TABLE OF CONTENTS
MESSAGE TO SHAREHOLDERS………………………………………….…………………………..……. Inside Front Cover
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 2
FORWARD LOOKING INFORMATION……...……………………………………………..…………………….….… 2
4
OVERVIEW…………………………………………………………………………………......………….…….……….
5
RESEARCH AND DEVELOPMENT ACTIVITIES…….……………………….……………………….…………..…
SELECTED FINANCIAL INFORMATION AND SUMMARY OF QUARTERLY RESULTS ……………….……. 12
RESULTS FROM OPERATIONS ………………………………………………………………………….…….……. 13
CRITICAL ACCOUNTING ESTIMATES ………………………………………………………………….…….……. 14
SIGNIFICANT ACCOUNTING POLICIES……………………………………………………………………….….… 14
NEW ACCOUNTING STANDARDS AND PRONOUNCEMENTS NOT YET ADOPTED …………………….… 14
LIQUIDITY AND CAPITAL RESOURCES…………………………………………………………………..……...… 15
RELATED PARTY TRANSACTIONS ……………………………………………………………………………….… 16
FINANCIAL INSTRUMENTS ……………………………………………………………………………..………….… 16
INTELLECTUAL PROPERTY…...…………………………………………………………………………………….. 17
OFF BALANCE SHEET ARRANGEMENTS ……………………………………………………………………….… 17
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS………………………………………..……….… 18
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 AUDITOR’S REPORT ……...………………………………………………………….…….…...… 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
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in
conjunction with the consolidated financial statements of Helix BioPharma Corp. (the “Company” or “Helix”) for the years ended
July 31, 2016, and 2015 and the accompanying notes thereto. This MD&A is based on financial statements which have been
prepared in accordance with International Financial Reporting Standards (“IFRS”). All amounts are depicted in Canadian currency
unless otherwise noted.
Additional information relating to the Company can be found in the Company’s Annual Information Form, which is available on
SEDAR at www.sedar.com.
FORWARD-LOOKING INFORMATION
This MD&A contains forward-looking information (collectively, “forward-looking information”) within the meaning of applicable
Canadian securities laws. Forward-looking information means disclosure regarding possible events, conditions or financial
performance that is based on assumptions about future economic conditions and courses of action and includes 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 L-DOS47 which is the
Company’s primary drug candidate, Topical Interferon Alpha-2b and other information relating to future periods. Forward-looking
information includes, without limitation, statements concerning (i) the Company’s ability to continue to operate on a going concern
basis being dependent mainly on obtaining additional financing; (ii) the Company’s growth and future prospects being dependent
mainly on the success of L-DOS47; (iii) the Company’s priority continuing to be L-DOS47; (iv) the Company’s development
programs, including but not limited to, extension of the current drug candidate(s) to other indications and the identification and
development of further tumour-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 study for L-DOS47 in Poland, including the number of cohorts
required to reach Maximum Tolerable Dose (“MTD”) and the Company’s U.S. Phase I clinical study for L-DOS47, (vi) seeking
strategic partner support and therapeutic market opportunities; (vii) the nature, design and timing of future clinical trials (including
the Company’s anticipated reassessment of the re-design of the LDOS003 study to focus on advanced stage lung cancer patients
by combining L-DOS47 with Vinorelbine/Cisplatin (“VIN/CIS”) and commercialization plans; (viii) future expenditures, insufficiency
of the Company’s current cash resources and the need for financing and the Company’s possible response for such matters; (ix)
future financing requirements, the seeking of additional funding (including the possible receipt of grants) and anticipated future
operating losses; (x) changes in the application of accounting standards and interpretations; and (xi) industry performance,
competition (including potential developments relating to immunotherapies and the Company’s possible response to such
developments), prospects, and general prevailing business and economic conditions. Forward-looking information can further be
identified by the use of forward-looking terminology such as “expects”, “plans”, “designed to”, “potential”, “believe”, “intended”,
“continues”, “opportunities”, “anticipated”, “2017”, “2020”, “next”, “ongoing”, “seek”, “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 information includes 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 information are reasonable, such statements involve risks and uncertainties, and undue reliance should not
be placed on such statements. Forward-looking information, 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 information contained in this MD&A 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 (whether from additional
issuances of the Company’s securities, grant applications or otherwise) 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;
uncertainty as to whether the Company’s drug product candidate(s), especially L-DOS47, will be successfully developed
and marketed;
developments in immunotherapies may result in significant changes in the treatment of cancer and may result in a
reduction, which may be significant, in the potential patient population and/or treatment protocols available to
chemotherapies and other treatments currently in development, such as the Company’s primary drug product L-DOS47;
the possibility of dilution to current shareholders from future equity financings;
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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;
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;
research and development risks, including without limitation, the fact that the Company’s drug product candidate(s) are
complex compounds and the Company faces difficult challenges in connection with the manufacture of clinical batches,
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 and the need to secure new strategic relationships, which are both not assured;
the Company’s dependence on third parties, 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 drug
product candidate(s) including as a result of possible changes in the market for the Company’s drug candidates resulting
from development in immunotherapies or other future cancer treatments;
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 product candidate(s);
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, especially from the new immunotherapy treatments for non-small cell lung cancer (“NSCLC”);
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 no 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, credit risk and interest rate risk,
and other risk factors that are discussed above and elsewhere in this MD&A 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 information in this MD&A, including, but not limited to, the
safety and efficacy of the Company’s drug product candidate(s); the Company’s cost and timing in connection with the Phase I
U.S. clinical trial for L-DOS47; the cost and timing for achieving MTD in the Company’s European Phase I/II clinical trial for L-
DOS47 in Poland; that additional and sufficient financing will be obtained in a timely manner or at all to allow the Company to
continue operations; the timely provision of services and supplies 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
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partner support; and that the Helix Risk Factors will not cause the Company’s actual results or events to differ materially from the
forward-looking information.
For all of the reasons set forth above, which do not represent an exhaustive list of factors that may affect the forward looking
information, investors should not place undue reliance on forward looking information. The forward-looking information is 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 information should those beliefs, assumptions, opinions
or expectations, or other circumstances change, except as required by law.
Data relevant to estimated market sizes in connection with Company’s lead products under development are presented in this
MD&A. 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 data is reliable, the Company has not
independently verified the accuracy and completeness of this data.
OVERVIEW
Helix is transforming into an immuno-oncology company primarily focused in cancer drug development. The Company is
developing products for the treatment and prevention of cancer based on its proprietary technologies. The Company’s product
development initiatives are focused primarily on technologies that modulate the tumour microenvironment.
To-date, the Company’s proprietary technology platform, DOS47 has yielded two new drug product candidates, L-DOS47 and V-
DOS47. L-DOS47 is currently under clinical study for the treatment of NSCLC. 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. Both the LDOS002 European Phase I/II monotherapy clinical study in Poland
and the LDOS001 U.S. Phase I study in combination with pemetrexed/carboplatin, continue to enroll patients. V-DOS47 has been
licensed to the Company’s wholly owned Polish subsidiary for preclinical and clinical development. The V-DOS47 drug
candidate uses the Company’s proprietary DOS47 technology conjugated to VEGFR target wide range of cancers.
The Company continues to actively pursue additional new antibody based technologies for cell-based therapies. In September
2016 the Company announced that it was developing a novel Chimeric Antigen Receptor T-Cell (CAR-T) therapeutic. The
Company believes CEACAM6 specific CAR immune cells may have broad applications in a number of cancer types and is
working on two camelid single domain antibodies that target CEACAM6.
The Company currently believes that its growth and future prospects are mainly dependent on the success of its DOS47 drug
product candidates, and the successful development of cell-based therapies.
Due to a lack of funding, a decision was made by the Company in fiscal 2013 to downsize and eventually close the Saskatoon
laboratory which supported the Topical Interferon Alpha-2b drug development program and to focus any ongoing activities
associated with this program 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. The Company has since ceased all activities related to Topical Interferon Alpha-2b, other than maintaining
existing intellectual property associated with Topical Interferon Alpha-2b and entertaining discussions with potential interested
parties to license or acquire the technology.
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 and overhead costs.
The Company finances its research and development programs primarily from the issuance of its securities. In addition, the
Company is also looking at alternative sources of additional financing. The Company has been actively seeking grant money from
European authorities for research and development activities in Europe and Poland. The Company recently announced that it
had qualified for up to PLN12,506,956 (~CAD4,089,942) in grant money from the Polish National Centre for Research and
Development (“PNCRD”) to develop V-DOS47. There can be no assurance that the Company will be successful in qualifying
and/or receiving any additional grant money or that it will obtain additional financing.
The Company continues to not have sufficient cash reserves to meet anticipated cash needs for working capital and capital
expenditures through the next twelve months. The Company’s cash reserves as at July 31, 2016 of $3,654,000 are not sufficient
to see the current research and development initiatives through to completion let alone commence or properly allocate scarce
cash resources efficiently and as such, the Company will require additional financing in the very near term. Securing additional
sufficient financing continues to be of critical importance to the Company.
Given the possibility of not being able to secure sufficient additional financing, whether on a timely basis or not at all, the Company
may be required to reduce, delay or cancel one or more of its planned research and development initiatives, including clinical trials
along with further reductions in overhead, any of which could impair the current and future value of the Company.
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RESEARCH AND DEVELOPMENT ACTIVITIES
Background
The immune system utilizes two strategies in attacking different types of pathogens. The humoral immune system uses antibodies
as its main weapon. Antibodies are proteins that bind to extracellular foreign invaders, such as bacteria, and lead to
their
destruction. The cellular immune system utilizes specialized immune cells, called T-cells to identify and bind to abnormal
cells and subsequently destroy them.
Cancer cells have adopted and developed several strategies for evading the immune system. In some cases, proteins are
expressed on the surface of tumour cells that “turn off” attacking T-cells. By using antibodies to block these interactions
(such as anti-PD1), T-cells are reactivated to kill the tumours. Although anti-PD1 and anti-PDL1 therapies (checkpoint inhibitors)
have improved outcomes for patients, there are many that do not respond to these treatments. One possible explanation suggests
that the unique metabolism of cancer cells creates an acidic tumour microenvironment and this acidity has the effect of
interfering with T-cell function. The Company believes it has developed a novel system to raise pH at the tumour site, thus breaking
the physiologic barrier that acts to defend against tumour-killing T-cells.
Alkalization using Urease
Urease is an enzyme that catalyzes the hydrolysis of urea into carbon dioxide and ammonia ((NH2)2CO + H2O → CO2 + 2NH3).
The Company has conjugated urease to an antibody that specifically targets lung cancer cells, thus delivering the urease directly
to the site of the tumour. L-DOS47, the Company’s first drug product candidate, is currently in a phase I/II monotherapy trial in
Poland and a Phase I combination trial with carboplatin and pemetrexed in the United States. By delivering urease to the tumour
site, the company expects the pH of the tumour microenvironment to increase and activity of tumour-killing T-cells to be enhanced.
