
The consolidated financial statements include the assets and liabilities and results of operations of all subsidiaries after
elimination of intercompany transactions and balances.
Cash
The Company considers cash on hand, deposits in banks and bank term deposits with maturities of 90 days or less as cash.
Page | 34
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2014 and 2013
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
Property, plant and equipment
Property, plant and equipment are recorded at cost less accumulated depreciation. Impairment charges are included in
accumulated depreciation. Depreciation is provided using the following methods and estimated useful life:
Asset
Computer equipment and software
Furniture and fixtures
Research and manufacturing equipment
Leasehold improvements
Basis
Straight line
Straight line
Straight line
Straight line
Rate
3 years
5 years
10 years
Lease term
Research and development costs
Research costs are expensed as incurred. Development costs are expensed as incurred except for those which meet the
criteria for deferral, in which case, the costs are capitalized and amortized to operations over the estimated period of benefit. No
costs have been deferred to date.
Investment tax credits
The Company is entitled to Canadian federal and provincial investment tax credits, which are earned as a percentage of eligible
research and development expenditures incurred in each taxation year. Investment tax credits are accounted for as a reduction
of the related expenditure for items of a current nature and a reduction of the related asset cost for items of a capital nature,
provided that the Company has reasonable assurance that the tax credits will be realized.
Stock-based compensation
The Company accounts for stock-based compensation and other stock-based payments made in exchange for goods and
services provided by employees and non-employees in accordance with the fair value method. The fair value of stock options
granted is determined at the appropriate measurement date using the Black-Scholes option pricing model, and generally
expensed over the options’ vesting period for employee awards and non-employee awards. Awards with graded vesting are
considered multiple awards for fair value measurement and stock-based compensation calculation. In determining the expense,
the Company accounts for forfeitures using an estimate based on historical trends.
Foreign currency translation
The Company’s currency of presentation is the Canadian dollar, which is also the Company’s functional currency. Foreign
currency-denominated items are translated into Canadian dollars. Monetary assets and liabilities in foreign currencies are
translated into Canadian dollars at the rates of exchange in effect at the balance sheet dates. Non-monetary items are
translated at historical exchange rates. Revenue and expenses are translated at the exchange rates prevailing at their
respective transaction dates. Exchange gains and losses arising on translation are included in income.
Income taxes
The Company follows the asset and liability method of accounting for income taxes. Under this method, deferred income tax
assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement
carrying amounts of certain existing assets and liabilities and their respective tax bases. Deferred income tax assets and
liabilities are measured using enacted or substantively enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the date of substantive enactment. Given the Company’s
history of net losses and expected future losses, the Company is of the opinion that it is probable that these tax assets will not
be realized in the foreseeable future and therefore, the deferred tax asset has not been recognized.
Financial instruments
Financial assets and financial liabilities are initially recorded at fair value and their subsequent measurements are determined in
accordance with their classification. The classification depends on the purpose for which the financial instruments were
acquired or issued and their characteristics. Cash and cash equivalents are classified as held-for-trading assets and are
accounted for at fair value. Accounts receivable are classified as loans and receivables, and after initial recognition are
recorded at amortized cost. Accounts payable and accrued liabilities are classified as other financial liabilities, and after initial
recognition are recorded at amortized cost.
Impairment
(i) Financial assets:
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
Page | 35
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2014 and 2013
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
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.
An impairment test is performed, on an individual basis, for each material financial asset. Other individually non-material
financial assets are tested as groups of financial assets with similar risk characteristics. Impairment losses are recognized in
income.
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 assets original effective interest rate.
Losses are recognized in income and reflected in an allowance account against the respective financial asset. Interest on the
impaired asset continues to be recognized through the unwinding of the discount. When a subsequent event causes the
amount of impairment loss to decrease, the decrease in impairment loss is reversed through income for all financial assets
except available-for-sale equity securities.
(ii) Non-financial assets:
The carrying amounts of the Company’s non-financial assets are reviewed at each reporting date to determine whether there is
any indication of impairment. If such an indication exists, the recoverable amount is estimated.
The recoverable amount of an asset or a 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 or cash-generating
unit. 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 cash inflows of other assets or
cash-generating units. An impairment loss is recognized if the carrying amount of an asset or its related cash-generating unit
exceeds its estimated recoverable amount.
Impairment losses recognized in prior periods are assessed 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, if no impairment loss had been recognized.
Basic and diluted loss per common share
Basic loss per share is computed by dividing the net loss available to common shareholders by the weighted average number of
shares outstanding during the reporting period. Diluted loss per share is computed similarly to basic loss per share, except that
the weighted average shares outstanding are increased to include additional shares for the assumed exercise of stock options
and warrants, if dilutive. The number of additional shares is calculated by assuming that outstanding stock options and warrants
were exercised and that the proceeds from such exercises were used to acquire common stock at the average market price
during the reporting periods. The inclusion of the Company’s stock options and warrants in the computation of diluted loss per
share has an anti-dilutive effect on the loss per share and, therefore, they have been excluded from the calculation of diluted
loss per share.
3. New accounting standards and pronouncements not yet adopted
New accounting standards and pronouncements issued but not yet effective up to the date of issuance of the Company's
consolidated financial statements are listed below. This listing includes standards and interpretations issued, which the
Company reasonably expects to be applicable at a future date. The Company intends to adopt those standards when they
become effective.
