Annual Report 2018 Contents
Product Pipeline Opportunities ........................................................... 1
2018 Highlights and 2019 targeted milestones ................................. 3
Message to Shareholders ..................................................................... 6
MD&A ..................................................................................................... 10
Financial statements ............................................................................ 52
Prometic is a biopharmaceutical
corporation specialized in rare and
orphan diseases with late stage
clinical assets focused on significant
unmet medical needs
Prometic’s pipeline offers multiple near-term opportunities
for success with late stage clinical assets derived from two
proprietary drug discovery platforms targeting significant
unmet medical needs.
The first platform, small molecule therapeutics, originates
from insights into the role of two receptors involved in the
healing process and how modulation of these promotes tissue
regeneration as opposed to scarring and fibrosis. Prometic
successfully tested the activity of its lead anti-fibrotic drug
candidate, PBI 4050, in over 30 different preclinical models
performed by either the Corporation or in collaboration
with universities or institutions. PBI-4050 also successfully
completed three separate phase 2 clinical trials demonstrating
the translation of such results into clinical activity in patients.
Prometic is now preparing to submit an Investigational New
Drug Application (“IND”) and on its approval, to initiate its
first pivotal phase 3 clinical program for PBI 4050 in Alström
syndrome (“AS”) patients. PBI-4050 has been granted
Orphan Drug Designation (“ODD”) by the U.S. Food and
Drug Administration (“FDA”) and the European Medicines
Agency (“EMA”) for the treatment of AS as well as for the
treatment of Idiopathic Pulmonary Fibrosis (“IPF”). In the
UK, PBI-4050 has also been granted a PIM (“Promising
Innovative Medicine”) designation by the U.K. Medicines
and Healthcare Products Regulatory Agency (“MHRA”)
for the treatment of IPF and AS. Finally, PBI-4050 has
received a rare pediatric disease designation by the FDA for
the treatment of AS, making it eligible to potentially receive a
priority review voucher (“PRV”) upon regulatory approval by
the FDA.
The second platform, Plasma Protein Purification System
(PPPS™) leverages Prometic’s experience in bioseparation
technologies used to isolate and purify biopharmaceutical
proteins from human plasma. The Corporation’s primary
goal with respect to this second platform is to address unmet
medical needs and rare diseases with therapeutic proteins
not currently commercially available, such as Ryplazim™
(plasminogen) “Ryplazim™”. Ryplazim™ is Prometic’s first
biopharmaceutical expected to be launched commercially
pending the review and approval of its BLA (Biologics
License Application). Ryplazim™ has been granted a rare
pediatric disease designation by the FDA for the treatment
of congenital plasminogen deficiency which also makes
it potentially eligible to receive a priority review voucher
(PRV) upon regulatory approval by the FDA. Ryplazim™
has also been granted Fast Track status by the FDA and has
been granted Orphan Drug designation by both the FDA
and the EMA.
“Ryplazim™ has been granted a rare pediatric disease designation by the FDA for the
treatment of congenital plasminogen deficiency which also makes it potentially
eligible to receive a priority review voucher (PRV) upon regulatory approval by the
FDA. Ryplazim™ has also been granted Fast Track status by the FDA.”
1
Prometic Life Sciences Inc.Product Pipeline Opportunities Product Pipeline Opportunities
Pipeline of Early and Late Stage Small Molecule and Plasma-Derived
Therapeutics
Product Candidates
Indications
Segment
Pre-clin
Ph 1
Ph 2
Ph 3
NDA / BLA
Priority Indications
Ryplazim™ IV
Congenital Deficiency
Plasma-derived
Ryplazim™ IV
Acute & Acquired Deficiency
Plasma-derived
PBI-4050
PBI-4050
PBI-4050
PBI-4547
Alström Syndrome
Small molecule
F2-F3 Liver Fibrosis/Steatosis (NASH)
Small molecule
Idiopathic Pulmonary Fibrosis
Small molecule
To be determined
Small molecule
Development stage assets for prioritization and/or monetization
IVIG
Primary Immunodeficiency Diseases
Plasma-derived
Plasminogen Sc
Hard to treat wounds
Plasma-derived
2
Prometic Life Sciences Inc. 2018 Key Highlights
New clinical data from the ongoing Alström syndrome Phase
2 open label clinical trial being conducted in the United
Kingdom was disclosed in March 2018. The clinical study
reported that clinical activity and tolerability of PBI-4050
were sustained with prolonged treatment with further
clinical activity in the heart and liver observed with longer
treatment exposure.
PBI-4050 was granted a Rare Pediatric Disease Designation
by the FDA in August 2018 for the treatment of AS. Prometic
hosted a KOL meeting on PBI-4050 as a potential novel
treatment for AS and as a promising therapeutic candidate for
the treatment of Non-Alcoholic Steatohepatitis (“NASH”)
in New York City in September 2018. The meeting featured
presentations by Manal F. Abdelmalek, MD, MPH (Duke
University School of Medicine), and Patrick Colin, BPharm,
PhD (PCC Inc.), who discussed the treatment landscape,
clinical development pipeline, and unmet medical need
for treating patients with AS and the Metabolic Syndrome
associated conditions non-alcoholic fatty liver disease
(NAFLD) and NASH.
Finally, Prometic confirmed in December 2018 its decision
to formally pursue AS as a clinical indication for PBI-4050
following positive feedback received from its meetings with
regulatory authorities. These meetings provided Prometic
with clear clinical and regulatory guidance on the design of a
pivotal placebo-controlled Phase 3 clinical trial with multiple
endpoints including liver and cardiac fibrosis. An IND is
currently in preparation for submission in H2 2019.
Small Molecule Therapeutic
Highlights
Prometic hosted a Key Opinion Leader (“KOL”) meeting
on the topic of novel treatments for IPF in New York City
in January, 2018. The meeting featured presentations by
Martin Kolb, MD, PhD, McMaster University, and Gerard
Criner, MD, Temple University, who discussed the treatment
landscape, as well as the unmet medical need for treating
patients with IPF. Prometic’s management team provided a
clinical overview of their two late stage clinical assets targeting
IPF: PBI-4050 and Ryplazim™ and the respective role each
could play in potentially treating this severe and growing
unmet medical need.
Prometic also confirmed in January, 2018 that the clinical
development Type C meeting held with the FDA for its orally
active anti-fibrotic lead drug candidate, PBI-4050, allowed for
an agreement to be reached on the design of a potential Phase
3 pivotal clinical trial for PBI 4050 in patients with IPF.
The novel anti-fibrotic mechanism of action of Prometic’s
small molecule drug candidate PBI-4050 was first published
in the American Journal of Pathology in February 2018. The
paper entitled “A Newly Discovered Antifibrotic Pathway
Regulated by Two Fatty Acid Receptors: GPR40 and GPR84”
provides the scientific background on the Mode-Of-Action
of PBI-4050 and its analogues in modulating these. Prometic
also announced in August 2018 the publication of a paper
further elucidating the mechanism of action of PBI-4050 in
liver fibrosis in the Journal of Pharmacology and Experimental
Therapeutics. The paper entitled “PBI-4050 reduces stellate
cell activation and liver fibrosis through modulation of
intracellular ATP levels and LKB1-AMPK-mTOR pathway”
details the antifibrotic signaling pathway modulated by PBI
4050 and examines PBI-4050’s antifibrotic activity in liver
fibrosis, a major cause of morbidity and mortality worldwide.
3
Prometic Life Sciences Inc. 2018 Highlights and 2019 targeted milestones
Plasma-Derived Therapeutics
Highlights
Corporate and Operational
Highlights
Prometic announced in March 2018 that it had received a
Complete Response Letter (“CRL”) from the FDA arising
from its review of the Ryplazim™ BLA. The FDA raised no
issues regarding the clinical data but identified however,
the need for Prometic to make a number of changes in
the Chemistry, Manufacturing and Controls (“CMC”)
section requiring the implementation and validation of
additional analytical assays and “in-process controls” in the
manufacturing process of Ryplazim™. The FDA requested
that such CMC data be submitted as an amendment to
the current BLA and invited Prometic to also submit the
long-term (48-week) clinical data at the same time instead
of through the originally agreed upon supplemental BLA
process. The FDA indicated that the submission of the
new CMC data would not impact the previously granted
designations, including the Priority Review Status, the
Orphan Drug Designation and the Rare Pediatric Disease
Designation for Ryplazim™ for the treatment of congenital
plasminogen deficiency.
Prometic completed a Type C meeting with the FDA in
September 2018 regarding the Corporation’s proposed
action plan for the implementation of additional analytical
assays and in-process controls related to Ryplazim™
manufacturing process. The feedback received during the
Type C meeting allowed for the finalization of the Process
Performance Qualification (“PPQ”) protocol in anticipation
of commencing the manufacturing of additional Ryplazim™
conformance lots and filing of required BLA amendments.
New clinical data from Prometic’s pivotal IVIG phase 3
clinical trial was presented in April 2018 at the Clinical
immunology Society Annual Meeting in Toronto. The clinical
data presented demonstrated comparable safety and efficacy
data to existing commercial IVIG products without any
significant drug related safety issues. Both clinical primary
and secondary endpoints in adult patients suffering from
primary immunodeficiencies were met and achieved.
In November 2018:
•
•
•
Prometic, extended the maturity dates of its USD $80
million (CAD $100 million) non-revolving line of credit
and original issue discount notes to September 2024 with
Structured Alpha LP (“SALP”), an affiliate of Thomvest.
A corporate update related to a series of initiatives aiming
at lengthening the cash runway to better position the
Corporation to achieve its objectives was provided. These
included a significant reduction in the Corporation’s cash
use for 2019, driven in part by significant growth in its
bioseparation revenues and by a reduction of anticipated
R&D expenditures by up to $30 million.
Announced the closing of an At-The-Market (“ATM”)
equity distribution agreement with Canaccord Genuity
Corp. The ATM program allows the Corporation, at
its sole discretion subject to condition set for in the
equity distribution agreement to issue small tranches of
common shares from treasury, at prevailing prices and in
appropriate market conditions.
December 2018:
•
Prof. Simon Best was named Interim Chief Executive
Officer. Prof. Best has served as the Chairman of the
Prometic Board of Directors since May 2014 and has
over 30 years of global life sciences expertise with a focus
on business development, strategic planning and product
commercialization. Prof. Best succeeded Mr. Pierre
Laurin who stepped down from his management and
board responsibilities in December 2018.
4
Prometic Life Sciences Inc. 2019 - 2020 Expected Milestones
Small-Molecule Therapeutics Pipeline
Plasma-derived Therapeutics Pipeline
PBI-4050
Ryplazim™
Initiation of Alström Syndrome Phase 3 pivotal clinical trials
Approval in the USA & Canada
*Expansion of the clinical program for F2-F3 Liver Fibrosis/NASH
Approval in EU
Series of peer reviewed publications on MoA and efficacy
Sale of Priority Review Voucher if received
Partnering of selected indications and/or geographies
New data for future use in critical medical conditions
PBI-4547
*Completion of Phase 1
Major partnering deal to Commercialise Ryplazim™ in USA, EU
and other selected territories
Preliminary readout of clinical data of subcutaneous plasminogen
formulation for tympanic membrane perforation repair
*Initiation of Phase 2 studies
(Steatosis/NASH and / or Orphan indication)
IVIG
Awaiting analytics and documentation from Phase III study
* Subject to financing
5
Prometic Life Sciences Inc. Message to Shareholders
Message to Shareholders
As a result of the review process and prioritization, our
highest priorities remain the following:
•
•
•
•
Restructure the Corporation’s indebtedness and raise
capital to fund immediate liquidity needs
The earliest possible filing of amendments to BLA and
receipt of new PDUFA date for Ryplazim™
Commencement of pivotal phase 3 clinical trial of
PBI-4050 in Alström syndrome
Signing of out-licensing and partnering agreements and/
or monetization of non-core assets
The steps on the critical path towards regulatory approval for
Ryplazim™ in the U.S. are as follows:
1.
2.
Development and validation of new analytical assays and
in-process controls (substantially complete)
Finalization of process performance qualification (PPQ)
protocol (in process)
3. Manufacturing of additional conformance lots
4. Fill & Finish of the conformance lots at an external CMO
5.
6.
7.
Data analysis & preparation of required documents for
FDA
Regulatory filing of BLA amendment documents – now
likely to occur in H2 2019
Anticipated new PDUFA date – now likely to occur in
H1 2020
Dear Shareholders,
2018 was once again a year filled with strong scientific and
clinical program development achievements for Prometic.
However, we failed to close the gap between the fundamental
value created by these achievements and the value placed
on the Corporation by the stock-market. This required a
change of leadership, the adoption of a much more focussed
strategy and of a clear-plan to strengthen and re-balance the
Corporation’s finances with equity capital.
It has been a little more than three months since I took over
leadership at Prometic as interim Chief Executive Officer.
In that very short period, I have empowered our senior
management team to deliver key objectives and we have
completed the review and prioritization of all our programs
and assets. This has allowed us to:
1.
2.
Identify a range of assets with potential for monetization/
partnerships from late preclinical stages onwards
Engage Lazard, a prominent U.S. based Investment Bank,
to review and execute potential strategic transactions for
the Corporation
6
Prometic Life Sciences Inc. Items 1. and 2. were the most research-intensive activities
required of us by the FDA which is why we asked for the
Type-C Meeting held in September 2018 to ensure that we
were addressing these appropriately. I am pleased to report
that these have been substantially completed. I am also
pleased to report that Ryplazim™ has now been successfully
infused more than 5,000 times in patients who participated
in our clinical trial who remain on treatment and for
compassionate-use treatment of named-patients with the same
100% clinical activity observed and no serious adverse events.
In order to further de-risk the timely commercial launch
of Ryplazim™ the decision was made not to proceed
with building a Prometic Sales/Marketing operation to
co-promote in the U.S. This has accelerated partnering
discussions with established Rare-Disease and Big-Pharma
companies with the assets and capabilities already in place
to deliver the fastest possible market-penetration. Lazard
is running a competitive process which is well under-way.
Prospective partners are reviewing the CRL and the actions
we have taken to address the issues raised by the FDA as
described above during due-diligence. The closure of a
timely deal would be another “vote of confidence” from
knowledgeable partners that Prometic remains on track for
approval and launch.
We also remain on track to file an IND with the FDA for a
pivotal phase 3 trial in AS in H2 2019.
The range of business development interest and options to
monetize PBI-4050 and/or our substantial small-molecule
portfolio is growing and I have empowered our BD Team
to pursue these aggressively. The awareness and credibility
of our Alström clinical data is rising rapidly and attracting
interest from major pharmaceutical companies across the full
gamut of fibrotic unmet medical needs and we now have early
interest for several major chronic indications.
Our cash situation however, remains very challenging. We
fully recognize that our financial situation has to be greatly
improved in the very near short term and that failure to do so
is jeopardizing the company’s assets and is holding back both
value creation and recognition. It is clear, given the financial
situation of the Corporation, that restructuring the balance
sheet will require a combination of material corporate,
financial and business development transactions. The use
that the Corporation was able to make of at-the-market
(ATM) equity distribution during December and January
was a short-term tactic and not sustainable. Restructuring the
balance sheet will therefore require a series of steps, which
may include:
•
•
A major refinancing of the Structured Alpha debt and / or
recapitalization transaction;
An appropriately sized market-based equity fund raising
to finance the Company to value creation catalysts –
primarily, partnerships and monetization of non-core
assets and the potential Rare Disease Pediatric Priority
Review Voucher for Ryplazim™
Raising adequate financing requires a clear and focused plan
regarding the use of proceeds to achieve optimal value-
inflection within reasonable time-frames and risk parameters
and we believe we now provide such clarity.
7
Prometic Life Sciences Inc. For our small-molecules, our Liver Advisory Board includes
leading KOLs who advise companies with compounds with
different modes-of-action to PBI-4050 that are already in the
clinic, we believe that the optimal next-step is to undertake
a well-designed and appropriately-sized placebo-controlled
Phase 2 Proof-Of-Concept Trial for PBI-4050 in Stages 2 and
3 liver fibrosis in NASH patients where it has both the least
competition and greatest clinical potential.
Our product pipeline has drug candidates targeting multiple
rare diseases and significant unmet medical needs. I look
at 2019 with hope and excitement as we finally get closer
and closer to the commercialization of the first of these. All
the necessary elements to make Prometic the commercial
and financial success it can and deserves to be are within
reach. Our entire staff are as strongly driven as ever by their
motivation and belief that we can make a profound difference
in the lives of seriously ill patients. We remain unequivocally
dedicated to delivering the key enabling tasks and are
confident that we are now on the right track.
My sincere thanks to all our shareholders for their patience
and continuing support.
Best regards,
For our Plasma products, we will prioritise use of proceeds to
optimise clinical development and commercialisation of the
IV formulation used as Ryplazim™ in congenital deficiency
and to expand its use judiciously into additional acute and
acquired deficiencies
Prof. Simon Best,
Prometic Life Sciences Chairman of the Board
and interim Chief Executive Officer.
8
Prometic Life Sciences Inc.Message to Shareholders 9
Prometic Life Sciences Inc. Management Discussion & Analysis
Prometic Life Sciences Inc.
For the quarter and the year ended December 31, 2018
MANAGEMENT’S DISCUSSION & ANALYSIS
This Management’s Discussion and Analysis (“MD&A”) is intended to help the reader to better understand
Prometic Life Sciences Inc.’s (“Prometic” or the “Corporation”) operations, financial performance and results
of operations, as well as the present and future business environment. This MD&A has been prepared as
of March 29, 2019 and should be read in conjunction with Prometic’s audited annual consolidated financial
statements for the year ended December 31, 2018. Additional information related to the Corporation,
including the Corporation’s Annual Information Form, is available on SEDAR at www.sedar.com. All
amounts in tables are in thousands of Canadian dollars, except where otherwise noted.
FORWARD-LOOKING STATEMENTS
This Management’s Discussion and Analysis of the results of operations and the financial condition may
contain forward-looking statements about Prometic’s objectives, strategies, financial condition, future
performance, results of operations and businesses as of the date of this MD&A.
These statements are “forward-looking” because they represent Prometic’s expectations, intentions, plans
and beliefs about the markets the Corporation operates in and on various estimates and assumptions based
on information available to its management at the time these statements are made. Without limiting the
generality of the foregoing, words such as “may”, “will”, “expect”, “believe”, “anticipate”, “intend”, “could”,
“would”, “estimate”, “continue”, “plan” or “pursue”, or the negative of these terms, other variations thereof
or comparable terminology, are intended to identify forward-looking statements although not all forward-
looking information contains these terms and phrases. Forward-looking information is provided for the
purposes of assisting the reader in understanding the Corporation and its business, operations, prospects
and risks at a point in time in the context of historical and possible future developments and therefore the
reader is cautioned that such information may not be appropriate for other purposes.
Actual events or results may differ materially from those anticipated in these forward-looking statements if
known or unknown risks affect our business, or if our estimates or assumptions turn out to be inaccurate.
Such risks and assumptions include, but are not limited to, Prometic's ability to develop, manufacture, and
successfully commercialize value-added pharmaceutical products, regulatory approvals, the availability of
funds and resources to pursue Research and Development (“R&D”) projects, the successful and timely
completion of clinical studies, our ability to take advantage of business opportunities in the pharmaceutical
industry, the successful and timely completion of strategic refinancing or restructuring transactions; reliance
on key personnel, collaborative partners and third parties, our patents and proprietary technology, our ability
to access capital, the use of certain hazardous materials, the availability and sources of raw materials,
currency fluctuations, the value of our intangible assets, negative operating cash flows, legal proceedings,
uncertainties related to the regulatory process, general changes in economic conditions and other risks
related to Prometic’s industry. More detailed assessment of the risks that could cause actual events or
results to materially differ from our current expectations can be found in the Annual Information Form under
the heading “Risks and Uncertainties Related to Prometic’s Business”.
Although Prometic has attempted to identify important factors that could cause actual actions, events or
results to differ materially from those described in forward-looking statements, there may be other factors
that cause actions, events or results not to be as anticipated, estimated or intended. Therefore, there can
be no assurance that forward-looking statements will prove to be accurate as actual results and future
events could differ materially from those anticipated in such statements. Accordingly, the reader should not
place undue reliance on forward-looking statements.
As a result, Prometic cannot guarantee that any forward-looking statement will materialize. Prometic
assumes no obligation to update any forward-looking statement even if new information becomes available,
as a result of future events or for any other reason, unless required by applicable securities laws and
10
Prometic Life Sciences Inc.Management Discussion & Analysis
regulations.
Prometic (www.prometic.com) is a publicly traded (TSX symbol: PLI) (OTCQX symbol: PFSCF)
biopharmaceutical corporation with two drug discovery platforms focusing on unmet medical needs. The
first platform (Small molecule therapeutics) stems from the insights into the interaction of two receptors
which we believe are at the core of how the body heals: our small molecule drug candidates modulate these
to promote tissue regeneration and scar resolution as opposed to fibrosis. One of the lead drug candidates
emerging from this platform, PBI-4050, is preparing to enter pivotal phase 3 clinical trial for the treatment
of Alström syndrome. The second drug discovery and development platform (plasma-derived therapeutics)
isolate and purify
leverages Prometic’s experience
biopharmaceuticals from human plasma. The Corporation’s primary goal with respect to this second
platform is to address unmet medical needs with therapeutic proteins not currently commercially available,
such as Ryplazim™ (plasminogen) (“Ryplazim™”). The Corporation also provides access to its proprietary
bioseparation technologies to enable pharmaceutical companies in their production of non-competing
biopharmaceuticals. Recognized as a bioseparations expert, the Corporation derives revenue from this
activity through sales of affinity chromatography media which contributes to offset the costs of its own R&D
investments.
technologies used
in bioseparation
to
We are headquartered in Laval, Quebec (Canada) and have R&D facilities in Canada, the United Kingdom
(“U.K.”) and the United States (“U.S.”), manufacturing facilities in Canada and the Isle of Man and corporate
and business development activities in Canada, the U.S., Europe and Asia.
BUSINESS UPDATE
The Corporation faces increasingly challenging financial and business conditions, including an inability to
raise sufficient equity, equity-linked or debt financing to fully fund execution of its business plans and delays
in the commercialization of its lead drug candidate RyplazimTM, all while undertaking significant research
and development expenditures in the pursuit of its drug discovery platforms. During this period, the
Corporation has explored numerous alternatives to increase shareholder value, ensure the funding of the
Corporation’s drug discovery platforms, service and repay its outstanding credit facilities and decrease its
debt to equity leverage levels, which levels have been a major hurdle for the Corporation to secure required
financing.
The Corporation originally filed a Biologics License Application ("BLA") with the U.S. Food and Drug
Administration ("FDA") for its plasminogen replacement therapy, RyplazimTM, which was accepted by the
FDA in October 2017. In April 2018, the FDA, via a Complete Response Letter sent to the Corporation,
identified the need for the Corporation to make a number of changes in the Chemistry, Manufacturing and
Controls ("CMC") section of its BLA before the FDA could consider granting approval of RyplazimTM. The
FDA's action caused a delay in bringing RyplazimTM to market. Following this setback, the Corporation
worked diligently with its external consultants to develop an action plan to address the changes to the CMC
section requested by the FDA, with a view to ensure that such changes would be judged satisfactory. This
action plan was submitted to the FDA in August 2018. In September 2018, the Corporation had a Type C
meeting with the FDA during which the FDA agreed with the Corporation’s proposed action plan for the
implementation of additional analytical assays and in-process controls related to the RyplazimTM
manufacturing process as confirmed in the FDA’s minutes which were received by the Corporation in 2018.
Having received positive feedback from the FDA, the Corporation is in the process of finalizing the process
performance qualification protocol in anticipation of commencing the manufacturing of additional
RyplazimTM conformance lots. Despite the delays explained above, the Corporation remains committed and
focused on obtaining the FDA's approval and bringing RyplazimTM to market, along with its other leading
drug candidates.
11
Prometic Life Sciences Inc.
During the past two years, the Corporation has pursued a series of initiatives to extend its cash runway to
better position the Corporation to achieve its objectives. These include the implementation of cost-control
measures, such as a significant reduction in the Corporation’s cash use in 2019, attributable to significant
growth in its bioseparation revenues and a reduction of research and development expenditures by
approximately $30 million, as compared to 2018 levels. In November 2018, the Corporation also secured
an extension of the maturity dates of all of the Corporation’s outstanding debt with Structured Alpha LP
(“SALP”) to September 2024 (the “Term Extension”), a step intended to facilitate equity and equity-linked
capital raising initiatives. In addition, on November 28, 2018, the Corporation entered into an At-the-Market
("ATM") equity distribution agreement with Canaccord Genuity Corp acting as agent (the "Standby Equity
Agreement"), enabling the Corporation, subject to the conditions set forth in the Standby Equity Agreement
and other restrictions, to issue tranches of Common Shares from treasury, at prevailing prices and in
appropriate market conditions with an aggregate gross sales amount of up to approximately $31 million for
a sixteen-month period.
Over the course of 2018, the Corporation also pursued non-dilutive funding initiatives, including potential
commercial and partnering transactions to strengthen its financial position, as well as equity and equity-
related financing initiatives with multiple financial institutions, including U.S. and Canadian investment
banking firms, institutional investors, public sector pension plans and financial institutions. The Corporation
has been unsuccessful in obtaining any capital from these initiatives. Despite these efforts, other than the
limited use of the ATM and the exercise of warrants by a significant shareholder in February 2018, the
Corporation’s sole source of financing for nearly two years has been from its main secured creditor, SALP,
through several debt financings.
On December 19, 2018, the Corporation’s previous Chief Executive Officer, Pierre Laurin stepped down,
and Professor Simon Best was named interim Chief Executive Officer with a specific mandate to restructure
the Corporation’s operations and stabilize its capital structure and liquidity, including the identification of
options available to the Corporation in light of its financial difficulties and the evaluation of various financing
alternatives for the Corporation.
In 2019, the combination of volatile capital markets, difficult operating conditions, delays in obtaining FDA
approval for the RyplazimTM BLA, the size of SALP’s existing debt position and the strength of SALP’s
associated security rights made it impossible for the Corporation to raise equity, equity-linked or additional
debt financing. The solicitation of numerous financial institutions and discussions with certain of the
Corporation’s existing stakeholders with respect to a broad range of potential transactions did not result in
the proposal or closing of any viable financing proposal. During this period, the Corporation has continued
to implement a number of restructuring measures identified in 2018 with the objective of improving future
earnings, reducing ongoing operating costs and enhancing the Corporation’s ability to raise financing.
In February 2019, the Corporation engaged Lazard Frères & Co LLC ("Lazard"), a global financial advisory
and asset management firm, to review and execute two key strategic transactions for the Corporation, one
of which aimed to raise non-dilutive capital from a licensing partnership for one of the Corporation’s late-
stage assets and the other consisting of the trade-sale of some of the Corporation’s non-core operations.
While Lazard has made promising initial progress in building competitive processes for these, no
transaction is expected to close before the end of the second quarter of 2019.
Despite having pursued numerous financing alternatives unsuccessfully, the Corporation continues to
explore initiatives to address its near- and long-term funding requirements. The Corporation believes that
any such initiative must include a refinancing, restructuring and/or recapitalization of the Corporation’s
indebtedness to SALP and a significant equity financing to bridge the Corporation to value creation catalysts
– primarily, partnerships and monetization of non-core assets and the potential Rare Disease Pediatric
Priority Review Voucher (“PRV”) for RyplazimTM.
12
Prometic Life Sciences Inc.Management Discussion & Analysis
The following have been designated as the highest near-term priorities for 2019:
•
•
•
•
The restructuring of the Corporation’s debt and raising capital
The earliest possible submission of responses to address the FDA questions about the
RyplazimTM BLA.
The filing and approval of an Investigational New Drug application (“IND”) to enable the
commencement of the pivotal phase 3 clinical trial of PBI-4050 in Alström Syndrome.
