Annual Report 2021
Message to Shareholders
Dear Shareholders,
It is difficult to summarize 2021 in a few words, but as you can imagine, it has not only been a challenging year for us and
our employees but for many people across the globe. COVID-19 has had a broad adverse impact on the global economy
across many industries and has resulted in significant measures being implemented to control the spread of the virus,
including quarantines, travel restrictions and business shutdowns. Our employees have also now adapted to remote
working arrangements which we implemented to protect everyone’s health and safety.
More than ever, we are focused to make progress on our mission of developing unique therapies in the field of immuno-
oncology for the prevention and treatment of cancer. Our clinical program remains our highest priority to ensure we deliver
on a substantial data package that would ultimately benefit patients and stakeholders alike.
We continue to partner with experienced advisors and experts in the field to enhance the value of our platform and assets
and have made the following progress during this challenging environment.
Clinical Development
LDOS47 in lung cancer
The Phase I study combination therapy in lung cancer (LDOS001) has been completed and the final clinical trial report
is expected December 2021.
The Phase II study of combination therapy in lung cancer (LDOS003) is also completed and the final clinical trial report
is expected in March 2022.
Another important aspect of the development of the LDOS47 platform is the combination with chemo- and/or immuno-
therapy, that may boost the utility of the platform. The Company has engaged several key opinion leaders to evaluate
the feasibility of such combinations and aims to develop a develop a roadmap by the second quarter of 2022
LDOS47 in pancreatic cancer
The Company's Phase Ib/II combination trial in pancreatic cancer (LDSOS006) continues to recruit patients. We
recently applied to the U.S. Food and Drug Administration for a revision to the clinical study protocol to extend the
number of treatment cycles for those patients where the benefits outweigh the risks. We remain committed to this study.
Corporate Development
In December 2020, we completed two private placements and the disposition of our former subsidiary in Poland for
aggregate gross proceeds of $4,100,000 and $2,308,000, respectively. In May 2021, we announced an agreement with
Lind Global Macro Fund, LP, a New York-based institutional investment fund and subsequently closed a first tranche
financing for gross proceeds of $3,500,000. In connection with the closing, we issued a convertible security with a two-
year term and a face value of $4,112,500 and issued an aggregate of 1,957,056 common share purchase warrants.
We deferred plans to list the company on the NASDAQ because of not being able to qualify for an accelerated cross-
border financing under the Multijurisdictional Disclosure System and the resignation of the Company's previous
auditors. We appointed Marcum LLP as our new auditors in June 2021.
On August 19, 2021, Dr. Krzysztof Saczek was appointed to the board of directors following the resignation of Dr.
Heman Chao who, effective September 1, 2021, resigned as CEO, CSO and director of the Company, while we work
to identify and evaluate potential candidates for a permanent Chief Executive Officer, I’ve been appointed by the board
to serve as Interim Chief Executive Officer.
Our progress under these challenging times would not have been possible without the strong support from our employees
and I’m truly thankful for their dedication and commitment. The year ahead of us will not be easy, but we will continue to be
resilient. Advancing our DOS47 platform and establishing a third-party partnership while raising sufficient capital to continue
strengthening our operations and portfolio, remains our highest priority.
I thank you for your trust and continuing loyalty.
Sincerely,
Slawomir Majewski, M.D.
Interim CEO, Board Chairman
This letter contains certain forward-looking statements. By their nature, forward-looking statements require us to make
assumptions and are subject to inherent risks and uncertainties. Please refer to the caution regarding Forward-Looking
Statements and Information on page 2 of this Annual Report for a discussion of such risks and uncertainties and the material factors
and assumptions related to these statements.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the years ended July 31, 2021 and 2020
December 9, 2021
1 This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in
conjunction with the annual consolidated financial statements of Helix BioPharma Corp. (the “Company” or “Helix”) for the years
ended July 31, 2021 and 2020 and the accompanying notes thereto. This MD&A is based on the annual consolidated 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 statements” and “forward-looking information” within the meaning of applicable Canadian
securities laws (collectively, “forward-looking information”). 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’s primary
drug product candidate L-DOS47 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, the extension of the current drug candidate(s) to other indications and the identification and development of further
tumour-targeting antibodies for DOS47; (v) the nature, design and anticipated timeline for completion of enrollment and other
matters relating to the Company’s ongoing clinical study programs such as the Investigational New Drug (“IND”) Phase Ib/II
combination study combination with doxorubicin for previously treated advanced pancreatic cancer patients by the U.S Food and
Drug Administration (“FDA”); (vi) the Company’s seeking of strategic partner support and therapeutic market opportunities; (vii)
future expenditures, insufficiency of the Company’s current cash resources and the need for financing and the Company’s possible
response for such matters; (viii) future financing requirements, the seeking of additional funding and anticipated future operating
losses; (ix) future evaluation and changes to the Company’s disclosure controls and procedures related to internal controls over
financial reporting and informing the public of such changes; (x) 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; (xi) the Company’s technology and research and development objectives, including
development milestones, estimated costs, schedules for completion and probability of success; (xii) the Company’s expectation
that it can in a timely manner, or at all, produce the appropriate preclinical, and if necessary, clinical data required; (xiii) the
Company’s plans to develop L-DOS47 and the estimated incremental costs (including the status, cost and timing of achieving the
development milestones disclosed herein); (xiv) the Company’s intentions with respect to initiating marketing activities following
receipt of the applicable regulatory approvals; (xv) the Company’s seeking of licensing opportunities to expand its intellectual
property portfolio; (xvi) the Company’s expectation that it will be able to finance its continuing operations by accessing public
markets for its securities; (xvii) the Company’s intended use of proceeds of any offering of its securities; and (xviii) the Company’s
intention with respect to not paying any cash dividends on its common shares in the capital of the Company (“Common Shares”)
in the foreseeable future. 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”, “2021”, “2022”,
“2023”, “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 lack of operating income and need for additional capital which may not be available in a timely manner
or at all;
the Company’s history of losses and expectations regarding incurring additional losses for the foreseeable future;
rapid technological change and competition from pharmaceutical companies, biotechnology companies and universities,
which may make the Company’s technology or products obsolete or uncompetitive;
the Company’s dependence on a drug platform with only a single drug product candidate, L-DOS47 currently in clinical
trials, uncertainty as to the size and existence of a market opportunity for, and market acceptance of the Company’s drug
product candidate 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;
2
the possibility that the market may never accept L-DOS47 or any other drug product candidate from the Company’s
DOS47 platform technology;
uncertainty as to product development milestones and, in particular, whether the Company’s drug product candidate(s),
especially L-DOS47, will be successfully developed and marketed;
intellectual property risks, including the possibility that patent applications may not result in issued patents, that issued
patents may be circumvented or challenged and ultimately struck down, that any expiry of an issued patent, may
negatively impact the further development or commercialization of the underlying technology, and that the Company may
not be able to protect its confidential proprietary information;
risks relating to patent litigation;
risks relating to security breaches and other disruptions which may compromise the Company’s information and expose
the Company to liability and cause the Company’s business and reputation to suffer;
risks related to the potential infringement by the Company of the intellectual property rights of third parties, and the
possibility that such parties may commence legal proceedings to protect or enforce such rights, the outcome of which
would be uncertain and could harm the Company’s business;
risks associated with claims, or potential claims, of infringement of third-party intellectual property and other proprietary
rights;
risks relating to lawsuits or other proceedings commenced by the Company to protect or enforce the Company’s patents
or other intellectual property, and their potential effect on the Company;
risks relating to potential claims of third parties that the Company’s employees, collaborators, consultants or independent
contractors have wrongfully used or disclosed the confidential information of third parties, or that the Company’s
employees have wrongfully used or disclosed alleged trade secrets of their former employers;
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;
regulatory risks, including the lengthy, unpredictable and costly FDA regulatory approval process and the potential impact
on the Company if such approvals are not ultimately obtained;
the risk of unknown side effects arising from the development, manufacture or use of the Company’s products;
risk relating to the difficulty in enrolling patients in clinical trials which may result in delays or cancellation of clinical trials;
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 significant dependence on licensed intellectual property and the risk of losing or breaching such licenses;
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;
risks relating to the marketability of the Company’s products arising from regulatory delays or inability to obtain regulatory
approval, and ongoing regulatory review and requirements;
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);
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;
risks relating to the Company’s potential failure to find third party collaborators to assist or share in the costs of product
development and the potential impact on the Company’s business, financial condition and results of operations;
the need for future preclinical and clinical trials, and the reliance by the Company on third parties to conduct such 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;
product liability and insurance risks;
uncertainty as to the Company’s ability to maintain product liability insurance required by third parties and the risk of the
the risk of lawsuits and other legal proceedings against the Company;
corresponding agreement being terminated;
the need to attract and retain key personnel and reliance on key personnel;
the risk of misconduct on the part of employees and consultants, including non-compliance with regulatory standards and
requirements;
3 the risk that indemnification obligations to directors and officers may adversely affect the Company’s finances;
the impact on the Company’s finances resulting from shifts in foreign exchange rates, credit risk and interest rate risk;
risks related to adverse decisions by tax authorities and changes in law;
risks relating to the potential financial strain on the Company’s resources due to the requirements of being a public
company;
the impact of the ongoing volatility in the economic environment;
risks relating to compliance with environmental laws;
risk relating to a failure to maintain an effective system of internal controls;
risks related to epidemics, pandemics or other health crises, including the coronavirus (“COVID-19”) pandemic, and their
potential effect on the Company’s business, operations and financial condition;
volatility in the trading price and volume of the Common Shares and potential challenges in maintaining listing
requirements;
the possibility of dilution to current shareholders from future equity or convertible debt financings or through the exercise
of stock options (“Options”), Common Share purchase warrants (“Warrants”) or other securities convertible or
exchangeable into Common Shares;
liquidity of the Common Shares;
the risk that inaccurate or unfavorable research about the Company’s business, or the lack of research about its business,
may affect the share price and trading volume of the Common Shares;
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 (collectively, the “Helix Risk Factors”), any of which could cause actual
results to vary materially from current results or the Company’s anticipated future results. Forward-looking information in this
MD&A is based on certain material factors, estimates or assumptions, which may prove to be incorrect, including, but not limited
to assumptions about: general business and current global economic conditions; future success of current research and
development activities; achievement of development milestones; inability to achieve product cost targets; competition; changes to
tax rates and benefits; the availability of financing on a timely basis; the Company’s and its competitors’ costs of production and
operations; the Company’s ability to attract and retain skilled employees; receipt of all applicable regulatory approvals/clearances;
protection of the Company’s intellectual property rights; market acceptance of the Company’s product candidates; the Company’s
ability to meet the continued listing requirements of the Toronto Stock Exchange (“TSX”); and that the Helix Risk Factors will not
cause the Company’s actual results or events to differ materially from the forward-looking information. The Company cautions that
the foregoing list of important factors and assumptions is not exhaustive.
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 a clinical-stage biopharmaceutical company developing unique therapies in the field of immuno-oncology for the prevention
and treatment of cancer based on its proprietary technological platform DOS47.
The Company is pioneering the development of a platform technology targeting the tumour microenvironment. Helix's technology
is designed to reduce tumour acidity, an escape mechanism which cancer cells utilize to evade the anti-tumour immune response.
Tumour acidity has been shown to correlate with resistance to anti-cancer treatment and poor prognosis for cancer patients.
To date, the Company’s proprietary technology platform, DOS47 has yielded two new drug product candidates, being L-DOS47 and
V-DOS47.
L-DOS47 is currently under clinical study for the treatment of non-small cell lung cancer (“NSCLC”) and previously treated advanced
pancreatic cancer. The Company completed extensive preclinical testing and manufacturing development of L-DOS47, following
which the Company obtained regulatory approvals to conduct a Phase I/II NSCLC monotherapy clinical study in Poland, a Phase I
NSCLC combination study with pemetrexed and carboplatin in the United States, and a Phase II NSCLC combination study with
vinorelbine and cisplatin in Ukraine and Poland. In August 2019, the Company also received approval to conduct a Phase Ib/II
4 combination study utilizing L-DOS47 with doxorubicin in patients with previously treated advanced pancreatic cancer in the United
States.
V-DOS47 drug candidate uses the Company’s proprietary DOS47 technology conjugated to anti-VEGFR2 antibody targeting a wide
range of cancers. In 2016, V-DOS47 was licensed to Helix Immuno-Oncology S.A., the Company’s then wholly owned Polish
subsidiary, (“HIO”), for pre-clinical and clinical development activity. HIO entered into a grant funding agreement with the Polish
National Centre for Research and Development (“PNCRD”) to fund the V-DOS47 research project. On January 30, 2020, HIO
conveyed to the PNCRD that it wished to terminate the grant funding program for V-DOS47. Under the grant funding agreement,
HIO received approximately $1,457,000. As part of the debt cancellation agreements announced by the Company on June 26,
2020, the Company and HIO terminated the V-DOS47 license agreement. As a result, all transferred assets related to V-DOS47
have been automatically reassigned and transferred from HIO back to the Company without any formality. As a result, the
Company will now assess what next steps to take with the V-DOS47 antibody.
In NSCLC, L-DOS47 has shown to be safe and well tolerated as a monotherapy pursuant to the Company’s LDOS002 study
(“LDOS002”). L-DOS47 has also shown to be safe and well tolerated when used in combination with pemetrexed and carboplatin
pursuant to the Company’s LDOS001 study (“LDOS001”). LDOS001 was conducted at University Hospital’s Case Medical Center
in Cleveland, Ohio, at Penn State’s Cancer Institute in Hershey, Pennsylvania and at the University of Texas MD Anderson Cancer
Center in Houston, Texas. As reported at the June 2020 conference of the American Society of Clinical Oncology, an objective
response rate of 41.7% based on tumour burden and a clinical benefit rate of 75% inclusive of stable diseases were observed in
the LDOS001 study. The Company believes the data supports the continuing development of L-DOS47 for NSCLC. As of the date
of this MD&A, the Company is contemplating a new study in NSCLC using L-DOS47 in combination with immunotherapy and has
hired several consultants to provide an assessment of the Company’s technology and advise on clinical strategy priorities.
During the year ended July 31, 2021, the Company engaged key opinion leaders on the feasibility and design of a possible
immunotherapy chemo combination clinical study and had targeted a possible submission to the FDA by December 2021. As of
the date of this MD&A, the Company is not in a position to make a submission to the FDA regarding the potential clinical study.
In December 2019, the Company announced the start of enrollment and screening for its Phase lb/ll clinical development program
for previously treated patients with advanced pancreatic cancer. The study center is located in Scottsdale, Arizona at the Scottsdale
Hospital (dba “HonorHealth”). The Company originally forecasted patient enrollment in the Phase Ib portion of the study to be
completed by the end of the 2020 calendar year, pending safety outcomes and the impact of the COVID-19 pandemic. As a result
of the COVID-19 pandemic, the Company has not met the previously forecasted patient enrollment timeline for this clinical study.
The Company added two new clinical sites in other U.S. jurisdictions during the first quarter of 2021 in order to facilitate patient
enrollment. The Company believes patient enrollment in the Phase Ib portion of the study may be completed by the second quarter
of calendar year 2022. However, any cohort expansion in the dose escalation phase will result in a three-month extension in the
projected timeline. Please see “Our results of operations may be negatively impacted by the COVID-19 outbreak” under the heading
“Risk Factors”.
In 2017, the Company entered into a scientific research collaboration agreement with the Moffitt Cancer Center (“Moffitt”) in
Tampa, Florida, to perform basic research studies to further investigate the pharmacodynamics of L-DOS47 and to determine the
potential benefits of combining L-DOS47 with immune checkpoint inhibitors. The collaboration agreement with Moffitt is still in
effect and the Company is assessing the possibility of expanding its collaboration with Moffitt. Pancreatic cancer is known to be
a disease that is resistant to immunotherapy treatment and shown in animal models to be highly acidic. The Company believes
the ability of L-DOS47 to modulate tumour acidity may be key to enable immunotherapy treatment for pancreatic cancer. This new
research collaboration project will also build on data already obtained from imaging techniques performed by Moffitt that
demonstrated the ability of L-DOS47 to affect tumour acidity. Translation of this technique into the clinic may help stratify patients
for L-DOS47 and potentially identify patients who may be resistant to certain therapies due to tumour acidity.
In addition to DOS47, the Company has also developed antibodies that may be suitable for novel chimeric antigen receptor T-Cell
therapeutic (“CAR-T”) for solid tumours. In March 2018, the Company announced a scientific research collaboration with ProMab
Biotechnologies Inc. (“ProMab”) to co-develop novel antibody and CAR-Ts for various hematological malignancies and solid
tumours. The first scientific research collaboration between the two parties involves a co-development program for a cell-based
therapy in multiple myeloma. The aim was for both parties to perform various tasks with the objective of filing an investigational
new drug application (“IND”) for testing in humans by for testing in humans by early 2019. The Company’s working capital
deficiency through August 2019 pushed out the originally planned timeline for IND filing. Under the scientific research collaboration
agreement with ProMab, the Company retained the rights for the multiple myeloma CAR-T in Canada and Europe and then
sublicensed the European rights to its then wholly owned subsidiary, HIO, to further develop and commercialize these technologies
in return for future milestone payments and royalty fees. The Company will provide certain technical and funding support in the
early preclinical stages of the multiple myeloma scientific research collaboration program with ProMab. Under the sublicense
agreement between the Company and HIO, HIO is expected to fully support the clinical development of cell therapy products and
has recently applied for government grant assistance in Poland.
In December 2016, the Company signed an exclusive out-license agreement with Xisle Pharma Ventures Trust (“Xisle”) for the
Company's late-stage, Biphasix™ technology platform, including the lead product candidate, interferon alpha. Under the terms of
the agreement, Xisle paid an up-front fee and agreed to pay subsequent milestone payments and royalties to the Company as
5
Xisle advances the technology. As part of the agreement, the Company retained marketing rights for Belarus, Bulgaria, the Czech
Republic, former Eastern Germany, Hungary, Moldova, Poland, Romania, Russia, Slovakia and Ukraine and non-exclusive rights
for co-promotion in Canada. The Company subsequently assigned the foregoing marketing rights which it retained to HIO pursuant
to an agreement between the Company and HIO, which terminated on June 26, 2020 in connection with the cancellation of
intercompany debt owed by HIO to the Company.
On June 26, 2020, the Company announced that it had approved, in its capacity as a shareholder of HIO, a direct investment in
HIO by an investor which resulted in the Company’s ownership in HIO being reduced to approximately 42.51% on July 8, 2020.
The direct investment in HIO permitted HIO to apply for a new government grant for the development of the multiple myeloma
CAR-T program in Poland. On September 3, 2020, HIO closed another direct private placement with an arm’s length party, CAIAC
Fund Management AG (“CAIAC”), as designated trustee of an alternative investment fund to be established, resulting in a further
dilution of the Company’s holding in HIO from 42.51% as at July 31, 2020 down to 29.89%.As a result of the financing, the
Company’s ownership in HIO was diluted down to 29.89% and consequently, the Company has determined that it had lost control
of HIO. During the year ended July 31, 2021, the Company received gross cash consideration of PLN 6,700,000 (CAD$2,308,000)
for the balance of its shares in HIO ($2,020,000 net of costs of disposition), resulting in the full disposition of its interest in the
associate. See Loss of control in subsidiary - discontinued operations below.
Also on June 26, 2020, the Company also announced the cancellation of intercompany debt in the total aggregate amount of
approximately $2,700,000 owed to the Company by HIO. As part of the debt cancellation, both the V-DOS47 and Biphasix™
agreements between the Company and HIO described above were terminated with immediate effect.
The Company has an extensive patent portfolio that includes company owned and licensed patents and pending applications,
including, but not limited to, the use of DOS47 as immunoconjugate for cancer treatment. The Company also has licenses with
the National Research Council of Canada (“NRC”) that cover the use of antibodies for L-DOS47, other DOS47 candidates and
cellular therapy products. Issued patents have coverage in all major pharmaceutical markets including North America, Europe,
and Asia.
During the fiscal year ended July 31, 2021, the Company hired a biotechnology consulting firm to assess the Company’s drug
product candidate with a focus on identifying value propositions and positioning strategies that would enable clinical adoption of
L-DOS47. This engagement includes broad clinical development key opinion leader input on the positioning of possible
combination therapies and the prioritization of current and/or any additional clinical indications. The Company expects the
consulting firm’s report to be finalized by December 2021.
The Company currently believes that its growth and future prospects are mainly dependent on the success of its DOS47 drug
product candidates.
RESEARCH AND DEVELOPMENT ACTIVITIES
Background
The pH system, with values ranging from 0 – 14, is used to measure acidity (pH < 7) and alkalinity (pH > 7). In general, the human
body exists at a near-neutral pH - neither acidic nor alkaline (basic). In order for cells to function properly, they need the pH both
inside and outside the cell to be neutral. There are some examples, however, where this rule is not followed. For example, the inside
of the stomach is maintained at an acidic pH, as this helps to digest food. The cells lining the stomach have adapted to live in this
acidic environment.
Tumours also exist in an acidic environment. Normal tissues include an extensive network of blood vessels, which deliver oxygen
and nutrients to cells and remove waste products. However, tumours contain an abnormal network of blood vessels. Because of
this, tumours are hypoxic (receive less oxygen than normal tissues) and need to use a non-oxygen requiring form of metabolism to
provide energy for their survival and growth. One side-effect of this type of metabolism is that it generates an excess of hydrogen
ions (H+) inside the cell, and hydrogen ions directly affect pH: the more hydrogen ions there are, the more acidic the inside of the
cell becomes. Since a neutral pH inside the cell is essential for a cell to survive, tumour cells pump the excess hydrogen ions out
of the cell. Due to the abnormal network of blood vessels, the excess hydrogen ions are not efficiently removed from the tumour
microenvironment. Thus, the tumour microenvironment is acidic.