Certain pronouncements have been issued by the IASB or International Financial Reporting Interpretations Committee. Many of
these updates are not applicable or are inconsequential to the Company and have been excluded from the discussion below:
IFRS 7, Financial Instruments: Disclosures
The IASB has issued amendments to the disclosure requirements in IFRS 7, Financial Instruments: Disclosures (“IFRS 7”). The
amendments require information about all recognized financial instruments that are set off in accordance with paragraph 42 of
IAS 32, Financial Instruments: Presentation (“IAS 32”). The amendments also require disclosure of information about
recognized financial instruments subject to enforceable master netting arrangements and similar agreements even if they are
not set off under IAS 32. These amendments are effective for annual periods beginning on or after January 1, 2015. The
Company is evaluating the impact of the new standard on its results of operations, financial position and disclosures.
Page | 36
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2014 and 2013
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
IFRS 9, Financial Instruments
The IASB has issued a new standard, IFRS 9, Financial Instruments (“IFRS 9”), which will ultimately replace IAS 39, Financial
Instruments: Recognition and Measurement (“IAS 39”). IFRS 9 uses a single approach to determine whether a financial asset
or liability is measured at amortized cost or fair value. The approach in IFRS 9 is based on how an entity manages its financial
instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. The new
standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39. IFRS 9 is
effective for annual period beginning on or after January 1, 2015. Early adoption is permitted. The Company is evaluating the
impact of the new standard on its results of operations, financial position and disclosures.
IAS 32, Financial Instruments: Presentation
The IASB has issued amendments to IAS 32. The amendments require entities to disclose gross amounts subject to rights of
set-off, amounts set off in accordance with the accounting standards followed, and the related net credit exposure. This
information will help investors understand the extent to which an entity has set off in its balance sheet and the effects of rights of
set-off on the company’s rights and obligations. These amendments are effective for annual periods beginning on or after
January 1, 2014 and are required to be applied retrospectively. The Company is evaluating the impact of the amendment on its
results of operations, financial position and disclosures.
4. Property, plant and equipment
2014
2013
Cost
$ 1,298
1,555
370
198
89
19
$ 3,529
$
Accumulated
depreciation
980
1,441
370
188
85
17
$ 3,081
Research equipment
Manufacturing equipment
Leasehold improvements
Computer equipment
Computer software
Furniture and fixtures
5. Shareholders’ equity
$
Net book
value
318
114
-
10
4
2
448
$
Cost
$ 1,298
1,555
370
195
89
19
$ 3,526
$
Accumulated
depreciation
897
1,385
297
177
78
15
$ 2,849
$
Net book
value
401
170
73
18
11
4
677
$
Preferred shares
Authorized 10,000,000 preferred shares.
As at July 31, 2014 and 2013 the Company had nil preferred shares issued and outstanding.
Common shares and share purchase warrants
Authorized unlimited common shares without par value
As at July 31, 2014 the Company had 75,900,337 (2013 – 67,226,337) common shares issued and outstanding.
On September 8, 2009, the Company announced the completion of a private placement, issuing 6,625,000 units at $2.05 per
unit, for gross proceeds of $13,581,250. Each unit consists of one common share and one common share purchase warrant.
Each common share purchase warrant entitles the holder to purchase one common share at a price of $2.87 until 5:00 p.m.
(Toronto time) on September 7, 2012. Of the gross proceeds amount, $3,577,500 was allocated to the share purchase warrants
based on fair value and the residual amount of $10,003,750 was allocated to common stock. Share issue costs of $1,984,000
were proportionately allocated to the share purchase warrants ($523,000) and common stock ($1,461,000), respectively. On
September 7, 2012 the Company announced that it had extended the expiry date of warrants issued on September 8, 2009 for
an additional six months, from September 7, 2012 to March 7, 2013. The Company did not amend any other provisions of the
affected warrants. On February 21, 2013 the Company announced a further extension of the expiry date of these warrants, from
March 7, 2013 to September 7, 2013. The Company did not amend any other provisions of the affected warrants as part of this
extension. As a result of the amended terms, the Company increased the value of these warrants by $986,000 and accordingly
reduced the value of the common shares associated with this private placement by the same amount. On August 23, 2013, the
Company announced that it extended the expiry date of these warrants from September 7, 2013 to September 7, 2014, which in
this case, included an increase in the exercise price of the these warrants from $2.87 to $3.51. As a result of the amended
terms, the Company increased the value of these warrants by an additional $569,000 and accordingly reduced the value of the
common shares associated with this private placement by the same amount.
On August 6, 2010, the Company announced the completion of a private placement, issuing 4,530,000 units at $2.43 per unit,
for gross proceeds of $11,007,900. Each unit consists of one common share and one common share purchase warrant. Each
Page | 37
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2014 and 2013
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
common share purchase warrant entitles the holder to purchase one common share at a price of $3.40 until August 5, 2013. Of
the gross proceeds amount, $2,400,900 was allocated to the share purchase warrants based on fair value and the residual
amount of $8,607,000 was allocated to common stock. Share issue costs totalling $1,551,000 were proportionately allocated to
the share purchase warrants ($338,000) and common stock ($1,213,000), respectively. On August 9, 2013, the Company
announced that, effective August 5, 2013, it had extended the expiry date of these warrants from August 5, 2013 to February 5,
2015 and to increase the exercise price of the these warrants from $3.40 to $4.15. The Company did not amend any other
provisions of these warrants. As a result of the amended terms, the Company increased the value of these warrants by
$277,000 and accordingly reduced the value of the common shares associated with this private placement by the same amount.