The signing of out-licensing and partnering agreements for late stage assets and/or the
monetization of non-core assets
Prometic’s operations are divided into three distinct business operating segments: Small molecule
therapeutics, plasma-derived therapeutics and bioseparations. The following provides more detail on each
of these.
Please refer to “Liquidity and Contractual Obligations” below for additional information.
Small molecule therapeutics segment
The business model for the small molecule therapeutics segment is to develop promising proprietary drug
candidates such as PBI-4050 for rare or orphan indications, then partner or out-license rights to
commercialize these with well-established global pharmaceutical companies where and when appropriate.
The Corporation also plans to enter into partnerships for other larger medical indications and/or for
geographical regions which would require substantial commercial reach and resources. It is not, at this
stage, Prometic’s intention to independently undertake late-stage pivotal (phase 3) clinical trials in larger
indications, such as Idiopathic Pulmonary Fibrosis (“IPF”), Chronic Kidney Disease (“CKD”) or
Non Alcoholic Steatohepatitis (“NASH”) without the support of a strategic venture or big pharma partner.
The Corporation’s current focus is on the development of its lead anti-fibrotic drug candidate PBI 4050 to
obtain regulatory approval for the treatment of Alström Syndrome (“AS”) and so potentially receive a Priority
Review Voucher upon approval. PBI-4050 has received orphan drug designation by the FDA and the
European Medicines Agency (“EMA”) for this indication, as well as a rare pediatric disease designation by
the FDA. The Corporation has met with the FDA and EMA to discuss the regulatory pathway and is now
actively working with specialist Alström care centers and with Alström patient advocacy groups in the U.S.
and Europe with a view to commencing pivotal phase 3 studies in Q2 2019.
AS is an ultra-rare disease and an unmet medical need. According to the National Organization for Rare
Disorders (“NORD”), this severe fibrosis condition affects approximately 1,200 patients globally and
therefore the clinical program under discussion with the regulatory agencies will be pursued by Prometic
independently.
Fibrosis and Mechanism of Action
The small molecule therapeutics segment has a pipeline of product candidates which leverage the
discovery of the linked role of two receptors involved in the regulation of the healing process. Following
an injury, the body has the ability to repair damaged tissues. However, if an injury is chronic or recurrent
in nature, healthy tissue regeneration may be replaced by aberrant fibrotic processes or fibrosis. Fibrosis
is characterized by the excessive accumulation of extracellular matrix (“ECM”) in damaged or inflamed
tissues and is a common pathological outcome of many inflammatory and metabolic diseases. Numerous
clinical conditions can lead to organ fibrosis and loss of organ function; in many cases persistent
inflammation leads to the aberrant fibrotic response. The production of various profibrotic cytokines and
growth factors by inflammatory cells such as macrophages results in the recruitment and activation of
13
Prometic Life Sciences Inc.
ECM-producing myofibroblasts. There is currently a major unmet need for therapies that are able to
effectively target the pathophysiological pathways involved in fibrosis. Notable examples of medical
conditions where fibrosis is central to loss of organ function include, AS, NASH, IPF and CKD.
Prometic has demonstrated that the “up-regulation” of receptor GPR40 concomitant with the “down-
regulation” of receptor GPR84 promotes the normal healing process as opposed to promoting the fibrotic
process. Prometic’s drug candidates have a dual mode-of-action as agonists (“stimulators”) of GPR40 and
antagonists (“inhibitors”) of GPR84. A number of manuscripts have been submitted for publication now that
the Corporation has filed a sufficiently broad range of patents to fully protect its portfolio of drug candidates
that modulate these two receptors. The first manuscript entitled “A Newly Discovered Antifibrotic Pathway
Regulated by Two Fatty Acid Receptors: GPR40 and GPR84” was published on February 16, 2018 in the
American Journal of Pathology. Other peer-reviewed articles recently published include manuscripts
entitled “Fatty acid receptor modulator PBI-4050 inhibits kidney fibrosis and improves glycemic control”
published in the Journal of Clinical Investigation on May 17, 2018 and “PBI-4050 reduces stellate cell
activation and liver fibrosis through modulation of intracellular ATP levels and LKB1-AMPK-Mtor pathway”
published on August 9, 2018 in the Journal of Pharmacology and Experimental Therapeutics.
The activity of drug candidates such as PBI-4050 has been observed in over 30 different preclinical models
performed by the Corporation and by other institutions using PBI-4050 in their own animal models, including
Vanderbilt University, University of Ottawa, Université de Montréal, McMaster University and the Montreal
Heart Institute. PBI-4050 has also successfully completed three separate phase 2 clinical trials supporting
the translation of such results into biologic activity in humans and helping pave the way for the upcoming
initiation of a pivotal phase 3 clinical program. While the small molecule therapeutics segment has several
promising drug candidates, management has thus far focused its efforts on the lead candidate PBI-4050,
which has demonstrated favorable safety and tolerability profiles in hundreds of human subjects.
PBI-4050, Prometic’s Lead Small Molecule Compound and Regulatory Designations
PBI-4050 has been granted Orphan Drug Designation by the FDA and the EMA for the treatment of AS as
well as for the treatment of IPF. PBI-4050 has also been granted a PIM (Promising Innovative Medicine)
designation in the U.K. by the Medicines and Healthcare products Regulatory Agency (“MHRA”) for the
treatment of IPF and AS. Finally, PBI-4050 has also been granted rare pediatric disease designation by the
FDA for the treatment of AS, which makes it potentially eligible to receive a priority review voucher upon
regulatory approval by the FDA.
PBI 4050 - Alström Syndrome
AS is a rare inherited autosomal recessive syndrome characterized by the onset of obesity in childhood or
adolescence, type 2 diabetes with severe insulin resistance, dyslipidemia, hypertension and severe multi-
organ fibrosis, involving the heart, liver, and kidney. The most common cause of death is heart failure with
dilated cardiomyopathy due to progressive cardiac fibrosis, while fibrosis leading to liver failure is also
responsible for a large number of deaths. AS is also characterized by a progressive loss of vision and
hearing and by short stature. Prometic is currently investigating the effects of PBI-4050 in AS patients in an
open label, phase 2, clinical study in the U.K.
AS includes many of the features of metabolic syndrome, including obesity, Type 2 diabetes with insulin
resistance, liver steatosis (“fatty liver”), and liver fibrosis. Non-alcoholic fatty liver disease (“NAFLD”) is the
manifestation of metabolic syndrome in the liver. Due to a worldwide obesity epidemic, NAFLD now affects
20–30% of the global population. Only a small minority of patients with NAFLD will develop more aggressive
liver diseases with inflammation and fibrosis, such as NASH, however since the number of patients with
NAFLD is so large, NASH has become the most common cause of severe liver disease worldwide. In AS,
the progression of liver steatosis to fibrosis is much more aggressive than in “typical” metabolic syndrome
patients.
14
Prometic Life Sciences Inc.Management Discussion & Analysis
The on-going AS study is an open-label, single-arm, phase 2 clinical trial at Queen Elizabeth Hospital,
Birmingham, which is the specialty center for AS for the U.K. The patients are treated with PBI-4050 (800
mg) once daily and undergo intensive investigation to document the effects of PBI-4050 on the progressive
organ fibrosis, including magnetic resonance imaging of the liver and of the heart. Each patient is evaluated
against their individual results at study entry, as well as against their historical trend when available. The
study initially enrolled 12 patients, eight of whom are continuing in the study. With continuing review of the
study results, the Data Safety Monitoring Board (“DSMB”) and the MHRA have agreed to multiple
extensions of the study. All eight subjects have now completed more than 2 years of treatment with PBI-
4050. In addition to preliminary evidence of efficacy observed on liver fibrosis, the analysis of interim cardiac
MRI data also indicates a reduction of cardiac fibrosis. PBI-4050’s safety and tolerability profile has been
confirmed over this extended period without any serious drug related adverse events recorded.
The Corporation has met with the FDA and EMA to present the results of the study and to discuss the
regulatory pathway and is now actively working with specialist Alström centers and with Alström patient
advocacy groups in the US and Europe with a plan to commence its PBI-4050 treatment of AS pivotal
phase 3 studies in Q2 2019.
PBI-4050 – Other Indications
Liver steatosis (fatty liver) is very common in AS subjects from childhood onwards and has a high rate of
progression to liver fibrosis much higher than the rate seen in the general population with typical metabolic
syndrome and NAFLD progressing to fibrosis NASH. The Corporation has reviewed the results obtained in
the ongoing open-label phase 2 studies of PBI-4050 in AS and believes that these results strongly support
a potential benefit of PBI-4050 in “typical” NASH patients. Prometic is therefore planning a randomized
placebo-controlled phase 2 study of PBI-4050 in NASH to be initiated later in the year following successful
financing.
In IPF, the Corporation was pleased to obtain IND approval from the FDA to commence a PBI-4050 pivotal
phase 3 clinical trial for this indication and their agreement on the design of such a trial. However, whilst
several major pharmaceutical companies have confirmed their potential interest in partnering PBI-4050 for
this indication during the past year, their recent feedback is that they would not be prepared to take on the
risks and costs of such a phase 3 clinical program without the prior completion by the Corporation of a
randomized, placebo-controlled, phase 2b trial sufficiently powered to confirm both its relative efficacy vs.
standard-of-care and the optimal dose to maximize said efficacy. Despite the additional time and investment
required, Prometic continues to believe that PBI-4050 is still well-placed to achieve regulatory approval in
due course as a first line therapy for IPF. Prometic is therefore developing a protocol for a randomized,
placebo-controlled, phase 2b study of PBI-4050 in IPF to be initiated later in the year following successful
financing.
Advancing analogue PBI-4547 into Clinical Development
The Corporation also plans to begin phase 1 clinical studies of its next promising small molecule, PBI-4547.
In preclinical studies PBI-4547 has been demonstrated to address many of the fundamental aspects of
metabolic syndrome. Among other actions, it encourages ß-oxidation of fatty acids, thus leading to fat being
“burned” rather than laid down as subcutaneous or visceral fat. The required pre-clinical toxicology studies
are in progress, and phase 1 clinical trials will commence as soon as they are completed.
Plasma-derived therapeutics segment
The plasma-derived therapeutics segment includes our proprietary plasma-derived therapeutics platform,
Plasma Protein Purification System (PPPSTM), which enables the development of our pipeline of
biopharmaceutical candidates. This is achieved by leveraging our proprietary affinity ligand technology,
which enables a highly-efficient extraction and purification process of therapeutic proteins from human
plasma.
15
Prometic Life Sciences Inc.
The Corporation’s primary goal with respect to this platform is to develop and launch treatments for unmet
medical needs and rare diseases via therapeutic proteins not currently commercially available, such as
Ryplazim™. Ryplazim™ is the first biopharmaceutical expected to be launched commercially pending the
review and approval of its BLA by the FDA. Ryplazim™ has been granted Orphan Drug designation by
both the FDA and the EMA for the treatment of congenital plasminogen deficiency and has also been
granted Fast Track status by the FDA.
Ryplazim™ has been granted a rare pediatric disease designation by the FDA for the treatment of
congenital plasminogen deficiency which also makes it eligible to potentially receive a priority review
voucher upon regulatory approval.
Lead Drug Product Candidate – Ryplazim ™
Ryplazim™ for the treatment of congenital plasminogen deficiency is the first biopharmaceutical expected
to be launched commercially pending the review and approval of the amendments to its BLA required by
the FDA following receipt of a Complete Response Letter, in April 2018, to the original BLA. The corporation
expects to file the BLA amendment in H2 2019.
Plasminogen is a naturally occurring protein that is synthesized by the liver and circulates in the blood.
Activated plasminogen, plasmin, is a fundamental component of the fibrinolytic system and is the main
enzyme involved in the lysis of blood clots and clearance of extravasated fibrin. Plasminogen is therefore
vital in wound healing, and has other important functions in cell migration, tissue remodeling, angiogenesis,
and embryogenesis.
The most common and visible lesion associated with plasminogen deficiency is ligneous conjunctivitis,
which is characterized by thick, woody (ligneous) growths on the conjunctiva of the eye, and if left untreated,
can lead to corneal damage and blindness. Ligneous growths tend to recur after surgical excision, thereby
requiring multiple surgeries. While ligneous conjunctivitis is the most common lesion, congenital
plasminogen deficiency is a multi-system disease that can also affect the ears, sinuses, tracheobronchial
tree, genitourinary tract, and gingiva. Tracheobronchial lesions can result in respiratory failure.
Hydrocephalus has also been reported in children with severe hypoplasminogenemia, apparently related
to the deposition of fibrin in the cerebral ventricular system.
Patients with congenital plasminogen deficiency have a life-long inability to produce sufficient plasminogen.
However, patients who have normal plasminogen levels may develop an acute, acquired deficiency when
they suffer certain acute illnesses. Our first priority is to provide a treatment for congenital plasminogen
deficiency and once commercially approved, to explore other indications for the same IV formulation of
RyplazimTM such as acquired plasminogen deficiency in critical care settings such as thrombolytic
disorders, acute exacerbations in IPF and ex-vivo applications such as the conditioning of donor organs
prior to transplantation.
There is also significant further potential to leverage the same plasminogen active pharmaceutical
ingredient as an injectable sub-cutaneous formulation to promote the healing of hard-to-treat wounds such
as tympanic membrane perforation.
In a pivotal phase 2/3 clinical trial for the treatment of congenital plasminogen deficiency, RyplazimTM met
its primary and secondary endpoints following the intravenous administration of Ryplazim™ to 10 patients
for 12 weeks. In addition to being well tolerated and without any drug related serious adverse events, the
phase 2/3 clinical trial achieved a 100% success rate for its primary end point, namely, a targeted increase
in the plasma level of plasminogen immediately prior to the next infusion (“trough level”). Moreover, all
patients who had active visible lesions when enrolled in the trial had complete healing of all lesions within
weeks of treatment, a 100% patient response rate for this secondary end point.
An additional 36 weeks clinical data from this trial demonstrated that maintenance treatment with
RyplazimTM prevented the recurrence of lesions in the 10 patients for a total of 48 weeks. Since then, and
16
Prometic Life Sciences Inc.Management Discussion & Analysis
as of March 2019, over 5,000 Ryplazim™ infusions have been administered with no safety or tolerability
issues related to this longer-term dosing and still no recurrence of lesions.
On March 28, 2018, Prometic provided an update on the status of the U.S. Food and Drug Administration
review of its BLA for Ryplazim™. The current BLA filing includes the clinical data on 10 patients with 12
weeks of data for an accelerated regulatory pathway. The original guidance from the FDA was for Prometic
to submit such long-term clinical data in a supplemental BLA in order to secure full licensure in 2019. Full
licensure would provide for the long-term efficacy and safety data to be included in the prescribing
information of Ryplazim™ which would further support Prometic’s claims of the strong health economics
benefit associated with the use of Ryplazim™. The Corporation continues to supply Ryplazim™ to those
patients enrolled in the original clinical trials.
The FDA’s review of the BLA raised no issues regarding the clinical data required for the accelerated
approval. The FDA did, however, identify the need for Prometic to make a number of changes in the CMC
section. These require the implementation and validation of additional analytical assays and “in-process
controls” in the manufacturing process of Ryplazim™. Once completed and validated, Prometic is required
to manufacture additional Ryplazim™ conformance batches to confirm the effectiveness of these process
changes.
The FDA requested that such CMC data be submitted as an amendment to the current BLA and has invited
Prometic to also submit the long-term (48-week) clinical data at the same time. This will allow the FDA to
consider granting full-licensure under the current BLA.
The FDA has indicated that the submission of the new CMC data will not impact the previously granted
designations, including the Priority Review Status, the Orphan Drug Designation and the Rare Pediatric
Disease Designation for Ryplazim™ for the treatment of congenital plasminogen deficiency.
The Corporation announced in October 2018 the successful completion of a Type C meeting during which
the FDA agreed with its proposed action plan for the implementation of additional analytical assays and in-
process controls related to RyplazimTM manufacturing process. As a result of the feedback received during
that Type C meeting, the Corporation is now finalizing the Process Performance qualification (“PPQ”)
protocol in anticipation of commencing the manufacturing of additional RyplazimTM conformance lots. The
Corporation continues to interact with the FDA regarding the filing of its BLA amendment. It has also
engaged external consultants to assist with this process.
The critical path towards regulatory approval for RyplazimTM in the U.S. is as follows:
1.
2.
3.
4.
5.
6.
7.
Development and validation of new analytical assays and in-process controls (substantially
complete)
Finalization of PPQ protocol (in process)
Manufacturing of additional conformance lots
Fill & Finish at external Contract Manufacturing Organization (“CMO”)
Data analysis & preparation of required documents for FDA
Regulatory filing of BLA amendment documents – now likely to take place in H2 2019
Anticipated new PDUFA date – now likely to take place in H1 2020
The Corporation decided to sell the excess plasma it had built up in anticipation of increased production
activity that would have followed the approval of the BLA, therefore releasing an important amount of the
cash tied up in its raw materials inventory. The Corporation completed plasma sales in Q2, Q3 & Q4 for
$14.0 million, $5.7 million and $3.1 million respectively.
Other Plasma-Derived Therapeutics
Prometic has developed processes to recover and purify several other proteins from plasma including
Intravenous Immunoglobulin (“IVIG”), Inter-alpha-Inhibitor-Proteins, fibrinogen, alpha1 antitrypsin, and C1
esterase Inhibitor.
17
Prometic Life Sciences Inc.
Prometic has now completed the required clinical package for IVIG required for a future BLA submission
to the FDA. New clinical data from Prometic’s pivotal IVIG phase 3 clinical trial was presented in April
2018 at the Clinical Immunology Society annual meeting in Toronto. This demonstrated comparable safety
and efficacy data to existing commercial IVIG products without any significant drug related safety issues.
Both clinical primary and secondary endpoints in adult patients suffering from primary immunodeficiencies
were met and achieved. Completion of a robust CMC package for IVIG prior to filing a BLA still requires
substantial work, time and investment.
In the meantime, the Corporation’s research has determined that plasminogen – either in IV formulation
and/or as an SC injectable has the potential to address a much larger market opportunity than originally
expected. This has motivated strong partnering interest for Ryplazim™ and it is therefore clear that, beyond
securing a regulatory approval by the FDA, the Corporation needs to prioritize manufacturing capacity
planning to meet the volume demands of any potential partner. IVIG and selected further proteins remain
in our pipeline. However, the advanced stage of development and economics of RyplazimTM support a
compelling case to focus all the available resources of the plasma-derived therapeutics segment on this
therapeutic family to optimize its launch and growth. This, combined with the significant work determined
to be required on the CMC section of an IVIG BLA, has caused the Corporation to suspend, during Q4
2018, all future activity on IVIG. This will result in a material delay to the commercialization of IVIG.
Following this assessment, the Corporation performed an impairment test on the IVIG cash-generating unit
which includes assets of several of the group companies such as NantPro Biosciences LLC (“NantPro”),
Prometic Bioproduction Inc. (our Laval plant), and Prometic Biotherapeutics Inc. (our Rockville, Maryland
research center). The Corporation usually uses discounted cash flow models to perform such tests; certain
assets require an annual test in accordance with International Financial Reporting standards (“IFRS”).
When performing this test as of December 31, 2018, Prometic could not include any of the cash inflows in
this calculation, as this isn’t permitted under IFRS due to the uncertainty of new cash inflows starting beyond
five years. The impairment test therefore resulted in a fair value of $Nil and the Corporation recorded a
material impairment in Q4 2018 on several assets including the NantPro license, IVIG manufacturing
equipment and other assets for a total of $149.0 million.
Impairment losses may be reversed in the future if there are significant changes that affect the cash-
generating unit in the future.
Bioseparations segment
Prometic’s Bioseparations segment is known for its expertise in bioseparation, specifically for large-scale
purification of biologics and the elimination of pathogens. These technologies are being used by several
industry leaders. Prometic has also leveraged its own industry leading affinity technology to develop a highly
efficient extraction and purification process of therapeutic proteins from human plasma in order to develop
best-in-class therapeutics. The Bioseparations segment supplies the affinity resins to the Plasma-derived
therapeutics segment and also to our licensees and other third-party customers. The Corporation 2018
sales exceeded $21 million, which represents a 35% increase over 2017 revenues, and the Corporation
anticipates moderate revenue growth for 2019.
This growth is due to a number of factors, including the expansion of manufacturing activities by existing
clients who utilize Prometic’s products in their production processes, the adoption of products by new
clients, the introduction of new products, and the continuing expansion of the market for bioseparation
products. The ongoing manufacturing expansion of the Isle of Man facility will enable the company to
manufacture over 35,000 liters of chromatography adsorbents annually, with a potential sales value
exceeding $133 million per annum. This additional manufacturing capacity will be used to meet the growing
demand for the segment’s products, and to provide the resins required for Prometic’s own PPPSTM plasma
protein manufacturing operations.
18
Prometic Life Sciences Inc.Management Discussion & Analysis
SENIOR MANAGEMENT CHANGE
The Board of Directors of the Corporation named Prof. Simon Best as Interim Chief Executive Officer,
effective December 19, 2018. Prof. Best has been the Chairman of the Prometic Board of Directors since
May 2014 and has over 30 years of global life sciences expertise with a focus on business development,
strategic planning and product commercialization.
Dr. Best succeeded Mr. Pierre Laurin who stepped down from his management and board responsibilities.
The Corporation also announced the appointment of Mr. Zachary Newton of Structured Alpha LP, an
affiliate of Thomvest, to the Board of Directors filling the vacancy created when Mr. Bruce Wendel was
appointed to his ongoing Executive role as Chief Business Development Officer.
EVENTS SUBSEQUENT TO YEAR-END 2018
Management and the Board of Directors are engaged in a comprehensive strategy to improve the financial
and business conditions of the Corporation and, in January 2019, commenced a process to explore and
evaluate potential strategic alternatives focused on maximizing shareholder value, including potential
acquisitions, joint ventures, strategic alliances, or other Merger and Acquisition (“M&A”) or capital markets
transactions as well as any other transaction or alternative available to the Corporation. Concurrently,
Management and the Board of Directors have been actively exploring diverse opportunities to bring forward
cash flows to repay debt and fund working capital requirements.
In January 2019, the corporation issued 12,568,600 Restricted Share Units (“RSU”) to key staff at a grant
price of $0.30 which will vest over a one-year period. The purpose of this grant was to help retain key
employees pending the successful strengthening of the Corporation’s balance sheet.
In conjunction with the strategic review and liquidity concerns, in February 2019, the Board of Directors
formed a special committee of independent directors to oversee the strategic review process (the "Special
Committee"). The Special Committee meets regularly and oversees the work of Management and the
Corporation’s financial and legal advisors in respect of such mandate.
In February 2019, the Corporation engaged Lazard, a global financial advisory and asset management firm,
to review and execute key strategic transactions focused on maximizing shareholder value. These
transactions could include, among other things, the out-licensing of drug candidates and monetization of
non-core assets.
The Corporation has not set a timetable for this process, and there can be no assurance that a transaction
will be entered into or consummated, or, if a transaction is undertaken, as to its terms, structure or timing.
The Corporation does not expect to make further public comment regarding these matters unless and until
the Board has approved a specific transaction or has concluded its review of strategic alternatives.
In February and March 2019, the Corporation secured two additional tranches for a total of US$15.0 million
from SALP, under the existing US dollar non-revolving credit facility agreement (“Credit Facility”), subject
to compliance with applicable covenants and servicing obligations. In exchange, the Corporation agreed to
reduce the exercise price of Warrants #9 exercisable for Series A Preferred Shares of the Corporation from
$1 per warrant to $0.156 per warrant and to immediately issue those warrants which otherwise would have
been issued in March 2019. Consequently, 19,401,832 warrants with a term of eight years were issued on
February 22, 2019. The Corporation drew US$10.0 million ($13.2 million) and US$5.0 million ($6.7 million)
on February 22 and March 22, 2019, respectively.
19
Prometic Life Sciences Inc.
During Q1 2019, the Corporation issued 12,870,600 common shares under the ATM for total cash proceeds
of $4.1 million.
Please refer to “Liquidity and Contractual Obligations” below for additional information.
On March 31, 2019, Ms. Kory Sorenson resigned from Prometic’s Board of Directors.
FINANCIAL PERFORMANCE
Amounts in tables are expressed in thousands of Canadian dollars, except per share amounts.
Results of operations
The consolidated statement of operations for the quarter and year ended December 31, 2018 compared to
the same periods in 2017 are presented in the following table.
Revenues
$
10,597
$
6,596
$
47,374
$
39,115
Quarter ended December 31,
2017
2018
Year ended December 31,
2018
2017
Expenses
Cost of sales and other production expenses
Research and development expenses
Administration, selling and marketing expenses
Bad debt expense
Loss (gain) on foreign exchange
Finance costs
Loss (gain) on extinguishments of liabilities
Change in fair value of financial instruments
measured at FVPL
Impairment losses
Share of losses of an associate
Net loss before income taxes
Income tax recovery:
Current
Deferred
7,582
21,141
10,663
-
3,913
6,558
(34,904)
1,000
149,952
-
2,428
28,202
8,781
20,491
(1,427)
2,639
-
-
-
-
38,002
91,666
31,532
-
4,681
22,060
(33,626)
1,000
149,952
22
10,149
100,392
31,441
20,491
(726)
7,965
4,191
-
-
-
$
(155,308)
$
(54,518)
$
(257,915)
$
(134,788)
(2,269)
(11,725)
(13,994)
(4,913)
(7,959)
(12,872)
(6,204)
(13,815)
(20,019)
(3,165)
(11,587)
(14,752)
Net loss
$
(141,314)
$
(41,646)
$
(237,896)
$
(120,036)
Net loss attributable to:
Owners of the parent
Non-controlling interests
Loss per share
Attributable to the owners of the parent
Basic and diluted
Weighted average number of
outstanding shares (in thousands)
$
$
(102,953)
(38,361)
(38,279)
(3,367)
(195,366)
(42,530)
(109,731)
(10,305)
(141,314)
$
(41,646)
$
(237,896)
$
(120,036)
(0.14)
$
(0.05)
$
(0.27)
$
(0.16)
718,539
709,928
716,208
683,954
Revenues
Total revenues for the year ended December 31, 2018 were $47.4 million compared to $39.1 million during
the comparative period of 2017, which represents an increase of $8.3 million. Total revenues for the quarter
ended December 31, 2018 were $10.6 million compared to $6.6 million during the comparative period of
2017, representing an increase of $4.0 million.
20
Prometic Life Sciences Inc.Management Discussion & Analysis
Revenues in 2018 and 2017 included revenues from the sale of goods, development services and rental
while 2017 also includes milestone and licensing revenues. Revenues from the sale of goods, services,
licensing and milestone achievements may vary significantly from period to period.
The following table provides the breakdown of total revenues by source for the quarter and year-ended
December 31, 2018 compared to the corresponding period in 2017.
Revenues from the sale of goods
Milestone and licensing revenues
Revenues from the rendering of services
Rental revenue
Quarter ended December 31,
2017
2018
Year ended December 31,
2018
2017
$
$
$
10,283
-
267
47
$
5,479
-
880
237
$
45,584
-
1,291
499
10,597
$
6,596
$
47,374
$
16,461
19,724
1,930
1,000
39,115
Revenues from the sale of goods were $45.6 million during the year ended December 31, 2018 compared
to $16.5 million during the corresponding period of 2017, representing an increase of $29.1 million. The
increased sales revenues for 2018 were mainly due to $22.8 million in sales of normal source plasma which
occurred in the second, third and fourth quarters of 2018. The Corporation decided to sell this inventory as
a result of the change in the production forecast due to the delay of the BLA approval for Ryplazim™. The
remainder of the increase of $6.3 million for the year is mainly due to an increase in third party sales in the
Bioseparations segment by approximately 35%. This strong growth is a result of a number of factors
including the expansion of manufacturing activities by existing clients, the adoption of products by new
clients and the introduction of new products.
Revenues from the sale of goods were $10.3 million during the fourth quarter of 2018 compared to
$5.5 million during the corresponding period of 2017, representing an increase of $4.8 million which was
due to sales of $3.1 million of normal source plasma and an increase in third party bioseparations sales of
$1.7 million.