The acidic microenvironment helps promote tumour survival and metastasis in a number of ways. The genes expressed by the
tumour are affected by the acidic microenvironment, which allows tumour cells to adapt. One of these acid-induced changes is to
increase production and release of proteases by tumour cells. The proteases destroy the protein matrix that surrounds the tumour
cells, which makes it easier for the tumour cells to invade local tissues – a first step to metastasis. In addition, the acidic tumour
microenvironment has been shown to impair the activity of immune cells in the tumour, which allows the tumour cells to avoid
destruction by the immune system.
The acidic tumour microenvironment also reduces the efficacy of common cancer treatments. Some chemotherapy drugs, such as
doxorubicin, are weakly basic. The ability of these drugs to enter tumour cells, where they perform their function, is greatly reduced
at acidic pH compared to neutral pH. Radiation therapy also is less effective at an acidic pH than at a neutral pH.
6
It is clear that the acidic tumour microenvironment has a profound effect both on tumour biology and current therapies, and that
neutralizing the pH of the tumour microenvironment may have a dramatic impact. One way to reverse extracellular tumour acidity
is to inhibit the proteins that pump hydrogen ions out of tumour cells. One advantage of inhibiting these proteins is that not only is
acidity of the extracellular tumour microenvironment reduced, but acidity inside the tumour cells increases, which has a negative
effect on tumour cell viability. However, targeting these pumps is not easily achieved as many of them exist in multiple forms and
some are critical for the function of normal cells. In addition, since there are several different pumps that regulate pH, inhibition of
just one is generally insufficient to combat tumour acidity.
A more general and theoretically more effective method to neutralize tumour extracellular pH is to use buffers. A variety of orally
administered buffers have been effective in reducing tumour growth and/or metastases in preclinical animal studies. In addition,
buffer therapies have been shown to enhance the activities of chemotherapy and immunotherapy. Although oral sodium bicarbonate
buffer therapy was tested clinically, these trials failed due to poor compliance and moderate adverse effect. However, improved
survival was seen in pancreatic cancer patients undergoing chemotherapy and “alkalization therapy” (produced by changes in diet
and consumption of bicarbonate).
Similarly, an alkaline diet likely improved responses to epithelial growth factor receptor – tyrosine kinase inhibitor (EGFR-TKI)
therapy in non-small cell lung cancer (NSCLC) patients. Thus, a change in delivery method may allow for successful buffer therapy.
Consistent with this hypothesis, administration of iv sodium bicarbonate nanoparticles improved doxorubicin efficacy in a preclinical
breast cancer model. In addition, a clinical study was performed in which sodium bicarbonate was administered by local infusion
into the tumour. In this study, hepatocellular carcinoma patients were treated with trans-arterial chemoembolization (TACE) with or
without local bicarbonate. Patients receiving bicarbonate showed a 6-fold lower viable tumour residue, and a randomized controlled
study showed that patients treated with bicarbonate had a higher objective response rate and cumulative overall survival in
comparison to the patients treated with TACE alone.
Alkalization using urease - DOS47 platform technology
Although buffer therapies have the potential to neutralize the acidic tumour microenvironment, local administration of buffers is
generally not feasible. In order to deliver alkalization therapy to tumours, the Company has developed DOS47, a proprietary
technology platform. DOS47 compounds are conjugates of two components: the plant-based urease enzyme and an antibody that
binds to a tumour-specific antigen. The antibody component targets the conjugate to tumours and the urease enzyme converts
endogenous urea into metabolites that include ammonia and hydroxyl ions, thus raising the pH of the tumour microenvironment.
L-DOS47
L-DOS47 includes an antibody that targets carcinoembryonic antigen-related cell adhesion molecule 6 (CEACAM6)
Carcinoembryonic antigen-related cell adhesion molecule 6 (CEACAM6) is a cell surface protein found to be upregulated in several
types of cancer, including NSCLC and pancreatic cancer. In lung adenocarcinoma, CEACAM6 expression has been significantly
associated with adverse clinical outcome. Similarly, the median survival time of pancreatic adenocarcinoma patients with
CEACAM6-positive tumours was significantly shorter than that of patients with CEACAM6-negative disease.
L-DOS47 is composed of the jack bean urease enzyme conjugated to approximately ten (10) copies of a camelid single-chain
anti-CEACAM6 antibody. The specificity of L-DOS47 for CEACAM6 was confirmed in in vitro binding studies where binding was
only observed to cells that express CEACAM6. Immunohistochemistry studies showed binding of L-DOS47 to lung cancer and
pancreatic cancer tissues, but not to normal tissues. The ability of L-DOS47 to specifically target tumours was confirmed using a
fluorescently labelled version of L-DOS47. These experiments were performed in a mouse model of lung cancer, and showed that
for 12-72 hours after injection, L-DOS47 was localized at the tumour.
L-DOS47 has been shown to control tumour growth, reduce metastases, and enhance the effect of chemotherapy in animal
models
L-DOS47 was tested in two mouse models: one with lung cancer and one with pancreatic cancer. In both cases, administration of
L-DOS47 reduced tumour growth compared to treatment with a control reagent. In addition, when lung cancer cells and L-DOS47
were premixed and injected into mice, the presence of L-DOS47 reduced the ability of the tumour cells to colonize the lungs. The
ability of L-DOS47 to improve chemotherapy efficacy was observed both in in vitro and in vivo preclinical experiments. In vitro
experiments showed that at an acidic pH, L-DOS47 was able to dramatically increase the cytotoxicity of the weakly basic
chemotherapeutic drug doxorubicin. In addition, a preliminary preclinical study showed that pre-treatment with L-DOS47 24 hours
before doxorubicin delayed tumour growth in mice bearing a CEACAM6-positive pancreatic tumour.
L-DOS47 has been shown to raise the pH of the tumour microenvironment and restore immune-cell activity
Numerous experiments have been performed by the Company which monitored the production of ammonia and increase in pH
when L-DOS47 was combined with urea in vitro. The ability of L-DOS47 to raise the pH of the tumour microenvironment in vivo
7
has been observed in both lung and pancreatic cancer models using multiple imaging methods including P-MRS and MRI-CEST
(see images below). The Company has performed in vitro experiments with human CD8+ T cells and has observed that culture at
acidic pH increased the expression of the immune-downregulatory molecule programmed cell death protein 1 (PD-1) on the T
cells, and that the T cells in acidic conditions reduced their production of the pro-immune cytokine interferon-gamma (IFN-γ).
L-DOS47 successfully restored the activity of these cells, as observed by reduced expression of PD-1 and increased production
of IFN-γ and another pro-immune cytokine, interleukin-2 (IL-2). In one preliminary preclinical experiment, treatment with L-DOS47
enhanced the ability of an anti-PD1 antibody to control growth of a pancreatic tumour in a mouse model.
CEST MRI of iopamidol for pH imaging [1] of a Panc02 clone 38 SC tumour. (a) T2 weighted image, (b) CEST MRI
before L-DOS47 injection, (c) ~30 minutes after 90 µg/ kg L-DOS47 injection. The difference in mean pHs is 0.38 units.
L-DOS47 was administered iv. Iopamidol was administered SC, next to the tumour.
In summary, these preclinical experiments demonstrate that L-DOS47 successfully targets CEACAM6-expressing tumours,
controls tumour growth, increases the pH of the tumour microenvironment, and is able to improve the efficacy of chemotherapy
and immunotherapies. L-DOS47 is currently being tested in clinical trials of both lung and pancreatic cancers. See “Clinical
Programs” below.
V-DOS47
V-DOS47 is the second immuno-oncology drug candidate derived from the Company’s DOS47 technology platform. V-DOS47 is
an antibody-DOS47 conjugate that targets the vascular endothelial growth factor 2 receptor (VEGFR2). VEGFR2 is overexpressed
in breast carcinoma compared with benign breast tissue. In patients with highly estrogen receptor positive (ER+) forms of breast
cancer, the efficacy of tamoxifen treatment negatively correlates with VEGFR2 expression.
CAR-T for solid tumours and hematological malignancies
CEACAM6 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 CEACAM6 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 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
8
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.
The Company is also leveraging its know-how in manipulating the tumour microenvironment, and its expertise in developing unique
single domain antibody therapeutics to develop CAR-T novel cell-based treatments. 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 malignancies the Company has selected CD19, CD22 and BCMA as potential targets.
ProMab
On March 16, 2018, the Company entered into a collaboration agreement with ProMab to co-develop Car-T that target BCMA to
treat multiple myeloma. In this collaboration, the Company retains commercial rights for this CAR-T in Canada and Europe. The
Company entered into a sublicense agreement for BCMA with HIO whereby the Company will assist in preclinical and early phase
clinical planning of the BCMA project. The Company’s assistance includes funding a certain portion(s) of the preclinical
development stage while HIO leads the regulatory and clinical development of the product in Europe. The Company fulfilled its
obligation regarding this collaboration agreement during fiscal 2021. These activities are expected to be coordinated with ProMab
who will be developing the product for Asia and the U.S. The Company retains the rights for Canada.
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.
Clinical programs
The Company has commenced four clinical studies under the L-DOS47 program. Three clinical studies involve the treatment of
NSCLC: A Phase I combination study (LDOS001) conducted in the U.S., a Phase I/II monotherapy study concluded in Poland
(LDOS002), and a Phase II combination study running in Eastern Europe (LDOS003). A fourth clinical study, a Phase Ib/II study
(LDOS006) investigating the treatment of metastatic pancreatic adenocarcinoma, received regulatory approval and is currently
being conducted in the U.S. The Company recently applied for a protocol amendment to the LDOS006 clinical trial.
LDOS001 – A Phase I combination therapy trial in lung cancer
LDOS001 was a Phase I, open label, dose escalation study of L-DOS47 in combination with standard doublet therapy of
pemetrexed/carboplatin in patients with stage IV (TNM M1a and M1b) recurrent or metastatic non-squamous NSCLC. Patients
received standard of care doses of pemetrexed [500 mg/m2] and carboplatin [AUC6], respectively, on Day 1 of a 3-week cycle, in
combination with L-DOS47 (starting dose 0.59 µg/kg), administered weekly. The objective of the study design was to evaluate
safety and tolerability, as well as determine the maximum tolerated dose (“MTD”) of L-DOS47, in combination treatment.
Fourteen (14) patients were enrolled across six dosing cohorts, starting at 0.59 and increasing up to 9.0 µg/kg. The MTD was not
achieved as none of the patients experienced any dose-limiting toxicity (“DLT”). Fifty percent (50.0%) of patients experienced at
least one treatment emergent adverse event assessed as study drug-related, with 14.3% of patients experiencing at least one
grade 3/4 drug-related toxicity. Although the study was not designed specifically to assess efficacy, preliminary results showed
that of 12 patients evaluable for efficacy, five patients (41.7%) had a partial response (“PR”), four patients (33.3%) experienced
stable disease (SD) and three patients (25.0%) had progressive disease (“PD”). The objective response rate was 41.7%, with a
median duration of 187 days, and a clinical benefit rate of 75.0% with a median duration of 141 days. Additional reports on L-
DOS47 pharmacokinetics and immunogenicity have been completed with the completion of the Clinical Study Report expected to
be finalized by December 2021.
L-DOS47, in combination with pemetrexed/carboplatin, was well tolerated with promising anti-tumour activity against non-
squamous NSCLC.
LDOS001 Phase I Best Overall Response Summary Efficacy Evaluable(N=12)
L-DOS47 (All Dosing Cohorts) + Pemetrexed/Carboplatin
Best Overall Response
Number of Patients1
Complete Response (CR)
Partial Response (PR)
Stable Disease (SD)
Progressive Disease (PD)
Overall
12
0 (0%)
5 (41.7%)
4 (33.3%)
3 (25.0%)
1 Number of patients used as denominator to calculate percentages.
9
LDOS002 – A phase I/II monotherapy trial in lung cancer
LDOS002 was a Phase I/II open-label, non-randomized, dose escalation study of L-DOS47 as a monotherapy in adult subjects
with inoperable, chemo-naïve or refractory Stage IIIb or IV non-squamous NSCLC. The primary objectives of the Phase I portion
of the study were to evaluate safety and tolerability of ascending doses of L-DOS47 and define the MTD. Patients received weekly
doses of L-DOS47, administered as an intravenous infusion over 14 days, followed by seven days' rest (with one treatment cycle
occurring over three weeks).
Despite a total of 55 patients being dosed across 16 dose levels ranging from 0.12 up to 13.55 μg/kg, the MTD was not reached.
There was only one single DLT of spinal/bone pain reported at the 5.76 μg/kg dose level. The weekly dosing schedule of L-DOS47
for all doses up to 13.55 μg/kg was otherwise well tolerated and most adverse events reported were typical of the population under
study. L-DOS47 did not elicit a dose-dependent release of cytokines at doses up to13.55μg/kg. Time of maximum observed
plasma drug concentration after dosing (“Tmax”) was consistent across dose levels and treatment cycles, occurring within the first
hour following the L-DOS47 infusion. There were no safety issues beyond those already observed in pre-clinical toxicology studies
or expected in the population of patients being studied.
A dose response trend was observed when comparing the percentage of patients who were progression-free at 16 weeks across
dose ranges, according to Response Evaluation Criteria in Solid Tumours (“RECIST”) version 1.1. A similar trend was observed
when comparing the percentage of patients who had stable disease and had a reduction in target lesions.
57%
50%
36%
36%
60%
50%
40%
30%
20%
10%
0%
25%
17%
18%
0%
0.12-0.46
0.59-1.38
1.84-4.33
5.76-13.55
Dose (µg/kg)
PFS > 16 weeks
Stable (Target Lesion Reduction)
L-DOS47 Monotherapy dose response in cohorts
In the Phase II portion of the study, the objective was to make a preliminary assessment of efficacy for L-DOS47 given as
monotherapy. Enrolling subjects in the same patient population as in Phase I, patients were dosed at 13.55µg/kg, twice weekly
over 14 days, followed by seven days’ rest. A total of 21 patients were dosed in the first stage of the Phase II component of the
study.
Despite an intensified L-DOS47 monotherapy dosing regimen, evaluation of initial results did not yield ≥1 partial or complete
response at any time point as defined by protocol. The Phase II component of the study did not proceed to Phase II, Stage 2 and
the development of L-DOS47, as monotherapy treatment of non-squamous, NSCLC was discontinued. Based on the efficacy
results of the Phase I/II monotherapy study, Helix is pursuing Phase II studies in combination with therapies that may benefit from
the pH-modulating effects of L-DOS47 on solid tumours that express CEACAM6.
LDOS003 – A Phase II combination therapy trial in lung cancer
LDOS003 is a Phase II, open-label, randomized study of L-DOS47 in combination with vinorelbine/cisplatin vs vinorelbine/cisplatin
alone in patients with lung adenocarcinoma. Vinorebine/cisplatin chemotherapy combination in the U.S. has become infrequent
due to the rapidly evolving treatment landscape and the growing prominence of immunotherapies such as Keytruda®. The
Company commenced this study based on the use of vinorebine/cisplatin chemotherapy combinations in Eastern European and
Asian markets.
The approved protocol called for patients receiving L-DOS47 to be dosed on days 1 and 8 of each 21-day treatment cycle, along
with standard vinorelbine/cisplatin chemotherapy for a total of four treatment cycles. The study was divided into two parts. Part I
applied a standard 3 + 3 algorithm for dose escalation to determine the L-DOS47 maximum tolerated dose when given in
combination with vinorelbine/cisplatin. Cohorts of three patients were recruited into three dosing cohorts (6, 9 and 12 µg/kg). All
patients at a given dosing cohort were to complete the first treatment cycle (3-week period) before escalation in subsequent
patients were to proceed. The decision for escalation to the next dose level would be made after the safety data had been reviewed
10
by the Trial Steering Committee (“TSC”). If a patient in any cohort experiences a DLT, an additional three patients would need to
be enrolled, for a maximum of up to 18 patients in this initial dose escalation part of the study.
In Part II, after the maximum tolerated dose of L-DOS47 in combination with vinorelbine/cisplatin has been determined, a further
118 patients will be randomized (1:1) to receive L-DOS47 in combination with vinorelbine/cisplatin, or vinorelbine/cisplatin alone.
Efficacy will be assessed by time to progression (time from first day of study drug administration to documented disease
progression), response rate (proportion of patients with a best overall response of complete response and partial response
according to RECIST v. 1.1), and overall survival (time from first day of study drug administration to death due to any cause).
Monitoring will include radiological evaluations every second cycle. Safety and tolerability of L-DOS47 in combination will also
continue to be evaluated. For all patients, treatment will continue either until the patient experiences disease progression,
unacceptable toxicity, the patient withdraws consent or has completed four treatment cycles.
Patient recruitment began in February 2019 but halted in April 2020. At the time, the first two cohorts (6 and 9 µg/kg) in Part I of
the study had been completed. Two (2) patients had also been dosed in the third cohort, 12 µg/kg, but the cohort could not be
completed due to a shortage in the required vinorelbine dosages from the manufacturer, which was expected to continue into
2021. Consequently, the Company made the decision to terminate further recruitment, proceed to data analysis and not move
forward with Part II of the study. The clinical report for LDOS003 Phase I LDOS-47 vinorelbine/cisplatin combination study is
expected to be completed in March 2022.
LDOS006 – A Phase Ib/II combination trial in pancreatic cancer
The Company received FDA approval in August 2019 to initiate a new study of L-DOS47 in the treatment of pancreatic cancer.
This is an open label, non-randomized study designed to evaluate the safety, tolerability and preliminary anti-tumour activity of L-
DOS47 in combination with doxorubicin in patients aged ≥ 18 years old with metastatic pancreatic cancer who have progressed
on at least two prior treatment regimens. The trial was initiated in November 2019 and the first patient dosed in December 2019.
The Phase Ib part of the study applies a standard 3 + 3 algorithm for dose escalation to determine the L-DOS47 maximum tolerated
dose to use in combination with doxorubicin for the Phase II part of the study. Patients are recruited into three cohorts where each
cohort receives increasing weekly dose levels of L-DOS47 in combination with a fixed dose of 20 mg/m2 of doxorubicin weekly,
(or 15 mg/m2 as per the subsequently amended protocol), with four weeks making up one treatment cycle up to a maximum of six
cycles. The decision for escalation to the next dose level will be made after all patients in a cohort have completed four weeks of
combination treatment and the safety data have been reviewed by the Safety Review Committee of the Company. If a patient in
any cohort experiences a dose limiting toxicity, an additional three patients will be enrolled, for a maximum of up to 18 patients in
this initial dose escalation part of the study.
The Phase II part of the study will focus on evaluating preliminary anti-tumour activity, as well as continuing to evaluate safety and
tolerability of L-DOS47 in combination with doxorubicin. A further 11 additional patients will be enrolled in this phase of the study.
Patients will be initiated on the L-DOS47 dose determined in Phase I, in combination with 20 mg/m2 doxorubicin as per the original
protocol or 15 mg/m2 as per the subsequently amended protocol, with tumour marker carbohydrate antigen 19-9 (CA19-9)
measurements at each treatment cycle, and radiological assessments every two treatment cycles. Tumour response will be
assessed according to RECIST version 1.1. Safety will be assessed by reported adverse events (AEs), serious adverse events
(SAEs), physical exams, vital signs, Karnofsky Performance Status, electrocardiogram (ECG), echocardiogram (ECHO)/multi-
gated acquisition scan (MUGA), clinical laboratory evaluations (hematology, chemistry, coagulation and urinalysis), and anti-L-
DOS47 antibody levels.
Currently a total of fourteen (14) patients have been dosed with L-DOS47 in combination with doxorubicin. Six (6) patients were
dosed under the original protocol where patients were initiated on L-DOS47 in combination with 20 mg/m2 doxorubicin, three (3)
of whom withdrew due to disease progression prior to completing the required 4-week cycle in order to be included in the evaluation
for dose escalation. Of the remaining three (3) patients, one patient experienced a DLT attributed to doxorubicin and as a result,
a protocol amendment adjusting the starting chemotherapy dose was submitted to FDA on December 23, 2020, and patient
screening resumed on January 25, 2021. Due to slower enrolment related to challenges resulting from COVID-19 pandemic
measures, two additional sites were opened for recruitment in March and April 2021.
Under an amended protocol where patients were initiated on L-DOS47 in combination with 15 mg/m2 doxorubicin, the first three
(3) patients dosed resulted in one patient experiencing a serious adverse event (thromboembolic event). The investigator
assessed the event as probably related to L-DOS47, but with alternate causality related to patient’s prior medical history of
thromboembolic event and advanced pancreatic disease state. The sponsor physician assessed the event as possibly related to
doxorubicin chemotherapy, the patient’s prior medical history, and an uncontrolled pancreatic cancer state, although a possible
relationship to L-DOS47 in combination with doxorubicin could not be ruled out. As this event met the criteria for a DLT, the cohort
was expanded and a further five (5) patients have since been dosed. Two patients discontinued from the trial prior to completing
the required 4-week cycle in order to be included in the evaluation for dose escalation due to adverse events unrelated to study
treatment. Of the remaining three patients, one discontinued due to disease progression, one remains on treatment in the fifth
treatment cycle, and one patient continues in the first treatment cycle. This last patient is required to complete the 4-week DLT
observation period before safety data for Cohort 1 can be evaluated for dose escalation.
11
A further revised protocol dated November 9, 2021 was submitted to FDA on November 15, 2021. The main revision is to increase
the number of treatment cycles from 6 to 8 cycles, while providing flexibility to administer additional treatment cycles where clinical
benefit to patient outweighs risk.
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 studies.
Manufacturing
L-DOS47 is an immunoconjugate drug composed of single chain antibody molecules specific for CEACAM6 that are cross-linked
with a purified urease derived from the jack bean plant (Canavalia ensiformis).
The urease component is extracted from jack beans through a multistage process that yields an enzyme with high activity and
purity. The llama-derived recombinant antibody is manufactured in E. coli and the purified antibodies are covalently linked to the
urease enzyme by a chemical cross-linker into L-DOS47 drug substance. The drug substance is filled and lyophilized into the final
L-DOS47 drug product for use in the clinic. The Company has extensively characterized L-DOS47 and maintains a comprehensive
analytical program for the drug substance, drug product, and the urease and antibody intermediates.