On March 28, 2011, the Company completed a private placement, issuing 1,652,719 units at $2.39 per unit, for gross proceeds
of $3,949,998. Each unit consists of one common share and one common share purchase warrant. Each common share
purchase warrant entitles the holder to purchase one common share at a price of $3.35 until March 27, 2016. Of the gross
proceeds amount, $1,362,000 was allocated to the share purchase warrants based on fair value and the residual amount of
$2,588,000 was allocated to common stock. Share issue costs totalling $34,000 were proportionately allocated to the share
purchase warrants ($12,000) and common stock ($22,000), respectively.
On March 30, 2011, the Company completed a private placement, issuing 918,365 units at $2.39 per unit, for gross proceeds of
$2,194,892. Each unit consists of one common share and one common share purchase warrant. Each common share
purchase warrant entitles the holder to purchase one common share at a price of $3.35 until March 29, 2016. Of the gross
proceeds amount, $759,000 was allocated to the share purchase warrants based on fair value and the residual amount of
$1,436,000 was allocated to common stock. Share issue costs totalling $175,000 were proportionately allocated to the share
purchase warrants ($60,000) and common stock ($115,000), respectively.
On November 4, 2013, the Company completed a private placement, issuing 4,678,000 units at $1.15 per unit, for gross
proceeds of approximately $5,380,000. Each unit consists of one common share and one common share purchase warrant.
Each common share purchase warrant entitles the holder to purchase one common share at a price of $1.61 until October 31,
2018. Of the gross proceeds amount, $1,897,000 was allocated to the share purchase warrants based on fair value and the
residual amount of $3,483,000 was allocated to common stock. Share issue costs totalling $708,000 were proportionately
allocated to the share purchase warrants ($248,000) and common stock ($460,000), respectively.
On July 10, 2014 the company completed a private placement, issuing 3,996,000 units at $1.60 per unit, for gross proceeds of
$6,393,600. Each unit consists of one common share and one common share purchase warrant. Each common share
purchase warrant entitles the holder to purchase one common share at a price of $2.24 until July 9, 2019. Of the gross
proceeds amount, $2,317,000 was allocated to the share purchase warrants based on fair value and the residual amount of
$4,077,000 was allocated to common stock. Share issue costs totalling $913,000 were proportionately allocated to the share
purchase warrants ($331,000) and common stock ($582,000), respectively.
The following table provides information on share purchase warrants outstanding as at July 31:
2014
2013
Weighted average
remaining contractual
life (in years)
Number of share
purchase warrants
outstanding
Weighted average
remaining contractual
life (in years)
Number of share
purchase warrants
outstanding
Exercise Price
$1.61
$2.24
$3.35
$3.35
$3.51
$4.15
Outstanding, end of year
4.25
4.94
1.66
1.66
0.10
0.52
4,678,000
3,996,000
1,652,719
918,365
6,625,000
4,530,000
22,400,084
–
–
2.66
2.66
1.10
1.52
–
–
1,652,719
918,365
6,625,000
4,530,000
13,726,084
Stock options
The Company’s equity compensation plan reserves up to 10% of the Company’s outstanding common stock from time to time
for granting to directors, officers and employees of the Company or any person or company engaged to provide ongoing
management or consulting services. Based on the Company’s current issued and outstanding common shares as at July 31,
2014, options to purchase up to 7,590,033 common shares may be granted under the plan. As at July 31, 2014, options to
purchase a total of 3,338,084 common shares have been issued and are outstanding under the equity compensation plan. In
addition, 102,107 common shares have been issued to consultants.