The Company believes the urease system can be used with any tumour specific antibody as a general method for modifying
the tumour microenvironment, and as such, could be combined with any of the current checkpoint inhibitor products to improve
patient outcomes.
CAR-T Cells
To date, success in Adoptive Cell Transfer (ACT) with engineered T-cells such as Chimeric Antigen Receptor T- cells (CAR-T)
has occurred mainly in the area of hematological cancers. As the pH of human blood is carefully balanced, and normally not
acidic, T-cells appear to remain active. Solid tumours on the other hand, have created challenges and as such, it is hypothesized
that the failure of CAR-T therapies to-date may be the result of the acidic tumour microenvironment surrounding the cancer cell that
inhibits CAR T-cell activity. The Company believes it is well positioned to use its proprietary urease-antibody
technology to
alkalinize the tumour microenvironment and improve the ability of CAR-T cells to destroy solid tumours.
Check Point Inhibitors
Dr. Robert J. Gillies of the Moffitt Cancer Center in Tampa Florida demonstrated some interesting results when treating acidic
tumours in animal models. Dr. Gillies demonstrated that in alkalized tumour cells, the activity of antibodies that target PD-L1, is
enhanced. This would indicate that tumour acidosis may protect tumours from immune check-point inhibitors. Since tumour
acidosis is experimentally shown to occur in cancers such as breast, colon, lung and pancreas, the Company believes
methodologies that can alkalize the tumour microenvironment, such as the Company’s proprietary DOS47 platform technology,
may work beneficially with check-point inhibitors.
DOS47 – A broad anti-cancer therapeutic platform
DOS47 is based upon a naturally occurring enzyme isolated from the jack-bean plant called urease that breaks down a natural
substance found in the body, urea, into metabolites that include ammonia and hydroxyl ions. By doing so at the site of cancerous
tissues in the body, the Company believes DOS47 can modify the micro environmental conditions of cancerous cells in a manner that
leads to apoptosis.
DOS47 stimulates an increase in the pH of the microenvironment surrounding the cancerous cells, effectively reversing the acidic
extra-cellular conditions that are believed to act to defend the tumour. This acidic environment can also reduce or negate the
effectiveness of some commonly used anti-neoplastic agents. The local production of ammonia at the site of cancerous tissues
is thought to readily diffuse into the cancer cells to exert a potent cytotoxic effect by interfering with their critical metabolic functions.
Enzymatic action of urease at the site of cancerous cells is potentially repetitive and sustainable due to the plentiful supply of urea.
The Company is pursuing the development of DOS47 both as a monotherapy and as an adjunct therapy in combination with certain
chemotherapeutics and/or radiation regimens, with a view to maximizing the DOS47 commercial potential.
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
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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.
Tumour Defense Breakers
L-DOS47
The Company believes that its DOS47 candidates may have potential anti-cancer activity by stimulating 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 is the Company’s first targeted therapeutic immune-conjugate 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, reversing the acidic
extra-cellular conditions that are shown to be favourable 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. However, other emerging therapies, including immunotherapy, may alter the treatment paradigm in
NSCLC. Therefore, the eventual approval for L-DOS47 as a first-line treatment for NSCLC will depend on both successful clinical
trials and on the treatment landscape shaped by these new therapies. The Company continues to monitor developments in this
area and to consider their effect on its L-DOS47 program, including its focus on L-DOS47 as a first-line treatment for 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.
In addition to being a key for cancer progression by promoting invasiveness and metastatic behaviors of cancer cells, the acidic
tumour microenvironment protects cancer cells from immunotherapy by suppressing the proliferation and cytotoxic activities of
local immune cells. The interactions of programmed cell death protein 1 (PD-1) on Jurkat cells with its ligand PD-L1 were studied.
The human cancer cell lines MDA-MB231 and BxPC-3 were stimulated with Interferon gamma (IFNγ) to express PD-L1 on the
cell surface. The IFNγ-stimulated cell lines were found to inhibit IL-2 production in co-incubated Jurkat cells by as much as 40%
when compared to non-stimulated cells. The addition of L-DOS47/urea to the culture medium partially restored cytokine production
in Jurkat cells, suggesting a potential role of L-DOS47 in the process of PD-1/PD-L1 interactions.
V-DOS47
V-DOS47 is an antibody DOS47 conjugate that targets the vascular endothelial growth factor 2 receptor (VEGFR2). V-DOS47 is
the second immuno-oncology drug candidate derived from the Company’s DOS47 technology platform.
In January 2016 the Company granted a world-wide exclusive license for v-DOS47 to its wholly-owned subsidiary, Helix Polska,
in Poland. The Company expects that day-to-day development activities in respect of v-DOS47 will be coordinated by Helix Polska
with coordination and oversight from some of the Company’s scientists in Canada.
In order to advance the v-DOS47 initiative in Poland the Company will be establishing a wet lab facility with the majority of the
funding coming from the recently qualified grant application that was announced by the Company on May 9, 2016. The Company
qualified for up to PLN12,506,956 (~CAD4,089,942) in grant money from the PNCRD to develop V-DOS47 for breast cancer.
The Company has previously developed four v-DOS47 research candidates and conducted in vitro feasibility studies to establish
the potential clinical applications for these molecules. Helix Polska, is expected to leverage this know-how to develop a V-DOS47
clinical drug product candidate. The Company will assist Helix Polska by sharing its extensive knowledge in GMP manufacturing,
preclinical research and clinical experiences. Helix Polska will collaborate with several Polish institutes through the grant to
complete the development of the first v-DOS47 clinical drug product candidate. The development of the clinical drug product
candidate for Phase I testing is expected to take two to three years. The actual duration of the development process will depend
on successful completion of preclinical research favorable for clinical testing and establishment of cGMP manufacturing processes.
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The Company expects to enter clinical trials in 2018 provided success is achieved during the preclinical and there are sufficient
funds.
Tumour Attack Agents
For years, the four cornerstones of cancer treatment have been surgery, chemotherapy, radiation therapy and molecular
targeted therapy. Despite years of false starts, excitement is growing for immunotherapy approaches - therapies that harness the
power of a patient’s immune system to combat their disease, or what some in the research community are calling the “fifth
pillar” of cancer treatment.
The Company is leveraging its know-how in manipulating the tumour microenvironment, and its expertise in developing unique
single domain antibody therapeutics to develop Chimeric Antigen Receptors (“CAR”) for engineered T cell based treatment (“CAR-
T”). CAR-T is a novel cell based treatment that uniquely leverages the patient’s immune system to treat cancer. In one application,
the patient’s T cells are isolated and then transformed with specific CAR that recognize the cancer. The transformed T cells or
CAR-Ts are infused back into the patient to effect the treatment. Currently, a number of companies including large pharmaceutical
companies are developing CAR-T based therapies for blood based and solid tumours. Although this approach, called adoptive
cell transfer (“ACT”), has been restricted to small clinical trials so far, treatments using these engineered immune cells
have generated some promising responses in patients with advanced cancer. Helix intends to develop CARs for ACT for solid
and hematological malignancies. The Company has selected CEACAM6 and VEGFR2 specific CARs for solid tumour. For
hematological cancers the Company has selected CD19 and CD22.
The Company is also exploring opportunities for collaboration on complementary technologies to advance Company development
in cell based immune-oncology therapies. The Company continues to reach out to third parties in order to identify and test
additional tumour-targeting antibodies for conjugation with DOS47. In the event that antibody candidates worthy of further
development are identified, the Company will need to discuss development and licensing arrangements, which may not be
available on terms acceptable to the Company or at all.
In fiscal 2015, the Company entered into a collaborative research agreement with Affilogic to assess proprietary anti-tumour
targeting agents in combination with DOS47. The agreement calls for a feasibility study using a targeting agent in conjugation
with DOS47. Continuing development of these new conjugates is subject to a successful feasibility study, execution of a formal
development and licensing agreement, and the availability sufficient financial resources.
CAR-T solid tumours
CEACAM 6 specific CARs
Expression of CEACAM6 protein has been reported in a variety of normal human tissues including granulocytes. However, its
expression is elevated in many types of solid tumours such as breast, pancreatic, ovarian, lung and colon. CEACAM6 is envisaged
as a biomarker and potential therapy target for pancreatic ductal adenocarcinoma and pancreatic intraepithelial neoplasia
(Duxbury et al., 2004a, 2004c, 2004d). Recently CEACAM6 is suggested to be check point molecule in multiple myeloma.
The Company believes CEACAM 6 specific CAR immune cells may have broad applications in a number of cancer types. The
Company is working on two camelid single domain antibodies that target CEACAM6.
2A3 is a camelid single domain antibody isolated from a whole cancer cell immunized llama library. The antibody binds specifically
to the CEACAM6 antigen with high affinity and inhibits the proliferation of CEACAM6-expressing cancer cells in vitro. The efficacy
of CEACAM6-CAR-T cells in xenograft model was examined in vivo. The results strongly support that CEACAM6-CAR-T cells
can be used as an effective immunotherapy agent against CEACAM6-expressing cancers, and that camelid single domain
antibodies can be easily adopted for CAR-T type therapies.
Vascular epithelial growth factor receptor 2 (VEGFR2) CARs
Most solid tumours and some hematologic malignancies are characterized by an angiogenic phenotype that is an absolute
requirement for tumour survival, progression, and metastasis. Therapeutic approaches targeting molecules involved in tumour
angiogenesis can inhibit tumour growth. Proliferating endothelial cells in the vessels within solid tumours aberrantly express high
levels of angiogenic growth factors, receptors, and adhesion molecules that are absent or barely detectable in established blood
vessels, which are normally quiescent. Among these, VEGF and its receptors appear to be the dominant regulators of
angiogenesis responsible for the vascularization of normal and neoplastic tissues. Overexpression of VEGF and its receptors is
associated with tumour angiogenesis, survival, invasion, metastasis, recurrence, and prognosis in human cancers. VEGF
stimulates angiogenesis mainly through VEGFR-2 (also known as Flk1 in mice and KDR in humans), a tyrosine kinase receptor
that is overexpressed in tumour endothelial cells and on some tumour cells. Pharmacologic approaches to inhibit VEGF, using
monoclonal antibodies or small molecules, are of value in cancer treatment, though the cytostatic rather than cytotoxic nature of
these interventions and the redundancy of angiogenic pathways have limited the curative potential of these treatments). The
Company believes VEGFR2 specific CAR immune cells may have broad applications in a number of cancer types. Helix is working
on two camelid single domain antibodies that target VEGFR2.