A 1% Polysorbate 80 diluent is co-mixed with L-DOS47 to prevent protein adsorption to the saline bags and IV tubing that are
used to administer the drug to patients in the clinic.
Manufacturing, release, and stability testing of L-DOS47 and the 1% Polysorbate diluent is currently conducted by contract
manufacturing organizations (“CMOs”) and contract testing laboratories (“CTLs”) in Canada and the U.S. The Company requires
all CMOs and CTLs to maintain compliance with current GMP and to be licensed by the national regulatory authority in their
jurisdiction. Company employees and consultants provide technical, quality, and regulatory oversight for all operations related to
L-DOS47 production. Currently, the Company has service and quality agreements with several CMOs/CTLs for clinical-stage
manufacturing, testing, and release of the L-DOS47 drug substance and drug product and the 1% Polysorbate diluent.
The Company’s supply of L-DOS47 drug product continues to be subjected to stability assays according to ICH Q1A (R2)
guidelines. The oldest lot is on extended shelf-life and the last testing point was initially planned for 78M (May 2021) due to a
shortage of stability samples. The stability program was subsequently resupplied, and the stability protocol will be extended as
long as the product continues to meet specifications. If the product goes Out-of-Specification (OOS) at the real-time storage
condition (2-8ºC) for two consecutive pulls before the final time point, further testing may be discontinued.
The CMO that manufactured the L-DOS47 drug substance batch that is currently being used in the clinical studies informed the
Company in early 2019 that it would no longer be able to manufacture L-DOS47. In September 2019, the Company signed an
agreement with another CMO to reprocess a drug substance batch the Company had kept in reserve. The Company completed
the reprocessing of the drug substance batch in June 2020, and after quality control testing and release, the drug substance was
transferred to another CMO to complete the fill/finish process. After lyophilization which was completed in early 2021 the drug
product lot was placed on a 36M stability program which may be extended if warranted by real-time stability data. If the product
goes OOS at the real-time storage condition (2-8ºC) for two consecutive pulls before the final time point, further testing may be
discontinued. The new batch recently completed a successful six-month stability test in July 2021 with the next stability test
scheduled for completion in December 2021. The Company has another reserve batch of drug substance to produce drug product
in the event it needs to do so.
The Company has also been in discussion with another CMO to plan out a technology transfer program to manufacture a new
batch of L-DOS47 drug product. As of now, no commitment has been made.
If any of the stability assays for the current batch or new production batch do not meet acceptance criteria, the Company’s clinical
studies and any planned research and development programs would likely face delays and possibly be cancelled, which could
impair the current and future value of the business. See “Risk Factors”.
Product focus and strategy
The Company is currently focused on the development, commercialization &/or partnership of L-DOS47 as a potential therapy for
NSCLC and pancreatic cancer but at the same time is evaluating the current clinical strategy to determine if the Company’s L-
DOS47 pipeline can be expanded into other indications. The following diagram sets forth the status and milestones related to the
Company’s current L-DOS47 clinical program.
12
NSCLC
Completion of the LDOS001 Phase I LDOS-47 pemetrexed/carboplatin combination study clinical report by December
2021.
Completion of the LDOS003 Phase I LDOS-47 vinorelbine/cisplatin combination study clinical report in March 2022.
Pancreatic
Completion of the LDOS006 Phase Ib doxorubicin combination study has been pushed out to March 2022. COVID-19 in
2020 materially hindered patient enrollment resulting in the Company adding two new clinical sites early in calendar year
2021. The clinical study was also impacted with two adverse events which resulted in the expansion of the number of
patients previously forecasted to complete the Phase Ib portion of the study.
Provided the LDOS006 Phase Ib portion of the study is successfully completed, the Company is forecasting patient
enrollment for the Phase II portion of the study to commence no later than June 2022 with a final clinical report by
September 2023. Unlike the Phase Ib study where new patient enrollment must be completed sequentially, the Phase II
portion of the study allows for multiple patient enrollment simultaneously which could reduce the currently projected
timeline.
Commercialization
The Company’s DOS47 commercialization objective 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. The intention of Company is to enter a structured process that will include preparing the Company to have
discussions with potential partners, engaging in dialogue with a targeted group of qualified partners and licensees, and entering
negotiations on a prospective partnership, alliance or licensing transaction. In the meantime, the Company will continue to gather
as much value-adding clinical data/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
NCSLC
Based on information published in “Key Statistics for Lung Cancer” by the American Cancer Society (www.cancer.org) in January
2020, lung cancer accounts for approximately 25% 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 2020 there will be over 228,820 new lung cancer cases and 135,720 people
may die from the disease in the United States. Of these cases, over 80% are anticipated to be of the non-small cell lung cancer
(NSCLC) type.
The treatment options for metastatic NSCLC have changed significantly in the last few years due to the clinical success of
immunotherapies such as immune checkpoint inhibitors that target Programmed Death 1 (“PD-1”) or its ligands. However, a
significant percentage of patients do not respond to current therapies resulting in an urgent need for additional therapeutic options.
13
Treatment options for metastatic NSCLC have changed significantly in the last few years due to the clinical success of
immunotherapies such as immune checkpoint inhibitors that target PD-1 or its ligands. 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. 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 with Tumours that express PD-L1 whose disease has progressed after treatment.
As of March 2017, the FDA had approved five checkpoint inhibitor drugs: ipilimumab (Yervoy®), pembrolizumab (Keytruda®),
nivolumab (Opdivo®), atezolizumab (Tecentriq®) and avelumab (Bavencio®).
On May 10, 2017, the FDA granted accelerated approval to pembrolizumab (Keytruda®, Merck and Co., Inc.) in combination with
pemetrexed and carboplatin for the treatment of patients with previously untreated metastatic NSCLC. Approval was based on a
cohort (G1) of patients enrolled in an open-label, multicenter, multi-cohort study.
Pancreatic cancer
Pancreatic cancer remains a deadly disease of significant unmet medical needs. In “Key Statistics for Pancreatic Cancer” dated
January 2020, the American Cancer Society estimated that in 2020, 57,600 people will be diagnosed with the disease in the US
with 47,050 deaths. The most common type of pancreatic cancer is exocrine in nature and approximately 95% of these exocrine
cancers are adenocarcinomas.
Treatment options for late-stage metastatic pancreatic cancer patients are limited. Surgery and radiation are used only for
symptom relief and chemotherapy remains the primary mode of therapy. Gemcitabine is widely used either alone or in combination
with erlotinib (Tarceva), capecitabine, cisplatin or nab-paclitaxel. Other chemo-cocktails are also possible depending on patient
tolerability to such cocktails and physician choice of best suitable care. If these lines of therapy are not effective, other
combinations such as oxaliplatin and fluoropyrimidine may be used.
Although checkpoint therapy has been shown to be beneficial in certain lung cancers and melanoma, checkpoint therapy clinical
studies in pancreatic patients have largely been unsuccessful. While the exact reasons are still to be elucidated, the unique
structural and immune environment associated with pancreatic cancer may underlie the lack of success with antibody-based
immunotherapies. Technological competition from pharmaceutical companies, biotechnology companies and university
researchers is intense and is expected to continue. While the Company is not aware of any other competitors in clinical
development of a therapy that targets tumour acidosis, some potential competitors have substantially greater product development
capabilities and financial, scientific, marketing and human resources than the Company. See “The Company faces risks in
connection with competition and technological change” under the heading “Risk Factors”.
SELECTED FINANCIAL INFORMATION
Selected Annual Information
Revenue
Net Loss from continuing operations
Year ended July 31
2021
2020
2019
-
-
-
(9,574,000)
(8,561,000)
(6,807,000)
Basic & diluted loss per share from continuing operations
(0.06)
(0.07)
(0.06)
Net Loss attributable to Helix BioPharma
Total assets
Total non-current financial liabilities
Declared dividends
(8,038,000)
(8,985,000)
(7,526,000)
4,065,000
4,906,000
940,000
1,584,000
-
-
-
-
-
The Company reported a net loss and total comprehensive loss of $8,038,000 for the year ended July 31, 2021 (2020 -
$8,985,000). Fluctuations in total net loss and total comprehensive loss is mainly the result of the Company’s cash reserves
available to be deployed on ongoing research and development activities and operating, general and administration expenses.
Research and development expenses during the year ended July 31, 2021 increased marginally to $5,880,000 from $5,868,000
in 2020. The increase mainly represents higher wages and benefits expense.
Operating, general and administration expenses during the year ended July 31, 2021, increased to $3,251,000 from $2,748,000
in 2020. The increase in operating, general and administration spending in fiscal 2021 mainly reflects higher stock-based
compensation expense associated with the vesting of Options that were granted to directors of the Company over their vesting
period in addition to higher legal costs, director fees and auditor fees.
14
During Q1 of fiscal 2021, the Company’s former subsidiary, HIO, completed a direct financing with an arm’s length party. As a
result of the financing, the Company’s ownership in HIO was diluted down to 29.89% and consequently, the Company determined
that it had lost control of HIO. The Company subsequently disposed of all its interest in HIO in Q2 of fiscal 2021 pursuant to the
HIO Disposition. See “Results from Operations – Loss of control in subsidiary – discontinued operations” for additional information.
On May 10, 2021, the Company entered into a definitive convertible security funding agreement (the "Lind Agreement") with Lind
Global Macro Fund, LP, a New York based institutional investment fund managed by The Lind Partners, LLC ("Lind"). The
Company closed the first tranche ("First Tranche") under the Lind Agreement on May 13, 2021, for gross proceeds of $3,500,000.
In connection with the closing of the First Tranche, the Company issued a convertible security (a "Convertible Security") of the
Company with a two-year term and a face value of $4,112,500 and issued an aggregate of 1,957,056 common share purchase
warrants (“Warrants”) exercisable into common shares in the capital of the Company ("Common Shares") until May 13, 2023, at
an exercise price of $1.0283 per Common Share. In connection with the closing of the First Tranche, the Company paid Lind a
3% commitment fee of the amount funded under the First Tranche. The Lind Agreement contemplates the issuance of a second
Convertible Security subject to certain conditions precedent and upon the mutual agreement of the Company and Lind for gross
proceeds to the Company of up to $6,500,000.
Summary of Quarterly Results
The following table depicts selected quarterly data previously reported for the last eight quarters (thousands of $, except per share
data).
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
2021
2021
2021
2021
2020
2020
2020
2020
Research and development expenses
1,777
1,933
1,086
Operation, general and admin expenses
Gain (loss) from discontinued operations
479
-
651
-
1,084
1,303
818
(626)
2,162
1,246
1,523
1,588
1,511
523
(613)
862
-
654
-
709
-
Net loss and total comprehensive loss
(2,770)
(2,554)
(2,492)
(222)
(2,114)
(2,594)
(2,255)
(2,211)
Loss per share - basic and fully diluted
(0.02)
(0.02)
(0.02)
-
(0.01)
(0.02)
(0.02)
(0.02)
Cash
Working capital (deficiency)
3,565
144
2,266
1,223
4,096
3,639
1,428
2,426
4,235
2,735
4,989
3,826
2,094
1,650
873
430
Net loss and comprehensive loss decreased significantly in Q1 of fiscal year 2021 due to a gain from discontinued operations of
$2,162,000 recorded in that quarter. Cash increases in Q2 and Q4 in fiscal year 2021 are due to (i) the successful closings of a
two-tranche private placement of units on December 4 and 30, 2020 for total gross proceeds of $4,100,000 and (ii) the closing of
the First Tranche for gross proceeds of $3,500,000. Capital raised by the Company has gone towards working capital and research
and development expenditures associated with the Company’s pre-clinical and clinical programs.
The Company’s current business is not subject to seasonality.
RESULTS FROM OPERATIONS
Net loss from continuing operations
The Company did not generate any revenue during the fiscal years ended July 31, 2021 and 2020.The Company recorded a net
loss and total comprehensive of $8,038,000 ($0.06 loss per Common Share) and $8,985,000 ($0.07 loss per Common Share) for
the fiscal years ended 2021 and 2020, respectively.
Research & development expenses
Research and development expenses for fiscal 2021 totalled $5,880,000 (2020 - $5,868,000).
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:
Research and development programs, excluding the below items
Salaries and benefits
Stock-based compensation expense
Amortization of property plant and equipment
Amortization of right of use assets
Research and development investment tax credits
2021
$ 4,514,000
1,270,000
1,000
41,000
129,000
(75,000)
$ 5,880,000
2020
$ 4,497,000
1,191,000
117,000
54,000
129,000
(120,000)
$ 5,868,000
15
Research and development expenditures in fiscal 2021, when compared to fiscal 2020 were higher by $12,000. Higher
collaborative research activity totalling $1,023,000 and salaries of $79,000 were offset by lower clinical study expenditures of
$476,000, lower intellectual property patent expenses of $303,000, lower manufacturing and stability assay expenses of
$136,000 and a reduction in stock-based compensation expense of $116,000.
The increase in collaborative research spend in fiscal 2021 compared to fiscal 2020 is related to the Company’s sub-licensing
agreement with HIO, whereby the Company was responsible to fund pre-clinical activity in exchange for future royalties and
milestones. As part of the sub-licensing agreement, HIO is responsible for certain intellectual property expenditures. In addition,
the Company also incurred collaborative research spend in fiscal 2021 related to research activities with Moffitt.
Lower clinical operations spend in fiscal 2021 compared to fiscal 2020 are related to the Company’s LDOS003 Phase II clinical
study in Poland and Ukraine as a result of enrollment being halted in the previous fiscal year, causing no further expenditures
incurred in the current fiscal year. The Company intends to finalize reporting by March 2022 provided the Company’s disagreement
over billings by the clinical research organization overseeing the program are resolved. The Company also incurred lower
expenditures associated with its LDOS001 clinical study in the current fiscal year and is now finalizing the clinical study report
which is expected to be completed by December 2021. The Company’s LDOS006 Phase Ib/II pancreatic clinical study in the U.S.
commenced enrollment in December 2019 during the early days of COVID-19 which delayed the clinical trial. In early 2021, the
Company added two additional new sites in an effort to increase the rate of patient enrollment and advance the study. The study
is currently still in the first cohort.
The decrease in intellectual property spend in fiscal 2021 compared to fiscal 2020 includes an amount totalling $135,000 which
the Company invoiced to HIO as passthrough cost for reimbursement associated with the sub-licensing agreement. This amount
is included in receivables at July 31, 2021.
The decrease in manufacturing and stability assay spend in fiscal 2021 compared to fiscal 2020 of $136,000 mainly reflects the
timing of manufacturing expenses related to the repolishing of older drug substance and the resulting lyophilization of new drug
product where the expenses overlapped both fiscal years.
Operating, general and administration expenses
Operating, general and administration expenses for fiscal 2021 totalled $3,251,000 (2020 - $2,748,000).
The following table outlines operating, general and administration costs expensed for the fiscal years ended July 31:
Wages and benefits
Director fees
Investor relations
Other general and administrative
Stock-based compensation expense
Amortization of property plant and equipment
Amortization of right of use assets
$
2021
407,000
229,000
386,000
1,563,000
663,000
3,000
–
$ 3,251,000
2020
$ 434,000
174,000
736,000
1,022,000
353,000
3,000
26,000
$ 2,748,000
The increase in operating, general and administration expenses of $503,000 in fiscal 2021 compared to fiscal 2020 reflects higher
stock-based compensation expense, higher expenses associated with various third-party advisory services such as legal,
accounting, business development and investment banking services in an attempt to raise additional capital as part of a qualifying
transaction to list the Company’s Common hares on a U.S. stock exchange. Several factors materialized that resulted in the
Company eventually abandoning its plans to up-list on a U.S. stock exchange. These include but are not limited to the increase in
the percentage ownership of the Common Shares by new insiders; a decline in the price of the Common Shares making it
extremely challenging for the Company to leverage the Multijurisdictional Disclosure System; and the resignation of the Company’s
previous auditors.
Stock based compensation expense for fiscal 2021 totalled $663,000 (2020 - $353,000). The increase represents the expense
associated with the vesting of Options granted to directors over their vesting period. The reduction in investor relations expense
for fiscal 2021 compared to fiscal 2020 mainly reflects the termination of the agreement the Company had in place with ACM
Alpha Consulting Management EST (“ACMest”).
Loss of control in subsidiary – discontinued operations
For the annual consolidated financial statements for the fiscal years ended July 31 2020 and 2019, the Company’s investment in
HIO was classified as held for sale and was presented as discontinued operations. On September 3, 2020, HIO completed a direct
financing with an arm’s length party. As a result of the financing, the Company’s ownership in HIO was diluted down to 29.89%
and consequently, the Company determined that it had lost control of HIO during the three months ended October 31, 2020. As
the Company’s remaining interest allowed the Company to exert significant influence over HIO, the Company’s investment was
accounted for as an interest in associate using the equity method. The Company’s remaining interest in HIO was recognized at
16
its fair value as at September 3, 2020 based on HIO’s post-financing valuation. The difference between the carrying value of the
net assets of HIO and non-controlling interest and the value assigned to the shares of HIO of $2,231,000 was recognized as a
gain on loss of control of subsidiary in the year ended July 31, 2021. On November 9, 2020, the Company announced that it had
signed a definitive share purchase agreement with CAIAC Fund Management AG (“CAIAC”), as designated trustee of HIO Fund
(the “Fund”), to purchase the Company’s remaining holdings in HIO for gross proceeds of PLN 6,700,000 (CDN$2,308,000) (the
“HIO Disposition”). The HIO Disposition closed on December 22, 2020 and the Company incurred transaction fees of 12.5% of
the proceeds amounting to $288,500 payable to ACMest.
The following summarizes the accounting of the Company’s investment in HIO at deconsolidation through to July 31, 2021:
Fair value of retained interest
Net assets of HIO
Cash
Receivables
Due from intercompany
Prepaids
Capital assets
Accounts payable
Accrued liabilities
Net assets of HIO
Deconsolidation of non-controlling interest in HIO
Deconsolidation of accumulated foreign exchange amount
Book value of investment in HIO
Gain on loss of control of subsidiary
Share of net loss until disposition
Loss on disposition of retained interest
Net gain from discontinued operations
966,000
25,000
2,000
10,000
69,000
(46,000)
(3,000)
$ 2,715,000
(1,023,000)
587,000
138,000
(186,000)
2,231,000
(69,000)
(626,000)
1,536,000
$
$
The continuity of the Company’s investment in associate related to HIO until its disposition is as follows:
Balance - September 3, 2020
Fair value in retained interest in associate
Share of net loss for the period ended October 31, 2020
Balance – October 31, 2020
Cash received for the disposition of interest in associate, net of costs
Loss on disposition of retained
Balance – July 31, 2021
Significant projects
$
–
2,715,000
(69,000)
2,646,000
(2,020,000)
(626,000)
–
$
$
For a summary of the Company’s significant projects that have not yet generated revenue, please see “Overview” above.
Fourth quarter
On May 11, 2021, the Company entered into the Lind Agreement. See “Selected Financial Information – Selected Annual
Information” above for additional information. The result of the Lind Agreement was an improvement of the Company’s cash flows
in the fourth quarter of fiscal 2021, ultimately allowing the Company to continue funding its working capital and research and
development clinical programs.
On June 24, 2021, the Company appointed new auditors. See “Disclosure Controls and Procedures and Internal Control Over
Financial Reporting - Management's Annual Report on Internal Control Over Financial Reporting and Disclosure Controls and
Procedures” below for additional information.
In the fourth quarter of fiscal 2021, the Company decided to defer its application to the Nasdaq Stock Market as a result of no longer
being able to qualify for an accelerated cross border qualifying financing under the Multijurisdictional Disclosure System.
CRITICAL ACCOUNTING ESTIMATES
The preparation of annual consolidated 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.
17
The Company has also assessed the impact of COVID-19 on estimates and critical judgement. Although the Company expects
COVID-19 related disruptions to continue into the Company’s fiscal 2022 year, the Company believes that the long-term estimates
and assumptions do not require significant revisions. Although the Company determined that no significant revisions to such
estimates, judgements or assumptions were required, the pandemic is fluid and given the inherent uncertainty at this time,
revisions may be required in future periods to the extent that the negative impacts on the Company’s business operations arising
from COVID-19 continue or become worse. Any such revision could result in a material impact on the Company’s financial
performance and financial condition.
The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the
Company’s annual consolidated financial statements have been set out in Note 1 of the Company’s annual consolidated financial
statements for the fiscal year ended July 31, 2021.
SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies used in preparing the Company’s annual consolidated financial statements are described in
Note 2 of the Company’s annual consolidated financial statements for the fiscal year ended July 31, 2021, 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
There are no new accounting standards and pronouncements issued but not yet effective up to the date of issuance of the
Company's annual consolidated financial statements that are expected to have a material impact on the Company.
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 reported a net loss and total comprehensive loss of $8,038,000 for the fiscal year ended July 31, 2021 (July 31,
2020 - $8,985,000). As at July 31, 2021 the Company had working capital of $144,000, shareholders’ deficiency of $1,393,000
and a deficit of $188,554,000. As at July 31, 2020, the Company had a working capital of $2,735,000, shareholders’ equity of
$2,981,000 and a deficit of $180,516,000.
On November 9, 2020, the Company announced that it had signed a definitive share purchase agreement with CAIAC, as
designated trustee of Fund, to purchase the Company’s remaining holdings in HIO for gross proceeds of PLN 6,700,000
(CDN$2,308,000). The HIO Disposition closed on December 22, 2020 and the Company incurred transaction fees of 12.5% of the
proceeds ($288,500) payable to ACMest. The Company received $2,020,000 net of costs in December 2020 relating to this
transaction.
During the year ended July 31, 2021, the Company completed two private placements resulting in the issuance of 8,200,000 units
(“Units”) at a price of $0.50 per Unit for aggregate gross proceeds of $4,100,000 ($3,561,000 net of issue costs). The sale of the
Units resulted in the issuance of an aggregate of 8,200,000 Common shares and 8,200,000 Warrants, with each such Warrant
entitling the holder thereof to purchase one Common Share at an exercise price of $0.70 for a period of five years from the date
of issuance.