Service revenues were $1.3 million during the year ended December 31, 2018 compared to $1.9 million for
the corresponding period of 2017, representing a decrease of $0.6 million and $0.3 million during the fourth
quarter of 2018 compared to $0.9 million during the corresponding period of 2017, representing a decrease
of $0.6 million. The service revenues for 2018 and 2017 were generated mainly in our Bioseparations
segment.
For the year ended December 31, 2018, the Corporation has not earned any milestone and licensing
revenues, while during the third quarter of the year ended December 31, 2017, the Corporation recognized
revenues of $19.7 million, generated by the Small molecule therapeutics segment and pertaining to a
licensing agreement signed with Jiangsu Renshou Pharmaceutical Co, Ltd,(“JRP”) an affiliate of Shenzhen
Royal Asset Management Co., LTD (“SRAM”), regarding the licensing of the Chinese rights to its small
molecules PBI-4050, PBI-4547 and PBI-4425. Having not received the licensing and milestone revenues
within the specified payment terms, Prometic opted to terminate the licensing agreement in March 2018,
thereby resulting in the return of all the rights previously conferred under the licensing agreement back to
Prometic. During the fourth quarter of 2017, the Corporation wrote-off the accounts receivable and reversed
the withholding taxes expected to be paid on this transaction to bad debt expense.
Cost of sales and production
Cost of sales and production were $38.0 million during the year ended December 31, 2018 compared to
$10.1 million for the corresponding period in 2017, representing an increase of $27.9 million. Cost of sales
and production for the quarter ended December 31, 2018 were $7.6 million compared to $2.4 million for the
corresponding period in 2017, representing an increase of $5.2 million. The majority of the increase is due
to the sales of normal source plasma in 2018 which overall was sold slightly below its carrying amount on
a cumulative basis for the year but generated a slight profit during the fourth quarter of 2018. The remainder
21
Prometic Life Sciences Inc.
of the increase in both periods is mostly explained by the increase in products sold by the Bioseparations
segment.
Research and development expenses
The R&D expenses for the quarter and the year ended December 31, 2018 compared to the same periods
in 2017 broken down into its two main components are presented in the following table.
Quarter ended December 31,
2017
2018
Year ended December 31,
2018
2017
Manufacturing and purchase cost of therapeutics
used for R&D activities
Other research and development expenses
Total research and development expenses
$
$
10,451
10,690
21,141
$
$
10,911
17,291
28,202
$
$
38,621
53,045
91,666
$
$
34,703
65,689
100,392
R&D expenses were $91.7 million during the year ended December 31, 2018 compared to $100.4 million
for the corresponding period in 2017, representing a decrease of $8.7 million. R&D expenses were
$21.1 million during the quarter ended December 31, 2018 compared to $28.2 million for the corresponding
period in 2017, representing a decrease of $7.1 million.
R&D expenses include the manufacturing cost of plasma-derived and small molecule therapeutics to be
used in clinical trials and for the development of our production processes. The plasma-derived therapeutics
are produced at the Laval plant and the Winnipeg CMO while the small molecule therapeutics are
manufactured by a third party for Prometic. Most of this expense comes from the plasma-derived
therapeutics segment. The manufacturing cost of these therapeutics was $38.6 million during the year
ended December 31, 2018 compared to $34.7 million during the year ended December 31, 2017,
representing an increase of $3.9 million. The manufacturing cost of plasma-derived and small molecule
therapeutics to be used in clinical trials and for the development of our production processes was
$10.5 million during the three months ended December 31, 2018 compared to $10.9 million during the
corresponding period of 2017, representing a decrease of $0.5 million.
In 2018, there was a reduction in production activities at the Laval plant while the facility focuses on
addressing comments received by the FDA following their audit at the end of 2017 as part of the review of
the BLA for RyplazimTM. This resulted in a reduction in overall manufacturing expenses for Plasma-derived
therapeutics, however since there was no commercial production in 2018, none of these expenses were
capitalized to inventories compared to 2017. In addition, the plasminogen inventory that was on hand as of
the previous year end was expensed throughout the current year as the timeline for re-submitting the BLA
became clearer. It became evident that a portion of the inventory would be used for additional process
testing runs while the balance would be used to supply the patients who were part of the clinical trials while
awaiting commercial approved product. The reduction in plasminogen inventory capitalized more than
offset the overall reduction in manufacturing expenses, thus causing an increase in the manufacturing cost
of therapeutics used for R&D activities for the year ended December 31, 2018 compared to the
corresponding period of 2017. When comparing the fourth quarter of 2018 to the same period in 2017, there
is a slight decrease.
Other R&D expenses were $53.0 million during the year ended December 31, 2018 compared to
$65.7 million for the corresponding period in 2017, representing a decrease of $12.6 million, and
$10.7 million during the quarter ended December 31, 2018 compared to $17.3 million for the corresponding
period in 2017, representing a decrease of $6.6 million. The reduction in the clinical trial and pre-clinical
research expenses in both the Small molecules and Plasma-derived therapeutics segments were partially
offset by additional spending in the implementation and validation of additional analytical assays and “in-
process” controls in the manufacturing of Ryplazim™.
22
Prometic Life Sciences Inc.Management Discussion & Analysis
Administration, selling and marketing expenses
the year ended
Administration, selling and marketing expenses were $31.5 million during
December 31, 2018 compared to $31.4 million for the corresponding period in 2017, representing an
increase of $0.1 million. The increase is mainly due to the increase in severance compensation which was
partially offset by a decline in marketing expense.
Administration, selling and marketing expenses were $10.7 million during the quarter ended December 31,
2018 compared to $8.8 million for the corresponding period in 2017, representing an increase of
$1.9 million. The increase is mainly due to the increase in severance compensation.
Bad debt expense
There was no bad debt expense during the year and the quarter ended December 31, 2018 compared to
$20.5 million for the corresponding periods in 2017. The prior year expense is due to the write-off, affecting
the fourth quarter of 2017, of the amounts due from JRP in regards to a license agreement. The licensee
having not remitted funds associated with the license fee and initial milestone payment within the specified
payment terms was consequently in breach of the agreement. As a result, the Corporation was in a position
to exercise its contractual rights and opted to terminate the agreement in March 2018, thereby returning all
the rights previously conferred under the license agreement back to Prometic.
Share-based payments expense
Share-based payments expense represents the expense recorded as a result of stock options and
restricted stock units issued to employees and board members. This expense has been recorded as follows:
Cost of sales and other production expenses
Research and development expenses
Administration, selling and marketing expenses
$
$
Quarter ended December 31,
2017
2018
$
128
1,008
2,603
$
71
1,280
1,220
Year ended December 31,
2018
2017
$
299
2,295
4,128
370
4,150
4,142
8,662
3,739
$
2,571
$
6,722
$
Share-based payments expense was $6.7 million during the year ended December 31, 2018 compared to
$8.7 million during the corresponding period of 2017, representing a decrease of $1.9 million. These
variations are mainly explained by the fact that there were less RSU that vested during the year ended
December 31, 2018 compared to the corresponding period 2017.
Share-based payments was $3.7 million during the quarter ended December 31, 2018 compared to
$2.6 million during the corresponding period of 2017, representing an increase of $1.2 million. The increase
is mainly due to an additional charge of $1.2 million during the fourth quarter of 2018, in anticipation that
the vesting of certain awards might be accelerated as part of termination benefits still being negotiated at
the end of the year.
The RSU expense may vary significantly from period to period as certain milestones are met, changes in
likelihood occur as projects advance, and the timelines to achieve the milestones before expiry advance.
Finance costs
Finance costs were $22.1 million for the year ended December 31, 2018 compared to $8.0 million during
the corresponding period of 2017, representing an increase of $14.1 million. Finance costs were
$6.6 million for the quarter ended December 31, 2018 compared to $2.6 million during the corresponding
period of 2017, representing an increase of $3.9 million. This increase reflects the higher level of debt during
the year ended December 31, 2018 compared to the same period of 2017 reflecting the amounts drawn on
the Credit Facility agreement and the increase in the Original Issue Discount (“OID”) balances. as well as
the higher implicit financing rate, when considering the stated interest and the warrants issued, demanded
by our lender over the years.
23
Prometic Life Sciences Inc.
Loss (gain) on extinguishments of liabilities
On November 14, 2018, the Corporation and the holder of the debt modified the terms of the four loan
agreements subject to compliance with covenants and debt servicing obligations, to extend the maturity
date of the Credit Facility from November 30, 2019 to September 30, 2024 and all three OID loans from
July 31, 2022 to September 30, 2024. Interest on amounts outstanding on the Credit Facility will continue
to be payable quarterly at an annual rate of 8.5% during the period of the extension. As of July 31, 2022,
the OID loans will be restructured into cash paying loans bearing interest at an annual rate of 10%, payable
quarterly. The outstanding face values of the OID loans at that date will become the principal amounts of
the restructured loans. As additional consideration for the extension of the maturity dates, Prometic agreed
to cancel 100,117,594 existing warrants (Warrants #3 to 7) and issue replacement warrants to the holder
of the long-term debt, bearing a term of 8 years and exercisable at a per share price equal to $1.00. The
exact number of warrants to be granted was to be set at a number that will result in the holder of the long-
term debt having a 19.99% fully-diluted ownership level in Prometic upon grant of the warrants to be issued
no later than March 15, 2019. On November 30, 2018, Warrants #3 to 7 were cancelled and 128,056,881
warrants to purchase common shares (“Warrants #8”), representing a portion of the replacement warrants,
were issued. At the end of the agreed upon measurement period for calculating the number of new warrants
to be issued, Prometic will issue the remaining replacement warrants under a new series of warrants
(“Warrants #9”), which will give the holder the right to acquire preferred shares. The holder of the long-term
debt also obtained the Corporation’s best efforts to support the election of a second representative of the
lender to on the Board of directors of the Corporation, and the extension of the security to the royalty
agreement.
Management assessed the changes made to the previous agreements and determined that the modification
should be accounted for as an extinguishment of the previous loans and the recording of new loans at their
fair value determined as of the date of the modification. The carrying amount of the previous loans of
$155.1 million were derecognized followed by the recognition of the fair value of the modified loans of
$107.7 million which were determined using a discounted cash flow model with a market interest rate of
20.1%. Any fees incurred with this transaction were expensed, including legal fees and the difference in fair
value between the warrants that were cancelled, and the new warrants issued.
In addition, the fees incurred in regards of the Credit Facility that were previously recorded in the
consolidated statement of financial position as other long-term assets and were being amortized and
recognized in the consolidated statement of operations over the original term of the Credit Facility were
expensed.
The modification resulted in the recording of a gain on extinguishment of liabilities of $34.9 million; the
impacts of the different aspects of this transaction are detailed in the following table.
Extinguishment of previous loans
Expensing of deferred financing fees on Credit Facility
Recognition of modified loans
Expensing of increase in the fair value of the warrants
Warrants proceeds
Expensing of legal fees incurred with the debt modification
$
(155,055)
3,245
107,704
8,778
(10)
434
$
(34,904)
Also in 2018 and 2017, SALP, the holder of the long-term debt, used the set off of principal right in the loan
agreements, to settle various amounts due to the Corporation under a royalty purchase agreement in 2018
and its participation in a private placement in 2017.
On July 6, 2017, the face value of the third OID loan was reduced by $8.6 million, from $39.2 million to
$30.6 million. The reduction of $8.6 million is equivalent to the value of 5,045,369 common shares issued
at the agreed price of $1.70. The difference of $4.2 million between the adjustment to the carrying value of
24
Prometic Life Sciences Inc.Management Discussion & Analysis
the loan of $4.1 million and the amount recorded for the shares issued of $8.3 million was recognized as a
loss on extinguishment of liabilities.
In August and September 2018, the face value of the second OID loan was reduced by $3.9 million from
$21.2 million to $17.3 million, in settlement of $3.9 million due by SALP under the royalty agreement. The
carrying amount of the loan was reduced by $2.6 million and a loss on extinguishment of liabilities of
$1.3 million.
Impairment losses
As a result of various events affecting the Corporation during 2018, including; 1) the delay of the commercial
launch of RyplazimTM following the identification by the FDA of a number of changes required in the CMC
section of the BLA submission for congenital plasminogen deficiency, 2) the Corporation’s limited financial
resources since Q4 2018, which significantly delayed manufacturing expansion plans and resulted in the
Corporation focusing its resources on refiling the RyplazimTM BLA as soon as possible; 3) the recognition
of the larger than anticipated commercial opportunities for RyplazimTM, and 4) the change in executive
leadership in Q4, the Corporation modified its strategic plans in Q4 to focus all available plasma-derived
therapeutic segment resources on the manufacturing and development of RyplazimTM for the treatment of
congenital plasminogen deficiency and other indications.
These changes and their various impacts prompted Management to perform an impairment test of the IVIG
cash generating unit, which includes assets such as the licenses held by NantPro and Prometic
Biotherapeutics Inc., manufacturing equipment located at our Canadian manufacturing facilities and the
CMO facility at December 31, 2018, and to review whether other assets pertaining to follow-on proteins
might be impaired.
In regards to the IVIG cash generating unit (“CGU”), the substantial work, time and investment required and
limited resources available to complete a robust CMC package for IVIG prior to filing a BLA, and the
reduction of the forecasted IVIG production capacity at all plants will significantly delay the
commercialisation of IVIG compared to previous timelines. As a result, cash inflows beginning beyond 2023
were not considered in the calculation of the value in use impairment test due to the inherent uncertainty in
forecasting cash flows beyond a five-year period. As a result, the value in use for the IVIG CGU was $Nil.
Management also evaluated the fair value less cost to sell and determined that this value also approximated
$Nil.
Consequently, impairment losses for the totality of the carrying amounts of the NantPro license and a
second license acquired in January 2018, giving the rights to use Masterplasma IVIG clinical data and the
design plans for a plant with a production capacity in excess of current needs, of $141.0 million and
$1.6 million, respectively, were recorded. An impairment was also recorded on the option to purchase
equipment in the amount of $0.7 million since the likelihood of exercising this option is low in view of the
current manufacturing and production plans. Finally, an impairment of $5.7 million was recorded on IVIG
production equipment, to reduce their value to the fair value less cost to sell.
Management also reviewed the carrying amount of other assets pertaining to the follow-on proteins the
Corporation has acquired, since the resources for further advancement of these assets are currently limited
due to the focus on RyplazimTM. As a result, the Corporation recorded an impairment on its investment in
an associate of $1.2 million. The uncertainty of future cash flows for therapeutics that have not yet
commenced phase 1 clinical trials was an important consideration in making this estimate.
25
Prometic Life Sciences Inc.
Impairment losses recorded on these assets (excluding the convertible debt) totalling $150.0 million for the
year and quarter ended December 31, 2018 are summarized below.
Impairment on IVIG CGU:
Intangible assets
Fixed assets
Option to purchase equipment
Impairment on Prothera:
Investment in an associate
Deferred revenue
2018
142,609
5,689
653
148,951
1,182
(181)
1,001
149,952
$
$
$
$
$
Change in fair value of financial instruments measured at fair value through profit and loss
At the same time and for the same reasons as the recording of the impairment on the investment in
associate, the fair value of the investment in the convertible debt of ProThera was also reduced to $Nil at
December 31, 2018 resulting in a loss in fair value of $1.2 million.
Warrants #9, that the Corporation committed to issue to SALP as part of the debt modification that occurred
in November 2018, do not meet the definition of an equity instrument since the underlying preferred shares
qualify as a liability instrument and therefore must be accounted for as a financial liability and carried at fair
value through profit and loss. The estimated fair value of these warrants between November 14, 2018, the
date of the modification, and as December 31, 2018 declined resulting in a gain of $0.2 million for the year
and quarter ended December 31, 2018.
Income taxes
The Corporation recorded a current income tax recovery of $6.2 million during the year ended
December 31, 2018 compared to $3.2 million for the corresponding period of 2017, representing an
increase of $3.0 million. The increase is principally due to the increase in refundable R&D tax credits in the
U.K. The current income tax recovery was $2.3 million during the quarter ended December 31, 2018
compared to $4.9 million for the corresponding period of 2017, representing a decrease of $2.6 million. The
decrease is mainly due to timing of the recognition of R&D tax credits for the U.K. in 2017 versus 2018.
The Corporation recorded a deferred income tax recovery of $13.8 million during the year ended
December 31, 2018 compared to $11.6 million for the corresponding period of 2017, representing an
increase of $2.2 million. The Corporation recorded a deferred income tax recovery of $11.7 million during
the quarter ended December 31, 2018 compared to $8.0 million for the corresponding period of 2017,
representing an increase of $3.8 million.
During the first three quarters of 2018 and during the quarters of 2017, the Corporation recorded income
tax recoveries from the recognition of deferred tax assets pertaining to the unused tax losses attributable
to Prometic as a partner in NantPro, our partnership with NantPharma to develop and commercialise IVIG
for the U.S. market. During the fourth quarter of 2017, there was a significant increase in the deferred
income tax recovery recorded due to the change in the US federal income tax rate from 35% to 21%,
producing a significant decrease in the deferred tax liability that was recognized in the business combination
of NantPro. During the fourth quarter of 2018, following the impairment of the NantPro license, the deferred
tax liability of $27.5 million for that asset was reversed and the deferred tax assets of $14.6 million relating
to the unused tax losses were derecognized.
26
Prometic Life Sciences Inc.Management Discussion & Analysis
Net loss
The Corporation incurred a net loss of $237.9 million during the year ended December 31, 2018 compared
to a net loss of $120.0 million for the corresponding period of 2017, representing an increase in the net loss
of $117.9 million. The net loss in 2018 is higher mainly due to the non-cash impairment losses of
$150.0 million and the increase in finance cost of $14.1 million in the year ended December 31, 2018
compared to the corresponding period of 2017. This was partially offset by the recognition of a gain on
extinguishments of liabilities of $33.6 million during the year ended December 31, 2018 compared to a loss
on extinguishments of liabilities of $4.2 million for the corresponding period in 2017. Also offsetting the
increase in loss was the fact that no bad debt expense was recorded in 2018 while a $20.5 million expense
was recorded in the previous year.
The Corporation incurred a net loss of $141.3 million during the quarter ended December 31, 2018
compared to a net loss of $41.6 million for the corresponding period of 2017, representing an increase in
net loss of $99.7 million. The increase was mainly generated by the impairment losses of $150.0 million
recorded during the quarter ended December 31, 2018 which were partially offset by the gain on
extinguishment of liabilities of $34.9 million recorded in the same period compared to the bad debt expense
of $20.5 million recorded on the JRP receivable during the corresponding period of 2017. The increase in
finance costs by $3.9 million during the quarter ended December 31, 2018 compared to the corresponding
period in 2017 was also partially offset by a reduction in R&D expenses of $7.1 million.
EBITDA analysis
The Adjusted EBITDA for the Corporation for the quarters and the years ended December 31, 2018 and
2017 are presented in the following tables:
Net loss
$
(141,314)
$
(41,646)
$
(237,896)
$
(120,036)
Quarter ended December 31,
2017
2018
Year ended December 31,
2018
2017
Adjustments to obtain Adjusted EBITDA
Loss (gain) on foreign exchange
Finance costs
Loss (gain) on extinguishments of liabilities
Change in fair value of financial instruments
measured at FVPL
Impairment losses
Share of losses of an associate
Income tax recovery
Depreciation and amortization
Share-based payments expense
3,913
6,558
(34,904)
1,000
149,952
-
(13,994)
1,402
3,739
(1,427)
2,639
-
-
-
-
(12,872)
1,310
2,571
4,681
22,060
(33,626)
1,000
149,952
22
(20,019)
5,458
6,722
(726)
7,965
4,191
-
-
-
(14,752)
4,576
8,662
Adjusted EBITDA
$
(23,648)
$
(49,425)
$
(101,646)
$
(110,120)
Adjusted EBITDA is a non-GAAP measure that is not defined or standardized under IFRS and it is unlikely
to be comparable to similar measures presented by other companies. Prometic believes that Adjusted
EBITDA provides additional insight in regards to the cash used in operating activities on an on-going basis.
It also reflects how management analyzes performance and compares its performance against other
companies. In addition, we believe that Adjusted EBITDA is a useful measure as some investors and
analysts use EBITDA and similar measures to compare Prometic against other companies.
Total Adjusted EBITDA was $(101.6) million for the year ended December 31, 2018 compared to
$(110.1) million for the comparative period of 2017, representing an increase in Adjusted EBITDA of
$8.5 million. This increase is caused mainly by the decrease in R&D expenditures of $8.7 million during the
year ended December 31, 2018 compared to the corresponding period in 2017. The licensing agreement
with JRP had no net impact on the Adjusted EBITDA for the year ended December 31, 2017.
27
Prometic Life Sciences Inc.
Total Adjusted EBITDA was $(23.6) million for the quarter ended December 31, 2018 compared to
$(49.4) million for the comparative period of 2017, representing an increase in Adjusted EBITDA of
$25.8 million. This increase in Adjusted EBITDA is mainly explained by the bad debt expense of
$20.5 million recorded during the quarter ended December 31, 2017 compared none being recorded during
the corresponding period in 2018. A decrease in R&D expenses of $7.1 million between both periods
explains the remainder of the increase in Adjusted EBITDA.
Segmented information analysis
For the year ended December 31, 2018 and 2017
The loss for each segment and the net loss before income taxes for the total Corporation for the years
ended December 31, 2018 and 2017 are presented in the following table:
For the year ended December 31, 2018
External revenues
Intersegment revenues
Total revenues
Cost of sales and other production expenses
Manufacturing and purchase cost of therapeutics
used for R&D activities
R&D - Other expenses
Administration, selling and marketing expenses
$
Small
molecule
therapeutics
Plasma-derived
therapeutics
Bioseparations
Reconciliation
to statement
of operations
$
-
-
-
-
1,692
14,234
3,468
$
24,492
29
24,521
25,297
37,061
31,727
10,445
$
22,741
319
23,060
12,929
-
7,084
2,947
$
141
(348)
(207)
(224)
(132)
-
14,672
Total
47,374
-
47,374
38,002
38,621
53,045
31,532
Segment profit (loss)
$
(19,394)
$
(80,009)
$
100
$
(14,523)
$
(113,826)
Loss (gain) on foreign exchange
Finance costs
Loss (gain) on extinguishments of liabilities
Change in fair value of financial instruments measured at FVPL
Impairment losses
Share of losses of an associate
Net loss before income taxes
Other information
Depreciation and amortization
Share-based payment expense
For the year ended December 31, 2017
External revenues
Intersegment revenues
Total revenues
Cost of sales and other production expenses
Manufacturing and purchase cost of therapeutics
used for R&D activities
R&D - Other expenses
Administration, selling and marketing expenses
Bad debt expense
Segment profit (loss)
Loss (gain) on foreign exchange
Finance costs
Loss (gain) on extinguishments of liabilities
Net loss before income taxes
Other information
Depreciation and amortization
Share-based payment expense
$
$
$
480
1,270
$
3,644
1,524
$
919
322
415
3,606
$
$
Small
molecule
therapeutics
$
19,724
-
19,724
-
1,755
17,426
3,633
20,491
Plasma-derived
therapeutics
Bioseparations
Reconciliation
to statement
of operations
$
2,490
39
2,529
4,014
32,764
40,960
13,539
-
$
16,802
1,566
18,368
7,877
-
7,301
2,719
-
$
99
(1,605)
(1,506)
(1,742)
184
2
11,550
-
4,681
22,060
(33,626)
1,000
149,952
22
(257,915)
5,458
6,722
Total
39,115
-
39,115
10,149
34,703
65,689
31,441
20,491
$
(23,581)
$
(88,748)
$
471
$
(11,500)
$
(123,358)
$
$
428
1,509
$
2,880
2,269
$
907
394
361
4,490
(726)
7,965
4,191
(134,788)
4,576
8,662
$
$
28
Prometic Life Sciences Inc.Management Discussion & Analysis
Small molecule therapeutics segment
During Q3 2017, the segment recognized $19.7 million in milestone and licensing revenues for a licensing
agreement signed with JRP, an affiliate of SRAM, whereas no revenues were recorded in 2018. As
previously mentioned, during Q4 2017, the Corporation wrote-off the related accounts receivable since the
license agreement was subsequently terminated by Prometic. The net impact of this transaction was
effectively $Nil for the year ended December 31, 2017.
Other R&D expenses declined by $3.2 million during the year ended December 31, 2018 compared to the
previous year reflecting the lower spending on pre-clinical studies carried out during 2018. The segment
loss for Small molecule therapeutics was $19.4 million during the year ended December 31, 2018 compared
to a $23.6 million loss during the corresponding period, a decrease of $4.2 million.
Plasma-derived therapeutic segment
The revenues for the Plasma-derived therapeutics segment are usually generated from the sales of
specialty plasma to third parties, the provision of services to licensees and rental revenues. During the year
ended December 31, 2018, the segment sold $19.7 million of normal source plasma which it had not done
in the previous years. This was a result of the change in the production forecast due to the delay of the BLA
approval for Ryplazim™, the Corporation decided to sell excess normal source plasma inventory it had at
the beginning of the year and that it was contractually obligated to purchase during the year. The
Corporation was also able to reduce its purchasing commitments from 2018 to 2022. The normal source
plasma sold during the year ended December 31, 2018 was sold at a value slightly below its carrying
amount, generating a negative margin of $0.7 million. The remainder of the sales in 2018 pertain to
specialty plasma products.
The manufacturing cost of plasma-derived therapeutics used for R&D activities was higher during the year
ended December 31, 2018 at $37.1 million compared to $32.8 million during the corresponding period of
2017, representing an increase of $4.3 million. In 2018, there was a reduction in production activities at the
Laval plant while the facility focuses on addressing comments received by the FDA following their audit at
the end of 2017 as part of the review of the BLA for Ryplazim™. This resulted in a reduction in overall
manufacturing expenses for Plasma-derived therapeutics, however since there was no commercial
production in 2018, none of these expenses were capitalized to inventories compared to 2017. In addition,
the plasminogen inventory that was on hand as of the previous year end was expensed throughout the
current year as the timeline for re-submitting the BLA became clearer. It became evident that a portion of
the inventory would be used for additional process testing runs while the balance would be used to supply
clinical trial patients until commercially approved product is available. The reduction in plasminogen
inventory capitalized more than offset the overall reduction in manufacturing expenses, thus causing an
increase in the manufacturing cost of therapeutics used for R&D activities for the year ended December
31, 2018 compared to the corresponding period of 2017.
Other R&D expenses were $31.7 million during the year ended December 31, 2018 compared to
$41.0 million during the corresponding period of 2017 representing a decrease of $9.2 million. The
decrease is mainly due to the reduction in the clinical trial and pre-clinical research expenses which were
partially offset by additional spending in relation to the implementation and validation of additional analytical
assays and “in-process” controls in the manufacturing of Ryplazim™. The plasminogen congenital
deficiency clinical trial and the adult cohort of the IVIG clinical trial were substantially completed in 2017.
During the current year, the IVIG clinical trial for pediatric cohort was ongoing and nearing its completion
towards the end of 2018 with the last patient receiving their last dose in the first quarter of 2019. This was
partially offset by slightly higher compensation expense reflecting the hiring of some of the staff that will be
required to operate our Buffalo plasma collection center.
Administration, selling and marketing expenses decreased by $3.1 million during the year ended
December 31, 2018 compared to the corresponding period in 2017 mainly due to a reduction in commercial
launch preparation expenses for Ryplazim™. Additionally, the administrative support that the segment
29
Prometic Life Sciences Inc.
receives from head office decreased compared to previous year as activities were reduced or postponed
due to the delay in the anticipated commercialization.
Overall, the segment loss for Plasma-derived therapeutics of $80.0 million during the year ended
December 31, 2018 compared to $88.7 million during the corresponding period of 2017, represents a
decrease of $8.7 million.