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CAR-T hematological tumours
CD19
Clinical use of CAR-T cells targeting CD19 are currently being investigated by many other major organizations. Treatment of
hematological malignancies appear to be having good responses. The current clinical CD19-CAR T cells were derived from two
different anti-CD19 antibodies: FMC63 and SJ25C1. FMC63 was developed by the Zola laboratory at the Flinders Medical Centre
in Australia in 1991. It is a mouse monoclonal antibody that was generated using standard hybridoma technology by immunizing
mice with the human prolymphocytic cell line JVM3. SJ25C1 was developed using standard hybridoma technology by immunizing
balb/c mice with a mixture of NALM-1 (CML) and NALM-16 (ALL) cells. Helix and its partners are designing antibodies that it
believes, at a minimum, are comparable if not superior to FMC63 and SJ25C1.
The table below summarizes information pertaining to some of the major organizations working in the field.
Academic
Institution
NCI
U Penn
Industry Partner
Kite Pharma
Novartis
Product
KTE-C19
CTL019
CD19 ab used to
develop CAR
Costimulatory
molecule used
FMC63
FMC63
Sloan-Kettering
Juno Therapeutics
JCAR015 (and others)
SJ25C1
N/D
Cellectis/Servier/Pfizer
UCART19
MD Anderson
Ziopharm Oncology
Baylor
N/A
N/A
N/A
N/D
FMC63
FMC63
CD28
41BB
CD28
N/D
CD28
CD28
CD22
Although CD19 CAR-T cells have shown remarkable clinical results, some patients either do not respond to treatment or relapse
after treatment. In some cases, the relapsing cells no longer express CD19. To treat such disease, the targeting of a second B-
cell marker, CD22, has been suggested and is currently being tested in clinical trials. The main CD22 CAR-T program is run by
Juno Therapeutics (details below).
The NCI group headed by Rimas Orentas has determined that the most important factor in generating high activity with CD22
CAR-T cells is the membrane-proximal location of the antibody epitope. The m971 (CD22) CAR-T cells show activity similar to
FMC63 (CD19) CAR-T cells, whereas CAR-T cells directed to a membrane-distal epitope of CD22 (HA22) have lower activity, but
similar affinity for CD22. A similar phenomenon was observed by others. This illustrates the vital importance of selecting anti-
CD22 antibodies to the membrane-proximal region of CD22. Based on phage display technology and exploiting the unique features
of single domain antibodies, Helix is designing antibodies with this knowledge in mind.
The main CD22 CAR-T program is run by Juno Therapeutics (see table below).
Academic
Institution
Industry Partner
Product
CD22 ab used to
develop CAR
Costimulatory
molecule used
NCI
Juno Therapeutics
JCAR018
m971
N/D
Clinical study initiatives
Regulatory approvals were obtained in Poland and the U.S. to conduct Phase I/II and Phase I clinical studies, respectively, for the
treatment of NSCLC. Both the LDOS002 European Phase I/II monotherapy clinical study in Poland and the U.S. LDOS001 Phase
I study in combination with pemetrexed/carboplatin, continue to enroll patients. In addition, the Company continues to assess the
viability of an LDOS003 clinical study of L-DOS47 in combination with VIN/CIS in patients with metastatic or advanced solid
tumours.
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
Page | 8
Company’s limited cash resources, the Company had prioritized the LDOS002 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. The Company has initiated three U.S. sites: Dr. Sarina Piha-Paul at the MD
Anderson Cancer Center, Dr. Chandra Belani at Penn State University and the Milton S., Hershey Medical Center, and Dr. Afshin
Dowlati at University Hospitals Case Medical Center.
Three patients were successfully dosed at the first L-DOS47 dose level 0.59 µg/kg. On November 18th and 19th, 2015, the Safety
Review Committee (SRC) approved the escalation of L-DOS47 to the second dose level 0.78 µg/kg. Three (3) patients have been
dosed at this dose level. The SRC has requested an additional patient be dosed at the 0.78 µg/kg level before escalation to the
next dose.
Doses of L-DOS47 up to 13.55µg/kg were well tolerated in study LDOS002. As a result, the Company intends to submit an
amendment to the LDOS001 protocol to accelerate the dose escalation of L-DOS47 in combination with pemetrexed/carboplatin.
There are no guarantees that the Company’s submission will be approved by health authorities. The Company also intends to add
additional sites to address the slow study enrolment. The Company believes that accelerating the dose escalation and adding
sites ought to address the delays in completing the study.
The Company continues to have insufficient cash resources to see the entire LDOS001 U.S. Phase I clinical study through to
completion. Given the Company’s limited current cash resources and the possibility of not being able to obtain additional financing
on a timely basis, the Company may be required to reduce, delay or cancel one or more of its planned research and development
programs, including clinical trials along with further reductions in overhead, any of which could impair the current and future value
of the business.
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 four 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. 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.
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.
Enrolment in the Phase I component of the study is now complete. A total of 55 male and female patients, at least 18 years of
age, with histologically confirmed non-squamous NSCLC were dosed at 16 L-DOS47 dose levels. 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.
The Phase II component enrols the same patient population as the Phase I. To-date, a total of 10 patients have been enrolled in
the Phase II component of the study. After reviewing safety, pharmacokinetic and immunogenicity data, the Polish Competent
Authority and Central Ethics Committee did not object to a twice weekly dosing of L-DOS47 over 14 days (Days 1, 4, 8, 11)
followed by a 7-day rest in the Phase II component of the study.
The Company, to-date, has completed three interim 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.
Page | 9
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. Results from these reviews, together with safety data will provide guidance
on the treatment schedule and dosing for the Phase II portion 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 (“DLTs”) 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.
On September 8, 2015, the Company announced the presentation and update of the ongoing clinical study LDOS002 for the
Company’s drug candidate L-DOS47 during the 16th World Conference on Lung Cancer held in Denver Colorado. The
presentation included the following data:
forty (40) patients were enrolled in the first twelve dosing cohorts;
L-DOS47 was well tolerated at the dose levels up to 4.33 µg/kg;
No DLTs were reported for Cohorts 1-12;
One (1) DLT was reported for Cohort 13;
adverse events reported to date were expected for the population under study;
twenty-one (21) of the forty (40) patients had an overall response of stable disease based on radiological assessment
after completing two cycles of L-DOS47;
eleven (11) of these 21 patients continued with a response of stable disease based on radiological assessment after
completing four cycles of L-DOS47;
one patient in cohort 9 was dosed for ten 10 cycles (approximately seven (7) months) without disease progression;
the study is currently enrolling patients in the thirteen dosing cohort (5.76 µg/kg).
On March 8, 2016, the Company announced the following approved changes by the central ethics committee overseeing the
Phase I/II study in Poland as it relates to the Phase II component of the study, which the Company intends to initiate:
There will be no further escalations of L-DOS47 past cohort 16. If there are no further dose limiting toxicities, the Cohort
16 dose, 13.55 µg/kg, will be the dose administered to patients in the Phase II dose.
The safety profile supports a more frequent administration of L-DOS47. After reviewing safety, pharmacokinetic and
immunogenicity data, L-DOS47 will be dosed twice weekly over 14 days (Days 1, 4, 8, 11) followed by a 7-day rest in the
Phase II study.
The number of patients in the Phase II study will be increased to 45 patients. Based on Simon’s optimal two-stage design,
seventeen (17) evaluable patients will be enrolled in the first stage of the Phase II component of the study. If there is/are
≥ 1 response(s) out of these initial 17 evaluable patients, twenty-two (22) additional evaluable patients will need to be
enrolled. To obtain 39 patients evaluable for response, enrolment of approximately 45 patients are needed.
On April 21, 2016, the Company announced the approval by the Trial Steering Committee to initiate the Phase II component of
the LDOS002 study. On April 28, 2016, the Company announced the enrolment of the first patient in the Phase II component of
the LDOS002 study. The first Phase II patient was dosed on May 10, 2016 and has now completed their first L-DOS47 cycle.
The Company continues to have insufficient cash resources to see the entire LDOS002 European Phase I/II clinical study in
Poland through to completion. Given the Company’s limited current cash resources and the possibility of not being able to obtain
additional financing on a timely basis, the Company may be required to reduce, delay or cancel one or more of its planned research
and development programs, including clinical trials along with further reductions in overhead, any of which could impair the current
and future value of the business.
Phase I/II clinical study (“LDOS003”)
A potential secondary yet unproven aspect of L-DOS47 action is the observation that an acidic pH microenvironment (< pH 6.8)
may limit the effectiveness of weakly basic cytotoxic drugs employed in treatment of lung and other solid tumours. An acidic
microenvironment is associated with protonation of these agents and decreased uptake and alkalinisation can result in enhanced
agent uptake and cytotoxicity. Furthermore, extracellular acidity may also inhibit the active transport of some drugs. This raises
the possible application of L-DOS47 to combination cancer therapies with agents which have little or no overlapping toxicities.
Page | 10
At the European Society of Medical Oncology (ESMO) 2016 Congress in Copenhagen, Denmark, preliminary results from the
KEYNOTE-021 study, were presented which included patients with metastatic non-squamous NSCLC regardless of PD-L1
expression level. This new data suggests that KEYTRUDA® in combination with pemetrexed and platinum may become the
standard of care for previously untreated patients with metastatic non-squamous NSCLC regardless of PD-L1 expression. As a
result, the Company has decided to place on hold the commencement of this clinical study and prioritize the clinical studies that
are currently ongoing.
Given the Company’s limited current cash resources and the possibility of not being able to obtain additional financing on a timely
basis, the Company may be required to reduce, delay or cancel one or more of its planned research and development programs,
including clinical trials along with further reductions in overhead, any of which could impair the current and future value of the
business.
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
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
Based on information published in “Cancer Facts and Figures 2016” by the American Cancer Society (www.cancer.org), lung
cancer accounts for about 27% of all cancer deaths and is by far the leading cause of cancer death among men and women in
the U.S. It is estimated that in 2015 there will be over 224,390 new lung cancer cases.
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.
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.
Immunotherapies such as immune checkpoint inhibitors that target Programmed Death 1 (“PD-1”) or its ligands, Programmed
Death Ligand 1 or 2 (“PD-L1” and “PD-L2”) are showing significant clinical successes in NSCLC. On March 4, 2015 the FDA
approved Nivolumab, the generic name for the trade drug named Opdivo®, which targets PD-1 for the treatment of metastatic
squamous NSCLC with progression on or after platinum-based chemotherapy. More recently, on October 2, 2015, the FDA
granted accelerated approval for Pembrolizumab, the generic name for the trade drug named Keytruda®, which targets PD-1 to
treat patients with advanced metastatic NSCLC whose disease has progressed after other treatments and with tumours that
express PD-L1. Anti-PD-L1 drugs such as MPDL3280A from Roche are also advancing rapidly through late stage clinical trials.
The Company anticipates some of these approved drugs will eventually be approved as front line therapies for advanced stage
NSCLC.