On May 11, 2021, the Company announced that it had entered into the Lind Agreement with Lind Global Macro Fund, LP, a New
York based institutional investment fund managed by Lind. The Company closed the First Tranche under the Lind Agreement on
May 13, 2021 when it issued a Convertible Security with a two year term and a face value of $4,112,500 and an aggregate of
1,957,056 common share purchase warrants exercisable into Common Shares for a period of 48 months at an exercise price of
$1.0283 per Common Share. The Convertible Security issued under the First Tranche accrues a simple interest rate obligation of
8.75% per annum on the amount funded, being $3,500,000, which interest is prepaid and attributed to the face value of the
Convertible Security. The Company also paid Lind a 3% commitment fee on the amount funded under the First Tranche, as well
as under any second tranche, which as of the date of this MD&A has not yet been completed.
Each Convertible Security issuable under the Lind Agreement has a two-year term from the date of issuance and accrues a simple
interest rate obligation of 8.75% per annum on the amount funded, which interest is prepaid and attributed to the face value of
each Convertible Security upon issuance. Lind is entitled to convert the Convertible Securities into Common Shares over the term
of the applicable Convertible Security, subject to certain limitations, at a conversion price equal to 85% of the five-day trailing
volume-weighted average price (“VWAP”) of the Common Shares prior to the date a notice of conversion is provided to the
Company by Lind. The Lind Agreement includes certain restrictions on the maximum face value of each of the Convertible
Securities that may be converted in any particular month. In addition, the Company has the option to buy-back 66.7% of the
Convertible Securities in cash at any time with no penalty, subject to the option of Lind to convert up to 1/3 of the face value of the
18
applicable Convertible Security into Common Shares at the time of such buy-back. If the Convertible Security is repaid by the
Company within 180 days of issuance, the face value amount owed will be reduced pursuant to the terms of the Lind Agreement.
Lind will also be entitled to accelerate its conversion right to the full amount of the face value or demand repayment of the face
value in cash upon a default and other designated events as set out in the Lind Agreement. To the extent that the full face value
of a Convertible Security has not been converted at the maturity date of the applicable Convertible Security, the outstanding
balance of such face value shall be to be repaid to Lind by the Company in cash.
The Lind Agreement is subject to covenant requirements. In the event of default LIND may declare, by notice to the Company,
effective immediately, all outstanding obligations by the Company under the Funding Agreement to be immediately due and
payable in immediately available funds and terminate the agreement. No such declaration has been made at time of filing of these
annual consolidated financial statements. For additional information, please refer to the Lind Agreement which has been filed by
the Company on SEDAR at www.sedar.com.
In order for the Company to advance the currently planned preclinical and clinical research and development activities, its
collaborative scientific research programs and pay for its overhead costs, the Company will need to raise approximately
$15,000,000 through to the end of fiscal 2023. The Company projects an average monthly fixed overhead spend of approximately
$275,000. This amount does not include the costs related to any of the Company’s third-party activities such as clinical studies,
collaborative research activities and contract manufacturing.
The Company currently has three clinical studies (see Research and Development Activities above for additional information) of
which only one now is still enrolling patients. Due to slow enrollment, the Company stopped LDOS001 enrollment and continues
to work on finalizing the clinical study report. The Company is forecasting approximately $256,000 in cash required to fully
complete the study, which is expected to occur by December 2021. The Company previously forecasted LDOS003 as a large,
randomized study but concluded that it would not move forward with the randomized portion of the study unless the Company
entered into a co-development partnership with a third party. The Company is currently working on completing the study and report
which has been delayed due administrative disagreement as a result of overbilling by the clinical research organization overseeing
the program. The Company is projecting $486,000 to fully complete the study and report.
The Company received IND approval by the FDA to conduct a Phase Ib/II study (LDOS006) in the U.S., L-DOS47 in combination
with doxorubicin, for previously treated advanced pancreatic cancer. Patient enrollment commenced December 2019. COVID-19
impacted patient enrollment resulting in the Company adding two additional clinical sites this year. The Company is forecasting a
cost of approximately $4,826,000 through to October 2023 to complete both the Phase Ib and Phase II portion of the trial. Certain
conditions need to be achieved in order for the Company to be able to progress through to the Phase II portion of the trial. Of the
forecasted $4,826,000, the portion attributable to the Phase II is approximately $2,603,000 and is forecasted to begin around May
2023.
The Company is forecasting manufacturing expenditures of approximately $1,243,000 through to the end of fiscal 2023 in support
of the Company’s clinical study programs. The Company previous forecasted a manufacturing technology transfer to a new
manufacturer with a scaled-up production in anticipation of having sufficient supply for a contemplated pivotal trial and a new
clinical study of L-DOS47 in combination with an immune-oncology drug. The Company has since produced a new batch of drug
product from previous drug substance providing additionally sufficient supply for the Company’s current clinical program, provided
stability assays continue to meet protocol standards.
The Company is currently not forecasting any collaborative research expenditures.
The Company’s cash reserves of $3,565,000 as at July 31, 2021 are insufficient to meet anticipated cash needs for working capital
and capital expenditures through the next twelve months, nor are they sufficient to see planned research and development
initiatives through to completion. Though the funds raised during this fiscal year have assisted the Company in dealing with its
immediate working capital requirements, additional funds are required to advance the Company’s clinical and preclinical programs
and deal with future working capital requirements. To the extent that the Company does not believe it has sufficient liquidity to
meet its current obligations, management considers securing additional funds, preferably through the issuance of equity securities
of the Company, to be critical for its development needs. The Company may also consider other forms of raising funds, such as
the issuance of debt which may or may not include a conversion of equity in the Company.
The Company’s long-term liquidity depends on its ability to raise funds from various sources, which depends substantially on the
success of its ongoing research and development programs, economic conditions and the state of the biotech industry.
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
19
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 is 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.
The Company needs to raise additional capital to further advance its clinical development program.
Use of proceeds from the sale of securities in the past have been used for working capital, including funding the Company’s
ongoing research and development activities.
CONTRACTUAL OBLIGATIONS
The Company’s commitments are summarized as follows:
Clinical research organizations (1) $ 1,039,000 $ 1,544,000 $
Royalty and in-licensing (2)
Operating leases (3)
20,000
–
2023
2022
2024
–
20,000
–
$ 1,100,000 $ 1,564,000 $ 20,000
20,000
41,000
$
2025
–
10,000
–
$ 10,000
$
2026
–
10,000
–
$ 10,000
$
2027+
Total
– $ 2,583,000
130,000
41,000
$ 50,000 $ 2,754,000
50,000
–
(1) The Company has clinical research organization supplier agreements in place for clinical research services and passthrough
costs related to the Company’s clinical stage programs.
(2) Represents future minimum royalties.
(3) The Company is committed to pay $41,000 under three facility lease agreements.
RELATED PARTY TRANSACTIONS
Related party transactions are at arm’s length and recorded at the amount agreed to by the related parties.
The following table summarizes key management compensation for the fiscal years ended July 31:
Compensation
Stock-based compensation
2021
$ 587,000
(18,000)
$ 569,000
2020
$ 586,000
147,000
$ 733,000
Key management compensation is approved by the board of directors of the Company (the “Board”) and is comprised of: (i) the
terms agreed to in the employee’s employment agreement, and (ii) additional grants of Options approved by the Board. Options
are expensed over the vesting period of the Options.
The following table summarizes non-management directors’ compensation for the fiscal years ended July 31:
Directors’ fees
Stock-based compensation
2021
$ 229,000
673,000
2020
$ 174,000
280,000
$ 902,000
$ 454,000
The Board has set compensation for the members of the Board as a result of peer review and pursuant to the Company’s internal
policies. Additional option grants to members of the Board are issued at the discretion of the Board. Options are expensed over
the vesting period of the Options.
The following table summarizes the total compensation for both ACM Alpha Consulting Management EST (“ACMest”) and ACM
Alpha Consulting Management AG (“ACMag”) for the fiscal years ended July 31:
Finder’s fee commissions (ACMag)
Financial and investor relations consulting fee (ACMest)
2021
$ 801,000
287,000
2020
$ 2,000,000
548,000
Until October 21, 2020, the Company had agreements in place with both ACMest and ACMag. Mr. Kandziora is President of
ACMest and acted as Observer on the Board of Directors of the Company up until August 22, 2019, in addition to being on the
20
Supervisory Board of HIO. Mrs. Kandziora is President of ACMest and was Corporate Secretary of the Company up until August
22, 2019.
On October 29, 2020, the Company announced that, effective October 21, 2020, the financial advisory services agreement dated
July 2, 2018 between the Company and ACMag and the investor relations and advisory services agreement dated July 2, 2018
between the Company and ACMest. had been terminated by the mutual agreement of the parties.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no material off-balance sheet arrangements.
INTELLECTUAL PROPERTY
The Company protects its intellectual property rights through a robust combination of patent, copyright, trademark and trade
secrets as well as with confidentiality and invention assignment agreements.
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.
As of July 31, 2021, the Company had rights to 5 issued U.S. patents, which will expire between July 16, 2023 and January 22,
2036 assuming all required fees are paid, had 6 pending U.S. patent applications, 64 issued foreign patents, and 42 pending
foreign patent applications. The Company’s patents and patent applications cover aspects of the Company’s current and future
product concepts. Some of the pending foreign patent applications preserve an opportunity to pursue patent rights in multiple
countries.
As of July 31, 2021, the Company had one registered trademark in Canada.
The Company also relies, in part, upon unpatented trade secrets, know-how and continuing technological innovation, and may in
the future rely upon licensing opportunities, to develop and maintain our competitive position. The Company protects its proprietary
rights through a variety of methods, including confidentiality and assignment agreements with suppliers, employees, consultants,
and others who may have access to the Company’s proprietary information.
While there is no active litigation involving any of our patents or other intellectual property rights and we have not received any
notices of patent infringement, the Company may be required to enforce or defend its intellectual property rights against third
parties in the future.
Patents and other proprietary rights are very valuable to the Company and involve complex legal and factual issues. The Company
has no assurance that any or all of its patent applications will result in the issuance of patents. Further, 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. As well, the Company’s patents may be invalidated or found enforceable if challenged. Intellectual
property laws vary from country to country which may result in varying levels of intellectual property protection.
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 diseases. 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 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 the Company that contain
assignment of invention clauses outlining ownership of any intellectual property developed during the course of the individual’s
relationship with the Company.
Patents
The Company currently owns several patents in respect of the DOS47 technology and has licensed patent rights from the NRC
for the antibody component of L-DOS47. In addition to issued patents, the Company has filed several new patent applications
around the world.
Cell-Based Therapy
The Company has filed a joint patent application with NRC to protect the use of an antibody for use in cell-based therapies. In
addition, the Company filed a new patent application covering the use of anti-VEGFR2 antibodies in cell-based therapy in July
2017.
21
FINANCIAL INSTRUMENTS
Fair value hierarchy
The Company categorizes its fair value measurements according to a three-level hierarchy. The hierarchy prioritizes the inputs
used by the Company’s valuation techniques. A level is assigned to each fair value measurement based on the lowest-level
input significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are defined as follows:
Level 1 – unadjusted quoted prices as at the measurement date for identical assets or liabilities in active markets.
Level 2 – observable inputs other than quoted prices included in level 1, such as quoted prices for similar assets
and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not
active, or other inputs that are observable or can be corroborated by observable market data.
Level 3 – significant unobservable inputs that are supported by little or no market activity.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value.
Please refer to Notes 1 and 2 in the Company’s annual consolidated financial statements for the fiscal year ended July 31, 2021
for a description of the significant assumptions and accounting policies related to financial instruments.
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 has international transactions and is exposed to foreign exchange risks from various currencies, primarily the Euro
and U.S. dollar. In addition, foreign exchange risks arise from purchase transactions, as well as recognized financial assets and
liabilities denominated in foreign currencies.
Balances in foreign currencies are as follows, as at July 31:
Accounts payable
Accruals
Net foreign currencies
Closing exchange rate
Impact of 1% change in exchange rate
2021
USD
(825,000)
(70,000)
EUR
(252,000)
–
(895,000)
(252,000)
1.1995
+/- 11,000
1.4788
+/- 4,000
2020
USD
(622,000)
(44,000)
EUR
(257,000)
–
(666,000)
(257,000)
1.3404
+/- 9,000
1.5831
+/- 4,000
Any fluctuation in the exchange rates of the foreign currencies listed above could have an impact on the Company’s results from
operations; however, they would not impair or enhance the ability of the Company to pay its foreign-denominated expenses.
Credit risk
Credit risk is the risk of a financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its
contractual obligation.
The table below breaks down the various categories that make up the Company’s accounts receivable balances as at July 31:
Government related – GST/HST
Research and development investment tax credits
Patent costs recoverable from former subsidiary
Other
2021
$ 78,000
140,000
135,000
–
$ 353,000
2020
$ 46,000
121,000
–
13,000
$ 180,000
22
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. 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 Lind
Agreement is subject to covenant requirements that could affect the Company’s liquidity. See LIQUIDITY AND CAPITAL
RESOURCE section below.
The Company’s cash reserves of $3,565,000 as at July 31, 2021 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, 2021
July 31, 2020
Less than Greater than
one-year
one year
–
$ 1,466,000 $ 1,466,000
Accounts payable
$
$
Accrued liabilities
–
380,000
$ 380,000 $
$ 1,584,000
Convertible note payable $ 3,612,000 $ 2,028,000
Carrying
amount
Carrying
amount
Less than Greater than
one-year
one year
–
$
$ 1,416,000 $ 1,416,000
–
$
$ 301,000 $ 301,000
–
$
– $ –
$
This table only covers liabilities and obligations relative to financial instruments and does not anticipate any income associated
with assets.
OUTSTANDING SHARE DATA
The Company is authorized to issue 10,000,000 preferred shares in the capital of the Company (each, a “Preferred Share”). As
at the date of this MD&A, the Company had nil Preferred Shares issued and outstanding.
The Company is authorized to issue an unlimited number of Common Shares without par value. As at the date of this MD&A the
Company had 142,471,169 Common Shares issued and outstanding.
As at the date of this MD&A, the Company had the following securities convertible into Common Shares outstanding:
1. Warrants to purchase up to 69,377,969 Common Shares; and
2. Options to purchase up to 7,050,000 Common Shares.
3. The Convertible Security issued to Lind under the First Tranche. See “Liquidity and Capital Resources” for additional
information relating to the Convertible Security issued under the First Tranche and the Convertible Security issuable
under any second tranche under the Lind Agreement.
SUBSEQUENT EVENT
Subsequent to July 31, 2021, the Company received three conversion notices from LIND totalling $616,875. As a result of these
conversion notices the Company issued 1,338,152 common shares resulting in 142,471,169 common shares issued and
outstanding as at the date of this MD&A.
23
DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING
Management has designed the Company’s disclosure controls and procedures (“DC&P”) to provide reasonable assurance that all
relevant information is gathered, recorded, processed, summarized and reported to the Interim Chief Executive Officer and the
Chief Financial Officer 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 annual consolidated financial statements for external
purposes in accordance with IFRS. Because of its inherent limitations, ICFR can provide only reasonable assurance and may not
prevent or detect misstatements. Further, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or
procedures may deteriorate.
Management's Annual Report on Internal Control Over Financial Reporting and Disclosure Controls and Procedures
Management is responsible for establishing and maintaining adequate ICFR and has designed such ICFR to provide reasonable
assurance regarding the reliability of financial reporting and the preparation and fair presentation of annual consolidated financial
statements for external purposes in accordance with IFRS.
Management, including the Interim Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s ICFR
will prevent all error and all fraud. A control system can provide only reasonable, not absolute, assurance that the objectives
of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These
inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because
of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the control. The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving
our stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected. In addition, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
The Company’s Chief Financial Officer and Interim Chief Executive Officer evaluated the effectiveness of our internal controls
over financial reporting as at July 31, 2021, and identified a material weakness resulting from the Company’s limited accounting
resources and technical expertise to ensure complex and non-routine transactions are addressed during the financial statement
close process. As a result, the control deficiency creates a reasonable possibility that a material misstatement of interim and
annual financial statements may not be prevented or detected on a timely basis.
Management believes, based on its knowledge, that (i) this MD&A does not contain any untrue statements of a material fact or
omit to state a material fact necessary to make the statements not misleading, in light of the circumstances under which they were
made, with respect to the period covered by this MD&A and, (ii) the annual consolidated financial statements, and other financial
information included in this MD&A, fairly present in all material respects the financial condition, results of operations and cash
flows at, and for, the fiscal years presented in this MD&A.
Management is confident that the plan we have to address this weakness will be achieved in fiscal 2022.
Evaluation of DC&P
The Company’s Chief Executive Officer and Chief Financial Officer reviewed and evaluated the Company’s DC&P during the
fiscal year 2021. Based on the evaluation, they have concluded that the Company’s DC&P are effective in providing timely
material information relating to the Company.
RISKS AND UNCERTAINTIES
The Company is subject to risks, events and uncertainties, or “risk factors”, associated with being a publicly traded company
operating in the biotechnology industry, with research and development stage projects in pre-clinical discovery and clinical
development and with no expectation of revenue or profits in the foreseeable future and, as such, is heavily dependant on raising
sufficient capital on a timely basis in order to advance the Company’s drug development programs. 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
24
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 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:
Risks Related to the Company’s Business
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 and the ability of the Company to continue as a going
concern is dependent upon the Company’s ability 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 and/or any convertible debt financing, if secured, would result in dilution to existing shareholders, and
that 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 and development 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.
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 drug product candidates. The research
and development of drug product candidates require 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 accumulated deficit as at July 31, 2021 is $188,554,000. There can be no assurance that the
Company will record earnings in the future or that the drug product candidates under development by us will be
approved for sale in Canada, the United States, or elsewhere. Furthermore, there can be no assurance that if such
products are approved, they will be successfully commercialized, and the extent of our future losses and the timing of
our profitability are highly uncertain. If we are unable to achieve profitability, we may be unable to continue our
operations.
The Company faces risks in connection with competition and technological change
The biotechnology industry is 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 has and likely will continue 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. Developments in immunotherapies have resulted in the Company repositioning its L-DOS47 lead
drug product candidate away from a front-line monotherapy protocol towards second and third-line combination therapies
with existing chemotherapy drugs and possibly in combination with immunotherapies, resulting in additional expenditures
and delays in previously anticipated development timelines for L-DOS47. Advancements in technology can impact the
Company at any time and as such, any further repositioning, would likely result in additional expenses being incurred by
the Company and in further 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 is currently heavily dependent on the success
of its lead drug product candidate L-DOS47, which is the only drug candidate currently in clinical development.
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
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.
Many of the Company’s competitors have substantially greater financial, technical and human resources and significantly
greater experience in conducting preclinical testing and human clinical trials of product candidates, scaling up
manufacturing operations and obtaining regulatory approvals of products. Accordingly, the Company’s varying
25 competitors may succeed in obtaining regulatory approval for products more rapidly. The Company’s ability to compete
successfully will largely depend on:
the efficacy and safety profile of our product candidates relative to marketed products and other product candidates
in development;
our ability to develop and maintain a competitive position in the product categories and technologies on which we
focus;
the time it takes for our product candidates to complete clinical development and receive marketing approval;
our ability to obtain required regulatory approvals;
our ability to commercialize any of our product candidates that receive regulatory approval;
our ability to establish, maintain and protect intellectual property rights related to our product candidates; and
acceptance of any of our product candidates that receive regulatory approval by physicians and other healthcare
providers and payers.
Competitors have developed and may develop technologies that could be the basis for products that challenge the
differentiated nature and potential for best-in-class product development programs and discovery research capabilities of
the DOS47 platform technology. Some of those products may have an entirely different approach or means of
accomplishing the desired therapeutic effect than our product candidates and may be more effective or less costly than
our product candidates. The success of our competitors and their products and technologies relative to our technological
capabilities and competitiveness could have a material adverse effect on the future preclinical studies a nd clinical trials
of our product candidates, including our ability to obtain the necessary regulatory approvals for the conduct of such
clinical trials. This may further negatively impact our ability to generate future product development programs with
improved pharmacological properties.
If we are not able to compete effectively against our current and future competitors, our business will not grow and our
financial condition and operations will substantially suffer.
The Company is heavily dependent on the success of a single drug product candidate
The Company’s future success is dependent primarily on the regulatory approval and commercialization of a single drug
product candidate, L-DOS47, which is the Company’s only drug candidate currently in clinical development. The
Company does not have any products that have obtained regulatory approval. The Company is conducting early stage
research and development initiatives and is currently in the process of developing L-DOS47, which will require further
time-consuming and costly research and development. There can be no assurance that L-DOS47 or any other drug
product candidate that the Company undertakes to develop will ever be successfully developed or commercialized. As a
result, the Company’s near-term prospects, including its ability to finance its operations and generate revenue, are
substantially dependent on its ability to obtain regulatory approval for, and, if approved, to successfully commercialize L-
DOS47 in a timely manner.
The Company’s single lead drug product candidate, L-DOS47, may not be accepted by the market and may never
generate revenue and the Company has limited sales, marketing and distribution experience
Even with regulatory approval, the Company may not achieve market acceptance of its lead drug product candidate, L-
DOS47, 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 any drug candidate developed by the Company is uncertain.
Failure to gain market acceptance of the Company’s products or an incorrect estimate in the nature and size of the
markets for the Company’s products 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 L-DOS47 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,
26
including those related to undertaking or continuing clinical trials, manufacturing of drug products, and marketing such
products.
A failure to obtain necessary financing or a change in the schedule of a clinical trial (which may occur for many reasons,
including 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 the commencement or completion of the clinical trial, or result in its suspension or early
termination, which could have a material adverse effect on the Company.