Page | 38
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2014 and 2013
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
The following table provides information on options outstanding and exercisable as at July 31:
2014
Weighted average
Exercise remaining contractual
life (in years)
Price
2.92
$1.30
3.97
$1.34
2.38
$1.68
1.04
$2.43
$2.74
.37
1.99
$3.00
Outstanding, end of year 2.10
Number of
options
outstanding
250,000
525,000
942,084
458,000
518,000
645,000
3,338,084
Number of
vested and
exercisable
options
166,667
50,000
942,084
458,000
518,000
645,000
2,779,751
Weighted average
remaining contractual
life (in years)
3.92
–
3.38
2.04
1.37
2.99
2.77
2013
Number of
options
outstanding
250,000
–
1,372,084
556,000
636,000
740,500
3,554,084
Number of
vested and
exercisable
options
83,333
–
1,372,084
481,000
636,000
627,500
3,199,917
The following table summarized activity under the Company’s stock option plan for the fiscal year ended July 31, 2014:
Outstanding, beginning of year
Granted
Exercised
Cancelled/Forfeited
Outstanding, end of year
Number
3,554,084
525,000
–
(741,100)
3,338,084
Vested and exercisable, end of year 2,779,751
Weighted
average
exercise
price
2.24
1.34
–
2.12
$
$
$
2.12
2.28
Weighted
average
fair
value
1.34
0.79
–
1.34
$
$
$
1.25
1.35
Weighted
average remaining
contractual
life
2.77
2.10
1.71
The following table summarized activity under the Company’s stock option plan for the fiscal year ended July 31, 2013:
Outstanding, beginning of year
Granted
Exercised
Cancelled/Forfeited
Outstanding, end of year
Number
4,832,189
–
–
(1,278,105)
3,554,084
Vested and exercisable, end of year 3,199,917
Weighted
average
exercise
price
2.24
–
–
2.26
$
$
$
2.24
2.25
Weighted
average
fair
value
1.35
–
–
1.37
$
$
$
1.34
1.36
Weighted
average remaining
contractual
life
3.76
2.77
2.72
The fair value of each option granted was estimated on the date of grant using the Black-Scholes option pricing model with the
following assumptions:
Grant
Date
November 1, 2013
November 1, 2013
July 3, 2012
July 29, 2011
August 17, 2010
December 14, 2009
December 17, 2008
Number
of options
granted
50,000
475,000
250,000
1,164,000
893,000
968,000
2,070,000
Volatility
factor
97.99 %
76.69 %
62.16 %
61.88 %
67.10 %
70.26 %
64.30 %
Risk free
interest
rate
1.13 %
1.62 %
1.25 %
2.04 %
2.18 %
2.56 %
2.44 %
Dividend
rate
Expected
life
0.00 %
0.00 %
0.00 %
0.00 %
0.00 %
0.00 %
0.00 %
2 years
5 years
5 years
5 years
5 years
5 years
8 years
Vesting
period
immediate
1 years
3 years
3 years
3 years
3 years
3 years
Fair value
of options
granted
$
$
$
$
$
$
$
35
379
170
1,781
1,440
1,548
2,525
For the year ended July 31, 2014, 320,834 stock options vested (2013 – 385,833) with a fair value of $367,387 (2013 –
$513,158).
Page | 39
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2014 and 2013
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
6. Commitments, contingent liabilities and contingent assets
The Company’s commitments are summarized as follows:
Royalty and in-licensing
Clinical research organizations
Contract manufacturing organizations
R&D distribution services
Operating leases
Financial and investor relations
$
2015
10
2,527
96
72
84
119
$
2016
10
1,828
113
48
–
–
$
2017
10
–
76
–
–
–
$ 2,908
$ 1,999
$
86
2018
$ 10
–
16
–
–
–
$ 26
2019
$ 10
–
–
–
–
–
$ 10
2020 and
beyond
40
$
–
–
–
–
–
$
Total
90
4,355
301
120
84
119
$
40
$ 5,069
Royalty and in-licensing commitments
Pursuant to a Royalty Agreement dated March 27, 1997 with University of Saskatchewan Technologies Inc. (“UST”), the
Company is required to pay UST a royalty of 2% of the net sales revenue generated from certain products containing
prostaglandin E1, and in the case of sub-licenses of such products, 15% of the non-royalty considerations (up-front payments)
received from the sub-licensee.
Pursuant to an Amended Royalty Agreement, effective November 1, 1999, the Company is required to pay royalties of 2% of the
Company’s net sales revenue received from the marketing, manufacture, distribution or sale of certain products, or in the case
of sub-license revenue, 2% of license fees or other revenue received by the Company related to the marketing, manufacture,
distribution or sale of certain products, which revenue is not allocated by the Company to the further development of the product.
Any future revenue generated through the commercialization of Topical Interferon Alpha-2b is subject to this royalty agreement,
which expires on March 27, 2017.
Pursuant to an agreement dated April 28, 2005 with the National Research Council of Canada, the Company is required to pay
a royalty of 3% of net sales, with a minimum royalty of $10,000 per annum generated from the use of a certain antibody to target
cancerous tissues of the lung. In addition to the royalty payments, the Company is also required to make certain milestone
payments: $25,000 upon successful completion of Phase I clinical trials; $50,000 upon successful completion of Phase IIb
clinical trials; $125,000 upon successful completion of Phase III clinical trials; and $200,000 upon receipt of market approval by
regulatory authority. L-DOS47 is subject to this agreement.
As at July 31, 2014, the Company has $90,000 (2013 – $100,000) in financial obligations outstanding related to royalty and in-
licensing commitments.
Clinical Research Organization (“CRO”) Commitments
The Company has two CRO supplier agreement in place for clinical research services related to the management of the
Company’s Phase I clinical study in Europe of L-DOS47.
As at July 31, 2014, the Company accrued $194,000 (2013 – $201,000) for CRO services it had received.
Contract Manufacturing Organization (“CMO”) commitments
The Company has three separate CMO supplier agreements related to the Company’s L-DOS47 program, all of which are inter-
dependant in the manufacturing of L-DOS47.
As at July 31, 2014, the Company accrued $1,000 (2013 – $1,000) for CMO services it had received and is committed to pay
$nil in for additional services.
Collaborative Research Organization Service Commitments
The Company has one collaborative research agreement relating to the Company’s L-DOS47 program. The nature of the
services includes assay development, animal studies and imaging and ongoing future clinical sample analysis.