In 2015, three randomized Phase III trials found the immune checkpoint inhibitors nivolumab and pembrolizumab to have superior
efficacy and less toxicity compared with second-line docetaxel chemotherapy in patients with NSCLC. For the first time, agents
blocking a single pathway have shown significant benefit across multiple tumour types, with US Food and Drug Administration
(FDA) approval in NSCLC, melanoma, and bladder and renal cell carcinoma. Now more than 1,000 immune checkpoint clinical
trials are underway. Many possible treatment avenues are being explored with immune checkpoint inhibitors, including
combinations with radiation, chemotherapy, targeted therapy, and other checkpoint inhibitors. Some studies are also investigating
checkpoint inhibitors as front-line therapy.
These and other rapidly advancing immunotherapy treatments, currently in development, have the potential to significantly alter
the treatment of cancer, not in just one cancer type but across many cancer types. As a result of these developments in
immunotherapies, and in particular with the success of immunotherapies in the treatment of NSCLC, the Company is currently
reassessing its L-DOS47 clinical program given that: (a) its target therapeutic indication, being inoperable, locally-advanced,
recurrent or metastatic NSCLC, may be a good candidate to combine with the emerging best-in-class immunotherapies; and (b)
leading therapeutics for such oncology applications have commonly been high revenue generators for the pharmaceutical sector.
Technological competition from pharmaceutical companies, biotechnology companies and university researchers is intense and
is expected to continue to be very intense. 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.
Page | 11
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.
Topical Interferon Alpha-2b
The Company received investigational new drug (“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 Clinical Trial Application (“CTA”) approval by the
Bundesinstitut fur Arzneimittel und Medizinprodukte and conditional CTA approval by the Medicines and Healthcare Regulatory
Authority 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 in fiscal 2012 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. The
Company has since ceased all activities related to Topical Interferon Alpha-2b, other than maintaining existing intellectual property
associated with Topical Interferon Alpha-2b.
Product Pipeline
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.
Net loss and total comprehensive loss from continuing operations, over the last eight quarters, ranged from a high of $2,723,000
in fiscal Q2 2015 to a low of $1,871,000 in fiscal Q3 of 2015 with fluctuations mainly dependant on the level of research and
development activities and operating, general and administration expenses. Current initiatives in expanding the Eastern European
clinical trials, initiating North American clinical trials and commencing with new R&D programs including VDOS in Eastern Europe
are increasing costs in recent quarters.
The higher operating, general and administration expenditures in Q1 2016 reflects higher legal, investor and media relations and
other consulting arrangements associated mainly with ongoing efforts by the Company to raise financing. The higher operating,
general and administration expenditures in Q2 of fiscal 2015 were mainly the result of stock-based compensation expense for
options granted to directors of the Company. In addition, Q4 2015 and Q2 2015 also included various expenditures associated
with the Company’s exploration of growth alternatives.
Page | 12
In fiscal Q4 2016, the Company closed a private placement for net proceeds of $1,488,000 and, in fiscal Q3 2016, the Company
closed a private placement for net proceeds of $3,957,000. In fiscal Q3 2015, the Company closed two private placements for
net proceeds of $8,243,000.
The following table depicts selected quarterly data from continuing operations for the fiscal year ended July 31, 2016:
Revenue
Research and development
Operating, general and administration
$
-
$ 1,729,000
872,000
$
$
-
$ 1,507,000
748,000
$
$
-
$ 1,246,000
957,000
$
$
-
$ 1,339,000
$ 1,259,000
Q4
Q3
Q2
Q1
Net loss and total comprehensive loss
Basic and diluted loss per common share
Weighted average number of common shares
$ (2,604,000)
(0.03)
$
87,988,842
$ (2,243,000)
(0.02)
$
84,861,587
$ (2,226,000)
(0.03)
$
84,683,201
$ (2,592,000)
(0.03)
$
84,654,815
Cash
$ 3,654,000
$ 4,929,000
$ 2,523,000
$ 5,008,000
The following table depicts selected quarterly data from continuing operations for the fiscal year ended July 31, 2015:
Revenue
Research and development
Operating, general and administration
Q4
-
$
$
983,000
$ 1,138,000
Q3
-
$
$ 1,216,000
687,000
$
Q2
-
$
$ 1,442,000
$ 1,181,000
Q1
-
$
$ 1,244,000
886,000
$
Net loss and total comprehensive loss
Basic and diluted loss per common share
Weighted average number of common shares
$ (2,119,000)
(0.02)
$
84,653,837
$ (1,871,000)
(0.03)
$
77,812,392
$ (2,665,000)
(0.03)
$
75,936,750
$ (2,125,000)
(0.03)
$
75,900,337
Cash
$ 6,792,000
$ 9,151,000
$ 2,723,000
$ 4,814,000
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
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
Non-current liabilities
Total assets
2016
-
5,821,000
3,836,000
2015
-
4,885,000
3,892,000
$
$
$
$
$
$
2014
-
5,239,000
3,496,000
$
$
$
$
(9,665,000)
$ 145,321,000
$
(8,780,000)
$ 135,656,000
(8,682,000)
$
$ 126,926,000
$
$
$
$
$
0.11
85,550,926
3,654,000
2,929,000
-
4,468,000
$
$
$
$
$
0.11
78,592,444
6,792,000
6,498,000
-
7,796,000
$
$
$
$
$
0.12
70,955,132
6,980,000
6,363,000
-
7,853,000
RESULTS FROM OPERATIONS
Net loss and total comprehensive loss from continuing operations
The Company recorded a net loss and total comprehensive loss of $9,665,000 ($0.11 loss per common share) and $8,730,000
($0.11 loss per common share) for the fiscal years ended 2016 and 2015, respectively.
Research & development
Research and development costs for fiscal 2016 and 2015 totalled $5,821,000 and $4,885,000, respectively.
Page | 13
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
Corporate research and development expenses
Trademark and patent related expenses
Stock-based compensation expense
Depreciation expense
Research and development investment tax credit
2016
$ 4,898,000
709,000
244,000
27,000
118,000
(175,000)
2015
$ 4,031,000
567,000
339,000
16,000
121,000
(189,000)
$ 5,821,000
$ 4,885,000
L-DOS47 research and development expenses for fiscal 2016 and 2015 totalled $4,898,000 and $4,031,000, respectively. L-
DOS47 research and development expenditures relate primarily to ongoing expenditures towards the LDOS002 European Phase
I/II clinical study in Poland and costs associated with the LDOS001 U.S. Phase I clinical study in the U.S. In 2016 there has been
a significant movement into Phase 2 of the Polish trial and the opening of a Polish office with expanded operations.
Corporate research and development expenses for fiscal 2016 and 2015 totalled $709,000 and $567,000, respectively. Included
in corporate research and development expenses for fiscal 2016 are the salaries of newly created Chief Operating officer and
Chief Medical Officer positions along with Science Officer salary and R&D logistics expenses (sample shipments).
Trademark and patent related expenses for fiscal 2016 and 2015 totalled $244,000 and $339,000, respectively. Efforts were
taken by the Company in the previous fiscal year to strengthen the DOS47 and Biphasix™ patent portfolios.
Operating, general and administration
Operating, general and administration expenses for the fiscal 2016 and 2015 totalled $3,836,000 and $3,892,000, respectively.
Consulting services fees decreased in fiscal 2016, primarily as a result of factors related to Helix’s termination of several third
party consultants. This decrease was partially offset higher costs relating to senior management change overs. In late fiscal
2015, the Board approved a new policy regarding awarding options to directors, after a peer review with other comparable
companies in the biotechnology sector.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and
assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, revenue and
expenses and the related disclosures of contingent assets and liabilities and the determination of the Company’s ability to continue
as a going concern. Actual results could differ materially from these estimates and assumptions. The Company reviews its
estimates and underlying assumptions on an ongoing basis. Revisions are recognized in the period in which the estimates are
revised and may impact future periods.
The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the
Company’s financial statements have been set out in Note 1 of the Company’s audited consolidated financial statement for the
fiscal year ended July 31, 2016.
SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies used in preparing the Company’s consolidated financial statements are described in Note 2 of
the Company’s audited consolidated financial statement for the fiscal year ended July 31, 2016, except for those related accounting
policies and methods of computation related to any new accounting standards and pronouncements.
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:
The company has adopted IAS 1, Presentation of Financial Statements
The IASB issued amendments to IAS 1, Presentation of Financial Statements effective for annual periods beginning on or after
January 1, 2015 as part of the IASB’s disclosure initiative. These amendments encourage entities to apply professional judgment
regarding disclosures and presentation in their financial statements. The Company has evaluated the impact of the new standard
Page | 14
on its results of operations, financial position and disclosures and has determined that applied judgment has resulted in minimal
statement presentation and disclosure adjustments.
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”). The project had three main phases: classification and measurement,
impairment and general hedging. The standard becomes effective for annual periods beginning on or after January 1, 2018 and
is to be applied retrospectively. Early adoption is permitted. The Company is evaluating the impact of the new standard on its
results of operations, financial position and disclosures.
IFRS 15, Revenue from Contracts with Customers
The IASB has issued a new standard, IFRS 15, Revenue from Contracts with Customers (“IFRS 15”). IFRS 15 contains a single
model that applies to contracts with customers and two approaches to recognizing revenue: at a point in time or over time. The
model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is
recognized. New estimates and judgmental thresholds have been introduced, which may affect the amount and/or timing of
revenue recognized. The standard becomes effective for annual periods beginning on or after January 1, 2018. The Company
is evaluating the impact of the new standard on its results of operations, financial position and disclosures.
IFRS 16, Leases
In January 2016, the IASB has issued IFRS 16 Leases (“IFRS 16”), its new leases standard that requires lessees to
recognize assets and liabilities for most leases on their balance sheets. Lessees applying IFRS 16 will have a single
accounting model for all leases, with certain exemptions. Lessor accounting is substantially unchanged. The new standard will
be effective from January 1, 2019 with limited early application permitted. The Company is evaluating the impact of the new
standard 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 $3,654,000 as at July 31, 2016 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 critical for its development needs.
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 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.
Page | 15
The Company has a total number of, 89,247,937 common shares issued and outstanding as at July 31, 2016 and the Company’s
working capital on July 31, 2016 was $2,929,000.
RELATED PARTY TRANSACTIONS
The key management personnel of the Company include the Chief Executive Officer, Chief Financial Officer, Chief Scientific
Officer, Chief Operating Officer and the Chief Medical Officer. In addition to the aforementioned key management personnel, the
table below also includes compensation for the former Interim Chief Executive Officer.