We will have significant additional future capital needs in 2021 and beyond and there may be uncertainties as to our
ability to raise additional funding in the future to meet these needs
We will require significant additional capital resources to expand our business, in particular the further development of our product
candidate, L-DOS47. Advancing our product candidate, marketing for our product, or acquisition and development of any new
products or product candidates will require considerable resources and additional access to capital markets. In addition, our future
cash requirements may vary materially from those now expected. For example, our future capital requirements may increase if:
we experience unexpected or increased costs relating to preparing, filing, prosecuting, maintaining, defending and
enforcing patent claims, or other lawsuits, brought by either us or our competition;
we experience scientific progress sooner than expected in our discovery, research and development projects, if we
expand the magnitude and scope of these activities, or if we modify our focus as a result of our discoveries;
we are required to perform additional pre-clinical studies and clinical trials; or
we elect to develop, acquire or license new technologies, products or businesses.
The Company could potentially seek additional funding through corporate collaborations and licensing arrangements or
through public or private equity or debt financing. However, if capital market conditions in general, or with respect to life
sciences companies such as ours, are unfavorable, our ability to obtain significant additional funding on acceptable terms,
if at all, will be negatively affected. Additional financing that we may pursue may involve the sale of Common Shares
which could result in significant dilution to our shareholders. If sufficient capital is not available, we may be required to
delay our research and development projects, which could harm our business, financial condition, prospects or results
of operations.
The Company may not obtain adequate protection for its products through its intellectual property
The Company’s success depends, in large part, on the Company’s ability to protect its competitive position through
patents, trade secrets, trademarks, and other intellectual property rights. The Company’s success, competitive position
and future revenues with respect to its product candidates will depend, in part, on the Company’s ability to protect its
intellectual property. The Company will be able to protect its proprietary rights from unauthorized use by third parties only
to the extent that its proprietary rights are covered by valid and enforceable patents or are effectively maintained as trade
secrets. The Company seeks intellectual property protection in various jurisdictions around the world and owns patents
and patent applications relating to biological products and technologies in the United States, Canada, Europe and other
jurisdictions. The scope and duration of the Company’s intellectual property rights vary from country to country depending
on the nature and extent of the Company’s intellectual property filings, the applicable statutory provisions governing the
intellectual property, and the nature and extent of the Company’s legal rights. The Company’s failure to do so may
adversely affect the Company’s business and competitive position.
The patent positions of pharmaceutical and biopharmaceutical firms, including the Company’s, are uncertain and involve
complex questions of law and fact for which certain important legal issues remain unresolved. The patents issued or to
be issued to the Company may not provide the Company with any competitive advantage. The Company may not be able
to protect its intellectual property rights throughout the world. The Company’s patents may be challenged by third parties
in patent litigation. In addition, it is possible that third parties with biological products that are very similar to the Company’s
may circumvent the Company’s patents by means of alternate designs or processes. The Company may have to rely on
method of use patent protection for its biological products in development and any resulting biological products, which
may not confer the same level of protection as protection of the Company’s biological products per se. The Company
may be required to disclaim part of the term of certain patents in the United States. There may be prior art of which the
Company is not aware that may affect the validity or enforceability of a patent claim. There also may be prior art of which
the Company is aware, but which the Company does not believe affects the validity or enforceability of a claim, which
may, nonetheless ultimately be found to affect the validity or enforceability of a claim. No assurance can be given that the
Company’s patents would, if challenged, be held by a court to be valid or enforceable or that a competitor’s technology
or drug would be found by a court to infringe the Company’s patents.
Patent terms may be inadequate to protect the Company’s competitive position on its product candidates for an adequate
amount of time. Patents have a limited lifespan, in most jurisdictions inclusive of the United States, if all maintenance fees
are timely paid, the term of protection is a period of 20 years from the filing date of the application. Patent term extensions
of up to 5 years may be available in certain countries for patents pertaining to new medicinal ingredients or new
27
combinations of medicinal ingredients for human or veterinary use based upon the delay in regulatory review. Even if
patents covering the Company’s product candidates are obtained, once the patent life and any patent term extension
have expired, the Company may be open to competition from competitive products, including generics or biosimilars.
Given the amount of time required for the development, testing and regulatory review of new product candidates, patents
protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, the
Company’s owned and licensed patent portfolio may not provide the Company with sufficient rights to exclude others from
commercializing products similar or identical to the Company’s.
Patent applications relating to or affecting the Company’s business may have been filed by a number of pharmaceutical
and biopharmaceutical companies and academic institutions. The technologies in these applications or patents may cover
the Company’s technologies, and such conflict could create freedom to operate issues. The Company’s granted patents
could be challenged, invalidated or found unenforceable in interference and derivation proceedings, and post grant
proceedings including re-examination, Inter Parte Review and Post-Grant Review, in the United States. The Company’s
granted patents could also be challenged and revoked in opposition proceedings in certain countries outside of the United
States such as in Europe. In addition to patents, the Company relies on trade secrets and proprietary know-how to protect
its intellectual property. The Company generally requires employees, consultants, outside scientific collaborators, and
sponsored researchers and other advisors to enter into confidentiality agreements. These agreements provide that all
confidential information developed or made known to the individual during the course of the individual’s relationship with
the Company is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of
employees, the agreements provide that all of the technology that is conceived by the individual during the course of
employment is the Company’s exclusive property. These agreements may not provide meaningful protection or adequate
remedies in the event of unauthorized use or disclosure of proprietary information. In addition, it is possible that third
parties could independently develop proprietary information and techniques substantially similar to the Company’s or
otherwise gain access to the Company’s trade secrets.
The Company may obtain the right to use certain technology under license agreements with third parties. The Company’s
failure to comply with the requirements of material license agreements could result in the termination of such agreements,
which could cause the Company to terminate the related development program and cause a complete loss of investment
in that program. As a result of the foregoing factors, the Company may not be able to rely on its intellectual property to
protect the Company’s products in the marketplace.
Patent litigation is costly and time consuming and may subject the Company to liabilities
The Company’s involvement in any patent litigation, opposition, or other administrative proceedings will likely cause the
Company to incur substantial expenses, and the efforts of technical and management personnel will be significantly
diverted. In addition, the Company may not have the financial means defend its patents and in the event it does, an
adverse determination in litigation could subject the Company to significant liabilities, including, but not limited to,
monetary damages.
Security breaches and other disruptions could compromise the Company’s information and expose the Company to
liability, which would cause the Company’s business and reputation to suffer
In the ordinary course of our business, the Company collects and stores sensitive data, including intellectual property,
proprietary business information and that of our suppliers and business partners, and personally identifiable information
of our collaborators and employees, on our networks and on shared cloud services. The secure processing, maintenance
and transmission of this information is critical to our operations. Despite our security measures, our information
technology and infrastructure may be exposed to malware, cyberattacks, attacks by hackers or breached due to
employee error, malfeasance, or other disruptions. Any such breach could compromise our networks and the information
stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information
could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, disrupt our
operations and damage our reputation, which could adversely affect our business and competitive position.
Further, some of our partners may store personal or confidential information that we share with them. If these third parties
fail to implement adequate data-security practices or fail to comply with our terms and policies, sensitive data may be
improperly accessed, acquired, or disclosed. And even if these third parties take all these steps, their networks and
information technology systems may still suffer a security breach, which could compromise our data.
The Company may infringe the intellectual property rights of others
The Company’s commercial success depends significantly on the Company’s ability to operate without infringing on the
patents and other intellectual property rights of third parties. There could be issued patents of which the Company is not
initially aware that the Company’s products infringe or patents that the Company believes it does not infringe, but that
the Company may ultimately be found to infringe. Patent applications are maintained in secrecy from the time of filing
until publication. The publication of discoveries in the scientific or patent literature frequently occurs later than the date
on which the underlying discoveries were made and patent applications were filed. There may be currently pending
28
patent applications of which the Company is unaware that may later result in issued patents that the Company’s products
infringe.
The biopharmaceutical industry has produced a proliferation of patents in jurisdictions around the world. The coverage
of patents is subject to interpretation by the courts of a particular jurisdiction, and the interpretation is not always uniform.
The Company believes that the sale or use of its primary biological product candidate, L-DOS47 would not infringe any
valid claim of patents, although there can be no assurances of this. In the event of an infringement or violation of another
party’s patent, the Company may not be able to enter into licensing arrangements or make other arrangements at a
reasonable cost. Any inability to secure licenses or alternative technology could result in delays in the introduction of
drugs or lead to prohibition of the manufacture or sale of drugs by the Company.
Third parties may initiate legal proceedings alleging that the Company is infringing their intellectual property rights, the
outcome of which would be uncertain and could harm the Company’s business
Third parties may assert patent or other intellectual property infringement claims against the Company or its other
licensors arising from the manufacture, use, or sale of the Company’s current or future product candidates. An
unfavorable outcome could result in loss of patent rights and require the Company to cease using the related technology
or to attempt to license rights to it from the prevailing party. The Company’s business could be harmed if the prevailing
party does not offer us a license on commercially reasonable terms. The Company may not have the financial means
and wherewithal to defend against third party claims and in the event it does, defense of litigation proceedings may fail
and, even if successful, may result in substantial costs and distract the Company’s management and other employees.
In the event of a successful claim of infringement against the Company, the Company may have to pay substantial
damages, including treble damages and legal fees for willful infringement, pay royalties, redesign its infringing products
or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary
expenditure.
The Company may become involved in lawsuits or other proceedings to protect or enforce the Company’s patents or
other intellectual property, which could be expensive, time consuming and unsuccessful
Competitors may infringe the Company’s patents or other intellectual property. The Company may not have the financial
means and wherewithal to defend its patents or other intellectual properties and in the event the Company was to initiate
legal proceedings against a third party to enforce a patent covering the Company’s product candidates, the defendant
could counterclaim that the patent covering the Company’s product candidate is invalid and/or unenforceable. In patent
litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace.
Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack
of novelty, obviousness, written description, enablement, or clarity. Grounds for an unenforceability assertion could be
an allegation that someone connected with prosecution of the patent withheld relevant information from the United States
Patent and Trademark Office, or “USPTO”, or made a misleading statement, during prosecution. The outcome following
legal assertions of invalidity and unenforceability is unpredictable. The validity of the Company’s current or future patents
or patent applications or those of the Company’s licensors may also be challenged in interference or derivation
proceedings, opposition, post grant review, inter partes review, or other similar enforcement and revocation proceedings,
provoked by third parties or brought by the Company. The Company’s patents could be found invalid, unenforceable, or
their scope significantly reduced.
The Company may be subject to claims challenging the inventorship of the Company’s patents and other intellectual
property
The Company or its licensors may be subject to claims that former employees, collaborators or other third parties have
an interest in the Company’s owned or in-licensed patents, trade secrets, or other intellectual property as an inventor or
co-inventor. For example, the Company or its licensors may have inventorship disputes arise from conflicting obligations
of employees, collaborators, consultants or others who are involved in developing the Company’s product candidates.
Litigation may be necessary to defend against these and other claims challenging inventorship of the Company’s or its
licensors’ ownership of the Company’s owned or in-licensed patents, trade secrets or other intellectual property. The
Company may not have the financial means to defend such claims and in the event the Company or its licensors fail in
defending any such claims, in addition to paying monetary damages, the Company may lose valuable intellectual property
rights, such as exclusive ownership of, or right to use, intellectual property that is important to the Company’s product
candidates. Even if the Company is successful in defending against such claims, litigation could result in substantial costs
29
and be a distraction to management and other employees. Any of the foregoing could have a material adverse effect on
the Company’s business, financial condition, results of operations and prospects.
The Company may be subject to claims that its employees, collaborators, consultants or independent contractors have
wrongfully used or disclosed confidential information of third parties or that the Company’s employees have wrongfully
used or disclosed alleged trade secrets of their former employers
As is common in the biotechnology and pharmaceutical industry, the Company employs individuals who were previously
employed at universities or other biotechnology or pharmaceutical companies, including the Company’s competitors or
potential competitors. Although the Company tries to ensure that its employees, collaborators, consultants and
independent contractors do not use the proprietary information or know-how of others in their work for the Company, the
Company may be subject to claims that the Company or its employees, consultants or independent contractors have
inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information,
of any of the Company’s employees’ former employers or other third parties. Litigation may be necessary to defend
against these claims. The Company may not have the financial means to defend such claims and in the event the
Company fails in defending any such claims, in addition to paying monetary damages, the Company may lose valuable
intellectual property rights or personnel, which could adversely impact the Company’s business. Even if the Company is
successful in defending against such claims, litigation could result in substantial costs and be a distraction to
management and other employees.
Obtaining and maintaining patent protection depends on compliance with various procedural, document submission,
fee payment and other requirements imposed by governmental patent agencies, and the Company’s patent protection
could be reduced or eliminated for non-compliance with these requirements
Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or
applications will be due to be paid to the USPTO and various governmental patent agencies outside of the United States
in several stages over the lifetime of the patents and/or applications. The Company has systems in place to remind the
Company to pay these fees, and the Company employs an outside firm and relies on its outside counsel to pay these
fees due to non-U.S. patent agencies. The USPTO and various non-U.S. governmental patent agencies require
compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent
application process. The Company employs reputable law firms and other professionals to help the Company comply,
and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with
the applicable rules. However, there are situations in which non-compliance can result in abandonment or lapse of the
patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an
event, the Company’s competitors might be able to enter the market and this circumstance would have a material adverse
effect on the Company’s business.
The Company faces 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.
30
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 regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming,
expensive and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product
candidates, our business will be substantially harmed
The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable but typically takes
many years following the commencement of clinical trials and depends upon numerous factors, including the substantial
discretion of the regulatory authorities. The results of preclinical studies and early clinical trials of our product candidates
may not be predictive of the results of later-stage clinical trials. Product candidates in later stages of clinical trials may
fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical
trials. It is not uncommon for companies in the biopharmaceutical industry to suffer significant setbacks in advanced
clinical trials due to nonclinical findings made while clinical studies were underway and safety or efficacy observations
made in clinical studies, including previously unreported adverse events. Our future clinical trial results may not be
successful, and notwithstanding any potential promising results in earlier studies, we cannot be certain that we will not
face similar setbacks. The historical failure rate for product candidates in our industry is high. In addition, approval
policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course
of a product candidate’s clinical development and may vary among jurisdictions. We have not obtained regulatory
approval for any product candidate and it is possible that none of our existing product candidates or any product
candidates we may seek to develop in the future will ever obtain regulatory approval.
Our product candidates could fail to receive regulatory approval for many reasons, including the following:
the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical
trials;
we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a
product candidate is safe and effective for its proposed indication;
the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable
foreign regulatory authorities for approval;
the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical
studies or clinical trials;
the data collected from clinical trials of our product candidates may not be sufficient to support the submission of an
New Drug Application, or NDA, or other submission or to obtain regulatory approval in the United States or
elsewhere;
the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities
of third-party manufacturers with which we contract for clinical and commercial supplies; and
the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change
in a manner rendering our clinical data insufficient for approval.
We may not have the necessary capabilities, including adequate staffing, to successfully manage the execution and
completion of any future clinical trials we initiate in a way that leads to our obtaining marketing approval for our product
candidates in a timely manner, or at all. This lengthy approval process as well as the unpredictability of future clinical trial
results may result in our failing to obtain regulatory approval to market our product candidates, which would significantly
harm our business, results of operations and prospects.
In addition, even if we were to obtain approval, regulatory authorities may approve any of our product candidates for
fewer or more limited indications than we request, may not approve the price we intend to charge for our products, may
grant approval contingent on the performance of costly post-marketing clinical trials, may approve a product candidate
with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that
product candidate or may restrict its distribution. Any of the foregoing scenarios could materially harm the commercial
prospects for our product candidates.
We have not previously submitted an NDA to the FDA or similar drug approval filings to comparable foreign authorities,
for any product candidate, and we cannot be certain that any of our product candidates will be successful in clinical trials
or receive regulatory approval. Further, our product candidates may not receive regulatory approval even if they are
successful in clinical trials. If we do not receive regulatory approvals for our product candidates, we may not be able to
continue our operations. Even if we successfully obtain regulatory approvals to market one or more of our product
candidates, our revenues will be dependent, in part, upon the size of the markets in the territories for which we gain
31
regulatory approval and have commercial rights. If the markets for patients that we are targeting for our product
candidates are not as significant as we estimate, we may not generate significant revenues from sales of such products,
if approved.
We plan to seek regulatory approval to commercialize our product candidates both in the United States and the European
Union and in additional foreign countries. While the scope of regulatory approval is similar in other countries, to obtain
separate regulatory approval in many other countries we must comply with numerous and varying regulatory
requirements of such countries regarding safety and efficacy and governing, among other things, clinical trials and
commercial sales, pricing and distribution of our product candidates, and we cannot predict success in these jurisdictions.
Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their
regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences
following marketing approval, if any
Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay
or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA
or other comparable foreign authorities. The clinical evaluation of our product candidates in patients is still in the early
stages and it is possible that there may be side effects associated with their use. Results of our trials could reveal a
high and unacceptable severity and prevalence of these or other side effects. In such an event, we, the FDA, the IRBs
at the institutions in which our studies are conducted, or the DSMB could suspend or terminate our clinical trials or the
FDA or comparable foreign regulatory authorities could order us to cease clinical trials or deny approval of our product
candidates for any or all targeted indications. Treatment-related side effects could also affect patient recruitment or the
ability of enrolled patients to complete the clinical trial or result in potential product liability claims. In addition, these
side effects may not be appropriately recognized or managed by the treating medical staff. We expect to have to train
medical personnel using our product candidates to understand the side effect profiles for our clinical trials and upon any
commercialization of any of our product candidates. Inadequate training in recognizing or managing the potential side
effects of our product candidates could result in patient injury or death. Any of these occurrences may harm our
business, financial condition and prospects significantly.
Additionally, if one or more of our product candidates receives marketing approval, and we or others later identify
undesirable side effects caused by such products, a number of potentially significant negative consequences could
result, including:
regulatory authorities may withdraw approvals of such products;
we may be required to recall a product or change the way such a product is administered to patients;
additional restrictions may be imposed on the marketing or distribution of the particular product or the manufacturing
processes for the product or any component thereof;
regulatory authorities may require additional warnings on the label, such as a “black box” warning or contraindication;
we may be required to implement Risk Evaluation and Mitigation Strategies, or REMS, or create a medication guide
outlining the risks of such side effects for distribution to patients;
we could be sued and held liable for harm caused to patients;
our product may become less competitive; and
our reputation may Any of these events could prevent us from achieving or maintaining market acceptance of the
particular product candidate or for particular indications of a product candidate, if approved, and could significantly
harm our business, results of operations and prospects.
Difficulty in enrolling patients in the Company’s clinical trials, could result in delays or cancellation of clinical trials
As the Company’s product candidates advance from preclinical testing to clinical testing, and then through progressively
larger and more complex clinical trials, the Company will need to enroll an increasing number of patients that meet
various eligibility criteria. There is significant competition for recruiting cancer patients in clinical trials, and the Company
may be unable to enroll the patients it needs to complete clinical trials on a timely basis or at all. The factors that affect
the Company’s ability to enroll patients is largely uncontrollable and include, but are not limited to, the following:
size and nature of the patient population;
eligibility and exclusion criteria for the trial;
design of the study protocol;
competition with other companies for clinical sites or patients;
the perceived risks and benefits of the product candidate under study;
the patient referral practices of physicians; and
the number, availability, location and accessibility of clinical trial sites.
32
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
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 Company relies significantly on licensed intellectual property. If the Company were to lose its rights to licensed
intellectual property, the Company would not be able to continue developing or commercializing L-DOS47. If the
Company breaches the agreement with NRC under which it licenses the use, development and commercialization rights
to a lung cancer antibody in order to develop and commercialize L-DOS47 or any other future product candidate or
technology from third parties or if certain insolvency events were to occur, the Company could lose license rights that
are critical to its business
The Company has an exclusive worldwide license to a lung cancer antibody necessary to develop and commercialize L-
DOS47 pursuant to a license agreement with NRC that is critical to the Company’s business, which is subject to
termination for breach of certain terms and, therefore, the Company’s rights may only be available for as long as the
Company’s development and commercialization activities are sufficient to meet the terms of the license. In addition, the
Company may need to enter into additional license agreements in the future. The Company’s existing license agreements
impose, and any future license agreements may impose on the Company, various developments, regulatory and/or
commercial diligence obligations, payment of milestones and/or royalties and other obligations. If the Company fails to
comply with its obligations under these agreements, or the Company is subject to a bankruptcy, the licensor may have
the right to terminate the license, in which event the Company would not be able to market products covered by the
license, which would have a material adverse effect on the Company’s business, financial condition, results of operations
and prospects. Moreover, the Company’s current or future licenses may provide for a reversion to the licensor of the
33
Company’s rights in regulatory filings or other intellectual property or data that the Company regards as its own in the
event the license terminates under certain circumstances, such as due to breach.
Licensing of intellectual property is of critical importance to the Company’s business and involves complex legal, business
and scientific issues. Disputes may arise between us and the Company’s licensors regarding intellectual property subject
to a license agreement, including with respect to:
the scope of rights granted under the license agreement and other interpretation-related issues;
the rights of the Company’s licensors under the license agreements; and
the Company’s diligence obligations with respect to the use of the licensed technology in relation to the Company’s
development and commercialization of L-DOS47 and any future product candidates, and what activities satisfy those
diligence obligations.
Any disputes with the Company’s licensors over intellectual property that the Company has licensed from them may
prevent or impair the Company’s ability to maintain its current licensing arrangements on acceptable terms. Termination
or expiry of the Company’s license agreements could result in the loss of significant rights and could materially harm the
Company’s ability to further develop and commercialize L-DOS47 or other future product candidates.
In addition, the agreements under which the Company currently licenses intellectual property or technology from third
parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The
resolution of any contract interpretation disagreement that may arise could narrow what the Company believes to be the
scope of its rights to the relevant intellectual property or technology, or increase what the Company believes to be its
financial or other obligations under the relevant agreement, either of which could have a material adverse effect on the
Company’s business, financial condition, results of operations, and prospects. Moreover, if disputes over intellectual
property that the Company has licensed prevent or impair the Company’s ability to maintain its current licensing
arrangements on commercially acceptable terms, the Company may be unable to successfully develop and
commercialize the affected product candidates, which could have a material adverse effect on the Company’s business,
financial conditions, results from operations and prospects.