Bioseparations segment
The revenues for the Bioseparations segment are generated mainly from the sales of goods, by providing
resin development services to external customers and from its transactions with the Plasma-derived
therapeutics segment. Revenues for the segment were $23.1 million during the year ended December 31,
2018, an increase of $4.7 million compared to the corresponding period of 2017, comprising an increase of
$5.9 million in revenues from third parties and a decrease $1.2 million of intersegment revenues. This
strong growth in third party sales is due to several factors including the expansion of manufacturing activities
by existing clients who utilize Prometic’s products in their production processes, the adoption of products
by new clients and the introduction of new products. The higher external sales revenue in Great British
Pounds (“GBP”) was compounded by a higher CAD/GBP exchange rate this year compared to the same
period in 2017. The decline in intersegment revenues was due to less demand from the Plasma-derived
therapeutic segment resulting from a reduction in their production activities.
Revenues from the sale of goods is composed of different products and the margins on individual products
vary significantly. Several products are custom designed for specific customers. Since key customers tend
to place significant orders that may not be repeated on a yearly basis, the sales for individual products are
quite variable. This is compounded by the fact that a high proportion of sales in a given period usually come
from a limited number of customers. If larger customers purchase higher margin product or lower margin
product, it creates volatility in the total margins and the cost of goods sold from period to period. In addition,
the size of the orders affects the batch size used in production, and larger batch sizes typically result in
higher gross margins.
The cost of sales and other production expenses increased versus previous year mainly due to the increase
in sales volume and offset partially by a decrease in margins as a higher proportion of sales were for lower
margin products. Other R&D expenses and Administration, selling and marketing costs remained relatively
stable year over year.
The Bioseparations segment generated a slight profit of $0.1 million during the year ended December 31,
2018 compared to a profit of $0.5 million during the corresponding period in 2017.
30
Prometic Life Sciences Inc.Management Discussion & Analysis
For the quarters ended December 31, 2018 and 2017
The loss for each segment and the net loss before income taxes for the total Corporation for quarters ended
December 31, 2018 and 2017 are presented in the following tables.
For the quarter ended December 31, 2018
External revenues
Intersegment revenues
Total revenues
Cost of sales and other production expenses
Manufacturing and purchase cost of therapeutics
used for R&D activities
R&D - Other expenses
Administration, selling and marketing expenses
$
Small
molecule
therapeutics
Plasma-derived
therapeutics
Bioseparations
Reconciliation
to statement
of operations
$
-
-
-
-
(59)
2,587
698
$
3,344
8
3,352
3,230
10,496
6,033
2,128
$
7,218
-
7,218
4,376
-
2,071
704
$
35
(8)
27
(24)
14
(1)
7,133
Segment profit (loss)
$
(3,226)
$
(18,535)
$
67
$
(7,095)
$
Loss (gain) on foreign exchange
Finance costs
Loss (gain) on extinguishments of liabilities
Change in fair value of financial instruments measured at FVPL
Impairment losses
Net loss before income taxes
Other information
Depreciation and amortization
Share-based payment expense
For the quarter ended December 31, 2017
External revenues
Intersegment revenues
Total revenues
Cost of sales and other production expenses
Manufacturing and purchase cost of therapeutics
used for R&D activities
R&D - Other expenses
Administration, selling and marketing expenses
Bad debt expense
Segment profit (loss)
Loss (gain) on foreign exchange
Finance costs
Net loss before income taxes
Other information
Depreciation and amortization
Share-based payment expense
$
$
$
$
130
691
$
920
735
$
192
132
160
2,181
Small
molecule
therapeutics
Plasma-derived
therapeutics
Bioseparations
Reconciliation
to statement
of operations
$
-
-
-
$
425
12
437
(533)
341
4,867
841
20,491
1,119
10,566
10,571
4,267
-
$
6,138
107
6,245
1,984
-
1,853
794
-
33
(119)
(86)
(142)
4
-
2,879
-
(26,007)
$
(26,086)
$
1,614
$
(2,827)
$
$
118
492
$
823
717
$
271
103
98
1,259
$
$
$
$
$
$
Total
10,597
-
10,597
7,582
10,451
10,690
10,663
(28,789)
3,913
6,558
(34,904)
1,000
149,952
(155,308)
1,402
3,739
Total
6,596
-
6,596
2,428
10,911
17,291
8,781
20,491
(53,306)
(1,427)
2,639
(54,518)
1,310
2,571
Small molecule segment
The segment loss for Small molecule therapeutics was $3.2 million during the quarter ended December 31,
2018 compared to a loss of $26.0 million for the corresponding period in 2017, representing a decrease in
loss of $22.8 million. The decrease in loss is essentially because the fourth quarter results for 2017 include
the write-off of the license and milestone revenues pertaining to a licensing agreement signed with JRP, an
affiliate of SRAM during the third quarter of 2017. The royalty expense initially recorded was subsequently
reversed in Cost of sales.
The reduction in other R&D expenditures of $2.3 million during the quarter ended December 31, 2018
compared to the corresponding period, is mainly due to the reduction in pre-clinical studies expenses.
Plasma-derived therapeutics segment
The increase in net sales of the segment during the quarter ended December 31, 2018 compared to the
corresponding period of 2017 was due to a $3.1 million sale of normal source plasma as part of the
segment’s inventory management plan. This transaction generated a gross margin of $0.3 million.
31
Prometic Life Sciences Inc.
The cost of manufacturing the therapeutics used in R&D activities remained at similar levels over both
periods. Other R&D expenses declined by $4.5 million during the quarter ended December 31, 2018
compared to the corresponding period of 2017, mainly due to a decrease in clinical trial expenditures
reflecting the fact that the IVIG clinical trial for the pediatric cohort is nearing completion at the end of 2018
whereas towards the end of last year, the adult cohort still had some patients receiving doses and most of
the pediatric cohort had started their participation in the trial. There was also less expenses in regards to
the plasminogen congenital deficiency trial during the fourth quarter of 2018 as the main trial supporting the
BLA filing was completed in 2017.
Administration, selling and marketing expenses declined by $2.1 million during the quarter ended
December 31, 2018 compared to the corresponding period in 2017 mainly due to a reduction in marketing
expenses.
The segment loss for Plasma-derived therapeutics was $18.5 million during the quarter ended
December 31, 2018 compared to a loss of $26.1 million for the corresponding period in 2017, representing
a decrease in loss of $7.6 million. The decrease in loss is mainly due to the decrease in other R&D and
Administration, selling and marketing expenses.
Bioseparations segment
Revenues for the segment increased by $1.0 million for the quarter ended December 31, 2018 compared
to the corresponding period of 2017. Since a higher portion of the sales in the current period was for lower
margin products, the sales for the fourth quarter of 2018 contributed less to the segment’s profit than those
during the fourth quarter of 2017 and the Bioseparations segment made a higher profit in that period.
32
Prometic Life Sciences Inc.Management Discussion & Analysis
Financial condition
The consolidated statements of financial position at December 31, 2018 and December 31, 2017 are
presented in the following table followed by a discussion of the key changes in the statement of financial
position between both dates.
Cash
Accounts receivable
Income tax receivable
Inventories
Prepaids
Total current assets
Long-term income tax receivable
Other long-term assets
Capital assets
Intangible assets
Deferred tax assets
Total assets
Accounts payable and accrued liabilities
Advance on revenues from a supply agreement
Current portion of long-term debt
Deferred revenues
Warrant liability
Total current liabilities
Long-term portion of deferred revenues
Long-term portion of operating and finance lease
inducements and obligations
Other long-term liabilities
Long-term debt
Deferred tax liabilities
Total liabilities
Share capital
Contributed surplus
Warrants
Accumulated other comprehensive loss
Deficit
Equity (negative equity) attributable to owners of the parent
Non-controlling interests
Total equity (negative equity)
Total liabilities and equity
$
$
$
$
$
December 31,
2018
7,389
11,882
8,091
12,028
1,452
$
December 31,
2017
23,166
6,839
4,116
36,013
2,141
40,842
117
411
41,113
19,803
606
102,892
31,855
-
3,211
507
157
35,730
170
1,850
5,695
122,593
-
166,038
583,117
21,923
95,296
(1,252)
(755,688)
(56,604)
(6,542)
(63,146)
$
$
$
$
72,275
108
8,663
45,254
156,647
926
283,873
29,954
1,901
3,336
829
-
36,020
-
2,073
3,335
83,684
15,330
140,442
575,150
16,193
73,944
(1,622)
(541,681)
121,984
21,447
143,431
283,873
$
102,892
$
Cash
Cash, decreased by $15.8 million at December 31, 2018 compared to December 31, 2017. Cash balances
are directly influenced by the timing and size of financing events and operating revenues and expenditures.
Cash flows and liquidity are discussed in detail further in the liquidity section.
Accounts receivable
Accounts receivable increased by $5.0 million at December 31, 2018 compared to December 31, 2017
reflecting the higher sales during the fourth quarter of 2018 compared to those in the corresponding period
of 2017.
33
Prometic Life Sciences Inc.
Income tax receivable
Current income tax receivable increased by $4.0 million at December 31, 2018 compared to December 31,
2017 as the Corporation recognized additional amounts it recently claimed in regards to prior year
refundable R&D tax credits on operations in the U.K. in addition to the allowable credits for 2018.
Inventories
Inventories decreased by $24.0 million at December 31, 2018 compared to December 31, 2017 principally
due to the significant reduction in plasma inventory which declined by $17.5 million. In 2018 Prometic sold
excess normal source plasma no longer required in near term operations and used the plasminogen work
in progress inventory that existed at the December 31, 2017 for process testing runs and to supply
participants in the plasminogen congenital deficiency clinical trials while they await for commercially
available product. No plasminogen commercial lots were manufactured in 2018 and therefore no work in
progress inventories were capitalized.
Other long-term assets and investment in an associate
Other long-term assets decreased by $8.3 million at December 31, 2018 compared to December 31, 2017.
The decrease is mainly due to the collection of a $1.9 million long-term receivable that was acquired as
part of the Telesta Therapeutics Inc. business combination, the reclass of $1.2 million of equity investment
in accordance with IFRS 9 to the investment in an associate (see below) and the expensing of all the
capitalized deferred financing costs following the debt modification that occurred November 2018, resulting
in the extinguishment of the previously recorded debt together with any fees still carried on the statement
of financial position. In addition to this, the fair value of the investment in convertible debt of ProThera was
evaluated to approximate $Nil at December 31, 2018 and the decline in fair value was recorded during the
fourth quarter of 2018.
The Corporation has an investment in common shares of ProThera over which management estimates it
has significant influence since August 2018. As such, ProThera is considered an associate and
consequently, the equity investment is accounted for using the equity method. Following this determination,
an amount of $1.2 million representing the investment in common shares of ProThera that was previously
presented under other long-term assets was reclassified as an investment in an associate. During the fourth
quarter of 2018 the Corporation recorded a full impairment of this investment.
Capital assets
Capital assets decreased by $4.1 million at December 31, 2018 compared to December 31, 2017. The
decrease is mainly due to the impairment of IVIG equipment to its fair value less cost to sell during the
fourth quarter of 2018.
Intangible assets
The carrying amount of intangible assets was $19.8 million at December 31, 2018 compared to
$156.6 million at December 31, 2017, a decrease of $136.8 million. The decrease is mainly due the
impairment loss of $142.6 million on IVIG intangible assets during the fourth quarter of 2018 as mentioned
earlier.
Accounts payable and accrued liabilities
Accounts payable and accrued liabilities increased by $1.9 million at December 31, 2018 compared to
December 31, 2017, despite the reduction of operating expenditures as aging of supplier invoices increased
due to the limited liquidity position.
Advance on revenues from a supply agreement
The advance on revenues from a supply agreement was repaid in full during the quarter ended September
30, 2018 which puts an end to this arrangement.
34
Prometic Life Sciences Inc.Management Discussion & Analysis
Long-term debt
The carrying amount of the long-term debt was $125.8 million at December 31, 2018 compared to
$87.0 million at December 31, 2017, an increase of $38.8 million. The increase is primarily due to the
US$60.0 million drawn on the Credit Facility which occurred throughout the year and from the interest
accretion during the year causing increases in the carrying amount of the long-term debt of $71.7 million
and $18.9 million, respectively. Following modifications to the terms of the four loan agreements in
November 2018 whereby the terms of the loans were all extended to September 30, 2024, the Corporation
proceeded to account for this transaction as the extinguishment of pre-modification loans and a recognition
of the loans under the modified terms. The net impact of the modifications was a decrease in the carrying
amount of these loans by $47.4 million.
Warrant liability
A warrant liability of $0.3 million was recognized as consideration for the modification of the terms of the
loan agreements. The Corporation has a commitment to issue warrants, referred to as Warrants #9, to
SALP on or before March 15, 2019. At December 31, 2018, these warrants were not issued and the exact
number of warrants to be issued will be based on the number of warrants necessary to increase the
ownership of SALP to 19.99% of the common shares on a fully diluted basis at the date of issuance. The
warrants are exercisable at a price of $1 per share and will expire eight years after their date of issuance.
The Warrants #9 do not meet the definition of an equity instrument since the underlying preferred shares
qualify as a liability instrument, and therefore they must be accounted for as a financial instrument carried
at Fair Value through Profit and Loss (“FVPL”). At December 31, 2018, the fair value of warrant liability
declined to $0.2 million.
Deferred tax liabilities
Deferred tax liabilities decreased by $15.3 million at December 31, 2018 compared to December 31, 2017
mainly due to the reversal of the deferred tax liabilities pertaining to the NantPro license on which an
impairment was recorded during the fourth quarter of 2018. This was partially offset by the reversal of
previously recognized deferred tax assets relating to unused tax losses attributable to Prometic has a
partner in NantPro.
Share Capital
Share capital increased by $8.0 million at December 31, 2018 compared to December 31, 2017 mainly due
to the issuance of common shares for the acquisition of the non-controlling shareholders 13% interest in
Prometic Bioproduction Inc. in exchange for 4,712,422 common shares at $3.6 million and the acquisition
of licenses and an option to buy equipment, the total valued at $2.0 million. The remainder of the increase
is due to the issuance of shares from the ATM agreement and the exercise of stock options.
Contributed surplus
Contributed surplus increased by $5.7 million at December 31, 2018 compared to December 31, 2017. The
increase is principally due to the recognition of share-based payment expense of $6.7 million during the
year ended December 31, 2018, partially offset by the exercise of stock options and share issued pursuant
to the restricted share unit plan.
Warrants
Warrants increased by $21.4 million at December 31, 2018 compared to December 31, 2017 mainly due
to the issuance of 4,000,000 warrants valued at $1.7 million for the acquisition of a license, the recognition
of the fair value of the 34,000,000 Warrants #7, for a value $11.2 million, which were issued on November
30, 2017 pursuant to entering into a Credit Facility agreement and vested during the year as the Corporation
drew on the Credit Facility, and the increase in fair value of the warrants given to SALP as part of the
November 2018 debt modification of $8.4 million.
35
Prometic Life Sciences Inc.
Non-Controlling Interests (“NCI”)
to
Non-controlling
December 31, 2017. The variation in the NCI between December 31, 2018 and December 31, 2017 is
shown below:
interests decreased by $28.0 million at December 31, 2018 compared
Balance at December 31, 2017
Share in losses
Share in Prometic's funding of NantPro
Derecognition of the NCI in Prometic Bioproduction Inc.
NCI balance at December 31, 2018
$
$
21,447
(42,530)
2,892
11,649
(6,542)
In April 2018, the Corporation and the non-controlling shareholders of Prometic Bioproduction Inc. entered
into an agreement whereby Prometic would acquire the non-controlling shareholders 13% interest in the
subsidiary in exchange for 4,712,422 common shares of the Corporation. The difference of $15.3 million
between the value of the equity issued in payment of the 13% ownership acquired of $3.6 million and the
value of the total net liabilities attributed to the NCI at the date of the transaction of $11.6 million that was
derecognized from the statement of financial position, was recognized in the deficit to reflect Prometic’s
increase in the ownership of the subsidiary.
During the fourth quarter of 2018, an impairment loss of $141.0 million was recorded on the NantPro license
of which the share of the loss of the non-controlling interest in NantPro was $38.1 million.
Cash flow analysis
The consolidated statements of cash flows for the year ended December 31, 2018 and the comparative
period in 2017 are presented below.
Cash flows used in operating activities
Cash flows from financing activities
Cash flows from (used in) investing activities
Net change in cash during the year
Net effect of currency exchange rate on cash
Cash, beginning of the year
Cash, end of the year
Quarter ended December 31,
2015
2014
Year ended December 31,
$
2018
(82,454)
72,158
(5,859)
(16,155)
378
23,166
7,389
$
2017
(122,573)
117,452
1,119
(4,002)
(638)
27,806
23,166
$
$
Cash flow used in operating activities decreased by $40.1 million during the year ended December 31,
2018 compared to the same period in 2017. The decrease is due mainly as a result of inflows from the sale
of normal source plasma in 2018, the utilisation of other inventories which had been capitalized at
December 31, 2017, the reduced spending in clinical and pre-clinical studies and marketing, and a reduction
in plasminogen inventory build that occurred in 2017 in preparation for commercialisation.
Cash flows from financing activities decreased by $45.3 million during the year ended December 31, 2018
compared to the same period in 2017. Although the proceeds received from the issuance of debt and
warrants under the Credit Facility during 2018 were higher by $28.4 million than in 2017, there were small
proceeds from shares issued under the ATM facility and no proceeds from the exercise of future investment
rights in 2018 whereas future investment rights and proceeds from share issuances contributed
$74.2 million in financing in 2017.
Through December 31, 2018, the Company has issued a total of 1,946,000 common shares at an average
price of $0.39 per share under the ATM for aggregate gross proceeds of $0.8 million and total net proceeds
of $0.7 million.
36
Prometic Life Sciences Inc.Management Discussion & Analysis
Cash flows from investing activities decreased by $7.0 million during the year ended December 31, 2018
compared to the same period in 2017. In 2017, the Corporation sold marketable securities and short-term
investments of $11.1 million while there was no such sale in 2018. This decrease in inflows was partially
offset by a reduction in payments for the acquisition of capital assets.
LIQUIDITY AND CONTRACTUAL OBLIGATIONS
During the year, the Corporation was faced with delays to certain expected high-value milestones which
resulted in a significant shortfall in the cash inflows it had anticipated would support its R&D activities in
2018 and 2019. The Corporation had also believed that it would have started selling RyplazimTM by now
which would have made a significant contribution to its financial situation.
Since the beginning of 2018, the Corporation has monitored its risk of shortage of funds by monitoring
forecasted and actual cash flows and maturity dates of existing financial liabilities and commitments and
has actively managed its capital to ensure a sufficient liquidity position to finance its operations, including
cost of revenue, general and administrative expenses, working capital as well as R&D and overall capital
expenditures. Over the last few quarters, the Corporation has identified and undertaken a number of
restructuring measures with the objective of improving future earnings, reducing ongoing operating costs
and enhancing the Corporation's ability to raise financing.
Despite these initiatives, the Corporation fully utilized the existing Credit Facility by the end of 2018. The
Corporation actively attempted to close different financing transactions during 2018 but was unsuccessful.
It became clear over the course of the year, that the maturity of the Credit Facility in November 2019 and
the OID loans in July 2022 were a concern for future investors. As such it became imperative that the
Corporation extend the maturity dates of its loans. In November 2018, the Corporation and SALP modified
the Credit Facility and loan agreements to extend their maturity to September 2024, subject to compliance
with applicable covenants and servicing obligations. It also implemented an ATM equity distribution
agreement to provide short-term operating funds however these are not sufficient facilities to finance long
term goals, resulting in a financial position that needs to be rapidly improved. At December 31, 2018, the
Corporation’s working capital is a surplus of $5.5 million.
In February and in March 2019, SALP agreed to extend an aggregate principal amount of up to
US$15 million under the loan facility entered into with SALP in November 2017, structured by way of a
US$10 million first tranche and a US$5 million second tranche, which the Corporation drew on February 22
and March 22, 2019, respectively.
Looking ahead, there are several transactions that may generate additional cash inflows that will support
the ongoing operation expenditures such as:
• on March 14, 2018, the Corporation filed a final shelf prospectus valid for a period of 25 months
that would enable a variety of equity financing transactions up to an aggregate of $250.0 million;
• use of existing ATM facility that may provide up to an additional $30.0 million in financing from
•
January 2019 to March 2020 subject to trading restrictions and market liquidity;
the Corporation is in ongoing discussions with potential licensees of its drug pipeline. Any such
discussions may lead to the conclusion of a licensing transaction which could generate a
combination of licensing, milestone and royalty revenues; and
• The Corporation is currently involved in negotiating equity and equity-linked financing instruments
and in the context of a potential debt restructuring continues to pursue other financing opportunities.
As at March 31, 2019, the Corporation was not in breach of its covenants under its credit facilities with
SALP, as a result of a waiver obtained by the Corporation as at March 20, 2019, wherein SALP confirmed
that the breached covenants will not be deemed to constitute an event of default. SALP also agreed to
37
Prometic Life Sciences Inc.
defer the payment of interest that was originally due under the terms of the existing credit facilities with
SALP on March 31, 2019 to a later date in April 2019.
Management and the Board of Directors are engaged in a comprehensive strategy to improve the financial
and business conditions of the Corporation and, in January 2019, commenced a process to explore and
evaluate potential strategic alternatives focused on maximizing shareholder value, including potential
acquisitions, joint ventures, strategic alliances, other M&A or capital markets transaction as well as any
other transaction or alternative available to the Corporation. Concurrently, Management and the Board of
Directors have been actively exploring opportunities to bring forward cash flow to repay debt and fund
working capital requirements and, in February 2019, engaged Lazard, a global financial advisory and asset
management firm, to review and execute two key strategic transactions for the Corporation to raise non-
dilutive capital from a licensing partnership for one of the Corporation's late-stage assets and the trade sale
of some non-core operations. While Lazard has made promising initial progress in building competitive
processes for these, no transaction is expected to close before the end of the Q2 of 2019.
In conjunction with the strategic review and liquidity concerns, in February 2019, the Board of Directors
formed a Special Committee of independent directors to oversee the strategic review process (the "Special
Committee"). The Special Committee meets regularly and oversees the work of Management and the
Corporation’s financial and legal advisors in respect of such mandate.
Longer term refinancing of its credit facilities, raising of additional capital, licensing partnership and/or trade
sale of some of the Corporation’s non-core operations to make bulk payments to repay debt, if successful,
would potentially alleviate any significant doubt on the Corporation's ability to continue as a going concern.
Without an alternative lender and/or additional capital, the Corporation does not have sufficient working
capital to repay the principal balance on maturity of the Corporation's outstanding debt with SALP. In the
event that refinancing is unable to be secured, and/or the licensing partnership or contemplated trade sale
fail to materialize to repay debt, the Corporation will work with SALP to obtain maturity extensions and
potentially forbearance agreements of the terms of the loans, however, same cannot be guaranteed to be
provided and the potential results if they are not, include foreclosure or forced liquidation and/or seeking
creditor protection.
The Special Committee continues to review possible strategic alternatives, however there can be no
guarantee that the review will result in a transaction or satisfy any liquidity concerns relating to the
Corporation's ability to continue as a going concern. However, the risks and uncertainties associated with
obtaining alternative financing raise significant doubt as to the ability of the Corporation to meet its
obligations as they become due, and accordingly, the appropriateness of the use of the accounting
principles applicable to a going concern.
Despite the Corporation’s efforts to obtain the necessary funding, there can be no assurance of its access
to further financing. Therefore, the use of the going concern assumption, on which the annual audited
consolidated financial statements as at December 31, 2018 are prepared, may not be appropriate as
Prometic’s main activities continue to be in the R&D stage and during the 12 months ended December 31,
2018, the Corporation incurred a net loss of $237.9 million and used $82.5 million in cash for its operating
activities, while at December 31, 2018, the current assets net of current liabilities is a surplus of $5.5 million.
These circumstances indicate the existence of a material uncertainty that may cast significant doubt about
the Corporation’s ability to continue as a going concern without a significant restructuring and/or financing.
The annual audited consolidated financial statements for the quarter and twelve months ended December
31, 2018 do not include any adjustments to the amounts and classification of assets and liabilities that might
be necessary should the Corporation be unable to continue as a going concern. Such adjustments could
be material.
38
Prometic Life Sciences Inc.Management Discussion & Analysis
Financial obligations
The timing and expected contractual outflows required to settle the financial obligations of the Corporation
recognized in the consolidated statement of financial position at December 31, 2018 are presented in the
table below:
At December 31, 2018
Accounts payable and accrued liabilities 1)
Long-term portion of royalty payment obligations
Long-term license acquisition payment obligation
Long-term portion of other employee benefit liabilities
Long-term debt 2)
Carrying
amount
Payable
within 1 year
2 - 3 years
Later than
4 years
Contractual Cash flows
$
$
26,011
3,009
1,363
993
125,804
157,180
$
$
26,011
-
-
-
12,588
38,599
$
$
-
3,469
1,363
993
18,776
24,601
$
$
-
354
-
-
268,261
268,615
$
$
Total
26,011
3,823
1,363
993
299,625
331,815
1) Excluding $5.8 million for current portion of operating and finance lease inducement and obligations.
2) Under the terms of the OID loans and the non-revolving line of credit, the holder of Warrants #2, 8 and 9 may decide to cancel a
portion of the face values of these loans as payment upon the exercise of these warrants. The maximum repayment due on these
loans has been included in the above table.
In addition to the above, the Corporation must make the following payments under finance lease
agreements that became effective during the year ended December 31, 2018:
Future minimum lease payments
Commitments
Within 1 year
2 - 5 years
$
415
$
485
$
Total
900
CMO Lease
In May 2015, the Corporation signed a long-term manufacturing contract with a third party which provides
the Corporation with additional manufacturing capacity (“the CMO contract”). The payments under the CMO
contract cover the use of the production facility, a specified number of direct and indirect labour hours and
the related overhead expense during a minimum of 20 weeks per year, until 2030. The term of the
agreement will be automatically extended after the initial term for successive terms of five years, unless a
notification of termination is produced by one of the parties. The annual minimum payments under the
agreement are subject to escalation annually calculated as the greatest of 3% or the Industrial Product
Price / Pharmaceutical and Medicine Manufacturing index under the North American Industry Classification
System. The annual payments are also subject to an adjustment calculated as 50% of the exchange rate
between the U.S. dollar and the Canadian dollar at December 31st of each year.
The following table represent the future minimum operating lease payment as of December 31, 2018:
Future minimum operating lease payment
$
3,572
$
15,393
$
28,271
$
Within 1 year
2 - 5 years
Later than
5 years
Total
47,236
The above payments include non-lease elements pertaining to the arrangement as it was impracticable to
separate the operating expenses from the lease payment.
Other Leases
The Corporation has total commitments in the amount of $27.7 million under various operating leases for
the rental of offices, production plant, laboratory space and office equipment. The payments for the coming
years and thereafter are as follows:
39
Prometic Life Sciences Inc.
2019
2020
2021
2022
2023 and thereafter
$
$
4,043
4,162
3,710
3,626
12,200
27,741
Royalties
SALP, the long-term debt holder, a company who has significant influence over the Corporation, has a right
to receive a 2% royalty on future revenues relating to patents existing as of the date of the agreement of
PBI-1402 and analogues, including PBI-4050. The obligation under this royalty agreement is secured by all
the assets of the Corporation until the expiry of the last patent anticipated in 2033.
In the normal course of business, the Corporation enters into license agreements for the market launching
or commercialization of products. Under these licenses, including the ones mentioned above, the
Corporation has committed to pay royalties ranging generally between 0.5% and 15.0% of net sales from
products it commercializes and 3% of license revenues in regards to certain small-molecule therapeutics.
Other commitments
In connection with the CMO contract, the Corporation has committed to a minimum spending between
$7.0 million and $9.0 million each year from 2019 to 2030 (the end of the initial term). As of
December 31, 2018, the remaining payment commitment under the CMO contract was $97.7 million or
$50.5 million after deduction of the minimum lease payments under the CMO contract disclosed above.