The following table summarizes key management personnel compensation for the fiscal years ended:
Compensation
Stock-based compensation
2016
2015
$ 1,283,000 $ 1,185,000
76,000
53,000
The following table summarizes non-management Directors’ compensation for the fiscal years ended:
$ 1,336,000 $ 1,261,000
Directors’ fees
Stock-based compensation
Consultancy fee
$
2016
352,000 $
150,000
-
2015
364,000
340,000
3,000
$
502,000 $
707,000
During the current fiscal year, a management consultancy agreement was entered into with the Company’s CEO and Chairman
of the Board. The agreement is to remain in effect until March 31, 2017.
The following table summarizes the Board Observer’s compensation for the fiscal years ended:
Finders fee commission
Financial and investor relations consulting
Expense reimbursement
$
2016
2015
810,000 $ 1,228,000
508,000
540,000
91,000
80,000
$ 1,430,000 $ 1,827,000
The Company entered into a non-exclusive financial and investor relations agreement with ACM Alpha Consulting Management
EST (“ACMest”), effective May 1, 2012. On March 7, 2014, Mr. Andreas Kandziora was appointed as an Observer to the Board.
Mr. Kandziora is President and Chief Executive Officer of ACMest.
Related party transactions are at arm’s length and recorded at the amount agreed to by the related parties.
FINANCIAL INSTRUMENTS
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, 2016 and July 31, 2015 approximates their carrying value because of the
near-term maturity of these instruments.
Page | 16
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, 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.
Tumor Defense BreakerTM
On September 29, 2016 the company filed a Canadian Trade Mark Application for “TUMOR DEFENSE BREAKER”. It is planned
to expand this trademark in all major markets and territories where will aim to market the products once they receive marketing
approval by appropriate regulatory authorities. On September 30, 2016, the Canadian Intellectual Property Office acknowledged
receipt of the application. The company will be advised when the application is successful or rejected in at least 12 months’ time.
The company intends to use this trademark to market the novel technologies and assets it is developing to treat cancer.
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-U.S. patents, the Company owns 52 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
filed by the Company during fiscal 2013. During January 2014, an additional U.S. patent application covering specific L-DOS47
manufacturing and novel features was filed.
Cell Based Therapy
The company has recently filed a joint patent application with National Research Council of Cancer to protect the use of an
antibody for use in cell based therapies. In addition, the company is in discussion with third parties to license additional intellectual
properties to strengthen the company’s portfolio.
BiphasixTM
The Company currently owns six U.S. BiphasixTM patents.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no material off-balance sheet arrangements.
Page | 17
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) 448,000
Collaborative research organizations (4) 506,000
125,000
V-DOS47 Co-funded project
75,000
Operating leases
352,000
Financial and investor relations (5)
2017
2018
10,000 $ 10,000
3,245,000 1,107,000
120,000
–
398,000
61,000
–
2019
$ 10,000
–
34,000
–
647,000
63,000
–
2022 and
beyond
2020
2021
Total
$ 10,000 $ 10,000 $ 30,000 $ 80,000
4,352,000
602,000
506,000
2,438,000
199,000
352,000
–
–
–
132,000
–
–
–
–
–
466,000
–
–
–
–
–
670,000
–
–
$ 4,761,000 $1,696,000
$ 754,000
$ 680,000 $ 476,000
$ 162,000 $8,529,000
(1) Represents future minimum royalties.
(2) The Company has two Clinical Research Organization supplier agreements in place for clinical research services related to
the management of the Company’s LDOS002 European Phase I/II clinical study in Poland and LDOS001 U.S. Phase I clinical
study in the U.S.
(3) The Company has five 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 LDOS002 European Phase I/II clinical study in Poland and LDOS001 U.S. Phase I clinical study
in the U.S.
(5) The Company has three financial advisor agreements, of which one includes investor relations services. The main agreement,
which is with ACMest, 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 (also see Related Party Transactions section above).
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, U.S. dollars and Zloty 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 are as follows:
July 31, 2016
July 31, 2015
Cash
Accounts payable
Accruals
Net foreign currencies
Euros
30,000
(77,000)
(82,000)
(129,000)
US
Dollars
48,000
(48,000)
Zloty
77,000
–
(165,000) (90,000)
(165,000) (13,000)
Closing exchange rate
Impact of 1% change in exchange rate
1.4594
+/- 1,000
1.3056 0.3345
+/- 1,000 +/-1,000
US
Dollars
Zloty
7,000 1,000
(30,000) -
(2,000) -
(25,000) 1,000
Euros
8,000
(9,000)
(162,000)
(163,000)
1.4388
+/- 1,000 +/- 1,000
1.3047 0.3349
-
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.
Page | 18
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 table below breaks down the various categories that make up the Company’s accounts receivable balances:
Accounts receivable
Government related – HST/VAT
Research and development investment tax credits
Other
Interest rate risk
July 31, 2016
July 31, 2015
$ 106,000
380,000
3,000
$ 489,000
$
$
96,000
388,000
7,000
491,000
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. 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.
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 $3,654,000 as at July 31, 2016 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 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.
OUTSTANDING SHARE DATA
As at July 31, 2016, the Company had outstanding 89,247,937 common shares; warrants to purchase up to 21,684,000 common
shares; and incentive stock options to purchase up to 1,686,484 common shares. As at September 30, 2016, the Company had
outstanding 90,009,279 common shares; warrants to purchase up to 22,328,675 common shares; and incentive stock options to
purchase up to 1,569,817 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 (“CEO”) and the Chief
Financial Officer (“CFO”) of the Company 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
Page | 19
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.
The Company continues to address the remediation of previously identified material weaknesses. The specifics of the material
weaknesses are described below along with the steps underway to remediate the material weaknesses:
a) designating signing authorities resulting in bank accounts being opened by the Company’s Polish subsidiary with only one
signatory without compensating controls (Company policy requires two signatories and/or sufficient compensating controls to
ensure the safeguarding of assets).
b) a failure to adhere to Company standards with respect to the control environment throughout the management structure of
the Company and its Polish subsidiary, including ineffective and non-timely communication and reporting with respect to
corporate developments, commitments and public announcements by the Company’s Polish subsidiary, and
c)
the calling of special shareholder meeting(s) by the Polish Subsidiary Board and use of a limited power of attorney without
compliance of the Company’s internal policies and procedures.
Status of material weakness remediation
Management has concluded that it needs to establish a clearly defined program of continuous education regarding corporate
governance and Canadian public disclosure rule for certain employees, directors and certain consultants having direct involvement
in the ongoing affairs of the Company’s Polish subsidiary. At a minimum, a regular and formalized process of meetings by the
Polish subsidiary management is required with written communication of all activities to be communicated on a timely basis back
through to both the CEO and CFO of the Company.
Compensating controls have been established as a first step to deal with the Company’s Polish subsidiary only having one
signatory. The Compensating control requires the Chief Operating Officer of the parent company to provide oversight and approve
disbursements in advance of paying vendors. The Company will be assessing the effectiveness of the compensating controls put
in place and whether any additional controls may be required.
In addition, procedures are being established whereby any engagements, commitments and dissemination of news being
contemplated by the Company’s Polish subsidiary include the involvement of the parent company in order to ensure appropriate
decisions can be made within the time periods specified in securities legislation in Canada 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.
Lastly, all agreements being made by the Polish subsidiary will require two signatures, one of which must include the Polish
subsidiary’s CEO and any other one officer of the Polish subsidiary’s management team.
As at July 31, 2016, the full remediation of the material weaknesses above is incomplete. Therefore, our CEO and CFO have
concluded that our disclosure controls and procedures and our ICFR were not effective as of that date.
Although the CEO and CFO are not aware of these deficiencies having actually resulted in a material misstatement of a financial
statement amount or disclosure, they have determined that, taken together, these deficiencies could result in business and
accounting practices that could put both the Company’s reputation and its financial reporting at risk and lead to uncertainty whether
control procedures are being carried out such that the Company’s ICFR may fail to prevent or detect a material misstatement of a
financial statement amount or disclosure on a timely basis or fail to disclose material information required to be disclosed under
securities legislation within the time periods specified in securities legislation. This material weakness in the Company’s ICFR
should also be considered a weakness in the Company’s disclosure controls and procedures that is significant.
Except as noted above, there was no change in our ICFR that occurred during the fiscal quarter covered by this Management
Discussion and Analysis that has materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
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 information may not necessarily be indicative of future operating
results or of future financial position, and actual results may vary from the forward-looking information 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 information. Accordingly, reported financial
information and forward-looking information should not be relied upon as a prediction of future actual results. Some of the risks
Page | 20
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 information include, either wholly or in part, those described elsewhere in this MD&A,
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, 2016 is $145,321,000. 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 fully fund its existing European Phase I/II clinical
trial with L-DOS47 in Poland or its U.S. Phase I trial or any of 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 and development, 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.
Competition and technological change; Immunotherapies (cell based therapies)
The biotechnology and pharmaceutical industries are subject to rapid and substantial technological change.
Technological competition from pharmaceutical companies, biotechnology companies and university researchers is
intense and is expected to continue to be intense.
The rapid advancement of immunotherapies now has the potential to significantly change the treatment of cancer and
may result in a reduction, which may be significant, in the potential patient population and/or treatment protocols available
to chemotherapies and other treatments currently in development, such as the Company’s primary drug product
candidate, L-DOS47. Furthermore developments in immunotherapies may require the Company to reposition its L-
DOS47 drug product candidate from a front line monotherapy to a combination therapy with immunotherapies or other
treatment protocols, and any such repositioning, would likely result in additional expenses being incurred by the Company
and in delays in the anticipated development timeline for L-DOS47, or in the Company determining that its L-DOS47 drug
product candidate is no longer viable.
The Company cell based therapies initiative may face significant hurdles. The Company’s effort is mainly at research
proof-of-concept stage. It is possible that the selected targets or choice of antibodies are not optimal. This can delay the
initiation of formal preclinical and clinical development significantly. The Company has chosen to develop cell based
Page | 21
therapy for solid tumour. While there are many successful examples of cell based therapy treatment in hematological
malignancies, similar success in solid tumour is less certain.
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 or continuing clinical trials, manufacturing of drug products, and marketing such
products.
The Company has expressed certain estimated timelines for its European Phase I//II clinical trials for L-DOS47 in Poland,
the U.S. 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 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.
Page | 22
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: (a) obtaining additional financing, which is not assured; (b) 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; (c)
regulatory agency policies regarding requirements for approval of a drug, including granting permission to undertake
proposed human testing; (d) the Company’s capacity to produce sufficient quantities and qualities of clinical trial materials
to meet the trial schedule; (e) performance by third parties, on whom the Company relies to carry out its clinical trials;
and (f) 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 tumour targeting agents, there can be no assurance that any such
tumour targeting agents will be identified or that any new DOS47-based therapeutics will be developed.
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, 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
Page | 23
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 with NRC 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.