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.
We are substantially dependent on third parties for the manufacture of our clinical supplies of our product candidates,
and we intend to rely on third parties to produce commercial supplies of any approved product candidate. Therefore, our
development of our products could be stopped or delayed, and our commercialization of any future product could be
34
stopped or delayed or made less profitable if third party manufacturers fail to obtain approval of the FDA or comparable
regulatory authorities or fail to provide us with drug product in sufficient quantities or at acceptable prices
The manufacture of biotechnology and pharmaceutical products is complex and requires significant expertise, capital
investment, process controls and know-how. Common difficulties in biotechnology and pharmaceutical manufacturing
may include: sourcing and producing raw materials, transferring technology from chemistry and development activities
to production activities, validating initial production designs, scaling manufacturing techniques, improving costs and
yields, establishing and maintaining quality controls and stability requirements, batch lot expiries, eliminating
contaminations and operator errors, and maintaining compliance with regulatory requirements. We do not currently have
nor do we plan to acquire the infrastructure or capability internally in accordance with cGMP prescribed by the FDA or to
produce an adequate supply of compounds to meet future requirements for clinical trials and commercialization of our
products. Drug manufacturing facilities are subject to inspection before the FDA will issue an approval to market a new
drug product, and all of the manufacturers that we intend to use must adhere to the cGMP regulations prescribed by the
FDA.
We expect therefore to rely on third-party manufacturers for clinical supplies of our product candidates that we may
develop. These third-party manufacturers will be required to comply with current good manufacturing practices, or GMPs,
and other applicable laws and regulations. We will have no control over the ability of these third parties to comply with
these requirements, or to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or any
other applicable regulatory authorities do not approve the facilities of these third parties for the manufacture of our other
product candidates or any products that we may successfully develop, or if it withdraws any such approval, or if our
suppliers or contract manufacturers decide they no longer want to supply or manufacture for us, we may need to find
alternative manufacturing facilities, in which case we might not be able to identify manufacturers for clinical or commercial
supply on acceptable terms, or at all. Any of these factors would significantly impact our ability to develop, obtain
regulatory approval for or market our product candidates and adversely affect our business.
We and/or our third-party manufacturers may be adversely affected by developments outside of our control, and these
developments may delay or prevent further manufacturing of our products. Adverse developments may include labor
disputes, resource constraints, shipment delays, inventory shortages, lot failures, unexpected sources of contamination,
lawsuits related to our manufacturing techniques, equipment used during manufacturing, or composition of matter,
unstable political environments, acts of terrorism, war, natural disasters, and other natural and man-made disasters. If
we or our third-party manufacturers were to encounter any of the above difficulties, or otherwise fail to comply with
contractual obligations, our ability to provide any product for clinical trial or commercial purposes would be jeopardized.
This may increase the costs associated with completing our clinical trials and commercial production. Further, production
disruptions may cause us to terminate ongoing clinical trials and/or commence new clinical trials at additional expense.
We may also have to take inventory write-offs and incur other charges and expenses for products that fail to meet
specifications or pass safety inspections. If production difficulties cannot be solved with acceptable costs, expenses, and
timeframes, we may be forced to abandon our clinical development and commercialization plans, which could have a
material adverse effect on our business, prospects, financial condition, and the value of our securities.
We, or third-party manufacturers on whom we rely, may be unable to successfully scale-up manufacturing of our product
candidates in sufficient quality and quantity, which would delay or prevent us from developing our product candidates
and commercializing approved products, if any
In order to conduct clinical trials of our product candidates and commercialize any approved product candidates, we, or
our manufacturers, will need to manufacture them in large quantities. We, or our manufacturers, may be unable to
successfully increase the manufacturing capacity for any of our product candidates in a timely or cost-effective manner,
or at all. In addition, quality issues may arise during scale-up activities. If we, or any of our manufacturers, are unable to
successfully scale up the manufacture of our product candidates in sufficient quality and quantity, the development,
testing, and clinical trials of that product candidate may be delayed or infeasible, and regulatory approval or commercial
launch of any resulting product may be delayed or not obtained, which could significantly harm our business. If we are
unable to obtain or maintain third-party manufacturing for commercial supply of our product candidates, or to do so on
commercially reasonable terms, we may not be able to develop and commercialize our product candidates successfully.
Our failure to find third party collaborators to assist or share in the costs of product development could materially harm
our business, financial condition and results of operations
Our strategy for the development and commercialization of our proprietary product candidates may include the formation
of collaborative arrangements with third parties. Existing and future collaborators have significant discretion in
determining the efforts and resources they apply and may not perform their obligations as expected. Potential third party
35
collaborators include biopharmaceutical, pharmaceutical and biotechnology companies, academic institutions and other
entities. Third-party collaborators may assist us in:
funding research, preclinical development, clinical trials and manufacturing;
seeking and obtaining regulatory approvals; and
successfully commercializing any future product candidates.
If we are not able to establish further collaboration agreements, we may be required to undertake product development
and commercialization at our own expense. Such an undertaking may limit the number of product candidates that we will
be able to develop, significantly increase our capital requirements and place additional strain on our internal resources.
Our failure to enter into additional collaborations could materially harm our business, financial condition and results of
operations.
In addition, our dependence on licensing, collaboration and other agreements with third parties may subject us to a
number of risks. These agreements may not be on terms that prove favorable to us and may require us to relinquish
certain rights in our product candidates. To the extent we agree to work exclusively with one collaborator in a given area,
our opportunities to collaborate with other entities could be curtailed. Lengthy negotiations with potential new
collaborators may lead to delays in the research, development or commercialization of product candidates. The decision
by our collaborators to pursue alternative technologies or the failure of our collaborators to develop or commercialize
successfully any product candidate to which they have obtained rights from us could materially harm our business,
financial condition and results of operations.
We rely on third parties to conduct our preclinical and clinical trials. If these third parties do not successfully perform
their contractual legal and regulatory duties or meet expected deadlines, we may not be able to obtain regulatory
approval for or commercialize our product candidates and our business could be substantially harmed
We have relied upon and plan to continue to rely upon third-party medical institutions, clinical investigators, contract
laboratories and other third party CROs to monitor and manage data for our ongoing preclinical and clinical programs.
We rely on these parties for execution of our preclinical and clinical trials, and control only certain aspects of their
activities. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with the
applicable protocol, legal, regulatory and scientific standards, and our reliance on the CROs does not relieve us of our
regulatory responsibilities. We and our CROs are required to comply with cGCPs, which are regulations and guidelines
enforced by the FDA, the Competent Authorities of the Member States of the European Economic Area, or EEA, and
comparable foreign regulatory authorities for all of our products in clinical development.
Regulatory authorities enforce these cGCPs through periodic inspections of trial sponsors, principal investigators and
trial sites. If we or any of our CROs fail to comply with applicable cGCPs, the clinical data generated in our clinical trials
may be deemed unreliable and the FDA, the EMA or comparable foreign regulatory authorities may require us to perform
additional clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a
given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with cGCP
regulations. In addition, our clinical trials must be conducted with product produced under current good manufacturing
practices, or cGMP, regulations. Our failure to comply with these regulations may require us to repeat clinical trials, which
would delay the regulatory approval process.
If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with
alternative CROs or to do so on commercially reasonable terms. In addition, our CROs are not our employees, and
except for remedies available to us under our agreements with such CROs, we cannot control whether or not they devote
sufficient time and resources to our on-going clinical, nonclinical and preclinical programs. If CROs do not successfully
carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality
or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory
requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to
obtain regulatory approval for or successfully commercialize our product candidates. As a result, our results of operations
and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to
generate revenues could be delayed.
Many of the third parties with whom we contract may also have relationships with other commercial entities, including
our competitors, for whom they may also be conducting clinical trials or other drug development activities that could harm
our competitive position. If the third parties conducting our GLP preclinical studies or our clinical trials do not perform
their contractual duties or obligations, experience work stoppages, do not meet expected deadlines, terminate their
agreements with us or need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised
due to their failure to adhere to our clinical trial protocols or to GCPs, or for any other reason, we may need to enter into
new arrangements with alternative third parties. Switching or adding additional CROs involves additional cost and
requires management time and focus. In addition, there is a natural transition period when a new CRO commences work.
As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines.
Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter
36
similar challenges or delays in the future or that these delays or challenges will not have a material adverse impact on
our business, financial condition and prospects.
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
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.
If the Company were unable to maintain product liability insurance required by third parties, the corresponding
agreements would be subject to termination, which could have a material adverse impact on our operations
Some of our licensing and other agreements with third parties require or might require us to maintain product liability
insurance. If the Company cannot maintain acceptable amounts of coverage on commercially reasonable terms in
accordance with the terms set forth in these agreements, the corresponding agreements would be subject to termination,
which could have a material adverse impact on the Company’s operations.
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 four 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 its current resident Canadian director in the future and is
unable to find a resident Canadian director to fill the resulting vacancy, the Board will be prevented from taking any action
other than appointing an additional resident Canadian director until such time as a new resident Canadian director has
been appointed such that at least 25% of the Company’s directors are resident Canadians.
The Company employs a small number of employees who have many years of technical knowledge of the Company’s
technology and two senior officers, the CEO and CFO. COVID-19 imposes a high risk to all of the Company’s activities.
The Company has established a policy to diligently monitor developments. Because the situation is fluid, the Company
will be updating its staff whenever necessary. The Company has implemented and communicated a policy to all staff in
order mitigate any potential risk.
In addition, the Company does not carry key-person insurance on any individuals.
The Company’s employees and consultants may engage in misconduct or other improper activities, including non-
compliance with regulatory standards and requirements, which could have a material adverse effect on the Company’s
business
37
The Company is exposed to the risk of employee and consultant fraud or other misconduct. Misconduct by employees
and consultants could include, but are not limited to the following: failure to comply with regulators, failure to provide
accurate information, failure to comply with manufacturing standards the Company has established, jurisdictional
healthcare fraud and abuse of laws and regulations, failure to report financial information or data accurately or disclose
unauthorized activities. For example, sales, marketing and business arrangements in the healthcare industry are subject
to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing, and other abusive practices. These
laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales
commission, customer incentive programs and other business arrangements. Employee and consultant misconduct
could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory
sanctions and serious harm to the Company’s reputation. If any such actions are instituted against the Company, and
the Company is not successful in defending itself or asserting its rights, those actions could have a substantial impact on
the Company’s business and operating results, including the imposition of substantial fines, halt in trading of the
Common Shares, possible delisting and/or other sanctions.
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, the Euro and the Polish Zloty. Fluctuations in the value of foreign currencies relative to the Canadian dollar
could cause us to incur currency exchange losses.
The Company may incur losses due to adverse decisions by tax authorities or changes in law
The Company’s income tax reporting is subject to audit by tax authorities. The effective tax rate may change from year
to year based on the mix of income; non-deductible expenses; changes in tax law; and changes in the estimated values
of future income tax assets and liabilities.
The Company may enter into transactions and arrangements in the ordinary course of business in which the tax treatment
is not entirely certain. The Company must therefore make estimates and judgments in determining its consolidated tax
provision. The final outcome of any audits by taxation authorities may differ from estimates and assumptions used in
determining the consolidated tax provisions and accruals. This could result in a material effect on the Company’s scientific
research and experimental development tax credits, income tax provision, financial position and the net income/loss for
the period in which such determinations are made.
The Company is subject to taxation in Canada. The Company’s effective tax rate and tax liability are determined by a
number of factors, including the amount of taxable income, the tax rates, The application of these tax laws and related
regulations is subject to legal and factual interpretation, judgment and uncertainty. An adverse interpretation or ruling by
a taxing authority in a jurisdiction in which the Company operates or a change in law could increase the Company’s tax
liability or result in the imposition of penalty payments, which could adversely impact the Company’s operating results.
The requirements of being a public company may strain the Company’s resources, divert management’s attention and
affect its ability to attract and retain qualified board members
The Company’s Common Shares are publicly traded on the TSX. As a public company, the Company is subject to the
reporting requirements of Canadian securities regulators, the listing requirements of any stock exchange on which its
Common Shares are listed for trading and other applicable securities rules and regulations. Compliance with these rules
and regulations may increase the Company’s legal and financial compliance costs, may make some activities more
difficult, time-consuming or costly and may increase the demand on the Company’s systems and resources. Being a
public company requires that the Company file continuous disclosure documents, including, among other things, annual
and quarterly financial statements. Management’s attention may be diverted from other business concerns, which could
have a material adverse effect on the Company’s business, financial condition and results of operations. The Company
may need to hire more employees in the future, which will increase its costs and expenses.
In addition, changing laws, regulations and standards relating to corporate governance and public disclosure create
uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time
consuming. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by
ongoing revisions to disclosure and governance practices. The Company may invest resources to comply with evolving
laws, regulations and standards, and this investment may result in increased general and administrative expenses and
a diversion of management’s time and attention from revenue-generating activities to compliance activities. If the
38
Company’s efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory
authorities, legal proceedings may be initiated against the Company and its business may be harmed.
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.
Any failure to maintain an effective system of internal controls may result in material misstatements of the Company’s
consolidated financial statements or cause us to fail to meet the Company’s reporting obligations or fail to prevent fraud;
and in that case, the Company’s shareholders could lose confidence in the Company’s financial reporting, which would
harm the Company’s business, could negatively impact the price of the Common Shares and prevent the Company from
raising additional capital
Effective internal controls are necessary for the Company to provide reliable financial reports and prevent fraud. If the
Company fails to maintain an effective system of internal controls, the Company may not be able to report its financial
results accurately or prevent fraud; and in that case, the Company’s shareholders could lose confidence in the Company’s
financial reporting, which would harm the Company’s business, negatively impact the price of the Common Shares and
also prevent the Company from raising additional capital. Even if the Company were to conclude that its internal control
over financial reporting provides reasonable assurance regarding the reliability of financial reporting and the preparation
of consolidated financial statements for external purposes in accordance with IFRS as issued by the IASB, because of
its inherent limitations, internal control over financial reporting may not prevent or detect fraud or misstatements. Failure
to achieve and maintain effective internal control over financial reporting could prevent the Company from complying with
its reporting obligations on a timely basis, which could result in the loss of investor confidence in the reliability of the
Company’s consolidated financial statements, harm the Company’s business, negatively impact the trading price of the
Common Shares and prevent the Company from raising additional capital.
Our results of operations may be negatively impacted by the COVID-19 outbreak
The Company’s business, operations and financial condition could be materially and adversely affected by the outbreak
of epidemics or pandemics or other health crises, including the COVID-19 pandemic. As a result of the COVID-19
outbreak, the Company may experience disruptions that could severely impact its business, preclinical studies and
clinical trials, including:
delays or difficulties in enrolling patients in our clinical trials;
delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical
site staff;
interruption of key clinical trial activities, such as clinical trial site data monitoring, due to limitations on travel imposed
or recommended by federal, provincial or state governments, employers and others or interruption of clinical trial
subject visits and study procedures, which may impact the integrity of subject data and clinical study endpoints;
interruption or delays in the operations of the FDA, which may impact approval timelines;
interruption of, or delays in receiving supplies of our product candidates from our contract manufacturing
organizations due to staffing shortages, production slowdowns or stoppages and disruptions in delivery systems;
and
limitations on employee resources that would otherwise be focused on the conduct of our preclinical studies and
clinical trials, including because of sickness of employees or their families or the desire of employees to avoid contact
with large groups of people.
In addition, the trading prices for the Common Shares and the securities of other biopharmaceutical companies have
been highly volatile as a result of the COVID-19 epidemic. As a result, the Company may face difficulties raising capital
through sales of our securities, and such sales may be on unfavorable terms, if at all. The COVID-19 outbreak continues
to rapidly evolve. The extent to which the outbreak may impact our business, preclinical studies and clinical trials will
39
depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate
geographic spread of the disease, the duration of the outbreak, travel restrictions and other measures implemented in
Canada, the United States and other countries, business closures or business disruptions and the effectiveness of actions
taken in the Canada, the United States and other countries to contain the disease.
The spread of COVID-19 has resulted in a sharp decline in global economic growth as well as causing increased volatility
and declines in financial markets. If the COVID-19 pandemic is prolonged, or further diseases emerge that give rise to
similar effects, the adverse impact on the global economy could deepen and result in further declines in global economic
growth and financial markets. Accordingly, the full impact of the COVID-19 pandemic on the global economy and financial
markets is uncertain and may have an adverse effect on the Company.
To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of
heightening many of the other risks described in this AIF. Because of the highly uncertain and dynamic nature of events
relating to the COVID-19 pandemic, it is not currently possible to estimate the impact of COVID-19 on the Company.
However, these effects could have a material impact on our business, operations and financial condition.
Risks Related to the Common Shares
The Company’s share price and trading volumes are volatile and the Company may have difficulty maintaining listing
requirements
The market price of the Company’s Common 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.
The trading price of the Common Shares is subject to change and could in the future fluctuate significantly. The
fluctuations could be in response to numerous factors beyond the Company’s control, including but not limited to, the
following:
actual or anticipated fluctuations in the Company’s quarterly results of operations;
changes in the economic performance or market valuations of companies in the industry in which the Company
recommendations by securities research analysts;
operates;
addition or departure of the Company’s executive officers and other key personnel;
release or expiration of transfer restrictions on outstanding Common Shares;
sales or perceived sales of additional Common Shares;
operating and financial performance that vary from the expectations of management, securities analysts and
investors;
regulatory changes affecting the Company’s industry generally and its business and operations;
announcements of developments and other material events by the Company or its competitors;
changes in global financial markets and global economies and general market conditions, such as interest rates and
fluctuations to the costs of vital production materials and services;
pharmaceutical product price volatility;
significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or
involving the Company or its competitors;
operating and share price performance of other companies that investors deem comparable to the Company or from
a lack of market comparable companies;
news reports relating to trends, concerns, technological or competitive developments, regulatory changes and other
related issues in the Company’s industry or target markets; and the outbreak of epidemics, pandemics or other
health crises including COVID-19.
The Internet offers various avenues for the dissemination of information. The Company has no control over the
information that is distributed and discussed on electronic bulletin boards and investment chat rooms. The intention of
the people or organizations that distribute such information may not be in the Company’s best interest and the best
interests of its shareholders. This, in addition to other forms of investment information including newsletters and research
publications, could result in a sharp decline in the market price of the Common Shares.
In addition, stock markets have occasionally experienced extreme price and volume fluctuations. The market prices for
high-technology companies have been particularly affected by these market fluctuations and such effects have often
been unrelated to the operating performance of such companies. These broad market fluctuations may cause a decline
in the market price of the Common Shares.
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 TSX, and if the
Company fails to maintain these listing requirements, it may be involuntarily delisted from the TSX. De-listing the
40
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.
Shareholders of the Company may face dilution from future equity or convertible debt financings or through the exercise
of stock options, warrants or other securities convertible or exchangeable into Common Shares
To attract and retain key personnel, the Company has granted options to its key employees, directors and consultants to
purchase Common Shares 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 the exercise of a significant number of such
options and/or warrants may result in significant dilution to 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 securities and warrants may also result in significant dilution to the shareholders of the
Company.
The Company cannot predict the size or nature of future sales or issuances of securities or the effect, if any, that such
future sales and issuances will have on the market price of the Common Shares. Sales or issuances of substantial
numbers of Common Shares or other securities that are convertible or exchangeable into Common Shares, or the
perception that such sales or issuances could occur, may adversely affect prevailing market prices of the Common
Shares. With any additional sale or issuance of Common Shares or other securities that are convertible or exchangeable
into Common Shares, investors will suffer dilution to their voting power and economic interest in the Company.
Furthermore, to the extent holders of the Company’s stock options or other convertible securities convert or exercise
their securities and sell the Common Shares they receive, the trading price of the Common Shares may decrease due
to the additional amount of Common Shares available in the market.
Trading in the Company’s Common 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 Common Shares trade on the TSX and are freely tradeable only in Canada. As such, shareholders
trading the Common 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.
The Company does not expect to pay any cash dividends for the foreseeable future
Investors should not rely on an investment in the Common Shares to provide dividend income. The Company does not
anticipate that it will pay any cash dividends to holders of the Common Shares in the foreseeable future. Instead, the
Company plans to retain any earnings to maintain and expand its operations. In addition, any future debt financing
arrangement may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on the
Common Shares. Accordingly, investors must rely on sales of their Common Shares after price appreciation, which may
never occur, as the only way to realize any return on their investment. As a result, investors seeking cash dividends
should not purchase Common Shares.
If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research about the
Company’s business, the share price and trading volume of the Common Shares could decline
The trading market for the Common Shares will depend, in part, on the research and reports that securities or industry
analysts publish about the Company or its business. If one or more of the analysts who cover the Company downgrade
the Common Shares or publish inaccurate or unfavorable research about the Company’s business, the Company’s share
price would likely decline. In addition, if the Company’s operating results fail to meet the forecast of analysts, the
Company’s share price would likely decline. If one or more of these analysts cease coverage of the Company or fail to
publish reports on the Company regularly, demand for the Common Shares could decrease, which might cause the share
price and trading volume of the Common Shares to decline.
41
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, 2021, is available under the Company’s profile on
SEDAR at www.sedar.com.
________
42
Annual Consolidated Financial Statements of Helix BioPharma Corp.
For the years ended July 31, 2021 and 2020
43
Independent Auditor's Report
To the Shareholders and Board of Directors of
Helix BioPharma Corp.