The Corporation has entered into multiple plasma purchase agreements whereby it has committed to
purchase varying volumes of plasma until December 31, 2022. As at December 31, 2018, total commitment
are as follows:
2019
2020
2021
2022
2023 and thereafter
$
$
8,853
20,281
30,422
5,152
-
64,708
In February 2019, the Corporation renegotiated the purchase commitment with one of its suppliers reducing
the commitment for 2019, 2020 and 2021 by $5.0 million, $10.1 million and $15.1 million, respectively. Any
plasma purchased under these agreements, if in excess of short-term requirements, would be available for
sale on the spot market.
40
Prometic Life Sciences Inc.Management Discussion & Analysis
SELECTED ANNUAL INFORMATION
The following table presents selected audited annual information for the years ended December 31, 2018,
2017 and 2016.
Revenues
Net loss attributable to owners
of the parent
Net loss per share attributable to
owners of the parent (basic and diluted)
Total assets
Total long-term financial liabilities
2018
2017
2016
$
$
47,374
$
39,115
$
16,392
(195,366)
(109,731)
(100,807)
(0.27)
103,036
126,965
$
(0.16)
283,873
86,735
$
(0.17)
265,294
45,106
The mix and the amounts generated from the four main sources of revenues of the Corporation, namely
revenues from the sale of goods, milestone and licensing revenues, revenues from the rendering of services
and rental revenue has shown a lot of variability over the last three years. Revenues from the sales of
goods increased by $3.6 million in 2017 compared to 2016 whereas they have increased by $29.1 million
during 2018. The important increase in sales of goods in 2018 was mainly due to the sale of excess
inventories of normal sources plasma, which are not anticipated to reoccur. Milestone and licensing
revenues were $19.7 million in 2017. There were no milestone and licensing revenues earned in 2016 or
2018. Revenues from the rendering of services revenues decreased from $3.4 million in 2016 to $1.9 million
in 2017 and then decreased to $1.3 million in 2018. Finally, the Corporation earned incidental rental
revenues in all three years.
The net loss attributable to the owners of the parent increased significantly by $85.6 million from 2017 to
2018 due to the impact of two key events: 1) the recording of impairment losses totalling $150.0 million
which were partially offset by 2) the recognition of a gain on extinguishments of liabilities of $33.6 million
following the modifications to the Credit Facility and OID loans in November 2018. R&D expenses declined
by $8.7 million or 8% from the previous year while financing cost increased by $14.1 million.
The net loss attributable to the owners of the parent increased by $8.9 million from 2016 to 2017 mainly
due to the increase in the R&D expenses by $12.8 million reflecting an increase in the number of employees
involved in the clinical trials, regulatory processes and other research activities. The milestone and licensing
revenues recorded during the year ended December 31, 2017 were written-off entirely effectively negating
the contribution of those revenues.
The net loss per share on a basic and diluted basis reflects the changes in the net loss attributable to the
owner of the parent but also the increasing number of common shares outstanding from year to year. In
2017 and 2016 basic and diluted net loss per share remained at similar level despite the increase in net
loss since because of the important increase in the weighted average number of outstanding shares which
went from 598 million in 2016 to 684 million in 2017. In 2018 basic and diluted net loss per share increased
significantly in line with the net loss attributable to owners of the parent.
Total assets increased by $18.6 million from $265.3 million at December 31, 2016 to $283.9 million at
December 31, 2017 mainly due to the build-up of inventory in preparation of the commercial launch of
plasminogen. Total assets decreased to $103.0 million at December 31, 2018 mainly due to the impairment
losses recognized on intangible assets, namely the NantPro license, the reduction in inventories and cash.
Long-term financial liabilities increased by $41.6 million between 2016 and 2017 mainly due mainly due to
the increase in debt reflecting the drawdown on the Credit Facility and the increase in the carrying value of
the long-term debt by $18.4 million following issuance of the third OID loan in April 2017 pursuant to a
financing transaction with SALP. From 2017 to 2018 long-term financial liabilities increased by $40.2 million
mainly due to the increase in debt of $71.7 million from the drawdowns on the Credit Facility. This increase
41
Prometic Life Sciences Inc.
was partially offset by the impact of the debt repayment terms modification which reduced the long-term
debt by $47.4 million.
SUMMARY OF QUARTERLY RESULTS
The following table presents selected quarterly financial information for the last eight quarters:
Quarter ended
December 31, 2018
September 30, 2018
June 30, 2018
March 31, 2018
December 31, 2017
September 30, 2017
June 30, 2017
March 31, 2017
Revenues
$
14,066
-
3,619
4,111
$
Revenues
10,597
12,330
20,155
4,292
6,596
24,034
3,619
4,866
$
$
Net loss attributable
to the owners of the parent
$
Total
(102,953)
(28,472)
(32,270)
(31,671)
(38,279)
(15,542)
(29,513)
(26,397)
Per share
basic & diluted
(0.14)
(0.04)
(0.05)
(0.04)
(0.05)
(0.02)
(0.04)
(0.04)
Revenues from period to period may vary significantly as these are affected by the timing and shipment of
orders for goods as well as the timing of the delivery of research services under agreements. Revenues
are also impacted by the timing of signing licensing agreements, the achievement of milestones established
in these agreements and how these revenues are recognized for accounting purposes. The timing of the
revenue and expense recognition can cause significant variability in the results from quarter to quarter.
Revenues were $4.9 million during the quarter ended March 31, 2017, which represents an increase of
$0.8 million compared to the previous quarter ended December 31, 2016. R&D and administration, selling
and marketing expense were at $24.4 million and $6.9 million, respectively, both decreasing compared to
the fourth quarter of 2016. The decline in R&D expense were mainly due to lower clinical trial expenses
and a reduction in the cost of manufacturing therapeutics used for R&D activities as our Plasma-derived
therapeutics segment started manufacturing plasminogen for commercial purposes, and these costs were
capitalized in inventories.
Revenues were $3.6 million during the quarter ended June 30, 2017 as a result of lower sales of affinity
resins. R&D was stable at $24.5 million and administration, selling and marketing expenses at $8.1 million
was higher by $1.1 million.
Revenues were $24.0 million during the quarter ended September 30, 2017 mainly driven by licensing and
milestone revenues following the signing of a small molecule licensing agreement which resulted in
$19.7 million of revenue for the Corporation. R&D and administration, selling and marketing expense were
$23.2 million and $7.7 million respectively, remaining at similar levels to the prior quarter. A non-cash loss
on extinguishments of liabilities of $4.2 million was recorded as the holder of the long-term debt decided to
reduce the face value of the loan in consideration of the shares they received pursuant to a private
placement that occurred in July 2017.
Revenues during the quarter ended December 31, 2017 were $6.6 million, of which the majority was driven
by product sales and service revenues from the Bioseparations segment. Research and development and
administration, selling and marketing expense were $28.2 million and $8.8 million respectively. The
increase in R&D costs of $5.0 million compared to the previous quarter is mainly due to higher expense
relating to cost of therapeutics to be used in clinical trials, an increase in the external cost incurred in running
the trials and higher salary and benefit expenses. Administration, selling and marketing expenses were
slightly higher by $1.1 million principally due to higher salary and benefit expenses. During the quarter, the
Corporation recognized a bad debt expense of $20.5 million, effectively offsetting the milestone and
licensing revenues earned during the previous quarter.
42
Prometic Life Sciences Inc.Management Discussion & Analysis
Revenues were $4.3 million during the quarter ended March 31, 2018 of which $3.8 million came from
product sales. Cost of sales and other production expenses were high reflecting lower margins on the
products sold during the period and an inventory write-off on a portion of the plasma held in inventory to
net realisable value in advance of a sales transaction to take place during the next quarter but for which the
selling price had been settled in advance. R&D expenses at $22.4 million were lower by $5.8 million and
administration, selling and marketing expenses also declined by $1.1 million compared to the previous
quarter. Financing cost increased to $4.2 million reflecting the higher debt level and the higher borrowing
cost of the Credit Facility.
Revenues during the quarter ended June 30, 2018 were $20.2 million, of which the majority was driven by
a $14.0 million sale of plasma. Sales of product from the Bioseparations segment made up most of the
remaining revenues reflecting strong sales for that segment. Cost of sales and other production expenses
were $16.4 million reflecting the sale of plasma. R&D expenses at $24.0 million increased slightly over the
previous quarter while administration, selling and marketing expense decreased slightly to $6.9 million.
Financing cost increased to $6.3 million reflecting the continuous increase in the debt level and the higher
borrowing cost of the Credit Facility.
Revenues during the quarter ended September 30, 2018 were $12.3 million, which were equally driven by
sales from Plasma-derived therapeutics and Bioseparations segments. Sales from the Plasma-derived
segment included normal source plasma in the amount of $5.7 million. Cost of sales and other production
expenses were $9.2 million. R&D expenses at $24.1 million were similar to the previous quarter while
administration, selling and marketing expenses decreased slightly to $6.2 million. Financing cost at
$5.9 million, continued to increase reflecting the higher debt level as the Corporation continued to draw on
the Credit Facility.
Revenues during the quarter ended December 31, 2018 were $10.6 million, which was driven by strong
sales from the Bioseparations segment and another sale of normal source plasma of $3.1 million in Plasma-
derived therapeutics segment. Cost of sales and other production expenses were $7.6 million. R&D
expenses decreased slightly to $21.1 million while administration, selling and marketing expenses
increased to $8.8 million, impacted by severance expenses. Financing cost increased to $6.6 million
reflecting the higher debt level and the higher borrowing cost of the Credit Facility. During the quarter, a
gain on extinguishment of liabilities of $34.9 million was recorded as a result of the modifications to the
Corporation’s long-term debt. Impairments, mainly pertaining to IVIG assets totalling $150.0 million were
recognized following changes to the strategic plans which will delay the commercialisation of IVIG
significantly.
OUTSTANDING SHARE DATA
The Corporation is authorized to issue an unlimited number of common shares. At March 29, 2019,
739,130,546 common shares, 22,532,954 options to purchase common shares, 30,994,925 restricted
share units and 153,611,386 warrants to purchase common shares were issued and outstanding.
43
Prometic Life Sciences Inc.
TRANSACTIONS BETWEEN RELATED PARTIES
The former CEO has a share purchase loan outstanding in the amount of $400,000 at December 31, 2018
and 2017. The loan bears interest at prime plus 1% and has a maturity date of the earlier of (i) March 31,
2019 or (ii) 30 days preceding a targeted NASDAQ or NYSE listing date of Prometic’s shares. During the
year ended December 31, 2018, the Corporation earned interest revenues in the amount of $19,000 and
at December 31, 2018, the unpaid interest was $31,000.
SIGNIFICANT JUDGMENTS AND CRITICAL ACCOUNTING ESTIMATES
Significant judgments
Accounting for loan modifications – When the terms of a loan are modified, management must evaluate
whether the terms of the loan are substantially different in order to determine the accounting treatment. If
they are considered to be substantially different, the modification will be accounted for as a derecognition
of the carrying value of the pre-modified loan and the recognition of a new loan at its fair value. Otherwise,
the changes will be treated as a modification which will result in adjusting the carrying amount to the present
value of the modified cash flows using the original effective interest rate of the loan instrument. In assessing
whether the terms of a loan are substantially different, Management performs an analysis of the changes
in the cash flows under the previous agreement and the new agreement and also considers other
modifications that have no cash flow impacts. In the context of the simultaneous modification to the terms
of several loans with the same lender, Management uses judgment to determine if the cash flow analysis
should be performed on the loans in aggregate or individually. Judgment is also used to evaluate the relative
importance of additional rights given to the lender such as additional Board of Director seats and the
extension of the term of the security compared to the quantitative analysis.
Revenue recognition – The Corporation does at times enter into revenue agreements which provide,
among other payments, up-front and milestone payments in exchange for licenses and other access to
intellectual property. It may also enter into several agreements simultaneously that are different in nature
such as license agreements, R&D services, supply and manufacturing agreements. In applying the IFRS 15
revenue recognition model, management may be required to apply, depending on the contracts, significant
judgment including the identification of performance obligations.
Determining whether performance obligations are distinct involves evaluating whether the customer can
benefit from the good or service on its own or together with other resources that are readily available to the
customer. Once the distinct performance obligations are identified, management must then determine if
each performance obligation is satisfied at a point in time or over time. For license agreements, this requires
management to assess the level of advancement of the intellectual property being licensed.
Functional currency – The functional currency of foreign subsidiaries is reviewed on an ongoing basis to
assess if changes in the underlying transactions, events and conditions have resulted in a change. During
the years ended December 31, 2018 and 2017 no changes were deemed necessary. This assessment is
also performed for new subsidiaries. When assessing the functional currency of a foreign subsidiary,
management’s judgment is applied in order to determine, amongst other things, the primary economic
environment in which an entity operates, the currency in which the activities are funded and the degree of
autonomy of the foreign subsidiary from the reporting entity in its operations and financially. Judgment is
also applied in determining whether the inter-company loans denominated in foreign currencies form part
of the parent Corporation’s net investment in the foreign subsidiary. Considering such loans as part of the
net investment in the foreign subsidiary results in foreign currency translation gains or losses from the
translation of these loans being recorded in other comprehensive loss instead of the statement of
operations.
44
Prometic Life Sciences Inc.Management Discussion & Analysis
Going concern - In assessing whether the going concern assumption is appropriate and whether there are
material uncertainties that may cast significant doubt about the Corporation’s ability to continue as a going
concern, management must estimate future cash flows for a period of at least twelve months following the
end of the reporting period by considering relevant available information about the future. Management has
considered a wide range of factors relating to expected cash inflows such as product sales, whether the
Corporation will obtain regulatory approval for commercialization of therapeutics, licensing and milestone
revenues and potential sources of debt and equity financing including the exercise of in-the-money warrants
and options. Management has also estimated expected cash outflows such as operating and capital
expenditures and debt repayment schedules, including the ability to delay uncommitted expenditures.
These cash flow estimates are subject to uncertainty.
Estimates and assumptions
Assessing the recoverable amount of long-lived assets – In determining the value in use and the fair
value less cost to sell for the IVIG CGU, which includes the NantPro license, an intangible asset not yet
available for use that must be tested for impairment annually or when indicators of impairment arise.
Management must make estimates and assumptions regarding the estimated future cash flows and their
timing including the amount and timing of the capital expenditure investments necessary to increase
manufacturing capacities and to bring the facilities to Good Manufacturing Practices (“GMP”) standards,
when production capacities will come on-line, production costs, market penetration and selling prices for
the Corporation’s therapeutics and, the date of approval of the therapeutic for commercial sale. The future
cash flows are estimated using a five-year projection of cash flows before taxes which are based on the
most recent budgets and forecasts available to the Corporation. If the projections include revenues in the
fifth year, then this year is extrapolated, using an expected annual growth rate. The estimated cash flows
are then discounted to their net present value using a pre-tax discount rate that includes a risk premium
specific to the line of business. During the year ended December 31, 2018, the Corporation recorded
several impairments and the details are provided in note 24 Impairment losses of the consolidated financial
statements for the year ended December 31, 2018.
Expense recognition of restricted share units – The RSU expense recognized, for which performance
conditions have not yet been met, is based on an estimation of the probability of successful achievement
of a number of performance conditions, many of which depend on research, regulatory process and
business development outcomes which are difficult to predict, as well as the timing of their achievement.
The final expense is only determinable when the outcome is known.
Fair value of financial instruments – The individual fair values attributed to the different components of
a financing transaction, are determined using valuation techniques. Management uses judgment to select
the methods used to determine certain inputs/assumptions used in the models and the models used to
perform the fair value calculations in order to determine 1) the values attributed to each component of a
transaction at the time of their issuance, 2) the fair value measurements for certain instruments that require
subsequent measurement at fair value on a recurring basis and 3) for disclosing the fair value of financial
instruments subsequently carried at amortized cost. When the determination of the fair value of a new loan
is required, discounted cash flow techniques, which include, inputs that are not based on observable market
data and inputs that are derived from observable market data are used. When determining the appropriate
discount rates to use, Management seeks comparable interest rates where available. If unavailable, it uses
those considered appropriate for the risk profile of a corporation in the industry.
The fair value estimates could be significantly different because of the use of judgment and the inherent
uncertainty in estimating the fair value of these instruments that are not quoted in an active market.
Valuation of deferred income tax assets – To determine the extent to which deferred income tax assets
can be recognized, management estimates the amount of probable future taxable profits that will be
available against which deductible temporary differences and unused tax losses can be utilized.
45
Prometic Life Sciences Inc.
Management exercises judgment to determine the extent to which realization of future taxable benefits is
probable, considering the history of taxable profits, budgets and forecasts and availability of tax strategies.
CHANGES IN ACCOUNTING POLICIES AND INITIAL ADOPTION
The accounting policies used in the consolidated financial statements are consistent with those applied by
the Corporation in its December 31, 2017 audited annual consolidated financial statements except for the
amendments to certain accounting standards which are relevant to the Corporation and were adopted by
the Corporation as of January 1, 2018 as described below.
IFRS 9, Financial Instruments – Recognition and Measurement
IFRS 9 replaces the provisions of IAS 39, Financial Instruments – Recognition and Measurement, and
provides guidance on the recognition, classification and measurement of financial assets and financial
liabilities, the derecognition of financial instruments, impairment of financial assets and hedge accounting.
The Corporation adopted IFRS 9 as of January 1, 2018 and the new standard has been applied
retrospectively in accordance with the transitional provisions of IFRS 9. The following table presents the
carrying amount of financial assets held by Prometic at December 31, 2017 and their measurement
category under IAS 39 and the new model under IFRS 9.
Cash
Trade receivables
Other receivables
Restricted cash
Long-term receivables
Equity Investments
Convertible debt
IAS 39
IFRS 9
$
Measurement
category
FVPL
Amortized cost
Amortized cost
FVPL
Amortized cost
Cost
Cost
Carrying
amount
23,166
1,796
397
226
1,856
1,228
87
$
Measurement
category
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
FVPL
FVPL
Carrying
amount
23,166
1,796
397
226
1,856
1,228
87
There has been no impact caused by the new classification of financial assets under IFRS 9. The
classification of all financial liabilities at amortized cost remains unchanged as well as their measurement
resulting from their classification.
Under IFRS 9, modifications to financial assets and financial liabilities, shall be accounted for by
recalculating the present value of the modified contractual cashflows at the original effective interest rate
and the adjustment shall be recognized as a gain or loss in profit or loss. Under IAS 39, the impact of
modifications was recognized prospectively over the remaining term of the debt.
The adoption of the accounting for modifications under the new standard has resulted in the restatement
of the opening deficit and the long-term debt at January 1, 2018 as follows:
Deficit
Long-term debt
$
110
(110)
IFRS 15, Revenue from contracts with customers
IFRS 15 replaces IAS 11, Construction Contracts, and IAS 18, Revenue and related interpretations and
represents a new single model for recognition of revenue from contracts with customers. The model
features a five-step analysis of transactions to determine the nature of an entity’s obligation to perform and
whether, how much, and when revenue is recognized.
46
Prometic Life Sciences Inc.Management Discussion & Analysis
The Corporation adopted IFRS 15 as of January 1, 2018 and the new standard has been applied
retrospectively using the modified retrospective approach, where prior periods are not restated and the
cumulative effect of initially applying this standard is recognised in the opening deficit balance on January 1,
2018. The Corporation has also availed itself of the following practical expedients:
•
•
the standard was applied retrospectively only to contracts that were not completed on January 1,
2018; and
for contracts that were modified before January 1, 2018, the Corporation analysed the effects of all
modifications when identifying whether performance obligations were satisfied, determining the
transaction price and allocating the transaction price to the satisfied or unsatisfied performance
obligations.
There has been no impact of the adoption of IFRS 15 as at January 1, 2018 and for the year end
December 31, 2018.
IFRIC 22, Foreign Currency Transactions and Advance Consideration (“IFRIC 22”)
IFRIC 22 addresses how to determine the date of the transaction for the purpose of determining the
exchange rate to use on initial recognition of the related asset, expense or income (or part of it) and on the
derecognition of a non-monetary asset or non-monetary liability arising from the payment or receipt of
advance consideration in a foreign currency. IFRIC 22 is effective for annual periods beginning on or after
January 1, 2018. The Corporation adopted IFRIC 22 retrospectively on January 1, 2018. The adoption of
the standard did not have a significant impact on the financial statements.
NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED
The IFRS accounting standards and interpretations that the Corporation reasonably expects may have a
material impact on the disclosures, the financial position or results of operations of the Corporation when
applied at a future date are presented below. The Corporation intends to adopt these standards when they
become effective.
IFRS 16, Leases (“IFRS 16”)
In January 2016, the International Accounting Standards Board issued IFRS 16, a new standard that
replaces IAS 17, Leases. IFRS 16 provides a single lessee accounting model, requiring the recognition of
assets and liabilities for all leases, unless the lease term is less than 12 months, or the underlying asset
has a low value. IFRS 16 substantially carries forward the lessor accounting in IAS 17 with the distinction
between operating leases and finance leases being retained. The adoption of IFRS 16 is mandatory and
will be effective for the Corporation’s fiscal year beginning on January 1, 2019. The Corporation will adopt
IFRS 16 using the modified retrospective approach. The Corporation expects to recognize a material
amount of right-of-use assets and lease liabilities however, the net impact on opening deficit is not expected
to be material since Prometic has elected the option to measure the right-of-use assets at an amount equal
to the lease liability at the date of the transition, adjusted for any prepaid and liability existing at the date of
transition. The transition to IFRS 16 will not have any impact on the Corporation’s debt covenants since, as
part of the November 14, 2018 debt modification, its debt covenant ratio has been modified to exclude the
lease liability as part of the computation. The Corporation is in the process of completing its evaluation of
the impact of adopting IFRS 16 on its consolidated financial statements.
FINANCIAL INSTRUMENTS
Use of financial instruments
The financial instruments that are used by the Corporation result from its operating and investing activities,
namely in the form of accounts receivables and payables, and from its financing activities, usually in the
issuance of long-term debt. The Corporation does not use financial instruments for speculative purposes
47
Prometic Life Sciences Inc.
and has not issued or acquired derivative financial instruments for hedging purposes. The following table
presents the carrying amounts of the Corporation’s financial instruments at December 31, 2018 and 2017.
Financial assets
Cash
Trade receivable
Restricted cash
Long-term receivables
Equity investments in scope of IFRS 9
Convertible debt
Financial liabilities
Trade payable
Wages and benefits payable
Settlement fee payable
Royalty payment obligations
License acquisition payment obligation
Advance on revenues from a supply agreement
Warrant liability
Long-term debt
2018
2017
$
$
7,389
7,371
245
142
24
-
21,097
1,975
102
3,077
2,726
-
157
125,804
23,166
2,193
226
1,856
1,228
87
19,333
6,839
190
2,963
-
1,901
-
87,020
Impact of financial instruments in the consolidated statements of operations
The following line items in the consolidated statement of operations for the years ended December 31,
2017 and 2018 include income, expense, gains and losses relating to financial instruments:
• Bad debt expense;
•
finance costs;
•
foreign exchange gains and losses;
•
loss (gain) on extinguishments of liabilities;
•
fair value variation of warrant liability; and
•
change in fair value of financial assets measured at FVPL.
Financial risk management
The Corporation has exposure to credit risk, liquidity risk and market risk. The Corporation’s Board of
Directors has the overall responsibility for the oversight of these risks and reviews the Corporation’s policies
on an ongoing basis to ensure that these risks are appropriately managed.
i) Credit risk:
Credit risk is the risk of financial loss to the Corporation if a customer, partner or counterparty to a financial
instrument fails to meet its contractual obligations, and arises principally from the Corporation’s cash,
investments, receivables and share purchase loan to a former officer. The carrying amount of the financial
assets represents the maximum credit exposure.
The Corporation mitigates credit risk through its reviews of new customer’s credit history before extending
credit and conducts regular reviews of its existing customers’ credit performance. The Corporation
evaluates at each reporting period, the lifetime expected credit losses of its accounts receivable balances
based on the age of the receivable, credit history of the customers and past collection experience.
In 2017, the Corporation recorded bad debt expense of $20.5 million in regard to the JRP license agreement
during the fourth quarter and the year ended December 31, 2017.
ii) Liquidity risk:
Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they come
due. The Corporation manages its liquidity risk by continuously monitoring forecasts and actual cash flows.
The Corporation’s current liquidity situation is discussed in the liquidity and contractual obligation section
of this MD&A.
48
Prometic Life Sciences Inc.Management Discussion & Analysis
iii) Market risk:
Market risk is the risk that changes in market prices, such as interest rates and foreign exchange rates, will
affect the Corporation’s income or the value of its financial instruments.
a) Interest risk:
The majority of the Corporation’s debt is at a fixed rate, therefore there is limited exposure to changes in
interest payments as a result of interest rate risk.
b) Foreign exchange risk:
The Corporation is exposed to the financial risk related to the fluctuation of foreign exchange rates. The Corporation operates
in the United States, Isle of Man and the United Kingdom and a portion of its expenses incurred are in U.S. dollars and in
GBP. The majority of the Corporation’s revenues are in U.S. dollars and in GBP which serve to mitigate a portion of the foreign
exchange risk relating to the expenditures. Financial instruments potentially exposing the Corporation to foreign exchange risk
consist principally of cash, short-term investments, receivables, trade and other payables, advance on revenues from a supply
agreement and the amounts drawn on the Credit Facility. The Corporation manages foreign exchange risk by holding foreign
currencies to support forecasted cash outflows in foreign currencies.
RISK FACTORS
For a detailed discussion of risk factors which could impact the Corporation’s results of operations and
financial position, other than those risks pertaining to the financial instruments, please refer to the
Corporation’s Annual Information Form filed on www.sedar.com
DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER
FINANCIAL REPORTING
Disclosure Controls and Procedures
The Corporation maintains disclosure controls and procedures that are designed to provide reasonable
assurance that information required to be disclosed in its reports filed under securities legislation is
recorded, processed, summarized and reported within the time periods specified in securities legislation.
The Corporation’s CEO and CFO have evaluated, or caused the evaluation of, under their supervision, the
design and operating effectiveness of the Corporation’s disclosure controls and procedures. Based upon
the evaluation, the CEO and CFO have concluded that the Corporation’s disclosure controls and
procedures were effective as of December 31, 2018.
Internal control over Financial Reporting
Internal controls over financial reporting (ICFR) are designed to provide reasonable assurance regarding
the reliability of the Company’s financial reporting and the preparation of financial statements for external
purposes in accordance with IFRS.
Due to its inherent limitation, there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions, regardless of how remote.
The Corporation’s CEO and CFO are responsible for establishing and maintaining adequate ICFR. They
have evaluated, or caused the evaluation of, under their supervision, the design and operating effectiveness
of the Corporation’s ICFR as of December 31, 2018 based on the framework established in Internal Control
– Integrated Framework (2013) by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on this assessment, the CEO and CFO concluded that the Corporation’s ICFR
were effective as of December 31, 2018.
49
Prometic Life Sciences Inc.
Change in Internal Controls over Financial Reporting
In accordance with the National Instrument 52-109, the Corporation has filed certificates signed by the CEO
and CFO that, among other things, report on the design of disclosure controls and procedures and the
design of ICFR as at December 31, 2018.
There have been no changes in the Corporation’s ICFR that occurred during the quarter ended
December 31, 2018 that have materially affected or are reasonably likely to materially affect its ICFR.
50
Prometic Life Sciences Inc.Management Discussion & Analysis
51
Prometic Life Sciences Inc. Audited annual consolidated financial statements of
Prometic Life Sciences Inc.
For the years ended December 31, 2018 and 2017
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of Prometic Life Sciences Inc.
We have audited the consolidated financial statements of Prometic Life Sciences Inc. and its subsidiaries (the “Group”), which
comprise the consolidated statements of financial position as at December 31, 2018 and 2017, and the consolidated statements
of operations, consolidated statements of comprehensive loss, consolidated statements of changes in equity and consolidated
statements of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of
significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated
financial position of the Group as at December 31, 2018 and 2017, and its consolidated financial performance and its
consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRSs).