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 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 the Company’s 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 an industry that is 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
Page | 24
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; Director residency requirements
The Company’s ability to continue its development of potential products depends on its ability to attract and maintain
qualified key individuals to serve in management and on the Board. However, the Company does not currently have a
formal succession plan for members of its senior management team or for its Board and, because competition for qualified
key individuals with experience relevant to the industry in which the Company operates is intense, the Company may not
be able to attract and/or retain such personnel. Additionally, applicable corporate law requires that at least 25% of the
Company’s directors be resident Canadians, and the Company’s articles provide that the Company cannot have fewer
than five directors at any time.
Consequently, if the Company is unable to attract and/or loses and is unable to replace key personnel, its business could
be negatively affected and, in particular, if the Company loses one or more of its three current resident Canadian directors
in the future and is unable to find a sufficient number of resident Canadian directors to fill the resulting vacancy(ies), the
Board will be prevented from taking any action other than appointing additional resident Canadian directors until such
time as a sufficient number of new resident Canadian directors have been appointed such that at least 25% of the
Company’s directors are resident Canadians.
In addition, the Company does not carry key-man insurance on any individuals.
Indemnification obligations to directors and officers of the Company may adversely affect the Company’s 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 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
U.S. dollar and the Euro.
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 shareholders 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 shareholders of the Company.
Page | 25
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 tradeable 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.
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 information. Other than any obligation
to disclose material information under applicable securities laws, the Company undertakes no obligation to revise or update any
forward-looking information after the date hereof.
Data relevant to estimated market sizes and penetration for the Company’s lead products under development are presented in
this MD&A. This data has 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, 2016, is available under the Company’s profile on
SEDAR at www.sedar.com.
October 28, 2016
Page | 26
Consolidated Financial Statements of Helix BioPharma Corp.
Years ended July 31, 2016 and 2015
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 Professional 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/ Sven Rohmann
Sven Rohmann
Chairman and Chief Executive Officer
/s/ Photios (Frank) Michalargias
Photios (Frank) Michalargias
Chief Financial Officer
October 28, 2016
Page | 28
BDO Canada LLP
60 Columbia Way, Suite 300
Markham, Ontario, L3R 0C9
Canada
Telephone (905) 946-1066
Fax (905) 946-9524
www.bdo.ca
Independent Auditor's Report
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, 2016 and July 31, 2015, the consolidated statements of net loss and
comprehensive loss, changes in shareholders’ equity, and cash flows for the years then ended 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
audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical
requirements and plan and perform the audit to obtain reasonable assurance about whether the 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 in our audits 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, 2016 and July 31, 2015, and its financial performance and its cash flows for the years then ended
in accordance with International Financial Reporting Standards.
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 $3,654,000 as at July 31, 2016 is 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 Professional Accountants, Licensed Public Accountants
October 28, 2016
Markham, Ontario
Page | 29
HELIX BIOPHARMA CORP.
Consolidated Statement of Financial Position
In thousands of Canadian dollars
As at July 31, 2016 and 2015
As at:
ASSETS
Non-current assets
Property, plant and equipment (note 4)
Current assets
Prepaid expenses
Accounts receivable
Cash
Total assets
July 31, 2016
July 31, 2015
$
235
235
90
489
3,654
4,233
$
329
329
184
491
6,792
7,467
$
4,468
$
7,796
SHAREHOLDERS’ EQUITY AND LIABILITIES
Shareholders’ equity (note 5)
$
3,164
$
6,827
Current liabilities
Accrued liabilities
Accounts payable
589
715
1,304
707
262
969
Total liabilities and shareholders’ equity
$
4,468
$
7,796
The accompanying notes are an integral part of these consolidated financial statements.
On behalf of the Board of Directors:
/s/ Sven Rohmann
Sven Rohmann,
Chair, Board of Directors
/s/ Albert G. Beraldo
Albert G. Beraldo,
Chair, Audit Committee
Page | 30
HELIX BIOPHARMA CORP.
Consolidated Statement of Net Loss and Comprehensive Loss
Years ended July 31, 2016 and 2015 (In thousands of Canadian dollars, except per share amounts)
Expenses
Research and development
Operating, general and administration
Results from operating activities before finance items
Finance items
Finance income
Finance expense
Foreign exchange gain (loss)
Loss and total comprehensive loss from continuing operations
Gain from sale of discontinued operations
2016
2015
5,821
3,836
(9,657)
26
(17)
(17)
(8)
(9,665)
–
4,885
3,892
(8,777)
56
(13)
(46)
(3)
(8,780)
50
Net loss and total comprehensive loss
$
(9,665)
$
(8,730)
Loss per common share from continuing operations
Basic
Diluted
Loss per common share
Basic
Diluted
$
$
(0.11)
(0.11)
$
$
(0.11)
(0.11)
(0.11)
$
$ (0.11)
(0.11)
$
$ (0.11)
Weighted average number of common shares used in the calculation of
basic and diluted loss per share
85,550,926
78,592,444
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, 2016 and 2015 (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, 2014 $ 107,079 75,900,337 $12,634 22,400,084 $4,059 $ 9,965 $(126,926) $ –
–
Net loss for the year
–
Common stock, issued
–
Warrants, issued
–
Warrants, expired unexercised
–
Stock-based compensation
–
Options, exercised
–
Options, expired unexercised
–
–
3,141 8,703,500
(6,950) (11,155,000)
–
–
–
–
8,703,500
–
–
–
50,000
–
(8,730)
–
–
–
–
–
–
–
–
–
–
436
(40)
(1,540)
–
–
–
6,950
–
–
1,540
–
5,102
–
–
–
107
–
–
–
–
–
–
Balances, July 31, 2015 $ 112,288 84,653,837 $ 8,825 19,948,584 $2,915 $18,455 $(135,656) $ –
–
–
Net loss for the year
3,365
–
Common stock, issued
–
–
Warrants, issued
–
–
Warrants, expired unexercised
93
–
Warrants, exercised
–
–
Stock-based compensation
–
400
Options, exercised
–
Options, expired unexercised
–
–
Cumulative Translation Adjustment –
–
–
2,081 4,355,000
(2,049) (2,571,084)
(48,500)
–
–
–
–
–
4,355,000
–
–
48,500
–
190,600
–
–
–
–
–
–
–
230
(147)
(1,286)
–
(9,665)
–
–
–
–
–
–
–
–
–
–
–
2,049
–
–
–
1,286
–
(20)
–
–
–
–
–
–
$ 6,811
(8,730)
5,102
3,141
–
436
67
–
$ 6,827
(9,665)
3,365
2,081
–
73
230
253
–
–
Balances, July 31, 2016 $ 116,146 89,247,937 $ 8,837 21,684,000 $1,712 $21,790 $(145,321) $ –
$ 3,164
The accompanying notes are an integral part of these consolidated financial statements.
Page | 32
2016
2015
$
(9,665)
$
(8,780)
HELIX BIOPHARMA CORP.
Consolidated Statement of Cash Flows
Years ended July 31, 2016 and 2015 (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
Stock-based compensation
Foreign exchange loss
Change in non-cash working capital:
Accounts receivable
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
Proceeds from the exercise of stock options
Proceeds from the exercise of warrants
Net cash provided by financing activities
Cash flows from investing activities
Purchase of property, plant and equipment
Net cash used in investing activities
Foreign exchange loss on cash
Net decrease in cash from continuing operations
Net increase in cash from discontinued operations
Cash, beginning of year
Cash, end of year
134
230
17
2
94
453
(118)
(8,853)
5,445
253
74
5,772
(40)
(40)
(17)
$
$
(3,138)
-
6,792
$
3,654
The accompanying notes are an integral part of these consolidated financial statements.
133
436
46
(148)
(102)
(304)
231
(8,488)
8,243
67
–
8,310
(14)
(14)
(46)
$
$
$
(238)
50
6,980
6,792
Page | 33
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2016 and 2015
(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 an immune-oncology
company primarily focused in the areas of cancer prevention and treatment. 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.
As at July 31, 2016, 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 incurred a net loss and total comprehensive loss of $9,665,000 for
the fiscal year ended July 31, 2016, reported a deficit of $145,321,000 and had working capital of $2,929,000 as at July 31, 2016.
At present, provided the Company is not successful in obtaining additional financing, the Company’s cash resources are expected
to be fully depleted sometime in November/December of 2016. 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. Any 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”) as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International
Financial Reporting Interpretation Committee.
The consolidated financial statements of the Company were approved and authorized for issue by the Board of Directors on
October 28, 2016.
Use of estimates and critical judgment
The preparation of the Company’s financial statements requires management to make critical judgments, estimates and assumptions
that affect the reported amounts of expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting
date. On an ongoing basis, management evaluates its judgments, estimates and assumptions using historical experience and
various other factors it believes to be reasonable under the given circumstances. Actual outcomes may differ from these
estimates that could require a material adjustment to the reported carrying amounts in the future.
The most significant critical estimates and judgments made by management include the following:
a) Going Concern
Significant judgments related to the Company’s ability to continue as a going concern are disclosed in the first paragraph
above in Note 1.
b) Clinical study expenses
Clinical study expenses are accrued based on services received and efforts expanded pursuant to contract with contract research
organizations (“CROs”), consultants, clinical study sites and other vendors. In the normal course of business, the Company
contracts with third parties to perform various clinical study activities. The financial terms of these agreements vary from contract
to contract and are subject to negotiations that may result in uneven payment outflows. Payments under the contracts depend on
various factors such as the achievement of certain events, the successful enrolment of patients or the completion of portions of
the clinical study and/or other similar conditions. The Company determines the accruals by reviewing contracts, vendor
agreements and purchase orders, and through discussions with internal personnel and external providers as to the progress or
stage of completion of the clinical studies or services and the agreed-upon fee to be paid for such services. However, actual costs
Page | 34
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2016 and 2015
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
and timing of the Company’s clinical studies is uncertain, subject to risk and may change depending upon a number of factors,
including the Company’s clinical development plans and trial protocols.
c) Valuation of share-based compensation and warrants
Management measures the costs for share-based compensation and warrants using market-based option valuation techniques.
Assumptions are made and estimates are used in applying the valuation techniques. These include estimating the future volatility
of the share price, expected dividend yield, future employee turnover rates, a n d future exercise behaviours. Such estimates
and assumptions are inherently uncertain. Changes in these assumptions affect the fair value estimates of share-based payments
and warrants.
d)
Income taxes
the likelihood that the
Deferred tax assets, including those arising from unutilized tax losses, require management to assess
Company will generate future taxable income in future years in order to utilize any deferred tax asset which has been
recognized. Estimates of future taxable income are based on forecasted cash flows. At the current statement of financial position
date, no deferred tax assets have been recognized in these financial statements.
e)
Impairment of long-lived assets
Long-lived assets are reviewed for impairment upon the occurrence of events or changes in circumstances indicating that the
carrying value of the asset may not be recoverable. For the purpose of measuring recoverable amounts, assets are grouped
at the lowest levels for which there are separately identifiable cash flows (cash-generating units). The recoverable amount is the
higher of an asset’s fair value less costs to sell and value in use (being the present value of the expected future cash flows of the
relevant asset or cash-generating unit). An impairment loss is recognized for the amount by which the asset’s carrying amount
exceeds its recoverable amount. Management evaluates impairment losses for potential reversals when events or circumstances
warrant such consideration.