As at July 31, 2014, the Company accrued $nil (2013 – $27,000) for collaborative research organizations services it had
received.
Research and development distribution services
The Company has a distribution services agreement associated with the fulfillment of L-DOS47 and ancillary medical items in
support of the Company’s L-DOS47 European Phase I study.
Page | 40
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2014 and 2013
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
As at July 31, 2014, the Company accrued $9,000 (2013 – $24,000) for research and development distribution services it had
received and is committed to pay $83,000 for additional collaborative research services.
Operating lease commitments
The Company is committed to pay $84,000 under two facility lease agreements with lease terms up to February 2014 for office
and research premises.
Financial and investor relations agreement
The Company entered into a non-exclusive financial and investor relations agreement with ACM Alpha Consulting Management
EST (“ACMest”), effective May 1, 2012. The agreement may now be terminated by either party at any time upon ninety days
written notice to the other party. The agreement includes the following provisions:
(i) a 12.5% fee on the gross proceeds on any capital raised up to six months after the termination of this agreement from an
ACMest introduced investor with residency outside Canada and the U.S.;
(ii) a 12.5% fee on the value of a transaction up to twelve months after the termination of this agreement from an ACMest
introduced strategic partner, including but not limited to, any cash payments to the Company as an up-front payment, any
co-development proceeds, any milestone payments and any royalties associated with the transaction;
(iii) a 12.5% fee on the gross proceeds of any capital raised up to twelve months after the termination of this agreement from an
ACMest introduced strategic partner; and
(iv) a monthly fee for investor relation services of CHF33,000 and reimbursement of certain expenses.
As at July 31, 2014, the Company accrued one monthly payment of $40,000 (2013 – $nil) for investor relation services it had
received.
Director and officers’ indemnification
The Company indemnifies its directors and officers against any and all claims or losses reasonably incurred in the performance
of their service to the Company to the extent permitted by law.
Given the nature of this indemnification, the Company is unable to reasonably estimate its maximum potential liability as this
indemnification provision does not provide for a maximum potential amount and the amounts are dependent on the outcome of
future contingent events, the nature and likelihood of which cannot be determined at this time. Consequently, no amounts have
been accrued in these consolidated financial statements relating to this indemnification.
Legal proceedings and claims
Two claims made against the Company in the normal course of operations during fiscal 2012 remained pending at the end of
fiscal 2014 and at the date of this Annual Report. Management believes that these claims are without merit. Neither of these
actions is sufficiently advanced for the outcome to be presently determinable and, accordingly, no provision for these claims has
been made in these financial statements.
7. Capital risk management
The Company’s main objectives when managing capital are to ensure sufficient liquidity to finance research and development
activities, clinical trials, ongoing administrative costs, working capital and capital expenditures. The Company includes cash in
the definition of capital. The Company endeavours not to unnecessarily dilute shareholders when managing the liquidity of its
capital structure.
Since inception, the Company has financed its operations from public and private sales of equity, the exercise of warrants and
stock options, and, to a lesser extent, from interest income from funds available for investment, government grants and
investment tax credits. Since the Company does not have net earnings from its operations, the Company’s long-term liquidity
depends on its ability to access capital markets, which depends substantially on the success of the Company’s ongoing
research and development programs, as well as capital market conditions and availability.
The Company does not currently have enough cash reserves to fully fund its clinical trials nor does the Company have sufficient
cash reserves to meet anticipated cash needs for working capital and capital expenditures through at least the next twelve
months.
The Company does not have any credit facilities and is therefore not subject to any externally imposed capital requirements or
covenants.
Page | 41
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2014 and 2013
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
8. Financial instruments and risk management
The Company has classified its financial instruments as follows:
Cash
2014
2013
Fair Value
$ 6,980
Fair value
hierarchy
Level 1
Fair Value
$ 4,493
Fair value
hierarchy
Level 1
Fair value hierarchy
Financial instruments recorded at fair value on the balance sheet are classified using a fair value hierarchy that reflects the
significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:
Level 1 reflects valuation based on quoted prices observed in active markets for identical assets or liabilities;
Level 2 reflects valuation techniques based on inputs that are quoted prices of similar instruments in active markets;
quoted prices for identical or similar instruments in markets that are not active; inputs other than quoted prices used in
a valuation model that are observable for that instrument; and inputs that are derived principally from or corroborated
by observable market data by correlation or other means; and
Level 3 reflects valuation techniques with significant unobservable market inputs.
A financial instrument is classified to the lowest level of the hierarchy for which a significant input has been considered in
measuring fair value.
The financial instrument in the Company’s financial statements, measured at fair value, is cash and cash equivalents.
Fair value
The fair value of financial instruments as at July 31, 2014 and 2013 approximates their carrying value because of the near-term
maturity of these instruments.
Financial risk management
The Company is exposed to a variety of financial risks by virtue of its activities: market risk (including currency and interest rate
risk), credit risk and liquidity risk. The overall risk management program focuses on the unpredictability of financial markets and
seeks to minimize potential adverse effects on financial performance.
Risk management (the identification and evaluation of financial risk) is carried out by the finance department, in close
cooperation with management. The finance department is charged with the responsibility of establishing controls and
procedures to ensure that financial risks are mitigated in accordance with the approved policies. The Company’s Board of
Directors has the overall responsibility for the oversight of these risks and reviews the Company’s policies on an ongoing basis
to ensure that these risks are appropriately managed.