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 Group 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 of the consolidated financial statements, which indicates that the Group incurred a net loss of $237.9
million and used $82.5 million in cash for its operating activities. These conditions together with others indicated 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.
Other Information included
Management is responsible for the other information. The other information comprises:
• Management’s Discussion and Analysis
•
The information, other than the consolidated financial statements and our auditors’ report thereon, in the Annual Report
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, 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 obtained Management’s Discussion & Analysis prior to the date of this auditor’s report. If, based on the work we have
performed, we conclude that there is a material misstatement of this other information, we are required to report that fact in this
auditor’s report. We have nothing to report in this regard.
The Annual Report is expected to be made available to us after the date of the auditors’ report. If based on the work we will
perform on this other information, we conclude there is a material misstatement of other information, we are required to report
that fact 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
IFRSs, 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 Group’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 Group or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group financial reporting process.
52
Prometic Life Sciences Inc.Financial Statements
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.
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 Group’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 Group’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 Group 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.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities
within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction,
supervision and performance of the Group audit. We remain solely responsible for our audit opinion.
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 Georgia Tournas.
Montreal, Canada
April 1,2019
1 CPA auditor, CA, public accountancy permit no. A123806
53
Prometic Life Sciences Inc.
PROMETIC LIFE SCIENCES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands of Canadian dollars)
At December 31
ASSETS (note 13)
Current assets
Cash
Accounts receivable (note 5)
Income tax receivable
Inventories (note 6)
Prepaids
Total current assets
Long-term income tax receivable
Other long-term assets (note 7)
Capital assets (note 8)
Intangible assets (note 9)
Deferred tax assets (note 25)
Total assets
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities (note 11)
Advance on revenues from a supply agreement (note 12)
Current portion of long-term debt (note 13)
Deferred revenues
Warrant liability (note 14)
Total current liabilities
Long-term portion of deferred revenues
Long-term portion of operating and finance lease
inducements and obligations (note 15)
Other long-term liabilities (note 16)
Long-term debt (note 13)
Deferred tax liabilities (note 25)
Total liabilities
EQUITY
Share capital (note 17a)
Contributed surplus (note 17b)
Warrants (note 17c)
Accumulated other comprehensive loss
Deficit
Equity (negative equity) attributable to owners of the parent
Non-controlling interests (note 18)
Total equity (negative equity)
Total liabilities and equity
Commitments (note 29), Subsequent event (note 32)
The accompanying notes are an integral part of the consolidated financial statements.
2018
2017
$
7,389
11,882
8,091
12,028
1,452
40,842
117
411
41,113
19,803
606
102,892
$
$
31,855
-
3,211
507
157
35,730
170
1,850
5,695
122,593
-
23,166
6,839
4,116
36,013
2,141
72,275
108
8,663
45,254
156,647
926
283,873
29,954
1,901
3,336
829
-
36,020
-
2,073
3,335
83,684
15,330
166,038
$
140,442
$
$
$
$
$
$
583,117
21,923
95,296
(1,252)
(755,688)
(56,604)
(6,542)
(63,146)
575,150
16,193
73,944
(1,622)
(541,681)
121,984
21,447
143,431
283,873
$
102,892
$
On behalf of the Board
Director
Director
(s) Paul Mesburis
(s) Simon Best
54
Prometic Life Sciences Inc.Financial Statements
PROMETIC LIFE SCIENCES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of Canadian dollars)
Years ended December 31,
Revenues (note 20)
10,597
6,596
$
47,374
$
2018
Expenses
Cost of sales and other production expenses (note 6)
Research and development expenses (note 21a)
Administration, selling and marketing expenses
Bad debt expense (note 20)
Loss (gain) on foreign exchange
Finance costs (note 21b)
Loss (gain) on extinguishments of liabilities (note 13)
Change in fair value of financial instruments
measured at FVPL (notes 7, 14)
Impairment losses (note 24)
Share of losses of an associate (note 10)
Net loss before income taxes
Income tax recovery (note 25)
Net loss
Net loss attributable to:
Owners of the parent
Non-controlling interests (note 18)
7,582
21,141
10,663
-
3,913
6,558
(34,904)
1,000
149,952
-
(155,308)
(13,994)
(141,314)
(102,953)
(38,361)
(141,314)
2,428
28,202
8,781
20,491
(1,427)
2,639
-
-
-
-
(54,518)
(12,872)
(41,646)
$
$
38,002
91,666
31,532
-
4,681
22,060
(33,626)
1,000
149,952
22
(257,915)
(20,019)
(237,896)
$
$
(38,279)
(3,367)
(195,366)
(42,530)
(41,646)
$
(237,896)
$
2017
39,115
10,149
100,392
31,441
20,491
(726)
7,965
4,191
-
-
-
(134,788)
(14,752)
(120,036)
(109,731)
(10,305)
(120,036)
Loss per share
Attributable to the owners of the parent
Basic and diluted
Weighted average number of outstanding shares (in thousands)
The accompanying notes are an integral part of the consolidated financial statements.
(0.14)
718,539
(0.05)
$
(0.27)
$
709,928
716,208
(0.16)
683,954
55
Prometic Life Sciences Inc.
PROMETIC LIFE SCIENCES INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands of Canadian dollars)
Years ended December 31,
Net loss
Other comprehensive income
Items that may be subsequently reclassified to profit and loss:
Change in unrealized foreign exchange differences on translation
of financial statements of foreign subsidiaries
Total comprehensive loss
Total comprehensive loss attributable to:
Owners of the parent
Non-controlling interests
The accompanying notes are an integral part of the consolidated financial statements.
2018
2017
$
(237,896)
$
(120,036)
370
342
$
(237,526)
$
(119,694)
(194,996)
(42,530)
$
(237,526)
$
(109,389)
(10,305)
(119,694)
56
Prometic Life Sciences Inc.Financial Statements
2
4
3
1
8
4
2
6
6
,
8
0
5
4
,
1
6
-
2
5
0
,
1
2
5
8
2
,
6
1
)
8
4
1
,
4
(
-
0
1
1
1
3
4
,
3
4
1
1
4
5
,
3
4
1
)
6
9
8
,
7
3
2
(
0
7
3
0
4
3
,
6
2
2
7
,
6
5
3
6
-
)
1
8
5
(
2
5
3
,
1
2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6
7
7
,
4
7
4
4
,
1
2
7
4
4
,
1
2
)
0
3
5
,
2
4
(
2
4
3
1
8
4
2
6
6
,
8
0
5
4
,
1
6
-
2
5
0
,
1
2
5
8
2
,
6
1
)
8
4
1
,
4
(
)
6
7
7
,
4
(
0
1
1
4
8
9
,
1
2
1
4
9
0
,
2
2
1
)
6
6
3
,
5
9
1
(
0
7
3
0
4
3
,
6
2
2
7
,
6
5
3
6
-
)
1
8
5
(
2
5
3
,
1
2
)
9
2
6
,
3
(
)
6
4
1
,
3
6
(
1
4
5
,
4
1
)
2
4
5
,
6
(
)
0
7
1
,
8
1
(
)
4
0
6
,
6
5
(
y
t
i
u
q
e
l
a
t
o
T
-
n
o
N
$
)
y
t
i
u
q
e
e
v
i
t
a
g
e
n
(
$
s
t
s
e
r
e
t
n
i
g
n
i
l
l
o
r
t
n
o
c
$
l
a
t
o
T
$
t
i
c
i
f
e
D
3
4
3
,
9
5
1
)
6
3
0
,
0
2
1
(
6
7
9
,
6
2
)
5
0
3
,
0
1
(
7
6
3
,
2
3
1
)
1
3
7
,
9
0
1
(
)
6
2
0
,
3
2
4
(
)
1
3
7
,
9
0
1
(
t
n
e
r
a
p
e
h
t
f
o
s
r
e
n
w
o
o
t
l
e
b
a
t
u
b
i
r
t
t
a
)
y
t
i
u
q
e
e
v
i
t
a
g
e
n
(
y
t
i
u
q
E
I
Y
T
U
Q
E
N
I
S
E
G
N
A
H
C
F
O
S
T
N
E
M
E
T
A
T
S
D
E
T
A
D
L
O
S
N
O
C
I
)
s
r
a
l
l
i
o
d
n
a
d
a
n
a
C
f
o
s
d
n
a
s
u
o
h
t
n
I
(
.
C
N
I
I
S
E
C
N
E
C
S
E
F
L
C
T
E
M
O
R
P
I
I
-
-
-
-
-
-
-
)
8
4
1
,
4
(
)
6
7
7
,
4
(
)
1
8
6
,
1
4
5
(
)
2
2
6
,
1
(
0
1
1
)
1
7
5
,
1
4
5
(
)
6
6
3
,
5
9
1
(
-
-
-
-
-
-
)
1
8
5
(
)
0
7
1
,
8
1
(
-
-
-
-
-
-
-
-
-
0
7
3
)
2
2
6
,
1
(
$
i
n
g
e
r
o
F
y
c
n
e
r
r
u
c
e
v
r
e
s
e
r
l
n
o
i
t
a
s
n
a
r
t
-
2
4
3
)
4
6
9
,
1
(
-
-
-
-
-
-
-
-
$
s
t
n
a
r
r
a
W
$
l
s
u
p
r
u
s
d
e
t
u
b
i
r
t
n
o
C
$
e
r
a
h
S
l
a
t
i
p
a
c
1
0
2
,
4
6
9
1
9
,
2
1
7
3
2
,
0
8
4
7
1
0
2
,
1
y
r
a
u
n
a
J
t
a
e
c
n
a
a
B
l
-
-
-
-
-
-
-
-
)
2
4
5
,
6
(
5
8
2
,
6
1
-
4
4
9
,
3
7
4
4
9
,
3
7
-
-
-
-
-
-
-
-
2
5
3
,
1
2
-
-
-
)
0
3
3
(
2
6
6
,
8
)
8
5
0
,
5
(
-
-
-
-
-
3
9
1
,
6
1
3
9
1
,
6
1
-
-
-
)
8
3
4
(
2
2
7
,
6
)
4
5
5
(
-
-
-
-
-
-
1
1
8
0
5
4
,
1
6
8
5
0
,
5
4
9
5
,
7
2
-
-
-
-
0
5
1
,
5
7
5
0
5
1
,
5
7
5
-
-
0
4
3
,
6
-
3
7
0
,
1
4
5
5
-
-
-
)
b
7
1
e
t
o
n
(
e
s
n
e
p
x
e
s
t
n
e
m
y
a
p
d
e
s
a
b
-
e
r
a
h
S
)
b
7
1
e
t
o
n
(
s
n
o
i
t
p
o
k
c
o
t
s
f
o
e
s
i
c
r
e
x
E
)
a
7
1
e
t
o
n
(
s
e
r
a
h
s
f
o
e
c
n
a
u
s
s
I
o
t
t
n
a
u
s
r
u
p
d
e
u
s
s
i
s
e
r
a
h
S
)
d
7
1
e
t
o
n
(
s
t
h
g
i
r
t
n
e
m
t
s
e
v
n
i
e
r
u
t
u
f
f
o
e
s
i
c
r
e
x
E
)
b
7
1
e
t
o
n
(
n
a
p
l
t
i
n
u
e
r
a
h
s
d
e
t
c
i
r
t
s
e
r
)
c
,
a
7
1
e
t
o
n
(
t
s
o
c
e
c
n
a
u
s
s
i
t
n
a
r
r
a
w
d
n
a
e
r
a
h
S
)
c
7
1
e
t
o
n
(
s
t
n
a
r
r
a
w
f
o
e
c
n
a
u
s
s
I
)
8
1
e
t
o
n
(
t
s
e
r
e
t
n
i
g
n
i
l
l
o
r
t
n
o
c
-
n
o
n
n
o
s
t
n
e
m
e
g
n
a
r
r
a
i
g
n
d
n
u
f
f
o
t
c
e
f
f
E
d
e
t
a
t
s
e
r
-
8
1
0
2
,
1
y
r
a
u
n
a
J
t
a
e
c
n
a
l
a
B
)
a
4
e
t
o
n
(
9
S
R
F
I
g
n
i
t
p
o
d
a
f
o
t
c
a
p
m
I
7
1
0
2
,
1
3
r
e
b
m
e
c
e
D
t
a
e
c
n
a
a
B
l
e
v
r
e
s
e
r
n
o
i
t
l
a
s
n
a
r
t
y
c
n
e
r
r
u
c
i
n
g
e
r
o
F
s
s
o
l
t
e
N
)
b
7
1
e
t
o
n
(
e
s
n
e
p
x
e
s
t
n
e
m
y
a
p
d
e
s
a
b
-
e
r
a
h
S
)
b
7
1
e
t
o
n
(
s
n
o
i
t
p
o
k
c
o
t
s
f
o
e
s
i
c
r
e
x
E
)
a
7
1
e
t
o
n
(
s
e
r
a
h
s
f
o
e
c
n
a
u
s
s
I
e
v
r
e
s
e
r
n
o
i
t
l
a
s
n
a
r
t
y
c
n
e
r
r
u
c
i
n
g
e
r
o
F
s
s
o
l
t
e
N
i
i
y
r
a
d
s
b
u
s
)
b
7
1
e
t
o
n
(
n
a
p
l
t
i
n
u
e
r
a
h
s
d
e
t
c
i
r
t
s
e
r
t
s
o
c
e
c
n
a
u
s
s
i
t
n
a
r
r
a
w
d
n
a
e
r
a
h
S
)
c
7
1
e
t
o
n
(
s
t
n
a
r
r
a
w
f
o
e
c
n
a
u
s
s
I
)
8
1
e
t
o
n
(
s
t
s
e
r
e
t
n
i
g
n
i
l
l
o
r
t
n
o
c
-
n
o
n
n
o
s
t
n
e
m
e
g
n
a
r
r
a
i
g
n
d
n
u
f
d
n
a
a
f
o
i
p
h
s
r
e
n
w
o
e
h
t
n
i
s
e
g
n
a
h
c
f
o
t
c
e
f
f
E
o
t
t
n
a
u
s
r
u
p
d
e
u
s
s
i
s
e
r
a
h
S
)
8
8
6
,
5
5
7
(
)
2
5
2
,
1
(
6
9
2
,
5
9
3
2
9
,
1
2
7
1
1
,
3
8
5
8
1
0
2
,
1
3
r
e
b
m
e
c
e
D
t
a
e
c
n
a
l
a
B
.
s
t
n
e
m
e
t
a
t
s
l
a
i
c
n
a
n
i
f
d
e
t
a
d
i
l
o
s
n
o
c
e
h
t
f
o
t
r
a
p
l
a
r
g
e
t
n
i
n
a
e
r
a
i
s
e
t
o
n
g
n
y
n
a
p
m
o
c
c
a
e
h
T
57
Prometic Life Sciences Inc.
PROMETIC LIFE SCIENCES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of Canadian dollars)
Years ended December 31,
2018
2017
Cash flows used in operating activities
Net loss for the year
Adjustments to reconcile net loss to cash flows
used in operating activities :
Finance costs and foreign exchange
Change in operating and finance lease inducements and obligations
Carrying value of capital and intangible assets disposed
Share of losses of an associate (note 10)
Change in fair value of financial instruments measured at FVPL (notes 7, 14)
Impairment losses (note 24)
Loss (gain) on extinguishments of liabilities (note 13)
Deferred income taxes (note 25)
Share-based payments expense (note 17b)
Depreciation of capital assets (note 8)
Amortization of intangible assets (note 9)
Change in non-cash working capital items
Cash flows from financing activities
Proceeds from share issuances (note 17a)
Proceeds from debt and warrant issuances (note 13)
Repayment of principal on long-term debt (note 13)
Repayment of interest on long-term debt (note 13)
Exercise of options (note 17b)
Exercise of future investment rights (note 17d)
Payments of principal under finance lease
Debt, share and warrants issuance costs
Cash flows from (used in) investing activities
Additions to capital assets
Additions to intangible assets
Proceeds from the sale of marketable securities
and short-term investments
Acquisition of convertible debt (note 7b)
Additions to other long-term assets
Interest received
Net change in cash during the year
Net effect of currency exchange rate on cash
Cash, beginning of the year
Cash, end of the year
The accompanying notes are an integral part of the consolidated financial statements.
58
$
(237,896)
$
(120,036)
25,282
2,565
513
22
1,000
149,952
(33,626)
(13,815)
6,722
4,086
1,372
(93,823)
11,369
(82,454)
751
79,105
(3,184)
(3,934)
635
-
(245)
(970)
72,158
(3,786)
(1,342)
-
(955)
-
224
(5,859)
$
(16,155)
378
23,166
7,389
$
8,787
2,391
563
-
-
-
4,191
(11,587)
8,662
3,632
944
(102,453)
(20,120)
$
(122,573)
53,125
50,717
(3,454)
(163)
481
21,052
-
(4,306)
$
117,452
(7,688)
(2,395)
11,063
-
(63)
202
1,119
(4,002)
(638)
27,806
23,166
$
$
$
$
Prometic Life Sciences Inc.Financial Statements
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
1. Nature of operations and going concern
Prometic Life Sciences Inc. (“Prometic” or the “Corporation”), incorporated under the Canada Business Corporations Act, is a
publicly traded (TSX symbol: PLI) (OTCQX symbol: PFSCF), biopharmaceutical Corporation with two drug discovery platforms
focusing on unmet medical needs. The first platform (Small molecule therapeutics) stems from the insights into the interaction
of two receptors which Prometic believes are at the core of how the body heals: our lead small molecule drug candidate
PBI-4050, modulates these to promote tissue regeneration and scar resolution as opposed to fibrosis. The second drug
discovery and development platform (Plasma-derived therapeutics) leverages Prometic’s experience in bioseparation
technologies used to isolate and purify biopharmaceuticals from human plasma. The Corporation’s primary goal with respect to
this second platform is to address unmet medical needs with therapeutic proteins not currently commercially available, such as
Ryplazim™ (plasminogen) (“Ryplazim™”). The Corporation also provides access to its proprietary bioseparation technologies
to enable pharmaceutical companies in their production of non-competing biopharmaceuticals.
The Corporation’s head office is located at 440, Boul. Armand-Frappier, suite 300, Laval, Québec, Canada, H7V 4B4. Prometic
has Research and Development (“R&D”) facilities in the U.K., the U.S. and Canada, manufacturing facilities in the Isle of Man
and Canada and business development activities in Canada, the U.S. and Europe.
The consolidated financial statements for the year ended December 31, 2018 have been prepared in accordance with
International Financial Reporting Standards (“IFRS”) on a going concern basis, which presumes the Corporation will continue
its operations for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the
ordinary course of business. The use of this assumption may not be appropriate as Prometic’s main activities continue to be in
the R&D stage and during the year ended December 31, 2018, the Corporation incurred a net loss of $237.9 million, a net loss
before income taxes and impairments of $108.0 million and used $82.5 million in cash for its operating activities, while at
December 31, 2018, the current assets net of current liabilities is a surplus of $5.5 million and the negative equity attributable to
the shareholders’ of Prometic is $56.2 million.
With the delay of the anticipated launch of its most advanced product, RyplazimTM, the Corporation had to finance its R&D
activities via various sources. To date, the Corporation has financed its activities through the sale of products in the
Bioseparations segment, collaboration arrangements and licensing arrangements, the issuance of debt and equity, operational
restructuring as well as investment tax credits. Prometic is currently actively involved in negotiating equity financing initiatives
and continues to be in licensing discussions with potential partners. Despite the Corporation’s efforts to obtain the necessary
funding, there can be no assurance of its access to further financing. As at December 31, 2018, the Corporation had cash on
hand of $7.4 million. In February 2019, the holder of the long-term debt agreed to extend the US$ non-revolving credit facility
(“Credit Facility”) by an additional US$15 million which the Corporation drew in February and March 2019, receiving the
equivalent of $19,854 in additional financing. This additional financing, together with cash on hand will be sufficient to finance
the Corporation’s operating requirements until April 2019.These circumstances indicate the existence of a material uncertainty
that may cast significant doubt about the Corporation’s ability to continue as a going concern. These consolidated financial
statements do not include any adjustments to the amounts and classification of assets and liabilities that might be necessary
should the Corporation be unable to continue as a going concern. Such adjustments could be material.
2. Significant Accounting Policies
Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards
(“IFRS”) as issued by the International Accounting Standards Board and were authorized for issue by the Board of Directors on
April 1, 2019.
59
Prometic Life Sciences Inc.
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
Basis of measurement
The consolidated financial statements have been prepared on a historical cost basis, except for the convertible debt, equity
investments and the warrant liability which have been measured at fair value.
Functional and presentation currency
The consolidated financial statements are presented in Canadian dollars, which is also the parent corporation’s functional
currency.
Basis of consolidation
The consolidated financial statements include the accounts of Prometic Life Sciences Inc., and those of its subsidiaries. The
Group’s subsidiaries at December 31, 2018 and 2017 are as follows:
Name of subsidiary
Segment activity
Place of incorporation
and operation
Proportion of ownership
interest held by the group
Prometic Biosciences Inc.
Prometic Bioproduction Inc.
Prometic Bioseparations Ltd
Prometic Biotherapeutics Inc.
Prometic Biotherapeutics Ltd
Prometic Manufacturing Inc.
Pathogen Removal and Diagnostic
Technologies Inc.
NantPro Biosciences, LLC
Prometic Plasma Resources Inc.
Prometic Plasma Resources USA Inc.
Prometic Pharma SMT Holdings Limited
Prometic Pharma SMT Limited
Telesta Therapeutics Inc.
Telesta Pharma Inc.
Telesta Therapeutics IP Inc.
Econiche Corp
* dissolved
Small molecule therapeutics
Plasma-derived therapeutics
Bioseparations
Plasma-derived therapeutics
Plasma-derived therapeutics
Bioseparations
Bioseparations
Plasma-derived therapeutics
Plasma-derived therapeutics
Plasma-derived therapeutics
Small molecule therapeutics
Small molecule therapeutics
Plasma-derived therapeutics
N/A
N/A
Plasma-derived therapeutics
Quebec, Canada
Quebec, Canada
Isle of Man, British Isles
Delaware, U.S.
Cambridge, United Kingdom
Quebec, Canada
Delaware, U.S.
Delaware, U.S.
Winnipeg, Canada
Delaware, U.S.
Cambridge, United Kingdom
Cambridge, United Kingdom
Quebec, Canada
Quebec, Canada
Quebec, Canada
Ontario, Canada
2018
100%
100%
100%
100%
100%
100%
77%
73%
100%
100%
100%
100%
100%
N/A *
N/A *
N/A *
2017
100%
87%
100%
100%
100%
100%
77%
73%
100%
100%
100%
100%
100%
100%
100%
100%
The Corporation consolidates investees when, based on the evaluation of the substance of the relationship with the Corporation,
it concludes that it controls the investees. The Corporation controls an investee when it is exposed, or has rights, to variable
returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The
financial statements of the subsidiaries are prepared for the same reporting period as the parent corporation, using consistent
accounting policies. All intra-group transactions, balances, income and expenses are eliminated in full upon consolidation.
When a subsidiary is not wholly-owned the Corporation recognizes the non-controlling interests’ share of the net assets and
results of operations in the subsidiary. When the proportion of the equity held by non-controlling interests’ changes without
resulting in a change of control, the carrying amount of the controlling and non-controlling interest are adjusted to reflect the
changes in their relative interests in the subsidiary. In these situations, the Corporation recognizes directly in equity the effect of
the change in ownership of a subsidiary on the non-controlling interests. Similarly, after picking up its share of the operating
losses, the non-controlling interest is adjusted for its share of the equity contribution made by Prometic that does not modify the
interest held by either party. The offset to this adjustment is recorded in the deficit. The effect of these transactions are presented
in the statement of changes in equity.
60
Prometic Life Sciences Inc.Financial Statements
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
Financial instruments
Recognition and derecognition
Financial instruments are recognized in the consolidated statement of financial position when the Corporation becomes a party
to the contractual obligations of the instrument. On initial recognition, financial instruments are recognized at their fair value plus,
in the case of financial instruments not at fair value through profit or loss (“FVPL”), transaction costs that are directly attributable
to the acquisition or issue of financial instruments. Financial assets are subsequently derecognized when payment is received
in cash or other financial assets or if the debtor is discharged of its liability.
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing
liability is replaced by another from the same creditor on substantially different terms, or the terms of the liability are substantially
modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new
liability. The difference in the respective carrying amounts is recognized in the consolidated statement of operations.
Classification
Subsequent to initial recognition, financial instruments are measured according to the category to which they are classified,
which are: financial instruments classified as FVPL, financial instruments designated as FVPL, fair value through other
comprehensive income (“FVOCI”) financial assets, or amortised cost. Financial instruments are subsequently measured at
amortized cost, unless they are classified as FVOCI or FVPL or designated as FVPL, in which case they are subsequently
measured at fair value.
The classification of financial asset debt instruments is driven by the Corporation’s business model for managing the financial
assets and their contractual cash flow characteristics. Assets that are held to collect contractual cash flows where those cash
flows represent solely payments of principal and interest are measured at amortized cost. Equity instruments that are held for
trading (including all equity derivative instruments) are classified as FVPL. For other equity instruments, on the day of acquisition
the Corporation can make an irrevocable election (on an instrument-by-instrument basis) to designate them as at FVOCI instead
of FVPL. Financial liabilities are measured at amortized cost, unless they are required to be measured at FVPL (such as
instruments held for trading or derivatives) or the Corporation has opted to measure them at FVPL.
Currently, the Corporation classifies cash, trade receivables, other receivables, restricted cash as financial assets measured at
amortized cost and trade payables, wages and benefits payable, settlement fee payable, royalty payment obligations, license
acquisition payment obligations, other long-term liabilities and long-term debt as financial liabilities measured at amortized cost.
Currently, the Corporation classifies equity investments and convertible debt as financial assets at FVPL and warrant liability as
a financial liability at FVPL.
Impairment of financial assets
The expected credit losses associated with its debt instruments carried at amortized cost is assessed on a forward-looking basis.
The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade
receivables, the Corporation applies the simplified approach permitted by IFRS 9, which requires lifetime expected losses to be
recognized from initial recognition of the receivables.
61
Prometic Life Sciences Inc.
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
Financial instrument accounting policy used before the adoption of IFRS 9, Financial instruments (“IFRS 9”) on
January 1, 2018
Prior to January 1, 2018, the Corporation applied IAS 39 Financial instruments. The accounting policy and classification of the
financial instruments applied under that standard is detailed in the following paragraphs.
Financial assets and financial liabilities at fair value through profit and loss
i)
Cash, marketable securities and restricted cash are respectively classified as fair value through profit and loss. They are
measured at fair value and changes in fair value are recognized in the consolidated statements of operations. Directly related
transaction costs are recognized in the consolidated statements of operations.
ii) Loans and receivables
Cash equivalents, short-term investments, trade receivables, other receivables and long-term receivables are classified as loans
and receivables. They are initially recognized at fair value and subsequently carried at amortized cost using the effective interest
method.
iii) Available-for-sale financial assets
Investments in common or preferred shares of private corporations are classified as available-for-sale and are measured at cost
since their fair value cannot be measured reliably.
iv) Financial liabilities
Trade payable, wages and severances payable, other employee benefit liabilities, settlement fee payable, royalty payment
obligation, other long-term liabilities, advance on revenues from a supply agreement and long-term debt are classified as other
financial liabilities. They are measured at amortized cost using the effective interest method.
Credit facility fees are recorded in deferred financing cost and are amortized into finance cost over the term of the Credit Facility.
Impairment of investments
When there has been a significant or prolonged decline in the value of an investment, the investment is written down to recognize
the loss.
Inventories
Inventories of raw materials, work in progress and finished goods are valued at the lower of cost and net realizable value. Cost
is determined on a first in, first out basis. The cost of manufactured inventories comprises all costs that are directly attributable
to the manufacturing process, such as raw materials, direct labour and manufacturing overhead based on normal operating
capacity. Net realizable value is the estimated selling price in the ordinary course of business less the estimated cost of
completion and the estimated selling costs except for raw materials for which it is determined using replacement cost.