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
These consolidated financial statements include the accounts of the Company and its subsidiaries listed below. Control is achieved
when the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its
activities. Subsidiaries are fully consolidated from the date on which control is acquired by the Company. Inter-company
transactions and balances are eliminated upon consolidation. They are de-consolidated from the date that control by the Company
ceases. The consolidated financial statements include the assets and liabilities and results of operations of all subsidiaries after
elimination of intercompany transactions and balances.
As at July 31, 2016, the subsidiaries of the Company include: Helix BioPharma Inc., incorporated in the USA, Helix Polska
Sp.z.o.o., incorporated in Poland and Helix Product Development (Ireland) Limited, incorporated in Ireland. All these subsidiaries
are 100% owned by Helix BioPharma Corporation.
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.
Page | 35
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2016 and 2015
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
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
6-10 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. 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 is classified as a held-for-trading assets and is 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.
Page | 36
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2016 and 2015
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
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.
Government Grants and Disclosure of Government Assistance
Government grant funds are recognised in income when there is reasonable assurance that the Company has complied with the
conditions attached to them and that the grant funds will be received. Grant funds receivable are recognized in income over the
periods in which the entity recognises as expenses, the related costs for which the grant is intended to compensate.
3. New accounting standards and pronouncements not yet adopted
The company has adopted IAS 1, Presentation of Financial Statements
The IASB issued amendments to IAS 1, Presentation of Financial Statements effective for annual periods beginning on or after
January 1, 2015 as part of the IASB’s disclosure initiative. These amendments encourage entities to apply professional judgment
regarding disclosures and presentation in their financial statements. The Company has evaluated the impact of the new standard
on its results of operations, financial position and disclosures and has determined that applied judgment has resulted in minimal
statement presentation and disclosure adjustments.
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 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”). The project had three main phases: classification and measurement,
Page | 37
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2016 and 2015
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
impairment and general hedging. The standard becomes effective for annual periods beginning on or after January 1, 2018 and
is to be applied retrospectively. Early adoption is permitted. The Company is evaluating the impact of the new standard on its
results of operations, financial position and disclosures.
IFRS 15, Revenue from Contracts with Customers
The IASB has issued a new standard, IFRS 15, Revenue from Contracts with Customers (“IFRS 15”). IFRS 15 contains a single
model that applies to contracts with customers and two approaches to recognizing revenue: at a point in time or over time. The
model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is
recognized. New estimates and judgmental thresholds have been introduced, which may affect the amount and/or timing of
revenue recognized. The standard becomes effective for annual periods beginning on or after January 1, 2018. The Company
is evaluating the impact of the new standard on its results of operations, financial position and disclosures.
IFRS 16, Leases
In January 2016, the IASB has issued IFRS 16 Leases (“IFRS 16”), its new leases standard that requires lessees to
recognize assets and liabilities for most leases on their balance sheets. Lessees applying IFRS 16 will have a single
accounting model for all leases, with certain exemptions. Lessor accounting is substantially unchanged. The new standard will
be effective from January 1, 2019 with limited early application permitted. The Company is evaluating the impact of the new
standard on its results of operations, financial position and disclosures.
4. Property, plant and equipment
2016
Cost
$ 1,306
1,555
370
244
89
19
$ 3,583
Accumulated
depreciation
$ 1,106
1,553
370
211
89
19
$ 3,348
Research equipment
Manufacturing equipment
Leasehold improvements
Computer equipment
Computer software
Furniture and fixtures
5. Shareholders’ equity
$
Net book
value
200
2
–
33
–
–
235
$
2015
Cost
$ 1,303
1,555
370
207
89
19
$ 3,543
Accumulated
depreciation
$ 1,042
1,499
370
196
89
18
$ 3,214
$
Net book
value
261
56
–
11
–
1
329
$
Preferred shares
Authorized 10,000,000 preferred shares.
As at July 31, 2016 and 2015 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, 2016 the Company had 89,247,937 (2015 – 84,653,837) common shares issued and outstanding.
On April 1, 2015 the Company completed a private placement, issuing 5,430,000 units at $1.10 per unit, for gross proceeds of
$5,973,000. 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 $1.54 until March 30, 2020. Of the gross proceeds amount,
$2,266,000 was allocated to the share purchase warrants based on fair value and the residual amount of $3,707,000 was allocated
to common stock. Share issue costs totalling $836,000 were proportionately allocated to the share purchase warrants ($317,000)
and common stock ($519,000), respectively.
On April 29, 2015 the Company completed a private placement, issuing 3,273,500 units at $1.10 per unit, for gross proceeds of
$3,601,000. 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 $1.54 until April 28, 2020. Of the gross proceeds amount,
$1,382,000 was allocated to the share purchase warrants based on fair value and the residual amount of $2,219,000 was allocated
to common stock. Share issue costs totalling $495,000 were proportionately allocated to the share purchase warrants ($190,000)
and common stock ($305,000), respectively.
On April 11, 2016 the Company completed a private placement, issuing 3,105,000 units at $1.50 per unit, for gross proceeds of
$4,658,000. 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 $1.98 until April 10, 2021. Of the gross proceeds amount,
Page | 38
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2016 and 2015
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
$1,770,000 was allocated to the share purchase warrants based on fair value and the residual amount of $2,888,000 was allocated
to common stock. Share issue costs totalling $700,000 were proportionately allocated to the share purchase warrants ($266,000)
and common stock ($434,000), respectively.
On July 29, 2016 the Company completed a private placement, issuing 1,250,000 units at $1.46 per unit, for gross proceeds of
$1,825,000. 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 $1.82 until July 28, 2021. Of the gross proceeds amount,
$707,000 was allocated to the share purchase warrants based on fair value and the residual amount of $1,118,000 was allocated
to common stock. Share issue costs totalling $336,000 were proportionately allocated to the share purchase warrants ($130,000)
and common stock ($206,000), respectively.
The following table provides information on share purchase warrants outstanding as at:
Exercise Price
$1.54
$1.54
$1.61
$1.82
$1.98
$2.24
$3.35
$3.35
Outstanding, end of year
July 31, 2016
July 31, 2015
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
3.67
3.75
2.25
4.99
4.70
2.94
–
–
5,430,000
3,250,000
4,653,000
1,250,000
3,105,000
3,996,000
–
–
21,684,000
4.67
4.75
3.25
–
–
3.94
.66
.66
5,430,000
3,273,500
4,678,000
–
–
3,996,000
1,652,719
918,365
19,948,584
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, 2016, options to
purchase up to 8,924,793 common shares may be granted under the plan. As at July 31, 2016, options to purchase a total of
1,686,484 common shares have been issued and are outstanding under the equity compensation plan.
The following table provides information on options outstanding and exercisable as at:
July 31, 2016
Exercise
Price
$1.30
$1.34
$1.50
$1.65
$1.68
$2.00
$2.43
$3.00
Weighted average
remaining contractual
Number of
options
life (in years) outstanding
200,000
234,400
300,000
150,000
692,084
110,000
–
–
0.92
2.25
3.46
3.26
0.38
3.99
–
–
Number of
vested and
exercisable
options
200,000
234,400
199,998
99,999
692,084
20,000
–
–
Weighted average
remaining contractual
life (in years)
1.92
2.90
4.46
4.26
1.38
4.77
0.05
.99
July 31, 2015
Number of
options
outstanding
250,000
425,000
300,000
150,000
692,084
60,000
358,000
495,000
Number of
vested and
exercisable
options
250,000
425,000
100,002
50,001
692,084
358,000
495,000
Outstanding, end of year
1.57
1,686,484
1,466,481
1.99
2,730,084
2,370,087
Page | 39
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2016 and 2015
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
The following table summarized activity under the Company’s stock option plan for the fiscal years ended July 31, 2016 and 2015:
July 31, 2016
July 31, 2015
Outstanding, beginning of year
Granted
Exercised
Expired
Outstanding, end of year
Number
2,730,084
50,000
(190,600)
(903,000)
1,686,484
Vested and exercisable, end of year 1,466,481
Weighted average
exercise price
1.92
2.00
1.33
2.68
$
$
$
1.57
1.56
Number
3,338,084
510,000
(50,000)
(1,068,000)
2,730,084
2,370,087
Weighted average
exercise price
2.12
1.60
1.34
2.43
$
$
$
1.92
1.96
Weighted average market share prices for stock options exercised during the fiscal years 2016 and 2015 were $1.97 and $1.65
respectively.
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 2, 2015
May 8, 2015
January 16, 2015
November 3, 2014
November 1, 2013
July 3, 2012
December 17, 2008
Number
of options
granted
50,000
60,000
300,000
150,000
475,000
250,000
2,070,000
Volatility
factor
80.47 %
80.27 %
79.56 %
78.61 %
76.69 %
62.16 %
64.30 %
Risk free
interest
rate
0.73 %
0.91 %
1.02 %
1.37 %
1.62 %
1.25 %
2.44 %
Dividend
rate
Expected
life
0.00 %
0.00 %
0.00 %
0.00 %
0.00 %
0.00 %
0.00 %
5 years
5 years
5 years
5 years
5 years
5 years
8 years
Vesting
period
3 years
3 years
3 years
3 years
1 year
3 years
3 years
Fair value
of options
granted
$
$
$
$
$
$
$
61
72
333
160
379
170
2,525
For the year ended July 31, 2016, 169,994 stock options vested (2015 – 708,336) with a fair value of $188,353 (2015 – $600,142).
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
Collaborative research organizations
VDOS47 Co-funded project
Operating leases
Financial and investor relations
Royalty and in-licensing commitments
$
2017
10
3,245
448
506
125
75
352
$
2018
10
1,107
120
–
398
61
–
$
2019
10
–
34
–
647
63
–
$ 4,761
$ 1,696
$ 754
2020
$ 10
–
–
–
670
–
–
$ 680
2021
$ 10
–
–
–
466
–
–
$ 476
2022 and
beyond
30
$
–
–
–
132
–
–
$
Total
80
4,352
602
506
2,438
199
352
$ 162
$ 8,529
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.
Page | 40
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2016 and 2015
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
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, 2016, the Company has $80,000 (2015 – $90,000) in financial obligations outstanding related to royalty and in-
licensing commitments.
Clinical Research Organization (“CRO”) Commitments
The Company has two CRO supplier agreements in place for clinical research services related to the management of the
Company’s Phase I and Phase 2 clinical study in Europe of L-DOS47.