Market risk
Market risk is the risk that changes in market prices, such as interest rates and foreign exchange rates, will affect the
Company’s income or the value of its financial instruments.
Currency risk
The Company has international transactions and is exposed to foreign exchange risks from various currencies, primarily the
Euro and U.S. dollar. Foreign exchange risks arise from the foreign currency translation of the Company’s integrated foreign
operation in Ireland. In addition, foreign exchange risks arise from purchase transactions, as well as recognized financial assets
and liabilities denominated in foreign currencies.
The Company has maintained minimal cash balances denominated in both Euro and U.S. dollars due to Canadian dollar
stability and strength against foreign currencies.
Page | 42
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2014 and 2013
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
Balances in foreign currencies at July 31, 2014 and 2013 are as follows:
2014
2013
Cash
Accounts payable
Accruals
Net foreign currencies
Euros
102
(64)
(65)
(27)
Closing exchange rate
Impact of 1% change in exchange rate
1.4581
+/- 1
US
Dollars
162
(242)
–
(80)
1.0890
+/- 1
Euros
314
(35)
(3)
276
1.3665
+/- 4
US
Dollars
3
(39)
–
(36)
1.0272
+/- 1
Any fluctuation in the exchange rates of the foreign currencies listed above could have an impact on the Company’s results from
operations; however, they would not impair or enhance the ability of the Company to pay its foreign-denominated expenses.
The following summary illustrates the fluctuations in the exchange rates during fiscal 2014 and 2013 to the Canadian dollar:
High
Average
Low
2014
US
Dollars
1.0343
1.0734
1.1107
Euros
1.3819
1.4610
1.5358
2013
Euros
1.3786
1.3097
1.2153
US
Dollars
1.0567
1.0070
0.9683
Interest rate risk
Interest rate risk is the risk that future cash flows of a financial instrument will fluctuate because of changes in interest rates,
which are affected by market conditions. The Company is exposed to interest rate risk arising from fluctuations in interest rates
received on its cash and cash equivalents. The Company does not have any credit facilities and is therefore not subject to any
debt related interest rate risk.
The Company manages its interest rate risk by maximizing the interest income earned on excess funds while maintaining the
liquidity necessary to conduct its operations on a day-to-day basis. Any investment of excess funds is limited to risk-free
financial instruments. Fluctuations in the market rates of interest do not have a significant impact on the Company’s results of
operations due to the relatively short term maturity of any investments held by the Company at any given point in time and the
low global interest rate environment. The Company does not use derivative instruments to reduce its exposure to interest rate
risk.
Credit risk
Credit risk is the risk of a financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its
contractual obligation. The Company sold its distribution business on January 25, 2013 resulting in a reduction in customer
credit risk going forward.
The table below breaks down the various categories that make up the Company’s accounts receivable balances as at July 31:
Accounts receivable
Government related – HST/VAT
Research and development investment tax credits
Other
2014
2013
51
288
4
$ 343
121
434
4
$ 559
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its obligations as they come due.
Since inception, the Company has mainly relied on financing its operations from public and private sales of equity. The
Company does not have any credit facilities and is therefore not subject to any externally imposed capital requirements or
covenants.
Page | 43
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2014 and 2013
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
The Company manages its liquidity risk by continuously monitoring forecasts and actual cash flow from operations and
anticipated investing and financing activities.
The Company’s cash reserves of $6,980,000 as at July 31, 2014 are insufficient to meet anticipated cash needs for working
capital and capital expenditures through the next twelve months, nor are they sufficient to see the current research and
development initiates through to completion. To the extent that the Company does not believe it has sufficient liquidity to meet
its current obligations, management considers securing additional funds primarily through equity arrangements to be of utmost
importance.
The Company’s long-term liquidity depends on its ability to access the capital markets, which depends substantially on the
success of the Company’s ongoing research and development programs, as well as economic conditions relating to the state of
the capital markets generally. Accessing the capital markets is particularly challenging for companies that operate in the
biotechnology industry.
The following are the contractual maturities of the undiscounted cash flows of financial liabilities as at July 31:
2014
2013
Carrying
amount
Accounts payable and accruals $ 1,042
Less than Greater than
one year
one year
–
$
$ 1,042
Carrying
amount
$ 925
Less than Greater than
one year
one year
–
$
925
$
This table only covers liabilities and obligations relative to financial instruments and does not anticipate any income associated
with assets.
9. Related party transactions
The key management personnel of the Company are the President and Chief Executive Officer, former President and Chief
Operating Officer, Chief Scientific Officer, Chief Financial Officer and Director of Clinical Development.
The following table summarizes for key management personnel compensation for the fiscal years ended:
Compensation
Stock-based compensation
$
2014
1,750
238
2013
$ 1,324
291
Included in compensation expense in the above table is a one-time payout of $500,000 related to the termination of the
Company’s former President and Chief Operating Officer.
The following table summarizes Directors’ compensation for the fiscal years ended:
Directors’ fees
Stock-based compensation
$
2014
291
182
$
2013
369
16
Related party transactions are at arm’s length and recorded at the amount agreed to by the related parties.