Capital assets
Capital assets are recorded at cost less any government assistance, accumulated depreciation and accumulated impairment
losses, if any. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets, as described below.
Capital asset
Buildings and improvements
Leasehold improvements
Production and laboratory equipment
Furniture
Computer equipment
Assets held under financing leases
62
Period
20 years
The lower of the lease term and the useful life
5 - 20 years
5 - 10 years
3 - 5 years
The lower of the lease term and the useful life
Prometic Life Sciences Inc.Financial Statements
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
The estimated useful lives, residual values and depreciation methods are reviewed annually with the effect of any changes in
estimates accounted for on a prospective basis. The gain or loss arising on the disposal or retirement of a capital asset is
determined as the difference between the sales proceeds and its carrying amount and is recognized in profit or loss.
Government assistance
Government assistance programs, including investment tax credits on research and development expenses, are reflected as
reductions to the cost of the assets or to the expenses to which they relate and are recognized when there is reasonable
assurance that the assistance will be received and all attached conditions are complied with.
Intangible Assets
Intangible assets include acquired rights such as licenses for product manufacturing and commercialization, donor lists, external
patent costs and software costs. They are carried at cost less accumulated amortization. Amortization commences when the
intangible asset is available for use and is calculated over the estimated useful lives of the intangible assets acquired using the
straight-line method. The maximum period used for each category of intangible asset are presented in the table below. The
estimated useful lives and amortization method are reviewed annually, with the effect of any changes in estimates being
accounted for on a prospective basis. The amortization expense is recognized in the consolidated statements of operations in
the expense category consistent with the function of the intangible assets.
Intangible asset
Licenses and other rights
Donor lists
Patents
Software
Impairment of tangible and intangible assets
Period
30 years
10 years
20 years
5 years
At the end of each reporting period, the Corporation reviews the carrying amounts of its tangible and intangible assets to
determine whether there is any indication that those assets have suffered an impairment loss. If impairment indicators exist, the
recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. For intangible assets
not yet available for use, an impairment test is performed annually at November 30, until amortization commences, whether or
not there are impairment indicators. When it is not possible to estimate the recoverable amount of an individual asset, the
Corporation estimates the recoverable amount of the cash-generating unit (CGU) which represents the smallest identifiable
group of assets that generates cash inflows that are largely independent of the cash inflows from other assets, groups of assets
or CGUs to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, the corporate
assets are also allocated to individual CGUs, or otherwise they are allocated to the smallest group of CGUs for which a
reasonable and consistent allocation basis can be identified.
The recoverable amount is the higher of the fair value less costs to sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
An impairment loss is recognized when the carrying amount of an asset or a CGU exceeds its recoverable amount by the amount
of this excess. An impairment loss is recognized immediately in profit or loss in the period during which the loss is incurred.
Where an impairment loss subsequently reverses, the carrying amount of the asset or CGU is increased to the revised estimate
of its recoverable amount; on reversal of an impairment loss, the increased carrying amount does not exceed the carrying
amount that would have been determined had no impairment loss been recognized for the asset or CGU in prior periods. A
reversal of an impairment loss is recognized immediately in profit or loss.
63
Prometic Life Sciences Inc.
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
Investment in an associate
Investments in associates are accounted for using the equity method. An associate is an entity over which the Corporation has
significant influence. Under the equity method, the investment in the associate is carried on the consolidated statement of
financial position at cost plus post acquisition changes in the Corporation’s share of net assets of the associate.
The consolidated statement of operations reflects the Corporation’s share of the results of operations of the associate.
Adjustments are made for any inconsistencies between the Corporation’s and the associate’s accounting policies before applying
the equity method. Adjustments are also made to account for depreciable assets based on their fair values at the acquisition
date of the investment and for any impairment losses recognized by the associate. When there has been a change recognised
directly in the equity of the associate, the Corporation recognises its share of any change. Profits and losses resulting from
transactions between the Corporation and the associate are recognized in the Corporation’s consolidated financial statements
only to the extent of the unrelated investors' interests in the associate.
If the Corporation’s share of cumulative losses of an associate equals or exceeds its interest in the associate, the Corporation
discontinues recognising its share of further losses. After the interest in an associate is reduced to zero, additional losses are
provided for, and a liability is recognised, only to the extent that the Corporation has incurred legal or constructive obligations or
made payments on behalf of the associate. If the associate subsequently reports profits, the Corporation resumes recognising
its share of those profits only after its share of the profits equals the share of losses not recognised.
At each balance sheet date, management considers whether there is objective evidence of impairment in associates. If there is
such evidence, management determines the amount of impairment to record, if any, in relation to the associate.
When the level of influence over an associate changes either following a loss of significant influence over the associate, or the
obtaining of control over the associate or when an investment in a financial asset accounted for under IFRS 9 becomes subject
to significant influence, the Corporation measures and recognises its investment at its fair value. Any difference between the
carrying amount of the associate at the time of the change in influence and the fair value of the investment, and proceeds from
disposal if any, is recognised in profit or loss.
Revenue recognition
To determine revenue recognition for contracts with customers, we perform the following five steps: (i) identify the contract(s)
with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the
transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a
performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration
we are entitled to in exchange for the goods or services we transfer. At contract inception, we assess the goods or services
promised within each contract, determine those that are performance obligations, and assess whether each promised good or
service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective
performance obligation when (or as) the performance obligation is satisfied.
Sale of goods
Revenue from sale of bioseparation or plasma products is recognized when the terms of a contract with a customer have been
satisfied. This occurs when:
•
•
The control over the product has been transferred to the customer; and
The product is received by the customer or transfer of title to the customer occurs upon shipment.
Following delivery, the customer bears the risks of obsolescence and loss in relation to the goods. Revenue is recognized based
on the price specified in the contract, net of estimated sales discounts and returns.
64
Prometic Life Sciences Inc.Financial Statements
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
Rendering of services
Revenues from contracted services are generally recognized as the performance obligations are satisfied over time, and the
related expenditures are incurred pursuant to the terms of the agreement. Contract revenue is recognized on a percentage of
completion basis based on key milestones contained within the contract.
Unbilled revenues and deferred revenues
If the Corporation has recognized revenues but has not issue an invoice, the entitlement is recognized as a contract asset and
is presented in the statement of financial position as unbilled revenues. When the amounts are invoiced, then the amounts are
transferred into trade receivables. If the Corporation has received payments prior to satisfying its performance obligation, the
obligation is recognized as a contract liability and is presented in the statement of financial position as deferred revenues.
Licensing fees and milestone payments
Under IFRS 15, the Corporation determines whether the Corporation's promise to grant a license provides its customer with
either a right to access the Corporation’s intellectual property ("IP") or a right to use the Corporation’s IP. A license will provide
a right to access the intellectual property if there is significant development of the intellectual property expected in the future
whereas for a right to use, the intellectual property is to be used in the condition it is at the time the license is signed. Revenue
from a license that provide a customer the right to use the Corporation’s IP is recognized at a point in time when the transfers to
the licensee is completed and the license period begins. Revenue from a license that provide access the Corporation's IP over
a license term are considered to be a performance obligation satisfied over time and, therefore, revenue is recognized over the
term of the license arrangement. Milestone payments are immediately recognized as licensing revenue when the condition is
met, if the milestone is not a condition to future deliverables and collectability is reasonably assured. Otherwise, they are
recognized over the remaining term of the agreement or the performance period.
Rental revenue
The Corporation accounts for the lease with its tenant as an operating lease when the Corporation has not transferred
substantially all of the risks and benefits of ownership of its property. Revenue recognition under an operating lease commences
when the tenant has a right to use the leased asset, and the total amount of contractual rent to be received from the operating
lease is recognized on a straight-line basis over the term of the lease. Rental revenue also includes recoveries of operating
expenses and property taxes.
Revenue recognition accounting policy used before the adoption of IFRS 15, Revenue from contracts with customers
(“IFRS 15”) on January 1, 2018
The Corporation earns revenues from research and development services, license and milestone fees, sale of goods and leasing
arrangements, which may include multiple elements. The individual elements of each agreement are divided into separate units
of accounting, if certain criteria are met. The applicable revenue recognition method is then applied to each unit. Otherwise, the
applicable revenue recognition criteria are applied to combined elements as a single unit of accounting.
Rendering of services
Revenues from research and development services are recognized using the proportional performance method. Under this
method, revenues are recognized proportionally with the degree of completion of the services under the contract when it is
probable that the economic benefits will flow to the Corporation and revenue and costs associated with the transaction can be
measured reliably.
Licensing fees and milestone payments
Certain license fees are comprised of up-front fees and milestone payments. Up-front fees are recognized over the estimated
term during which the Corporation maintains substantive obligations. Milestone payments are recognized as revenue when the
milestone is achieved, customer acceptance is obtained and the customer is obligated to make performance payments. Certain
license arrangements require no continuing involvement by the Corporation. Non-refundable license fees are recognized as
revenue when the Corporation has no further involvement or obligation to perform under the arrangement, the fee is fixed or
determinable and collection of the amount is reasonably assured.
65
Prometic Life Sciences Inc.
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
Sale of goods
Revenue from the sale of goods is recognized when all the following conditions are satisfied:
•
•
•
•
•
the Corporation has transferred to the customer the significant risks and rewards of ownership of the goods;
the Corporation retains neither continuing managerial involvement to the degree usually associated with ownership nor
effective control over the goods sold;
the amount of revenue can be measured reliably;
it is probable that the economic benefits associated with the transaction will flow to the entity; and
the costs incurred or to be incurred in respect of the transaction can be measured reliably.
Revenue is reduced for estimated customer returns and other similar allowances. Amounts received in advance of meeting the
revenue recognition criteria are recorded as deferred revenue on the consolidated statements of financial position.
Rental revenue
The Corporation accounts for the lease with its tenant as an operating lease when the Corporation has not transferred
substantially all of the risks and benefits of ownership of its property. Revenue recognition under an operating lease commences
when the tenant has a right to use the leased asset, and the total amount of contractual rent to be received from the operating
lease is recognized on a straight-line basis over the term of the lease. Rental revenue also includes recoveries of operating
expenses and property taxes.
Research and development expenses
Expenditure on research activities is recognized as an expense in the period during which it is incurred. An internally generated
intangible asset arising from development (or from the development phase of an internal project) is recognized if, and only if, all
of the following have been demonstrated:
•
•
•
•
•
•
the technical feasibility of completing the intangible asset so that it will be available for use or sale;
the intention to complete the intangible asset and use or sell it;
the ability to use or sell the intangible asset;
how the intangible asset will generate probable future economic benefits;
the availability of adequate technical, financial and other resources to complete the development and to use or sell the
intangible asset; and
the ability to measure reliably the expenditures attributable to the intangible asset during its development.
To date, the Corporation has not capitalized any development costs.
Research and development expenses presented in the consolidated statement of operations comprise the costs to manufacture
the plasma-derived therapeutics used in pre-clinical tests and clinical trials. It also includes the cost of therapeutics used in the
PBI-4050 clinical trials, external consultants supporting the clinical trials and pre-clinical tests, employee compensation and other
operating expenses involved in research and development activities. Finally, it includes the cost of developing new bioseparation
products.
Foreign currency translation
Transactions and balances
Transactions in foreign currencies are initially recorded by the Corporation and its entities at their respective functional currency
rates prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated
at the functional currency spot rate of exchange at the reporting date. All differences are taken to the consolidated statements
of operations. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the
exchange rates at the dates when the initial transactions took place.
66
Prometic Life Sciences Inc.Financial Statements
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
Group companies
The assets and liabilities of foreign operations are translated into Canadian dollars at the rate of exchange prevailing at the
reporting date and their statements of operations are translated at exchange rates prevailing at the dates of the transactions.
The exchange differences arising on the translation are recognised in other comprehensive loss. On disposal of a foreign
operation, the component of other comprehensive loss relating to that particular foreign operation is recognised in the
consolidated statement of operations and comprehensive loss.
Income taxes
The Corporation uses the liability method of accounting for income taxes. Deferred income tax assets and liabilities are
recognized in the consolidated statement of financial position for the future tax consequences attributable to differences between
the consolidated financial statements carrying values of existing assets and liabilities and their respective income tax bases.
Deferred income tax assets and liabilities are measured using income tax rates expected to apply when the assets are realized
or the liabilities are settled. The effect of a change in income tax rates is recognized in the year during which these rates change.
Deferred income tax assets are recognized to the extent that it is probable that future tax profits will allow the deferred tax assets
to be recovered.
Share-based payments
The Corporation has a stock option plan and a restricted share unit plan. The fair value of stock options granted is determined
at the grant date using the Black-Scholes option pricing model, and is expensed over the vesting period of the options. Awards
with graded vesting are considered to be multiple awards for fair value measurement. The fair value of Restricted Share Units
(“RSU”) is determined using the market value of the Corporation’s shares on the grant date. The expense associated with RSU
awards that vest over time are recognized over the vesting period. When the vesting of RSU is dependent on meeting
performance targets as well as a service requirement, to determine the expense to recognize over the vesting period, the
Corporation will estimate the outcome of the performance targets and revise those estimates until the final outcome is
determined. An estimate of the number of awards that are expected to be forfeited is also made at the time of grant and revised
periodically if actual forfeitures differ from those estimates.
The Corporation’s policy is to issue new shares upon the exercise of stock options and the release of RSU for which conditions
have been met.
Earnings per share (EPS)
The Corporation presents basic and diluted earnings per share (“EPS”) data for its common shares. Basic EPS is calculated by
dividing the profit or loss attributable to common shareholders of the Corporation by the weighted average number of common
shares outstanding during the year. Diluted EPS is determined by adjusting the weighted average number of common shares
outstanding for the effects of all dilutive potential common shares, which comprise warrants, stock options and RSU. For the
years ended December 31, 2018 and 2017, all warrants, stock options and RSU were anti-dilutive since the Corporation reported
net losses.
Share and warrant issue expenses
The Corporation records share and warrant issue expenses as an increase to the deficit.
67
Prometic Life Sciences Inc.
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
3. Significant accounting judgments and estimation uncertainty
The preparation of these consolidated financial statements requires the use of judgments, estimates and assumptions that affect
the reported amounts of revenues, expenses, assets and liabilities and the accompanying disclosures. The uncertainty that is
often inherent in estimates and assumptions could result in material adjustments to assets or liabilities affected in future periods.
Significant judgments
Accounting for loan modifications – When the terms of a loan are modified, management must evaluate whether the terms
of the loan are substantially different in order to determine the accounting treatment. If they are considered to be substantially
different, the modification will be accounted for as a derecognition of the carrying value of the pre-modified loan and the
recognition of a new loan at its fair value. Otherwise, the changes will be treated as a modification which will result in adjusting
the carrying amount to the present value of the modified cash flows using the original effective interest rate of the loan instrument.
In assessing whether the terms of a loan are substantially different, Management performs an analysis of the changes in the
cash flows under the previous agreement and the new agreement and also considers other modifications that have no cash flow
impacts. In the context of the simultaneous modification to the terms of several loans with the same lender, Management uses
judgment to determine if the cash flow analysis should be performed on the loans in aggregate or individually. Judgment is also
used to evaluate the relative importance of additional rights given to the lender such as additional Board of Director seats and
the extension of the term of the security compared to the quantitative analysis.
Revenue recognition – The Corporation does at times enter into revenue agreements which provide, among other payments,
up-front and milestone payments in exchange for licenses and other access to intellectual property. It may also enter into several
agreements simultaneously that are different in nature such as license agreements, R&D services, supply and manufacturing
agreements. In applying IFRS 15 Revenues recognition model, management may be required to apply, depending on the
contracts, significant judgment including the identification of performance obligations.
Determining whether performance obligations are distinct involves evaluating whether the customer can benefit from the good
or service on its own or together with other resources that are readily available to the customer. Once the distinct performance
obligations are identified, management must then determine if each performance obligation is satisfied at a point in time or over
time. For license agreements, this requires management to assess the level of advancement of the intellectual property being
licensed.
Functional currency – The functional currency of foreign subsidiaries is reviewed on an ongoing basis to assess if changes in
the underlying transactions, events and conditions have resulted in a change. During the years ended December 31, 2018 and
2017 no changes were deemed necessary. This assessment is also performed for new subsidiaries. When assessing the
functional currency of a foreign subsidiary, management’s judgment is applied in order to determine, amongst other things, the
primary economic environment in which an entity operates, the currency in which the activities are funded and the degree of
autonomy of the foreign subsidiary from the reporting entity in its operations and financially. Judgment is also applied in
determining whether the inter-company loans denominated in foreign currencies form part of the parent Corporation’s net
investment in the foreign subsidiary. Considering such loans as part of the net investment in the foreign subsidiary results in
foreign currency translation gains or losses from the translation of these loans being recorded in other comprehensive loss
instead of the statement of operations.
Going concern - In assessing whether the going concern assumption is appropriate and whether there are material uncertainties
that may cast significant doubt about the Corporation’s ability to continue as a going concern, management must estimate future
cash flows for a period of at least twelve months following the end of the reporting period by considering relevant available
information about the future. Management has considered a wide range of factors relating to expected cash inflows such as
product sales, whether the Corporation will obtain regulatory approval for commercialization of therapeutics, licensing and
milestone revenues and potential sources of debt and equity financing including the exercise of in-the-money warrants and
options. Management has also estimated expected cash outflows such as operating and capital expenditures and debt
68
Prometic Life Sciences Inc.Financial Statements
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
repayment schedules, including the ability to delay uncommitted expenditures. These cash flow estimates are subject to
uncertainty.
Estimates and assumptions
Assessing the recoverable amount of long-lived assets – In determining the value in use and the fair value less cost to sell
for the Intravenous Immuglobuline (“IVIG”) cash generating unit, which includes the NantPro license, an intangible asset not yet
available for use that must be tested for impairment annually or when indicators of impairment arise, Management must make
estimates and assumptions regarding the estimated future cash flows and their timing including the amount and timing of the
capital expenditure investments necessary to increase manufacturing capacities and to bring the facilities to Good Manufacturing
Practices (“GMP”) standards, when production capacities will come on-line, production costs, market penetration and selling
prices for the Corporation’s therapeutics and, the date of approval of the therapeutic for commercial sale. The future cash flows
are estimated using a five-year projection of cash flows before taxes which are based on the most recent budgets and forecasts
available to the Corporation. If the projections include revenues in the fifth year, then this year is extrapolated, using an expected
annual growth rate. The estimated cash flows are then discounted to their net present value using a pre-tax discount rate that
includes a risk premium specific to the line of business. During the year ended December 31, 2018, the Corporation recorded
several impairments and the details are provided in note 24.
Expense recognition of restricted share units – The RSU expense recognized for which the performance conditions have
not yet been met, is based on an estimation of the probability of successful achievement of a number of performance conditions,
many of which depend on research, regulatory process and business development outcomes which are difficult to predict, as
well as the timing of their achievement. The final expense is only determinable when the outcome is known.
Fair value of financial instruments – The individual fair values attributed to the different components of a financing transaction,
are determined using valuation techniques. Management uses judgment to select the methods used to determine certain
inputs/assumptions used in the models and the models used to perform the fair value calculations in order to determine, 1) the
values attributed to each component of a transaction at the time of their issuance, 2) the fair value measurements for certain
instruments that require subsequent measurement at fair value on a recurring basis and 3) for disclosing the fair value of financial
instruments subsequently carried at amortized cost. When the determination of the fair value of a new loan is required,
discounted cash flow techniques which includes inputs that are not based on observable market data and inputs that are derived
from observable market data are used. When determining the appropriate discount rates to use, Management seeks comparable
interest rates where available. If unavailable, it uses those considered appropriate for the risk profile of a corporation in the
industry.
The fair value estimates could be significantly different because of the use of judgment and the inherent uncertainty in estimating
the fair value of these instruments that are not quoted in an active market.
Valuation of deferred income tax assets – To determine the extent to which deferred income tax assets can be recognized,
management estimates the amount of probable future taxable profits that will be available against which deductible temporary
differences and unused tax losses can be utilized. Management exercises judgment to determine the extent to which realization
of future taxable benefits is probable, considering the history of taxable profits, budgets and forecasts and availability of tax
strategies.
69
Prometic Life Sciences Inc.
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
4. Change in standards, interpretations and accounting policies
a)
Adoption of new accounting standards
The accounting policies used in these annual consolidated financial statements are consistent with those applied by the
Corporation in its December 31, 2017 annual consolidated financial statements except for the amendments to certain accounting
standards which are relevant to the Corporation and were adopted by the Corporation as of January 1, 2018 as described below.
IFRS 9, Financial Instruments – Recognition and Measurement
IFRS 9 replaces the provisions of IAS 39, Financial Instruments – Recognition and Measurement and provides guidance on the
recognition, classification and measurement of financial assets and financial liabilities, the derecognition of financial instruments,
impairment of financial assets and hedge accounting.
The Corporation adopted IFRS 9 as of January 1, 2018 and the new standard has been applied retrospectively in accordance
with the transitional provisions of IFRS 9. The following table presents the carrying amount of financial assets held by Prometic
at December 31, 2017 and their measurement category under IAS 39 and the new model under IFRS 9.
Cash
Trade receivables
Other receivables
Restricted cash
Long-term receivables
Equity Investments
Convertible debt
IAS 39
IFRS 9
$
Measurement
category
FVPL
Amortized cost
Amortized cost
FVPL
Amortized cost
Cost
Cost
Carrying
amount
23,166
1,796
397
226
1,856
1,228
87
$
Measurement
category
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
FVPL
FVPL
Carrying
amount
23,166
1,796
397
226
1,856
1,228
87
There has been no impact caused by the new classification of financial assets under IFRS 9. The classification of all financial
liabilities at amortized cost remains unchanged as well as their measurement resulting from their classification.
Under IFRS 9, modifications to financial assets and financial liabilities, shall be accounted for by recalculating the present value
of the modified contractual cashflows at the original effective interest rate and the adjustment shall be recognized as a gain or
loss in profit or loss. Under IAS 39, the impact of modifications was recognized prospectively over the remaining term of the
debt.
The adoption of the accounting for modifications under the new standard has resulted in the restatement of the opening deficit
and the long-term debt at January 1, 2018 as follows:
Deficit
Long-term debt
$
110
(110)
IFRS 15, Revenue from contracts with customers
IFRS 15 replaces IAS 11, Construction Contracts, and IAS 18, Revenue and related interpretations and represents a new single
model for recognition of revenue from contracts with customers. The model features a five-step analysis of transactions to
determine the nature of an entity’s obligation to perform and whether, how much, and when revenue is recognized.
The Corporation adopted IFRS 15 as of January 1, 2018 and the new standard has been applied retrospectively using the
modified retrospective approach, where prior periods are not restated and the cumulative effect of initially applying this standard
is recognised in the opening deficit balance on January 1, 2018. The Corporation has also availed itself of the following practical
expedients:
•
the standard was applied retrospectively only to contracts that were not completed on January 1, 2018; and
70
Prometic Life Sciences Inc.Financial Statements
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
•
for contracts that were modified before January 1, 2018, the Corporation analysed the effects of all modifications when
identifying whether performance obligations were satisfied, determining the transaction price and allocating the
transaction price to the satisfied or unsatisfied performance obligations.
There has been no impact of the adoption of IFRS 15 as at January 1, 2018 and for the year end December 31, 2018.
IFRIC 22, Foreign Currency Transactions and Advance Consideration (“IFRIC 22”)
IFRIC 22 addresses how to determine the date of the transaction for the purpose of determining the exchange rate to use on
initial recognition of the related asset, expense or income (or part of it) and on the derecognition of a non-monetary asset or non-
monetary liability arising from the payment or receipt of advance consideration in a foreign currency. IFRIC 22 is effective for
annual periods beginning on or after January 1, 2018. The Corporation adopted IFRIC 22 retrospectively on January 1, 2018.
The adoption of the standard did not have a significant impact on the financial statements.
b) New standards and interpretations not yet adopted
Standards and interpretations issued but not yet effective up to the date of the Corporation’s consolidated financial statements
are listed below. This listing of standards and interpretations issued are those that the Corporation reasonably expects might
have an impact on disclosures, financial position or performance when applied at a future date. The Corporation intends to adopt
these standards when they become effective.
IFRS 16, Leases (“IFRS 16”)
In January 2016, the IASB issued IFRS 16, a new standard that replaces IAS 17, Leases. IFRS 16 provides a single lessee
accounting model, requiring the recognition of assets and liabilities for all leases, unless the lease term is less than 12 months
or the underlying asset has a low value. IFRS 16 substantially carries forward the lessor accounting in IAS 17 with the distinction
between operating leases and finance leases being retained. The adoption of IFRS 16 is mandatory and will be effective for the
Corporation’s fiscal year beginning on January 1, 2019. The Corporation will adopt IFRS 16 using the modified retrospective
approach. The Corporation expects to recognize a material amount of right-of-use assets and lease liabilities. However, the net
impact on opening deficit is not expected to be material since Prometic has elected the option to measure the right-of-use assets
at an amount equal to the lease liability at the date of the transition, adjusted for any prepaid and liability existing at the date of
transition. The Corporation is in the process of completing its evaluation of the impact of adopting IFRS 16 on its consolidated
financial statements.
5. Accounts receivable
Trade receivables
Tax credits and government grants receivable
Sales taxes receivable
Other receivables
December 31,
2018
December 31,
2017
$
$
$
7,051
3,737
774
320
11,882
$
1,796
3,883
763
397
6,839
71
Prometic Life Sciences Inc.
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
6.
Inventories
Raw materials
Work in progress
Finished goods
December 31,
2018
December 31,
2017
$
$
5,428
3,740
2,860
12,028
$
$
24,075
10,090
1,848
36,013
During the year ended December 31, 2018, inventories sold in the amount of $33,431 were recognized as cost of sales and
production ($6,594 for the year ended December 31, 2017). Inventory write-downs of $3,009, also included in cost of sales and
other production expenses, were recorded during the year ended December 31, 2018 ($246 for the year ended December 31,
2017). Of the amount recorded during the year ended December 31, 2018, $1,522 pertains to a net realizable value write-down
taken on raw materials as the Corporation sold some plasma for an amount which was below the carrying cost of the inventory.
7. Other long-term assets
Restricted cash (a)
Long-term receivables
Deferred financing costs
Equity investments in scope of IFRS 9
Convertible debt (b)
December 31,
2018
December 31,
2017
245
142
-
24
-
411
$
$
226
1,856
5,266
1,228
87
8,663
$
$
a) Restricted Cash
Restricted cash is composed of a guaranteed investment certificate, bearing interest at 0.35% per annum (at December 31,
2017, bearing interest at 0.35%), pledged as collateral for a letter of credit to a landlord which automatically renews until the end
of the lease.
b) Convertible Debt
At December 31, 2018, the Corporation has invested $1,181 (US$ 866,000) in convertible debt of Prothera Biologics Inc.
(“ProThera”). The convertible debt is convertible at the option of the issuer or the holder into preferred shares of ProThera (see
note 10), denominated in U.S. dollars and earning interest at 8.0% per annum, to be received at the date of maturity which is
January 3, 2020.
The transactions during the year ended December 31, 2018 and 2017 and the carrying value of the convertible debt at
December 31, 2018 and 2017 were as follows:
Balance at January 1,
Additions
Interest income
Foreign exchange revaluation
Change in fair value of financial instruments measured at FVPL (note 24)
Balance at December 31,
$
$
$
2018
87
955
61
78
(1,181)
-
$
2017
84
-
11
(8)
-
87
On January 3, 2019, the principal of the loan and the interest outstanding at December 31, 2018 were converted into preferred
shares of ProThera Biologics, Inc. (“ProThera”) by the issuer.
72
Prometic Life Sciences Inc.Financial Statements
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
c) Option to purchase equipment
The Corporation acquired an option to purchase equipment located in Europe in January 2018 which purchase was settled by
the issuance of common shares as described in note 17a. An impairment loss of $653 was subsequently recorded for the full
value of the option (note 24).