Opinion on the Consolidated Financial Statements
We have audited the consolidated financial statements of Helix BioPharma Corp. (the “Company”), which comprise the
consolidated statement of financial position as at July 31, 2021, and the consolidated statements of net loss and comprehensive
loss, changes in shareholders’ equity (deficiency) and cash flows for the year then ended, and notes to the consolidated financial
statements, including a summary of significant accounting policies and other explanatory information.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of
the Company as at July 31, 2021 and its financial performance and its cash flows for the year then ended in accordance with
International Financial Reporting Standards as issued by International Accounting Standards Board (“IFRS”).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those
standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of
our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the
consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Material Uncertainty Related to Going Concern
We draw attention to Note 1 in the consolidated financial statements, which indicates that the Company incurred a net loss and
comprehensive loss of $8,038,000 during the year ended July 31, 2021 and, as of that date, the Company’s cash balance of
$3,565,000 is insufficient to meet anticipated cash needs for working capital and capital expenditures through the next twelve
months. As stated in Note 1, these events or conditions, along with other matters as set forth in Note 1, indicate that a material
uncertainty exists that may cast significant doubt on the Group's ability to continue as a going concern. Our opinion is not modified
in respect of this matter.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated
financial statements for the year ended July 31, 2021. These matters were addressed in the context of our audit of the consolidated
financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
In addition to the matter described in the Material Uncertainty Related to Going Concern section, we have the determined the
matter described below to be the key audit matter to be communicated in our auditor’s report.
Convertible Debt
Refer to Note 2- Significant accounting policies, Note 6- Shareholders equity (deficiency) Note 7- Convertible note payable.
The Company entered into a funding agreement with a convertible note payable being issued with warrants. The convertible note
payable contains terms such as a variable conversion price and buyback option and as such, is recorded at fair value at each
reporting period.
We considered this is a key audit matter due to the significant judgments made by management, including the use of
management’s expert, in determining the appropriate discount rates, credit spread and probabilities of certain terms being
exercised assumptions, which resulted in the high degree of auditor judgment and subjectivity in performing procedures relating
to those assumptions. The audit effort involved the use of professionals with specialized skill and knowledge in the field of valuing
complex debt instruments.
How our Audit addressed the key audit matter
Our approach to addressing the matter include the following procedures, amongst others:
44
•
Tested how management developed the estimates for the valuation of the convertible debt:
-
The work of management’s experts was used in performing the procedures to evaluate the reasonableness of the
fair value of the convertible debt at inception and at July 31, 2021. As a basis for using this work, management’s
experts’ competence, capability and objectivity were evaluated, their work performed was understood and the
appropriateness of their work as audit evidence was evaluated by considering the relevance and reasonableness of
the assumptions, methods and findings.
-
Tested the underlying data used in the determination of the fair value of the convertible debt
• Professionals with specialized skill and knowledge in the field of complex hybrid debt instruments assisted in assessing
the appropriateness of the method and evaluation of the reasonableness of the discount rates and credit spread.
•
Tested the disclosures made in the consolidated financial statements with regard to the measurement of the fair value of
the convertible debt and related warrants.
Other Matter
The consolidated financial statements of the Company for the year ended July 31, 2020, were audited by other another auditor
who expressed an unmodified opinion on those statements on October 29, 2020.
Other Information
Management is responsible for the other information. The other information comprises:
•
•
The information, other than the consolidated financial statements and our auditor’s report thereon, included in the 2021
Annual Report; and
The information included in Management’s Discussion and Analysis for the year ended July 31, 2021.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified
above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements
or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
We have obtained Management’s Discussion and Analysis and the 2021 Annual Report prior to the date of this auditor’s report.
If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we
conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to
report in this regard. When we read the information, other than the consolidated financial statements and our auditor’s report
thereon, included in the annual report, if we conclude that there is a material misstatement therein, we are required to communicate
the matter to those charged with governance.
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with
IFRS, 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.
In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as
a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting
unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally
accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these consolidated financial statements.
45
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and
maintain professional skepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or
error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is
higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations,
or the override of internal control.
• Obtain an understanding of internal control relevant to the audit 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 Company’s internal
control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt
on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required
to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such
disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the
date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a
going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the
disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a
manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit
and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to
bear on our independence, and
where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Jason Moi.
/s/ Marcum LLP
Marcum LLP
BOSTON, MA
DECEMBER 9, 2021
46
HELIX BIOPHARMA CORP.
Consolidated Statements of Financial Position
In thousands of Canadian dollars
As at July 31, 2021 and 2020
As at:
ASSETS
Current assets
Cash
Accounts receivable (note 10)
Prepaid expenses
Assets held for sale (note 15)
Non-current assets
Property, plant and equipment (note 4)
Right-of-use assets (note 5)
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY / (DEFICIENCY)
Current liabilities
Accounts payable
Accrued liabilities
Convertible note payable – current portion (note 7)
Lease liabilities (note 5)
Liabilities related to assets held for sale (note 15)
Non-current liabilities
Convertible note payable net of current portion (note 7)
Total liabilities
Shareholders’ equity / (deficiency)
Share capital (note 6)
Authorized: unlimited common shares
Issued: July 31, 2020 – 132,933,017
Issued: July 31, 2021 – 141,133,017
Warrants (note 6)
Stock options (note 6)
Contributed surplus
Accumulated deficit
Equity / (deficiency) attributable to owners of the Company
Non-controlling interest
2021
2020
$
$
$
3,565
353
100
–
4,018
47
–
4,065
1,466
380
2,028
–
–
3,874
1,584
1,584
139,660
18,157
1,477
27,867
(188,554)
(1,393)
–
(1,393)
$
$
$
4,235
180
90
155
4,660
91
155
4,906
1,416
301
–
159
49
1,925
–
1,925
137,257
19,222
891
25,540
(180,516)
2,394
587
2,981
4,906
Total liabilities and shareholders’ equity / (deficiency)
$
4,065
$
Going concern (note 1)
Commitments (note 8)
Subsequent event (note 16)
The accompanying notes are an integral part of these consolidated financial statements.
Approved on behalf of the Board of Directors on December 8, 2021:
/s/ Slawomir Majewski
Slawomir Majewski,
Chair, Board of Directors
/s/ Artur Gabor
Artur Gabor
Chair, Audit Committee
47
HELIX BIOPHARMA CORP.
Consolidated Statements of Net Loss and Comprehensive Loss
Years ended July 31, 2021 and 2020 (In thousands of Canadian dollars, except per share amounts)
2021
2020
Expenses
Research and development (note 12)
Operating, general and administration (note 13)
Results from operating activities before finance items
Finance items
Financing transaction costs (note 7)
Convertible note fair value adjustment (note 7)
Finance income
Finance expense
Foreign exchange gain
Net loss from continuing operations
Net gain (loss) from discontinued operations (note 15)
Net loss and total comprehensive loss
Add: Net loss and comprehensive loss
attributable to non-controlling interest
Net loss and total comprehensive loss
attributable to Helix BioPharma Corp.
Loss per common share
Basic and diluted from continuing operations
Basic and diluted from discontinued operations
Basic and diluted - total
$ 5,880
3,251
(9,131)
(338)
(142)
–
(15)
52
(443)
(9,574)
1,536
(8,038)
–
$
5,868
2,748
(8,616)
–
–
25
(25)
55
55
(8,561)
(613)
(9,174)
189
$ (8,038)
$ (8,985)
$ (0.07)
$
0.01
$ (0.06)
$
$
$
(0.07)
–
(0.07)
Weighted average number of common shares used in
the calculation of basic and diluted loss per share
137,888,511
127,712,446
The accompanying notes are an integral part of these consolidated financial statements.
48
HELIX BIOPHARMA CORP.
Consolidated Statements of Changes in Shareholders’ Equity
Years ended July 31, 2021 and 2020 (In thousands of Canadian dollars, except common share and warrant numbers)
Common shares warrants
Share purchase
Amount
Number Amount
Contributed
Number Options surplus
Deficit
Total shareholders’
equity /
(deficiency)
NCI
July 31, 2019
$ 129,532 111,225,501 $14,763 43,372,897
$ 640 $23,315 $(171,531) $ –
$ (3,281)
Net loss for the year
Sale of interest in subsidiary
Common stock, issued
Warrants, issued
Warrants, expired unexercised
Warrants exercised
Stock-based compensation
Options, expired unexercised
–
–
–
–
7,725 21,707,516
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,459 21,707,516
–
–
–
–
–
–
–
–
July 31, 2020
Net loss for the year
Non-controlling interest
Common stock, issued
Warrants, issued
Warrants, expired unexercised
Warrants exercised
Stock-based compensation
Options, expired unexercised
$ 137,257 132,933,017 $19,222 65,080,413
–
–
–
–
8,200,000
–
1,185 10,157,056
–
(2,250) (5,859,500)
–
–
–
–
–
–
–
–
–
2,403
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
471
(220)
–
2,005
–
–
–
–
–
220
(8,985)
–
–
–
–
–
–
–
(189)
776
–
–
–
–
–
–
$ 891 $25,540 $ (180,516) $ 587
–
(587)
–
–
–
–
–
–
(8,038)
–
–
–
–
–
–
–
–
–
–
–
2,250
–
–
77
–
–
–
–
–
–
663
(77)
(9,174)
2,781
7,725
4,459
–
–
471
–
$ 2,981
(8,038)
(587)
2,403
1,185
–
–
663
–
July 31, 2021
$ 139,660 141,133,017 $18,157 69,377,969
$1,477 $27,867 $ (188,554) $
–
$ (1,393)
The accompanying notes are an integral part of these consolidated financial statements.
49
HELIX BIOPHARMA CORP.
Consolidated Statements of Cash Flows
Years ended July 31, 2021 and 2020 (In thousands of Canadian dollars)
Cash flows from operating activities
Net loss
Adjustments, to net cash provided by operations:
Items not involving cash:
Amortization of right-of-use property and property, plant and equipment
Stock-based compensation
Revaluation of convertible note payable
Gain on disposition of investment in associate
Foreign exchange gain
Change in non-cash working capital:
Accounts receivable
Prepaid expenses
Accounts payable
Accrued liabilities
Cash from / (used in) operating activities from continuing operations
Cash from / (used in) operating activities from discontinued operations
Net cash used in operating activities
Cash flows from financing activities
Proceeds from the issuance of common shares and
share purchase warrants, net of issue costs
Net proceeds from convertible note
Lease liability payments
Cash from / (used in) financing activities from continuing operations
Cash from / (used in) financing activities from discontinued operations
Net cash provided by financing activities
Cash flows from investing activities
Purchases of property, plant, and equipment
Proceeds, net of cost, from the partial sale of the subsidiary (note 15)
Cash from / (used in) investing activities from continuing operations
Cash from / (used in) investing activities from discontinued operations
Net cash from investing activities
Foreign exchange gain (loss) on cash
Net increase / (decrease) in cash
Cash, beginning of period
Cash, end of period
2021
2020
$
(8,038)
$
(9,174)
199
663
142
(1,536)
(52)
(173)
(10)
50
79
(8,676)
(628)
(9,304)
3,561
3,159
(158)
6,562
–
6,562
–
2,020
2,020
–
2,020
52
211
471
–
663
(55)
61
92
(1,545)
(719)
(10,045)
(781)
(10,826)
12,185
–
(151)
12,034
1,062
13,096
(16)
1,720
1,704
–
1,704
55
$
(670)
4,235
$
3,565
$
4,029
206
4,235
$
The accompanying notes are an integral part of these consolidated financial statements.
50
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2021 and 2020
(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.
The Company is a Canadian corporation domiciled in Canada. Our shares are publicly traded on the Toronto Stock Exchange.
Our principal place of business is located at 9120 Leslie Street, Suite 205, Richmond Hill, Ontario, Canada.
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. 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 reported a net loss and total comprehensive loss of $8,038,000 for the fiscal year ended July 31, 2021 (July 31,
2020 - $8,985,000). As at July 31, 2021, the Company had working capital of $144,000, shareholders’ deficiency of $1,393,000,
and a deficit of $188,554,000. As at July 31, 2020, the Company had a working capital of $2,735,000, shareholders’ equity of
$2,096,000, and a deficit of $180,516,000. The Company will require additional financing in the immediate near term and in the
future to see the current research and development initiatives 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, casts 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 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 of the
Company (the “Board”) on December 8, 2021.
Use of estimates and critical judgments
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 Company has also assessed the impact of the coronavirus pandemic (“COVID-19”) on estimates and critical judgments.
Although the Company expects COVID-19 related disruptions to continue into the Company’s fiscal 2022 year, the Company
believes that the long-term estimates and assumptions do not require significant revisions. Although the Company determined
that no significant revisions to such estimates, judgments or assumptions were required, the impact of COVID-19 is fluid and given
the inherent uncertainty at this time, revisions may be required in future periods to the extent that the negative impacts on the
Company’s business operations arising from COVID-19 continue or become worse. Any such revision could result in a material
impact on the Company’s financial performance and financial condition.
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.
51
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2021 and 2020
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
b) Clinical study expenses
Clinical study expenses are accrued based on services received and efforts expanded pursuant to contracts 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 enrollment 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
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
Deferred tax assets, including those arising from unutilized tax losses, require management to assess
the likelihood that the
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 consolidated 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.
f) Fair value of convertible note payable
In determining the fair values of the convertible note payable the Company used a Black-Scholes model with the following
assumptions: volatility rate, risk-free rate and the remaining expected life. The inputs used in the model are taken from observable
markets. In particular, changes in the fair value of the convertible note payable can have a material impact on the reported loss and
comprehensive loss for the applicable reporting period.
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
At July 31, 2020, the Company’s investment in Helix Immuno-Oncology S.A. (“HIO”) was consolidated and classified as held for
sale and was presented as discontinued operations. At September 3, 2020, HIO completed a direct financing with an arm’s length
party and as a result the Company determined that it had lost control of HIO. On December 22, 2020, the Company disposed of
its remaining interest in HIO. At July 31, 2021 and the date of these financial statements, the Company no longer has any
subsidiaries. See Note 15 – Disposition of investment in associate (HIO), discontinued operations and non-controlling interest
(“NCI”) for further information.
Cash
The Company considers cash on hand, deposits in banks and bank term deposits with maturities of 90 days or less as cash.
52
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2021 and 2020
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
Property, plant and equipment
Property, plant and equipment are recorded at cost less accumulated depreciation. Impairment charges are included in
accumulated depreciation.
Depreciation is provided using the following methods and estimated useful life:
Asset
Computer equipment and software
Furniture and fixtures
Research and manufacturing equipment
Leasehold improvements
Basis
Straight line
Straight line
Straight line
Straight line
Rate
3 years
5 years
4-10 years
Lease term
Leases
The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is
initially measured at cost. Subsequent to initial application, the right-of-use asset is measured at cost less any accumulated
depreciation and impairment losses, and adjusted for certain remeasurements of the lease liability. In comparison, the lease
liability is increased by the interest cost on the lease liability and decreased by lease payments made. It is remeasured when there
is a change in future lease payments arising from a change in an index or rate, a change in the estimate of the amount expected
to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether a purchase or extension
option is reasonably certain to be exercised or a termination option is reasonably certain to be exercised or a termination option
is reasonably certain not to be exercised.
The Company has applied judgment to determine the lease term for some lease contracts in which it is a lessee that include
renewal options. The assessment of whether the Company is reasonably certain to exercise such options impacts the lease term,
which significantly affects the amount of lease liabilities and right-of-use assets recognized.
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 awarded to 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. When stock-based
compensation and other stock-based payments are awarded to persons other than non-employees, share capital is increased for
the fair value of goods and services received.
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 date. 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
53
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2021 and 2020
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
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
The Company recognizes a financial asset or financial liability when it becomes party to the contractual provisions of the financial
instrument. Financial assets are initially measured at fair value, and are derecognized either when the Company has
transferred substantially all the risks and rewards of ownership of the financial asset, or when cash flows expire. Financial
liabilities are initially measured at fair value and are derecognized when the obligation specified in the contract is discharged,
cancelled or expired.
A write-off of a financial asset (or a portion thereof) constitutes a derecognition event. Write-offs occur when the Company has
no reasonable expectations of recovering the contractual cash flows on a financial asset.
The Company determines the classification of its financial instruments at initial recognition. Financial assets are classified
according to the following measurement categories:
i) amortized cost; or
ii) those to be measured subsequently at fair value, either through profit or loss (“FVTPL”) or through
other comprehensive income (“FVTOCI”).
The classification and measurement of financial assets after initial recognition at fair value depends on the business model
for managing the financial asset and the contractual terms of the cash flows. Financial assets that are held within a business
model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of
principal and interest on the principal outstanding, are generally measured at amortized cost at each subsequent reporting period.
All other financial assets are measured at their fair values at each subsequent reporting period, with any changes recorded
through profit or loss or through other comprehensive income (which designation is made as an irrevocable election at the time
of recognition).
After initial recognition at fair value, financial liabilities are classified and measured at either:
i) amortized cost; or
ii) FVTPL, if the Company has made an irrevocable election at the time of recognition, or when required (for
items such as instruments held for trading or derivatives).
The Company reclassifies financial assets only when its business model for managing those assets changes. Financial liabilities
are not reclassified.
Transaction costs that are directly attributable to the acquisition or issuance of a financial asset or financial liability subsequently
measured at amortized cost or FVTOCI are included in the fair value of the instrument on initial recognition. Transaction costs for
financial assets and financial liabilities classified at fair value through profit or loss are expensed in profit or loss.
The Company classifies its financial instruments by category according to their nature and their characteristics. Management
determines the classification when the instruments are initially recognized, which is normally the date of the transaction. The
Company classifies its financial assets and financial liabilities as outlined below:
Asset / Liability
Cash
Account receivable
Accounts payable
Accrued liabilities
Convertible note payable
Classification
Amortized Cost
Amortized Cost
Amortized Cost
Amortized Cost
FVTPL
The Company assesses all information available, including on a forward-looking basis the expected credit losses associated
with any financial assets carried at amortized cost. The impairment methodology applied depends on whether there has been a
significant increase in credit risk. To assess whether there is a significant increase in credit risk, the Company compares the risk
of a default occurring on the asset as at the reporting date with the risk of default as at the date of initial recognition based on all
information available, and reasonable and supportive forward-looking information.
An embedded derivative is separated from the host contract and recognized separately if the economic characteristics and
risks of the embedded derivative are not closely related to those of the host, if a separate instrument with the same terms
54
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2021 and 2020
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
as the embedded derivative would meet the definition of a derivative, and if the combined instrument is not measured at fair
value, with changes in fair value recognized in profit or loss.
The fair value of a financial instrument is the amount of consideration that would be agreed upon in an arm’s-length transaction
between knowledgeable, willing parties who are under no compulsion to act. Fair values are determined based on prevailing market
rates for instruments with similar characteristics and risk profiles.
The Company categorizes its fair value measurements according to a three-level hierarchy. The hierarchy prioritizes the inputs
used by the Company’s valuation techniques. A level is assigned to each fair value measurement based on the lowest-level
input significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are defined as follows:
Level 1 – unadjusted quoted prices as at the measurement date for identical assets or liabilities in active markets.
Level 2 – observable inputs other than quoted prices included in level 1, such as quoted prices for similar assets
and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not
active, or other inputs that are observable or can be corroborated by observable market data.
Level 3 – significant unobservable inputs that are supported by little or no market activity.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value.
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 shares 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 recognized 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 recognizes as expenses, the related costs for which the grant is intended to compensate.
3. New accounting standards and pronouncements not yet adopted
Future accounting standards
There are no new accounting standards and pronouncements issued but not yet effective up to the date of issuance of the
Company’s consolidated financial statements that are expected to have a material impact on the Company.
4. Property, plant and equipment
July 31, 2021
Transferred
Research equipment
Manufacturing equipment
Leasehold improvements
Computer equipment
Computer software
Furniture and fixtures
Accumulated
Cost depreciation
$ 1,311
–
359
55
21
20
$ 1,766
$ 1,355
–
359
58
21
20
$ 1,813
$
$
to held for Net book
value
44
–
–
3
–
–
47
sale
–
–
–
–
–
–
–
$
$
July 31, 2020
Transferred
Accumulated
Cost depreciation
$ 1,476
–
359
76
33
17
$ 1,961
$ 1,664
–
359
84
33
20
$ 2,160
to held for Net book
value
83
–
–
6
–
2
91
sale
$ (105) $
–
–
(2)
–
(1)
$ (108) $
55
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2021 and 2020
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
5. Right-of-use assets
The movement and carrying amounts of the Company’s right-of-use assets and lease liabilities for the years ended:
Beginning balances
Additions/(adjustments)
Amortization
Lease payments
Lease interest
Ending balances
6. Shareholders’ equity / (deficiency)
July 31, 2021
Right of
use assets
Lease
Liabilities
$ 155
(15)
(140)
–
–
$
–
$ 159
(27)
–
(135)
3
$
–
July 31, 2020
Right of
use assets
$
–
310
(155)
–
–
Lease
Liability
$
–
310
–
(161)
10
$ 155
$ 159
Preferred shares
The Company is authorized to issue 10,000,000 preferred shares (each, a “Preferred Share”). As at July 31, 2021 the Company
had nil Preferred Shares issued and outstanding (July 31, 2020 – nil).
Common shares and share purchase warrants
The Company is authorized to issue an unlimited number of common shares without par value. As at July 31, 2021 the Company
had 141,133,017 common shares issued and outstanding (July 31, 2020 – 132,933,017).
On August 21, 2019, the Company completed a private placement financing of 13,725,500 units of the Company at a price of
$0.51 per unit and the disposition of a 25% stake of HIO, its former Polish subsidiary, for aggregate gross proceeds of
approximately $7,000,000. Each unit consisted of one common share and one common share purchase warrant. Each common
share purchase warrant entitles the holder thereof to purchase one common share of the Company at a price of $0.72 until August
20, 2024. Of the aggregate gross proceeds, approximately $755,000 was allocated to the disposition of the Company’s 25% stake
in HIO with costs totalling approximately $99,000. Of the residual gross proceeds amount of $6,245,000, approximately
$2,275,000 was allocated to the share purchase warrants based on fair value and approximately $3,970,000 was allocated to the
common shares. Share issue costs totalling $815,000 were proportionately allocated to the share purchase warrants ($297,000)
and the common shares ($518,000), respectively. See Note 15 – Disposition of investment in associate (HIO) for further
information.