10. Research and development projects
As at July 31, 2014, the Company has incurred research and development expenditures primarily on two research and
development programs: Topical Interferon Alpha-2b and L-DOS47.
Included in research and development expenditures are costs directly attributable to the various research and development
functions and initiatives the Company has underway and include: salaries; bonuses; benefits; stock based compensation;
depreciation of property, plant and equipment; patent costs; consulting services; third party contract manufacturing, third party
clinical research organization services; and all overhead costs associated with the Company’s research facilities.
Page | 44
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2014 and 2013
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
The following table outlines research and development costs expensed and investment tax credits for the Company’s significant
research and development projects for the fiscal years ended July 31:
L-DOS47
Topical Interferon Alpha-2b
Corporate research and development expenses
Trademark and patent related expenses
Stock-based compensation expense
Depreciation expense
Research and development investment tax credit
11. Income taxes
$
2014
2,730
383
1,407
612
83
222
(198)
2013
$ 2,771
774
1,081
278
130
336
(338)
$
5,239
$ 5,032
The Company recognizes deferred tax assets and liabilities for expected future tax consequences of temporary differences
between the carrying amounts and the tax basis of assets and liabilities and certain carry-forward balances. The Company’s
effective income tax rate in fiscal 2014 is 26.3% (2013 – 25.4%). The increase in the effective income tax rate is the result of
changes to the allocation of provincial tax rates.
Current income tax expense and non-capital tax carry-forwards
The tax effects of temporary differences for the Company that gives rise to the unrecorded deferred tax asset presented in the
following table:
Deferred tax assets:
Scientific Research & Experimental Development expenditure pool
Non-capital losses and other credits carried forward
Capital losses carried forward
Excess of tax basis over book basis of capital assets
Deductible share issue costs
Other
2014
2013
$ 11,048
14,076
159
1,257
434
1
26,975
$ 10,212
12,287
153
996
279
1
23,928
As at July 31, 2014, the Company has Canadian tax losses that can be carried forward of approximately $53,475,000 (2013 –
$48,469,000) and are available until 2034 as follows:
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
862
2,113
2,904
2,438
9,188
6,552
6,793
13,242
2,437
6,946
$ 53,475
Scientific Research & Experimental Development expenditures (“SR&ED”)
Under the Income Tax Act (Canada), certain expenditures are classified as SR&ED expenditures and are grouped into a pool for
tax purposes. This expenditure pool can be carried forward indefinitely and deducted in full in any subsequent year. The
SR&ED expenditure pool at July 31, 2014 is approximately $41,974,000 (2013 – $40,281,000).
Investment tax credits
The Company has also earned investment tax credits in Canada, on eligible SR&ED expenditures at July 31, 2014 of
approximately $10,213,000 (2013 – $9,766,000), which can offset Canadian income taxes otherwise payable in future years up
to 2033. Investment tax credits are accounted for as a reduction of the related expenditure for items of a current nature and a
reduction of the related asset cost for items of a capital nature, provided that the Company has reasonable assurance that the
Page | 45
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2014 and 2013
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
tax credits will be realized. During the year, the Company received cash refundable investment tax credits related to prior years
in the amount of $345,000 (2013 – $663,000). At July 31, 2014, cash refundable investment tax credits total $288,000 (2013 –
$434,000). The research and development investment tax credits recorded are based on management’s estimates of amounts
expected to be recovered and are subject to audit by the taxation authorities and, accordingly, these amounts may vary.
Federal investment tax credits are non-refundable to the Company. Refundable investment tax credits reflect eligible SR&ED
expenditures incurred in various provinces.
12. Rivex Transaction:
On December 10, 2012, the Company announced that it had entered into a definitive agreement for the sale of the Company’s
Rivex Pharma division, for gross cash proceeds of up to $8.5 million (the “Rivex Transaction”). The Rivex Transaction was
approved at the annual general and special meeting of the Company’s shareholders on January 24, 2013 and the Rivex
Transaction closed on January 25, 2013.
The components associated with the condensed consolidated statement of net income and total comprehensive income of the
Company’s discontinued operations for the fiscal years ended July 31, is as follows:
Revenues
Expenses
Cost of sales
Sales and marketing
Net income and total comprehensive income from discontinued operations
2014
2013
–
–
–
–
–
$ 1,868
784
454
1,238
$ 630
$
$
The impact of discontinued operations on the condensed consolidated statement of cash flows for the fiscal years ended
July 31, is as follows:
In thousands
Cash provided by operating activities
Cash provided by investing activities (net)
Net increase in cash from discontinued operations
The details of the Rivex Transaction are as follows:
Gross proceeds
Initial sale price
Add: Inventory assumed by buyer
Add: Trade accounts receivable assumed by buyer
Less: Accounts payable assumed by buyer
Less: Accruals assumed by buyer
Less: Holdback by buyer
Costs
Supplier contract extension fee
Transaction advisory fee
Legal costs
Employee termination costs
Other costs
Net assets disposed of at carrying value
Gain on sale from discontinued operations
2014
–
–
–
$
$
2013
$ 1,441
6,019
$ 7,460
$
$
7,600
748
368
(363)
(5)
(200)
8,148
500
425
173
150
133
748
2,129
6,019
As security for the fulfillment of certain obligations by the buyer of the Company’s distribution business to a key supplier, a
holdback amount of $200,000 was applied to the proceeds upon closing the Rivex Transaction. This holdback amount will be
paid to the Company beginning at the end of 2014, subject to the achievement of certain sales objectives by the purchaser of
the Rivex Pharma division under a distribution agreement assumed by it in connection with the Rivex Transaction. The
Company has not included the $200,000 holdback amount as consideration as at the closing date of the Rivex Transaction.