As at July 31, 2016, the Company accrued $446,000 (2015 – $261,000) for services provided by these CRO’s.
Contract Manufacturing Organization (“CMO”) commitments
The Company has five 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, 2016, the Company accrued $0 (2015 – $25,000) for CMO services it had received and is committed to pay $nil 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, 2016, the Company accrued $82,000 (2015 – 69,000) 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.
As at July 31, 2016, the Company accrued $19,000 (2015 – $6,000) for research and development distribution services received.
Operating lease commitments
The Company is committed to pay $199,000 under three facility lease agreements with lease terms up to 36 months for the
Toronto premises.
Financial and investor relations agreements
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. On March 7, 2014, Mr. Andreas Kandziora was asked to act as an Observer on the Board of
Directors of the Company. Mr. Kandziora is President and CEO of ACM. The agreement includes the following provisions:
a) a monthly fee for investor relation services of CHF33,000 and reimbursement of certain expenses;
b) 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.;
c) 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; and
d) 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.
At July 31, 2016, the Company accrued $251,000 (2015 – $45,000) for services provided by ACM. During fiscal 2016, the
Company paid ACM $540,000 (2015 - $508,000) in monthly fees, $80,000 (2015- $91,000) for expense reimbursements and
Page | 41
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2016 and 2015
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
$810,000 (2015 - $1,228,000) in finders’ fees on gross proceeds on capital raised from private placements (also see Note 9
– Related Party Transactions).
The Company engaged Cantor Fitzgerald & Co. (“Cantor”), effective December 1, 2014, to act as the Company’s exclusive
financial advisor with any transaction with or involving any acquiree by the Company. A non-refundable fee of USD75,000 was
paid to Cantor upon execution of this agreement. The agreement may be terminated by either party at any time upon written
notice to the other party. The agreement includes the following provisions:
a) a flat fee of USD250,000 upon the signing of a definitive transaction agreement arranged by Cantor,
b) a transaction fee on the aggregate consideration on capital raised, as follows:
2.0% up to USD50 million, plus
i)
ii) 1.5% from USD50 to USD100 million, plus
iii) 1.0% in excess of USD100 million, plus
c) Upon the first closing of any part of an equity and/or debt financing and upon each subsequent closing:
i)
a fee of 7.0% of the aggregate of any equity financing irrevocably committed at or in connection with such
closing, whether or not drawn, and
ii) a fee of 3.0% of the aggregate of any debt financing irrevocably committed with such closing, whether or not
drawn.
d) a fee of 3% of any debt financing irrevocably committed from an applicable transaction, and
e)
reimbursement of certain expenses.
As at July 31, 2016, the Company accrued $nil (2015 – $nil) for services by Cantor.
On May 10, 2016, in addition to the Cantor engagement the Company engaged Evolution Life Science Partners on a non-exclusive
basis, as a financial and strategic advisor to the Company in connection with the identification and introduction of and discussion
and negotiation with one or more appropriate third parties for the purposes of considering a possible transaction. The fee structure
is as follows:
a) Retainer of $20,000 USD for the initial 6-month period, and $12,500 for any subsequent months
b) A strategic transaction success fee is an amount equal to the greater of 7% of the transaction value or $500,000.
c) A financing transaction success fee in an amount equal to 7% of the consideration received. In addition, warrants to
purchase up to 3% of the common shares sold in the transaction will issued at an exercise price of the common shares
issued in the transaction.
Grant Funding Agreement (“Agreement”) with the Polish National Centre for Research and Development (“PNCRD”)
Based on the Agreement, certain expenditures made commencing on March 1, 2016 are eligible for reimbursement with the final
reimbursement submission to be made no later than September 30, 2021. Of the total project costs, the public subsidy portion
represents PLN12,506,955 (~CAD4,089,941). Helix Polska is required to spend PLN4,437,459 (~CAD1,451,108) towards eligible
project expenditures. In addition, there is an expected 2,850,000 of manufacturing and clinical trial documentation costs that are
ineligible for co-financing by the ERDF. The public subsidy funds may be drawn in advance or on a reimbursement basis, with
varying criteria and timelines on justification of claims being made by the Subsidiary against the PNCRD for funding of the V-
DOS47 development program in Poland. The Agreement may be terminated by either party upon one month’s written notice and
must also state the grounds for which the Agreement is being terminated. In certain cases of termination, the Subsidiary may be
obligated to return the received financial support in full within fourteen days of the day notice is served, with interest.
Legal Services Agreement
a) The Company engaged Sadkowski I Wspolinicy Spolka Akcnjna (“Sadkowski”) to assist and advise the Company in the
selection of other consultants and advisors connected with the potential filing of a prospectus. The agreement may be
terminated at any time by either party by giving notice in writing, subject to a two-week notice period. The fee for such
services are as follows:
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HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2016 and 2015
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
b) a monthly fee based on the number of hours and applicable hourly rate spent incurred by Sadkowski;
c) PLN300,000 for drawing up a prospectus to be invoiced as follows;
i) PLN100,000 after the agreement is signed;
ii) PLN100,000 after prospectus submission to Polish Financial Supervision Authority (“PFSA”); and
iii) PLN100,000 after prospectus approval by the PFSA;
d) a fee of PLN7,500 for each supplemental prospectus files that includes financial data or PLN3,000 if no financial data is
included;
As at July 31, 2016, the Company accrued $5,000 (2015 – $nil) for services provided by Sadkowski.
Legal proceedings and claims
There are two claims made against the Company in the normal course of operations that remain pending at the end of fiscal 2016
and at the date of this Annual Report. Management believes that these claims are without merit. Actions are not sufficiently
advanced for the outcome to be presently determinable and, accordingly, no provision for these claims have 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.
8. Financial instruments and risk management
The Company has classified its financial instruments as follows:
Cash
2016
2015
Fair Value
$ 3,654
Fair value
hierarchy
Level 1
Fair Value
$ 6,792
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:
a. Level 1 reflects valuation based on quoted prices observed in active markets for identical assets or liabilities;
b. 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
c. 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.
Page | 43
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2016 and 2015
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
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, 2016 and 2015 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, U.S. dollars and Zloty due to Canadian dollar
stability and strength against foreign currencies.
Balances in foreign currencies at July 31, 2016 and 2015 are as follows:
Cash
Accounts payable
Accruals
Net foreign currencies
2016
US
Dollars
Zloty
48 77
-
(48)
(165) (90)
(165) (13)
Euros
30
(77)
(82)
(129)
Closing exchange rate
Impact of 1% change in exchange rate
1.4594
+/- 1
1.3056 0.3345
-
+/- 1
2015
US
Dollars
7
(30)
(2)
(25)
Zloty
1
-
-
1
Euros
8
(9)
(162)
(163)
1.4388
+/- 1 +/- 1
1.3047 0.3349
-
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 2016 and 2015 to the Canadian dollar:
High
Average
Low
2016
US
Euros
1.5928
1.4740
1.4081
Dollars Zloty
1.4589 0.3611
1.3278 0.3416
1.2544 0.3226
2015
US
Euros Dollars Zloty
1.3060 0.3508
1.4729
1.4005
1.1924 0.3363
1.3111 1.0857 0.3201
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.
Page | 44
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2016 and 2015
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
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 table below breaks down the various categories that make up the Company’s accounts receivable balances as at July 31:
Government related – HST/VAT
Research and development investment tax credits
Other
2016
106
380
3
$ 489
2015
96
388
7
$ 491
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 $3,654,000 as at July 31, 2016 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:
2016
2015
Carrying
amount
Accounts payable and accrued liabilities $ 1,304
Less than Greater than
one year
one year
–
$
1,304
$
Carrying
amount
969
$
Less than Greater than
one year
one year
–
$
969
$
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 include the Chief Executive Officer, Chief Financial Officer, Chief Scientific
Officer, Chief Medical Officer and Chief Operating Officer. In addition to the aforementioned key management personnel, the
table below also includes compensation for the former Interim Chief Executive Officer and former Chief Executive Officer.
The following table summarizes for key management personnel compensation for the fiscal years ended:
Compensation
Stock-based compensation
2016
$ 1,283
53
$ 1,336
2015
$ 1,185
76
$ 1,261
Page | 45
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2016 and 2015
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
The following table summarizes non-management Directors’ compensation for the fiscal years ended:
Directors’ fees
Stock-based compensation
Consultancy fee
2016
352
150
–
502
$
$
2015
364
340
3
707
$
$
During the current fiscal year, a management consultancy agreement was entered into with the Company’s CEO and Chairman
of the Board. The agreement is to remain in effect until March 31, 2017.
The following table summarizes the Board Observer’s compensation for the fiscal years ended:
Finder fee commissions
Financial and investor relations consulting fee
Expense reimbursement
$
2016
810
540
80
$ 1,430
2015
$ 1,228
508
91
$ 1,827
The Company entered into a non-exclusive financial and investor relations agreement with ACM Alpha Consulting Management
EST (“ACMest”), effective May 1, 2012. On March 7, 2014, Mr. Andreas Kandziora was asked to act as an Observer on the Board
of Directors of the Company. Mr. Kandziora is President and CEO of ACMest (also see Note 6 – Commitments, contingent
liabilities and contingent assets).
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, 2016, the Company has incurred research and development expenditures primarily on the L-DOS47 research and
development program.
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.
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
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
$
2016
4,898
709
244
27
118
(175)
$ 5,821
2015
$ 4,031
567
339
16
121
(189)
$ 4,885
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 2016 is 26.7% (2015 – 26.7%).
Page | 46
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2016 and 2015
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
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
2016
2015
$ 11,978
18,293
161
1,500
454
–
$ 11,563
16,222
161
1,400
544
1
32,386
29,891
Current income tax expense and non-capital tax carry-forwards
As at July 31, 2016, the Company has Canadian tax losses that can be carried forward of approximately $68,621,000 (2015 –
$60,840,000) and are available until 2035 as follows:
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
862
2,113
2,904
2,438
9,188
6,552
6,793
13,242
2,437
6,727
7,256
8,109
$ 68,621
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, 2016 is approximately $44,911,000 (2015 – $43,367,000).
Investment tax credits
The Company has also earned investment tax credits in Canada, on eligible SR&ED expenditures at July 31, 2016 of
approximately $11,014,000 (2015 – $10,705,000), which can offset Canadian income taxes otherwise payable in future years up
to 2036. 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. During the year, the Company received cash refundable investment tax credits related to prior years in
the amount of $184,000 (2015 – $89,000). At July 31, 2016, cash refundable investment tax credits total $379,000 (2015 –
$388,000). 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. Subsequent Event
On August 19, 2016, the Company announced the closing of a private placement for gross proceeds of approximately $995,000.
The terms of the Private Placement are for the purchase of common shares at $1.54 per share and include one warrant per share
at an exercise price of $1.92 and have an expiry of five years from the date of issue.
Page | 47