On January 13, 2020, the Company completed a private placement financing of 2,940,000 units at a price of $1.02 per unit and
the disposition of an 8.5% stake of HIO, its former Polish subsidiary, for aggregate gross proceeds of approximately $2,999,000.
Each unit consisted of one common share and one common share purchase warrant. Each common share purchase warrant
entitles the holder to purchase one common share of the Company at a price of $1.42 until January 12, 2025. Of the aggregate
gross proceeds, approximately $433,000 was allocated to the disposition of the Company’s 8.5% stake in HIO with costs totalling
approximately $57,000. Of the residual gross proceeds amount of $2,566,000, approximately $956,000 was allocated to the share
purchase warrants based on fair value and approximately $1,610,000 was allocated to the common shares. Share issue costs
totalling approximately $339,000 were proportionately allocated to the share purchase warrants ($126,000) and the common
shares ($213,000), respectively. See Note 15 – Disposition of investment in associate (HIO) for further information.
On March 12, 2020, the Company completed a private placement financing of 5,042,016 units at a price of $1.19 per unit including
the disposition of a 15.5% stake of HIO, its Polish subsidiary, for aggregate gross proceeds of approximately $6,000,000. Each
unit consisted of one common share and one common share purchase warrant. Each common share purchase warrant entitles
the holder to purchase one common share of the Company at a price of $1.67 until March 11, 2025. Of the aggregate gross
proceeds, approximately $791,000 was allocated to the disposition of the Company’s 15.5% stake in HIO with costs totalling
approximately $103,000. Of the residual gross proceeds amount of $5,209,000, approximately $1,900,000 was allocated to the
share purchase warrants based on fair value and approximately $3,310,000 was allocated to the common shares. Share issue
costs totalling approximately $682,000 were proportionately allocated to the share purchase warrants ($249,000) and the common
shares ($433,000), respectively. See Note 15 – Disposition of investment in associate (HIO) for further information.
On December 4 and 30, 2020, the Company completed private placement financings of an aggregate of 8,200,000 units of the
Company at a price of $0.50 per unit, for aggregate gross proceeds of $4,100,000. Each unit consisted 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 $0.70 until December 3 and 29, 2025, respectively. Of the gross proceeds amount of $4,100,000, approximately
$1,333,000 was allocated to the share purchase warrants based on fair value and approximately $2,767,000 was allocated to the
56
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2021 and 2020
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
common shares. Share issue costs totalling approximately $537,000 were proportionately allocated to the share purchase
warrants ($174,000) and the common shares ($363,000), respectively. See Note 15 – Disposition of investment in associate
(HIO) for further information.
On May 11, 2021, the Company entered into a definitive convertible security funding agreement (“the Funding Agreement”) with
Lind Global Macro Fund, LP, a New York based institutional investment fund managed by The Lind Partners, LLC (collectively
“LIND”). The Company closed the first tranche under the Funding Agreement on May 13, 2021 for gross proceeds of $3,500,000
(the “First Tranche”). In connection with the closing of the First Tranche, the Company issued (i) an 8.75% convertible note (a
“Convertible security”) with a two-year term and a face value of $4,112,500 and (ii) an aggregate of 1,957,056 common share
purchase warrants exercisable into 1,957,056 common shares until May 12, 2025 at an exercise price of $1.0283 per common
share and classified as equity instruments. The approximate residual fair value of the share purchase warrants was estimated at
approximately $30,000. In connection with the closing of the First Tranche, the Company paid Lind a 3% commitment fee of the
amount funded under the First tranche. The Funding Agreement also contemplates the issuance of a second Convertible
Debentures upon the mutual agreement of the Company and Lind for gross proceeds to the Company of up to $6,500,000 (the
“Second Tranche”). See Note 7 – Convertible note payable for additional information.
The following table provides Information on share purchase warrants outstanding as at:
Exercise Price
July 31, 2021
July 31, 2020
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
$ 0.70
$ 0.72
$ 1.03
$ 1.43
$ 1.50
$ 1.54
$ 1.61
$ 1.67
$ 1.82
$ 1.92
$ 1.98
$ 2.24
Outstanding, end of period
4.40
2.97
4.78
3.45
1.32
0.74
–
3.61
1.99
2.05
1.74
1.94
2.54
8,200,000
18,909,422
1,957,056
2,940,000
15,982,300
8,680,000
–
5,042,016
1,250,000
644,675
2,837,000
2,935,500
69,377,969
–
3.97
–
4.45
2.32
1.74
0.25
4.61
0.99
1.05
0.70
0.94
2.64
–
18,909,422
–
2,940,000
15,982,300
8,680,000
4,546,000
5,042,016
1,250,000
644,675
3,105,000
3,981,000
65,080,413
Stock options
The Company’s equity compensation plan reserves up to 10% of the Company’s outstanding common shares 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,
2021, options to purchase up to 14,113,301 common shares (July 31, 2020 – 13,293,301) may be granted under the equity
compensation plan. As at July 31, 2021, options to purchase a total of 7,050,000 common shares (July 31, 2020 – 5,225,000)
were issued and outstanding under the equity compensation plan.
The following table provides information on options outstanding and exercisable as at July 31:
2021
Exercise
Price
$0.51
$0.53
$1.30
$2.00
remaining contractual
Weighted average Number of
options
life (in years) outstanding
4,350,000
2,150,000
550,000
–
2.82
4.03
3.37
–
Number of
vested and
exercisable
options
2,600,000
1,075,000
366,667
–
Weighted average
remaining contractual
life (in years)
3.72
–
3.36
0.25
2020
Number of
options
outstanding
4,625,000
–
550,000
50,000
Number of
vested and
exercisable
options
2,149,998
–
183,333
50,000
Outstanding, end of period
3.23
7,050,000
4,041,667
3.75
5,225,000
2,783,335
57
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2021 and 2020
(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 year ended:
July 31, 2021
July 31, 2020
Outstanding, beginning of year
Granted
Cancelled
Expired
Outstanding, end of year
Number
5,225,000
2,150,000
(125,000)
(200,000)
7,050,000
Vested and exercisable, end of year 4,041,667
Weighted average
exercise price
0.61
0.53
0.51
0.88
$
$
$
0.58
0.59
Number
4,875,000
550,000
–
(200,000)
5,225,000
2,783,335
Weighted average
exercise price
0.57
1.30
–
1.54
$
$
$
0.61
0.59
For the fiscal year ended July 31, 2021, 1,541,666 stock options vested (July 31, 2020 – 583,337) with a fair value of $500,690
(July 31, 2020 – $190,000).
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
May 27, 2019
December 12, 2019
August 11, 2020
Number
of options
granted
4,625,000
550,000
2,150,000
Volatility
factor
66.76%
73.81%
80.36%
Risk free
interest
rate
1.49%
1.67%
0.32%
Dividend
rate
Expected
life
nil
nil
nil
5 years
5 years
5 years
Vesting
period
2 years
2 years
2 years
Fair value
of options
granted
$
$
$
666
397
655
7. Convertible note payable
On May 11, 2021, the Company entered into the Funding Agreement with Lind. Each Convertible Security issuable under the
Funding Agreement will have a two-year term from the date of issuance and will accrue simple interest rate obligation of 8.75%
per annum. The face value of the Convertible Security issued under the First Tranche was $4,112,500 to maturity. The Company
agreed to pay Lind a 3% commitment fee of the amounts funded under the First Tranche and Second Tranche and due upon
closing of each such tranche.
Lind is entitled to convert the Convertible Securities into common shares in the capital of the Company over the term of the
applicable Convertible Security, subject to certain limitations, at a conversion price equal to 85% of the five-day trailing volume-
weighted average price (“VWAP”) of the common shares prior to the date a notice of conversion is provided to the Company by
Lind. The aggregate conversion amount shall not exceed 1/20th of the face value of the Convertible Security per month. In respect
to the First Tranche, the Company issued 1,957,056 common share purchase warrants exercisable into 1,957,056 common shares
at an exercise price of CAD$1.0283 for a period of 48 months from the date of issuance.
In addition, the Company has the option to buy-back 66.7% of the Convertible Securities in cash at any time with no penalty,
subject to the option of Lind to convert up to one-third of the face value of the applicable Convertible Security into common shares
at the time such option is exercised by the Company.
The Convertible Security issued under the First Tranche has characteristics of a hybrid compound financial instrument with both
an equity component and a financial liability component.
On May 13, 2021, the closing date of the First Tranche, the monthly debt conversion amount of $205,625 was discounted using
a risk adjusted discount rate and comparable bond option-adjusted spreads with ratings ranging from CCC to CC. The common
share purchase warrants were valued using a Black-Scholes model and recorded at residual fair value. A liquidity discount was
also incorporated to equate the debt, conversion options and warrants to the total gross proceeds received of $3,500,000. Total
transaction costs associated with the Convertible Security issued under the First Tranche were $340,982 of which $2,947 was
allocated to common share purchase warrants that are classified as equity instruments.
The Funding Agreement is subject to covenant requirements. In the event of default LIND may declare, by notice to the Company,
effective immediately, all outstanding obligations by the Company under the Funding Agreement to be immediately due and
payable in immediately available funds and terminate the agreement. No such declaration has been made at time of filing of these
financial statements. The Funding Agreement with LIND is available on SEDAR at (www.sedar.com).
58
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2021 and 2020
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
The table below summarizes the components of the Convertible Security:
Credit
Spread
Liquidity
Discount
Debt
At July 31, 2020
Fair value on issuance
Revaluation
At July 31, 2021
8. Commitments
15.21%
97.16%
16.15%
86.63%
$
Conversion
Option
–
21
76
97
$
$
–
3,449
66
$ 3,515
Note
Payable
–
$
3,470
142
$ 3,612
Warrant
–
30
–
30
$
$
The Company’s commitments are summarized as follows:
Clinical research organizations
Royalty and in-licensing
Operating leases
2022
$ 1,039
20
41
$ 1,100
2023
$ 1,544
20
–
$ 1,564
2024
–
20
–
20
$
$
$
2025
–
10
–
$ 10
$
2026
–
10
–
$ 10
2027+
$
–
50
–
$ 50
Total
$ 2,583
130
41
$ 2,754
Clinical Research Organization (“CRO”) Commitments
The Company has CRO supplier agreements in place for clinical research services related to the management of the Company’s
clinical stage programs. As at July 31, 2021, the Company has accrued $352,000 (2020 – $861,000).
Royalty and in-licensing commitments
Pursuant to an agreement dated April 28, 2005 with the National Research Council of Canada (the “NRC”), the Company is
required to pay a royalty to the NRC 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.
Pursuant to an agreement dated September 22, 2016 with the NRC, the Company is required to pay a royalty to the NRC 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 for the
first licensed product: $25,000 upon successful completion of Phase I clinical trials; $50,000 upon successful completion of Phase
IIb clinical trials; $150,000 upon successful completion of Phase III clinical trials; $200,000 upon receipt of first regulatory approval
by a regulatory authority; and $200,000 upon receipt of a second regulatory approval by a regulatory authority. For the
development of each subsequent licensed product: $200,000 upon receipt of first regulatory approval by a regulatory authority;
and $200,000 upon receipt of a second regulatory approval by a regulatory authority. As it relates to sub-licensing arrangements,
the Company is required to pay the NRC 33% of any sub-licensing revenues received. The anti-CEACAM6 single domain antibody
2A3 is subject to this agreement. As at July 31, 2021 the Company has accrued $nil (2020 – $nil).
Operating lease commitments
The Company is committed to paying $41,000 under three month to month facility lease agreements with notice periods of no
longer than six months.
9. 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, credit facilities, 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.
59
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2021 and 2020
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
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 on May 11, 2021 entered into a Funding Agreement with Lind. The Funding Agreement is subject to covenant
requirements. See Note 7 – Convertible note payable.
See also Note 1 - Basis of presentation and going concern.
10. Financial instruments and risk management
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.
Financial instruments
Convertible notes payable were recognized at fair value, both at the date of issuance on May 13, 2021 and subsequently at July
31, 2021. The convertible notes payable has been classified as Level 3 in the fair value hierarchy.
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. In addition, foreign exchange risks arise from purchase transactions, as well as recognized financial assets and
liabilities denominated in foreign currencies.
Balances in foreign currencies are as follows, as at July 31:
Accounts payable
Accruals
Net foreign currencies
Closing exchange rate
Impact of 1% change in exchange rate
2021
2020
USD
(825)
(70)
(895)
EUR
(252)
–
(252)
1.1995
+/- 11
1.4788
+/- 4
USD
(622)
(44)
(666)
EUR
(257)
–
(257)
1.3404
+/- 9
1.5831
+/- 4
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.
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 is 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.
60
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2021 and 2020
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
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 – GST/HST
Research and development investment tax credits
Patent costs recoverable from HIO
Other
$
2021
78
140
135
–
$ 353
2020
46
121
–
13
180
$
$
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 Funding Agreement with LIND is subject
to covenant requirements that could affect the Company’s liquidity. See Note 7 – Convertible note payable.
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 $3,565,000 as at July 31, 2021 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:
Accounts payable
Accrued liability
Convertible note payable
July 31, 2021
Carrying
amount
$ 1,466
$
380
$ 3,612
Less than Greater than
one-year
one year
–
$
$ 1,466
$
$
–
380
$ 1,584
$ 2,028
July 31, 2020
Carrying
amount
$ 1,416
301
$
–
$
Less than Greater than
one-year
one year
–
$
$ 1,416
–
$
301
$
–
$
–
$
This table only covers liabilities and obligations relative to financial instruments and does not anticipate any income associated
with assets.
11. Related party transactions
The following table summarizes key management personnel compensation for the fiscal years ended July 31:
Compensation
Stock-based compensation
2021
587
(18)
569
$
$
The following table summarizes non-management directors’ compensation for the fiscal years ended July 31:
Directors’ fees
Stock-based compensation
2021
229
673
902
$
$
2020
586
147
733
2020
174
280
454
$
$
$
$
61
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2021 and 2020
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
The following table summarizes the total compensation for both ACM Alpha Consulting Management EST (“ACMest”) and ACM
Alpha Consulting Management AG (“ACMag”) for the fiscal years ended July 31:
Finder’s fee commissions (ACMag)
Financial and investor relations consulting fee (ACMest)
$
2021
801
287
$ 1,088
2020
$ 2,000
548
$ 2,548
Until October 21, 2020, the Company had agreements in place with both ACMest and ACMag. Mr. Kandziora is President of
ACMest and acted as Observer on the Board up until August 22, 2019, in addition to being on the Supervisory Board of the
Company’s former subsidiary, HIO. Mrs. Kandziora is President of ACMest and was Corporate Secretary of the Company up until
August 22, 2019.
Related party transactions are at arm’s length and recorded at the amount agreed to by the related parties.
12. Research and development
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
CRO 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:
Research and development programs, excluding the below items
Wages and benefits
Stock-based compensation expense
Amortization of property plant and equipment
Amortization of right of use assets
Research and development investment tax credits
$
2021
4,514
1,270
1
41
129
(75)
$ 5,880
2020
$ 4,497
1,191
117
54
129
(120)
$ 5,868
13. Operating, general and administration
The following table outlines operating, general and administration costs expensed for the fiscal years ended July 31:
Wages and benefits
Director fees
Investor relations
Other general and administrative
Stock-based compensation expense
Amortization of property plant and equipment
Amortization of right of use assets
14.
Income taxes
$
2021
407
229
386
1,563
663
3
–
$ 3,251
2020
434
174
736
1,022
353
3
26
2,748
$
$
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 2021 is 25.86% (2020– 25.8%).
62
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2021 and 2020
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
The provision for income taxes recorded in the consolidated financial statements differs from the amount which would be obtained
applying the statutory income tax rate to the loss before income taxes as follows:
Loss before income taxes
Statutory Canadian corporate tax rate
Anticipated tax recovery
Foreign jurisdiction not taxed in Canada
Stock-based compensation
Other permanent differences
Adjustment to opening tax pools
Change in deferred tax benefits not probable to be recovered
Current income taxes
2021
2020
$ (8,038)
25.86%
$ (2,078)
0
172
(345)
3
2,248
–
$
$
$
$
(8,985)
25.8%
(2,318)
(198)
121
159
(8)
2,244
–
Current income tax loss and non-capital tax loss carry forwards
As at July 31, 2021, the Company has Canadian tax losses that can be carried forward of approximately $105,285,000 (2020 –
$96,760,000) and are available until 2041 as follows:
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
$
862
2,113
2,904
2,438
9,188
6,552
6,792
13,242
2,437
6,727
7,256
7,883
7,884
7,152
5,739
7,821
8,295
$ 105,285
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 & warrant issue costs
Deductible Lind finance costs
Excess of book basis over tax basis of note payable
2021
2020
$ 13,282
27,223
117
1,974
511
44
18
$ 43,169
$ 13,013
24,967
315
1,864
762
–
–
$ 40,921
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, 2021 is approximately $51,366,000 (2020 – $50,432,000).
63
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2021 and 2020
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
Investment tax credits
The Company has also earned investment tax credits in Canada, on eligible SR&ED expenditures at July 31, 2021 of
approximately $11,610,000 (2020 – $11,808,000), which can offset Canadian income taxes otherwise payable in future years up
to 2041. 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 $56,000 (2020 – $120,000). At July 31, 2021, cash refundable investment tax credits total $141,000 (2020 –
$121,000). 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 Ontario and Quebec.
15. Disposition of investment in associate (HIO), discontinued operations and non-controlling interest (“NCI”)
The Company’s investment in HIO was classified as held for sale and was presented as discontinued operations at July 31, 2020.
At September 3, 2020 HIO completed a direct financing with an arm’s length party. As a result of the financing, the Company’s
ownership in HIO was diluted down to 29.89% and consequently, the Company determined that it had lost control of HIO during
the three months ended October 31, 2020. As the Company’s remaining interest allowed the Company to exert significant
influence over HIO, the Company’s investment was accounted for as an interest in associate using the equity method. The
Company’s remaining interest in HIO was recognized at its fair value as at September 3, 2020 based on the post financing
valuation. The difference between the carrying value of the net assets of HIO and non-controlling interest and the value assigned
to HIO of $2,231,000 was recognized as a gain on loss of control of subsidiary in the year ended July 31, 2021. On November 9,
2020, the Company announced that it had signed a definitive share purchase agreement with CAIAC Fund Management AG
(“CAIAC”), whereby CAIAC agreed to purchase the Company’s remaining 29.89% holdings in HIO, for gross proceeds of
PLN6,700,000 (CAD$2,308,000). This disposition of HIO closed on December 22, 2020. The Company incurred transaction fees
of 12.5%.
The following information summarizes the accounting of the investment in HIO as at September 3, 2020, which is the date of
deconsolidation:
Fair value of retained interest
Net assets of HIO
Cash
Receivables
Due from intercompany
Prepaids
Capital assets
Accounts payable
Accrued liabilities
Net assets of HIO
Deconsolidation of non-controlling interest in HIO
Deconsolidation of accumulated foreign exchange amount
Book value of investment in HIO
Gain on loss of control of subsidiary
Share of net loss until disposition
Loss on disposition of retained interest
Net gain from discontinued operations
966
25
2
10
69
(46)
(3)
$
2,715
(1,023)
587
138
(186)
2,231
(69)
(626)
1,536
$
$
The continuity of the Company’s investment in associate related to HIO for the year ended July 31, 2021 is as follows:
Balance - September 3, 2020
Fair value in retained interest in associate
Share of net loss until disposition
Proceeds of disposition of retained interest in associate (net of transaction costs)
Loss on disposition of retained interest
Balance – July 31, 2021
$
–
2,715
(69)
(2,020)
(626)
–
$
64
HELIX BIOPHARMA CORP.
Notes to Consolidated Financial Statements
Years ended July 31, 2021 and 2020
(Tabular dollar amounts in thousands of Canadian dollars, except per share amounts)
HIO was classified as held for sale and as a discontinued operation at July 31, 2020 and was full disposed of on December 22,
2020. Assets and liabilities held for sale at July 31, 2021 are $nil (2020 - $156,000), respectively.
Statement of stand alone net loss and comprehensive loss for the fiscal years ended July 31:
Research and development expenses (net of PNCRD grant)
Operating, general and administration
Finance items
Net loss and comprehensive loss associated to HIO
Gain on loss of control of HIO
Loss on disposition of retained interest
Net gain (loss) from discontinued operations
Statement of financial position, before intra-company elimination entries, as at July 31:
Assets:
Current assets
Property, plant and equipment
Liabilities:
Current liabilities
Shareholders’ equity
Accumulated non-controlling interest
16. Subsequent event
$
2021
20
48
1
(69)
2,231
(626)
$
2020
43
459
111
(613)
–
–
$ 1,536
$
(613)
2021
2020
$
–
–
–
–
–
$ 1,002
69
49
1,022
587
Subsequent to July 31, 2021 and up to the filing of these Consolidated Financial Statements,the Company received three
conversion notices from LIND totalling $616,875. As a result of these conversion notices the Company issued 1,338,152 common
shares.
_____________
65
Corporate Information
DIRECTORS AND OFFICERS
TRANSFER AGENT
Slawomir Majewski, M.D.
Interim Chairman and CEO
Artur Gabor
Director
Ireneusz Fafara
Director
Computershare
100 University Avenue
8th Floor, North Tower Toronto
Ontario, Canada, M5J 2Y1
Tel: (800) 564-6253
Krzysztof Saczek, MB-CHB, FSCCA, M.MED
Director
EXCHANGE SYMBOLS
TSX: HBP
Frank Michalargias, CPA, CA
Chief Financial Officer
SCIENTIFIC ADVISORY BOARD
Robert J. Gillies, Ph.D.
Frank Gary Renshaw, M.D.
Heman Chao, Ph.D.
9120 Leslie Street, Suite 205
Richmond Hill, Ontario, Canada, L4B 3J9
+1 (905) 841-2300
ir@helixbiopharma.com