Page | 46
Message to Shareholders
Corporate Information
DIRECTORS AND OFFICERS
TRANSFER AGENT
Computershare
100 University Avenue
9th Floor, North Tower
Toronto, Ontario
Canada M5J 2Y1
Tel: 800-564-6253
EXCHANGE SYMBOLS
TSX: HBP
Frankfurt: HBP
Yvon Bastien
Director & Chairman
Robert A. Verhagen
Director, Chief Executive Officer & President
Sven Rohmann, MD. Ph.D.
Director
Marek Orlowski, MD.
Director
Slawomir Majewski, MD.
Director
Stacy L. Wills
Director
Sylwester Cacek
Director
Photios (Frank) Michalargias, CPA, CA
Chief Financial Officer & Corporate Secretary
Heman Chao, Ph.D.
Chief Scientific Officer
Dear Shareholder;
L-DOS47.
Fiscal 2014 has been an important year for Helix BioPharma Corp. The Company has refocused its energy into the continued development of the
DOS47 platform to build a valuable and sustainable pipeline, an important part of which is the clinical development of our lead drug candidate,
In October 2013 we announced the completion of the first interim review of our ongoing Phase I/II clinical trial of L-DOS47 in Poland (“LDOS002”)
in patients with non-small cell lung cancer (“NSCLC”), where we observed a good safety profile, and noted that one patient from the low dose
cohorts had remained stable for six cycles of treatment. We had planned to increase the enrollment rate of the trial through the addition of two
new sites in 2014. However, after adding one site and working to better coordinate communication, we are now enrolling into LDOS002 at
the highest rate possible for this study. We completed 8 cohorts (24 patients) and applied to the Polish regulatory authorities to continue dose
escalation, which was approved and we are currently enrolling patients in Cohort 10 of LDOS002.
On September 30th 2014, we completed and reported upon a second interim data review of the first 24 patients from LDOS002, and observed
that the drug candidate remained safe, and that half the patients in the study had at least one stable response. While we continue to increase
dosage in the Phase I/II trial to maximize the chance of success, these observations make us confident in moving forward with our development
plan for L-DOS47 through 2015, focussing on providing evidence of its utility in combination with leading cancer therapeutics in NSCLC and
potentially other indications such as breast or colon cancers.
This year we also began planning for additional clinical studies that would build the greatest support for L-DOS47 from a scientific, clinical,
regulatory, and market perspective. We submitted an investigational new drug (“IND”) to the US Food and Drug Administration (“FDA”) for the
initiation of a study combining L-DOS47 with the leading combination used for the treatment of first line patients in NSCLC and we reported that
we were approved to commence in April 2014. We continue to work towards additional studies with other combinations in jurisdictions such as
Canada in order to create a comprehensive package of information regarding the utility of L-DOS47.
We look forward to the coming year. Our goals for 2015 are to:
•
Build a strong body of clinical evidence for L-DOS47 through initiating (a) the Polish Phase II monotherapy study for LDOS002 after
completion of dose escalation in Phase I of this study; (b) a US study of L-DOS47 in combination with Pemetrexed and Carboplatin, and; (c)
at least one other combination study in NSCLC. We intend to build a body of evidence that would build value in L-DOS47, as our lead product
drug candidate, in addition to providing utility and value of the DOS47 platform as a potential generator of additional clinical drug candidates;
Build a strong body of scientific evidence for the DOS47 platform by entering into strategic collaborations through 2015 with both
academic institutions and industrial partners to build our pipeline and add key information to increase the value of this platform;
Evaluate growth opportunities for the Company through licensing, mergers, or acquisitions that will expand the asset base of the
Company and allow us to increase our public profile, access new capital markets, and potentially increase our liquidity to ensure long
•
•
term growth.
As we work towards these goals, the Company expects to begin discussions with potential partners that may work with us to complete mid-
and late-stage trials and market introduction. We believe that having strong evidence on the utility of our lead L-DOS47 candidate, showing
the potential of the DO47 platform to create new drug candidates that have a higher probability of success, will maximize the value of our
achievements. We also believe that building a solid corporate foundation, including through the potential addition of new assets and better access
to capital markets, we can ensure that this value is reflected within our valuation.
The Company would like to sincerely thank our shareholders for their support.
Best regards,
Robert A. Verhagen
President and Chief Executive Officer
This letter contains certain forward-looking statements. By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties. Please refer to the caution
regarding Forward-Looking Statements and Information on page 2 of this Annual Report for a discussion of such risks and uncertainties and the material factors and assumptions related to these statements.
A biopharmaceutical companyhelixbiopharma.comT - 905 841 2300F - 905 841 2244E - helix@helixbiopharma.com305 Industrial Parkway South, Unit 3Aurora, Ontario L4G 6X7CanadaAnnual Report 2014 new directions incancer therapy