8. Capital assets
Cost
Balance at January 1, 2017
Additions
Disposals
Effect of foreign exchange differences
Balance at December 31, 2017
Additions
Disposals
Effect of foreign exchange differences
Balance at December 31, 2018
Accumulated depreciation
Balance at January 1, 2017
Depreciation expense
Disposals
Effect of foreign exchange differences
Balance at December 31, 2017
Depreciation expense
Disposals
Impairments
Effect of foreign exchange differences
Balance at December 31, 2018
Carrying amounts
At December 31, 2018
At December 31, 2017
Land and
Leasehold
Buildings improvements
Production Furniture and
computer
equipment
and laboratory
equipment
Total
$
$
$
$
$
$
$
$
4,501
38
-
-
$
11,145
1,587
-
92
$
32,063
5,321
(680)
83
$
2,831
806
(90)
8
50,540
7,752
(770)
183
4,539
$
12,824
$
36,787
$
3,555
$
57,705
28
-
-
2,977
-
233
2,396
(452)
154
279
(58)
10
5,680
(510)
397
4,567
$
16,034
$
38,885
$
3,786
$
63,272
$
$
27
192
-
-
219
195
-
-
-
$
3,106
580
-
40
$
5,227
2,221
(521)
35
$
987
639
(84)
2
9,347
3,632
(605)
77
3,726
$
6,962
$
1,544
$
12,451
641
-
-
54
2,511
(146)
5,689
55
739
(36)
-
6
4,086
(182)
5,689
115
414
$
4,421
$
15,071
$
2,253
$
22,159
4,153
4,320
$
11,613
9,098
$
23,814
29,825
$
1,533
2,011
$
41,113
45,254
As at December 31, 2018, there are $8,322 and $6,610 of production and laboratory equipment and leasehold improvements,
respectively, net of government grants, that are not yet available for use and for which depreciation has not started ($10,219
and $3,524 as of December 31, 2017).
Certain investments in equipment are eligible for government grants. The government grants receivable are recorded in the
same period as the eligible additions and are credited against the capital asset addition. During the year ended December 31,
2018, the Corporation recognized $2 ($231 during the year ended December 31, 2017) in government grants.
As at December 31, 2018, production and laboratory equipment includes assets under finance leases with a net carrying amount
of $1,044 ($1,131 as at December 31, 2017).
An impairment loss of $5,689 was recorded on certain equipment during the year ended December 31, 2018 (note 24).
73
Prometic Life Sciences Inc.
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
9.
Intangible assets
Cost
Balance at January 1, 2017
Additions
Disposals
Effect of foreign exchange differences
Balance at December 31, 2017
Additions
Disposals
Effect of foreign exchange differences
Balance at December 31, 2018
Accumulated amortization
Balance at January 1, 2017
Amortization expense
Disposals
Effect of foreign exchange differences
Balance at December 31, 2017
Amortization expense
Disposals
Impairments
Effect of foreign exchange differences
Balance at December 31, 2018
Carrying amounts
At December 31, 2018
At December 31, 2017
Licenses and
other rights
Patents
Software
Total
$
$
$
$
$
$
$
$
153,603
963
-
6
$
6,102
742
(593)
95
$
1,451
757
-
5
161,156
2,462
(593)
106
154,572
$
6,346
$
2,213
$
163,131
5,512
-
698
639
(332)
344
1,145
(68)
(4)
7,296
(400)
1,038
160,782
$
6,997
$
3,286
$
171,065
$
3,293
197
-
7
3,497
$
556
-
142,609
694
$
1,930
458
(195)
57
2,250
$
448
(177)
-
317
$
446
289
-
2
737
$
368
(38)
-
1
5,669
944
(195)
66
6,484
1,372
(215)
142,609
1,012
147,356
$
2,838
$
1,068
$
151,262
13,426
151,075
$
$
4,159
4,096
2,218 $
1,476
19,803
156,647
On January 29, 2018, the Corporation acquired two licenses. The first license, valued at $1,743, was paid for by the issuance
of warrants (note 17c). The second license was purchased for an equivalent of US$3 million; US$1 million on the date of the
transaction, and another US$1 million on both the first and second anniversary of the transaction, to be settled in common
shares of the Corporation (see note 16c for the license acquisition payment obligation and note 17a for the shares issued on the
transaction date). The value attributed to the second license, based on the value recorded for the initial equity issued and the
value of the payment obligation at the date of the transaction is $3,769. The estimated useful lives of the licenses is 10 years
and 20 years for the first and second license, respectively.
Intangible assets include $7,106 pertaining to a reacquired right from a licensee; these rights are not yet available for use and
consequently their amortization has not commenced.
An impairment loss of $142,609 was recorded on certain licenses during the year ended December 31, 2018 (note 24).
10. Investment in an associate
At each reporting period, the Corporation assesses whether it has significant influence over its investments. During the quarter
ended September 30, 2018, the Corporation concluded it exerted significant influence over ProThera, a company headquartered
in Rhode Island, U.S.A., since August 15, 2018. As such, ProThera is considered an associate as well as a related party from
that date and consequently, the equity investment in ProThera is accounted for using the equity method (note 2), and the
transactions between the Corporation and its associate are disclosed in the consolidated financial statements as of December
31, 2018.
74
Prometic Life Sciences Inc.Financial Statements
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
ProThera is a biotherapeutics company developing methods for using Inter-alpha Inhibitor Proteins (“IaIP”) to treat severe
inflammation associated with infection, trauma and disease. The Corporation entered into research and development
agreements as well as a license agreement with ProThera in 2015 to develop, manufacture and market IaIP for the treatment of
two indications, one of which is Necrotizing Enterocolitis. As of December 31, 2018, Prometic holds 15.2% of the outstanding
common shares of Prothera having a historical cost of $1,204. It also holds an investment in convertible debt of ProThera (note
7).
As required when significant influence over an investment is obtained, the investment must be measured at fair value as of the
date it became an associate. A fair value approach was applied by management in developing preliminary estimates of the
identifiable assets and liabilities of ProThera. These fair value assessments require management to make significant estimates
and assumptions as well as applying judgment in selecting the appropriate valuation techniques, building valuation models, and
compiling, preparing and validating this information. When publishing, its third quarter results at September 30, 2018, certain
aspects of the valuation were not finalized, namely the valuation of the intangible assets and therefore the amounts recognized
were based on the preliminary results.
During the fourth quarter of 2018, following changes to the Corporation’s strategic plans, an impairment of the investment in the
associate, in the amount of $1,182 was recognized (note 24).
Changes in the carrying amount of the investment in an associate from the date it was initially recognized as an associate on
August 15, 2018 to December 31, 2018 are as follows:
Loss and comprehensive loss of an associate from August 15 to December 31, 2018
Share of losses of an associate
Historical cost of the investment in an associate
Less : share of losses of an associate
Less: impairment on investment in an associate
Carrying amount of the investment in an associate
11. Accounts payable and accrued liabilities
Trade payables
Wages and benefits payable
Current portion of operating and finance lease inducements and obligations (note 15)
Current portion of settlement fee payable (note 16a)
Current portion of royalty payment obligations (note 16b)
Current portion of license acquisition payment obligation (note 16c)
Current portion of other employee benefit liabilities (note 16)
$
$
$
December 31,
2018
21,097
1,975
5,844
102
68
1,363
1,406
31,855
$
$
$
144
22
1,204
22
1,182
-
December 31,
2017
19,333
6,839
3,301
102
-
-
379
29,954
12. Advance on revenues from a supply agreement
The Corporation entered into a loan agreement with a customer whereby it received an advance on revenues relating to a supply
agreement between the parties. The principal amount of the advance bore interest at a rate of 5% per annum and was being
repaid as products were supplied and revenues received. The advance was fully repaid in September 2018.
75
Prometic Life Sciences Inc.
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
13. Long-term debt
The transactions during the years ended December 31, 2018 and 2017 and the carrying value of the long-term debt at
December 31, 2018 and 2017 were as follows:
Balance at January 1,
Impact of adoption of IFRS 9 (note 4a)
Interest accretion
Repayment of principal on long-term debt
Repayment of stated interest on long-term debt
Reduction of the face value of the second OID loan by $3,917
Extinguishment of loans - November 14, 2018 debt modification
Recognition of loans - November 14, 2018 debt modification
Drawdown on Credit Facility
Foreign exchange revaluation on Credit Facility balance
Issuance of third OID loan
Reduction of the face value of the third OID loan by $8,577
Balance at December 31,
$
$
2018
87,020
(110)
18,856
(3,184)
(3,934)
(2,639)
(155,055)
107,704
71,721
5,425
-
-
$
125,804
$
2017
48,115
-
7,686
(3,454)
(163)
-
-
-
21,098
(491)
18,363
(4,134)
87,020
At December 31, 2018 and 2017, the carrying amount of the debt comprised the following loans:
First OID loan having a face value of $63,273 maturing
on September 30, 2024 with an effective interest rate of 20.06%
Second OID loan having a face value of $17,694 maturing
on September 30, 2024 with an effective interest rate of 20.06%
Third OID loan having a face value of $31,370 maturing
on September 30, 2024 with an effective interest rate of 20.06%
US dollars Credit Facility draws, expiring on September 30, 2024
1) 3)
1)
3)
1)
3)
bearing stated interest of 8.5% per annum (effective interest rate of 18.87%)
Government term loan having a principal amount of $1,000
full repayable on August 31, 2018 with an effective interest rate of 9.2%
and a stated interest of 3.2%
2)
1)
Non-interest bearing government term loan having a principal amount of $1,153
repayable in equal monthly installments of $82 until January 31, 2020
with an effective interest rate of 8.8%
Non-interest bearing government term loan having a principal amount of $1,031
full repayable on January 5, 2018 with an effective interest rate of 9.1%
Less current portion of long-term debt
Long-term portion of long-term debt
2018
2017
$
27,221
$
7,612
13,495
76,365
32,721
13,355
15,815
20,876
-
973
1,111
-
125,804
(3,211)
122,593
$
$
$
$
2,249
1,031
87,020
(3,336)
83,684
1)The loans are secured by all the assets of the Corporation and require that certain covenants be respected including maintaining an adjusted
working capital ratio.
2) The loan is secured by the land, the manufacturing facility and equipments located in Belleville. At December 31, 2017, the net carrying value
of the secured assets was $8,678.
3) On July 31, 2022, the OID loans will be converted into cash paying loans bearing interest at an annual rate of 10%, payable quarterly.
2018
In November 2017, the Corporation entered into a Credit Facility agreement bearing interest of 8.5% per annum expiring on
November 30, 2019. The Credit Facility comprised two US$40 million tranches which become available to draw down once
certain conditions were met. The drawdowns on the available tranches were limited to US$10 million per month.
As part of the agreement, the Corporation issued 54 million warrants on November 30, 2017 (“Warrants #7”) to the holder of the
long-term debt in consideration for the Credit Facility. Further details concerning the warrants are provided in note 17c. At each
76
Prometic Life Sciences Inc.Financial Statements
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
drawdown, the value of the proceeds drawn are allocated to the debt and the warrants classified as equity based on their fair
value.
A royalty agreement between the Corporation and holder of long-term debt became effective upon drawing on the second
tranche of the Credit Facility and then was subsequently modified as part of the loan modification discussed below. The proceeds
to be received upon the first three draws on the second US$40 million tranche was increased from US$10.0 million to
US$11.5 million to include the consideration paid by the holder for the royalty commitment (see note 16b).
The Corporation drew on the remaining US$60 million available on the Credit Facility throughout the year, bringing the
cumulative draws from US$20 million at December 31, 2017 to US$80 million at December 31, 2018.
The table below summarizes by quarter, the impact of the various drawdowns and the royalty proceeds on the consolidated
financial statements:
Quarter
Q1 2018
Q2 2018
Q3 2018
Q4 2018
USD proceeds
20,000,000
11,500,000
23,000,000
10,000,000
CAD equivalent
25,155,000
14,768,300
29,808,690
13,280,100
Debt
19,585,372
12,881,631
27,144,445
12,109,314
Warrants
5,569,628
1,886,669
2,531,438
1,170,786
Royalty liability
-
-
132,807
-
Allocation of Proceeds
For the August and September 2018 draws, the holder of the long-term debt used the set-off of principal right under the Original
Issue Discount (“OID”) loan agreements to settle $3,917 (US$3 million) of the amounts due to the Corporation under the royalty
agreement by reducing the face value of the second OID loan from $21,172 to $17,255. As a result, the cash proceeds received
for those two draws were $25,892.
These transactions were accounted for as an extinguishment of a portion of the OID loan and the difference between the
adjustment to the carrying value of the loan of $2,639 and the reduction in the face value of the OID loan of $3,917, was recorded
as a loss on extinguishment of liabilities of $1,278.
On November 14, 2018, the Corporation and the holder of the debt modified the terms of the four loan agreements to extend
the maturity date of the Credit Facility from November 30, 2019 to September 30, 2024 and all three OID loans from July 31,
2022 to September 30, 2024. Interest on amounts outstanding on the Credit Facility will continue to be payable quarterly at an
annual rate of 8.5% during the period of the extension. As of July 31, 2022, the OID loans will be restructured into cash paying
loans bearing interest at an annual rate of 10%, payable quarterly. The outstanding face values of the OID loans at that date will
become the principal amounts of the restructured loans. As additional consideration for the extension of the maturity dates,
Prometic agreed to cancel 100,117,594 existing warrants (Warrants #3 to 7) and issue replacement warrants to the holder of
the long-term debt, bearing a term of 8 years and exercisable at a per share price equal to $1.00 (note 17c). The exact number
of warrants to be granted will be set at a number that will result in the holder of the long-term debt having a 19.99% fully-diluted
ownership level in Prometic upon issuance of the warrants, which are to be issued no later than March 15, 2019. On
November 30, 2018, Warrants #3 to 7 were cancelled and 128,056,881 warrants to purchase common shares (“Warrants #8”),
representing a portion of the replacement warrants, were issued. At the end of the agreed upon measurement period for
calculating the number of new warrants to be issued, Prometic will issue the remaining replacement warrant under a new series
of warrants (“Warrants #9”), which will give the holder the right to acquire preferred shares (note 14). The holder of the long-
term debt also obtained the Corporation’s best efforts to support the election of a second representative of the lender to the
Board of directors of the Corporation, and the extension of the security to the royalty agreement.
Management assessed the changes made to the previous agreements and determined that the modification should be
accounted for as an extinguishment of the previous loans and the recording of new loans at their fair value determined as of the
date of the modification. The fair value of the modified loans, determined using a discounted cash flow model with a market
interest rate of 20.1%, was $107,704. Any cost or fees incurred with this transaction were recognized as part of the gain on
extinguishment, including legal fees incurred in the amount of $434 and the improvements to the terms of the warrants. To
77
Prometic Life Sciences Inc.
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
determine this value, the Corporation estimated the fair value of the vested warrants (Warrants #3 to 7) and the fair value of the
new warrants, excluding the 6,000,000 warrants that were associated with the last draw on the Credit Facility that occurred on
November 22, 2018. The incremental fair value was $8,778 of which $338 pertains to Warrants #9 (note 14).
In addition, the fees incurred in regards of the Credit Facility, that were previously recorded in the consolidated statement of
financial position as other long-term assets and were being amortized and recognized in the consolidated statement of
operations over the original term of the Credit Facility, were recognized as part of the gain on extinguishment for an amount of
$3,245.
As a result of this transaction and the extinguishments of debt that occurred earlier in the year following the use of the set-off of
principal right by the debt holder, the consolidated statement of operations for the year ended December 31, 2018, includes a
gain on extinguishment of liabilities of $33,626 detailed as follows:
Gain on extinguishment of liabilities due to November 14, 2018 debt modification
Comprising the following elements:
Extinguishment of previous loans
Expensing of deferred financing fees on Credit Facility
Recognition of modified loans
Expensing of increase in the fair value of the warrants
Warrants proceeds
Expensing of legal fees incurred with the debt modification
Gain on extinguishment of liabilities due to November 14, 2018 debt modification
Loss on extinguishment of liabilities due to set-off of principal
Gain on extinguishments of liabilities
$
$
$
(155,055)
3,245
107,704
8,778
(10)
434
(34,904)
1,278
(33,626)
At December 31, 2018, the Corporation was not in breach of its covenants under its credit facilities, as a result of a waiver
obtained in December, wherein the holder of the long-term debt confirmed that the breached covenants will not be deemed to
constitute an event of default. The holder of the long-term debt also agreed to defer the payment of interest that was originally
due under the terms of the existing Credit Facility on December 31, 2018, to early January 2019.
2017
On April 27, 2017, the Corporation and the holder of the long-term debt signed a third OID loan agreement and warrants
(“Warrants #6”) for total proceeds of $25,010. The total proceeds were allocated to the debt based on its fair value at the issue
date and the residual amount was attributed to the warrants that are classified as equity. Further details concerning the warrants
are provided in note 17c. Under the terms of the loan, the Corporation will repay the face value of the OID loan, in the amount
of $39,170 at maturity on July 31, 2022. The OID loan was recorded at its fair value at the transaction date less the associated
transaction costs of $184 for a net amount of $18,363. The fair value of the loan was determined using a discounted cash flow
model for the debt instrument with a market interest rate of 15.5%.
In July 2017, the holder of the long-term debt used the set-off of principal right under the loan agreements, to settle the amounts
due to the Corporation, following its participation in a private placement for 5,045,369 common shares which occurred
concurrently with the closing of a public offering of common shares on July 6, 2017.
As a result, the face value of the third OID loan was reduced by $8,577, from $39,170 to $30,593. The reduction of $8,577 is
equivalent to the value of the shares issued at the agreed price of $1.70 concluded in connection with the private placement.
This transaction was accounted for as an extinguishment of a portion of the OID loan and the difference between the adjustment
to the carrying value of the loan of $4,134 and the amount recorded for the shares issued of $8,325, as explained in the following
paragraph, was recorded as a loss on extinguishment of a liabilities of $4,191.
The shares were recorded at fair value, determined using the closing price of $1.65 on the date of issue July 6, 2017, resulting
in a value of the shares issued of $8,325.
78
Prometic Life Sciences Inc.Financial Statements
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
On November 30, 2017, the Corporation entered into the Credit Facility agreement.
The Corporation drew on the Credit Facility on November 30, 2017 and on December 14, 2017 respectively. The total proceeds
allocated to the debt upon the two drawdowns in 2017 was $21,098. The fair value of the debt was determined using a discounted
cash flow model for the debt instrument with a market interest rate of 16.4%. The fees incurred in regards of the Credit Facility,
which comprise legal fees and also the 10,000,000 warrants issued upon signature of the Credit Facility (note 17c), for a total of
$5,473 have been recorded in the consolidated statement of financial position as other long-term assets and will be amortized
and recognized into the consolidated statement of operations over the term of the Credit Facility.
14. Warrant Liability
As consideration for the modification of the terms of the loan agreements (note 13), the Corporation has a commitment to issue
Warrants #9 to the holder of the long-term debt on or before March 15, 2019. The exact number of warrants will be based on
the number of warrants necessary to increase the ownership of the holder of the long-term debt to 19.99% on a fully diluted
basis at the date of issuance. Each warrant will entitle the holder to acquire one preferred share (note 17a) at a price of $1 per
share and will expire eight years after their date of issuance. The Warrants #9 do not meet the definition of an equity instrument
since the underlying preferred shares qualify as a liability instrument, and therefore they must be accounted for as a financial
instrument carried at FVPL.
The estimated fair-value of these warrants at as November 14, 2018 and as December 31, 2018 was $338 and $157. The
change in fair value of the warrants, a gain of $181 was recorded in the consolidated statements of operations. These fair values
were calculated using a Black-Scholes option pricing model with the assumptions provided in the table below. In order to estimate
the fair-value of the underlying preferred share, the Corporation has used the market price of Prometic’s common share at the
date of the estimate, discounted for the fact that the preferred shares are illiquid. The value of the discount was calculated using
a European put option model to sell a common share of Prometic at the price of $1 per share in 20 years.
The following assumptions were used in determining the fair value of Warrants #9 on November 14, 2018, the date of issuance,
and December 31, 2018:
Underlying preferred share fair value
Number of warrants to be issued
Volatility
Risk-free interest rate
Remaining life until expiry
Expected dividend rate
15. Operating and finance lease inducements and obligations
Finance lease obligations
Deferred operating lease inducements and obligations
Less current portion of operating and finance lease inducements and obligations (note 11)
November 14,
2018
0.22
9,781,576
45.9%
2.76%
8.0
-
December 31,
2018
0.13
14,088,498
44.5%
2.82%
7.9
-
December 31,
2018
December 31,
2017
$
$
$
818
6,876
7,694
(5,844)
1,850
$
$
$
972
4,402
5,374
(3,301)
2,073
79
Prometic Life Sciences Inc.
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
The following table presents the future minimum finance lease payments as of December 31, 2018:
Future minimum lease payments
Less future finance costs
Finance lease obligation
16. Other long-term liabilities
Settlement fee payable (a)
Royalty payment obligations (b)
License acquisition payment obligation (c)
Other employee benefit liabilities
Other long-term liabilities
Less:
Current portion of settlement fee payable (note 11)
Current portion of royalty payment obligations (note 11)
Current portion of license acquisition payment obligation (note 11)
Current portion of employee benefit liabilities (note 11)
a) Settlement of litigation
Within 1 year
2 - 5 years
$
$
415
(52)
363
$
$
485
(30)
455
$
$
$
$
Total
900
(82)
818
December 31,
2017
190
2,963
-
593
70
3,816
(102)
-
-
(379)
3,335
December 31,
2018
102
3,077
2,726
2,399
330
8,634
(102)
(68)
(1,363)
(1,406)
5,695
$
$
$
$
During the year ended December 31, 2012, the Corporation was served with a lawsuit in the Federal Court of Canada (Court)
relating to a claim for infringement of two Canadian issued patents held by a third party plaintiff, GE Healthcare Biosciences AB
(“GE”). The Corporation filed a statement of defence on the infringement claims, in addition to a counterclaim requesting that
the Court declare both patents invalid and unenforceable.
The Corporation and GE entered into a settlement and license agreement on October 25, 2016 to mutually discontinue all past
claims and counterclaims between the parties and to commercialize the underlying technologies over the term of the license,
which shall not extend, on a country-by-country basis, beyond October 2021 (the “Term”). Under the agreement, Prometic shall
pay GE an aggregate amount of $1,000 between October 25, 2016 and October 25, 2020 in consideration thereof, Minimum
Annual Royalty (“MAR”) payments totaling $587 over the Term and a 2% net sales royalty on sales of certain Prometic
bioseparation products to third parties and affiliates during the Term; the royalties being creditable against the MAR. After the
Term of the agreement, sales of the products will be royalty-free. The net sales royalty expense will be recorded as such product
sales are recognized.
b) Royalty payment obligations
i) Royalty payment obligations to the holder of the long-term debt
During the second quarter of 2018, the Corporation signed a royalty agreement with the holder of the long-term debt at the same
time as certain conditions pertaining to the second advance of the Credit Facility were modified. As a result of the agreement,
the Corporation obtained the right to receive US$1.5 million milestone payments upon each draw of the second tranche of the
Credit Facility in exchange for increasing royalty entitlements on future revenues relating to patents existing as of the date of the
agreement of PBI-1402 and analogues, including PBI-4050. The agreement includes a minimum royalty payment of US$5,000
per quarter until approximately 2033 and a liability of $138 was recognized in the consolidated statement of financial position at
December 31, 2018 representing the discounted value of the minimum royalty payments to be made until the expiry of the
patents covered by the agreement, using a discount rate of 18.57%. In the case where royalties based on revenues became
payable, the minimum royalty previously paid would be deducted from future remittances.
80
Prometic Life Sciences Inc.Financial Statements
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
On November 14, 2018, as part of the debt modification agreement, the royalty rate was increased from 1.5% to 2% on future
revenues relating to the specified patents and the right to receive the final US$1.5 million milestone payment was foregone.
ii) Royalty payment obligation for reacquired rights
As part of the consideration given by the Corporation in 2016 for the reacquisition of the rights to 50% of the worldwide profits
pertaining to the sale of plasminogen for the treatment of plasminogen congenital deficiency which were previously granted to a
licensee under a license agreement, the Corporation agreed to make royalty payments on the sales of plasminogen for
congenital deficiency, using a rate of 5% up to a total of US$2.5 million. If by December 2020 the full royalty obligation has not
been paid, the unpaid balance will become due. The Corporation has recognized a royalty payment obligation of $2,898
(US$2.1 million) in the consolidated statement of financial position at December 31, 2018 ($2,963 at December 31, 2017),
representing the discounted value of the expected royalty payments to be made until December 2020, using a discount rate of
9.2%.
c) Licence acquisition payment obligation
In consideration for acquiring a license (note 9), the Corporation agreed to pay an equivalent of US$3 million; US$1 million on
the date of the transaction, and US$1 million on both the first and second anniversary of the transaction, to be settled in common
shares of the Corporation. A $2,726 financial liability has been recognised for the second and third payments.
17. Share capital and other equity instruments
a) Share capital
Authorized and without par value:
Common shares: unlimited number authorized, participating, carrying one vote per share, entitled to dividends.
Preferred shares: unlimited number authorized, issuable in one or more series.
- Unlimited number of series A preferred shares, no par value, non-voting, ranking in priority to the common shares, entitled
to the same dividends as the common shares, non-transferable, redeemable at the redemption amount offered for the
common shares upon a change in control event.
Issued common shares
Share purchase loan to a former officer
Issued and fully paid common shares
December 31, 2018
December 31, 2017
Number
720,368,286
-
720,368,286
$
$
Amount
583,517
(400)
583,117
Number
710,593,273
-
710,593,273
$
$
Amount
575,550
(400)
575,150
At December 31, 2017, the maturity date of the outstanding share purchase loan issued to an officer of the Corporation was the
earlier of (i) March 31, 2019 or (ii) 30 days preceding a targeted NASDAQ or NYSE listing date of Prometic’s shares. The share
purchase loan bears interest at prime plus 1%.
81
Prometic Life Sciences Inc.
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
Changes in the issued and outstanding common shares during the years ended December 31, 2018 and 2017 were as follows:
Balance - beginning of year
Issued to acquire assets
Issued to acquire non-controlling interest (note 18)
Exercise of future investment rights (note 17d)
Exercise of stock options (note 17b)
Shares issued under restricted share units plan (note 17b)
Share issued for cash
Issued in consideration of loan extinguishment (note 13)
Balance - end of year
December 31, 2018
December 31, 2017
Number
Amount
Number
$
710,593,273
1,113,342
4,712,422
-
1,689,624
313,625
1,946,000
-
720,368,286
$
575,150
1,960
3,629
-
1,073
554
751
-
583,117
$
623,229,331
-
-
44,791,488
3,086,203
3,190,882
31,250,000
5,045,369
710,593,273
$
Amount
480,237
-
-
27,594
811
5,058
53,125
8,325
575,150
2018
On January 29, 2018, the Corporation issued 742,228 common shares in partial payment for the acquisition of a license (note 9)
and 371,114 common shares to acquire an option to buy production equipment currently located in Europe (note 7). Based on
the $1.76 share price on that date, the values attributed to the shares issued were $1,960.
On April 27, 2018, the Corporation reacquired the non-controlling shareholders’ 13% interest in Prometic Bioproduction Inc. in
exchange for the issuance of 4,712,422 common shares. Based on the $0.77 share price on that date, the value attributed to
the shares issued was $3,629 (note 18).
On November 27, 2018, the Corporation entered into an ”At-the-Market” (“ATM”) equity distribution agreement (“EDA”) under
which the Corporation is able, at its discretion and from time to time, subject to conditions in the EDA, to offer common shares
through ATM issuances on the TSX or any other marketplace for aggregate proceeds not exceeding $31.0 million. This
agreement provides that common shares are to be sold at market prices prevailing at the time of sale. Through December 31,
2018, the Company has issued a total of 1,946,000 common shares at an average price of $0.39 per share under the ATM for
aggregate gross proceeds of $751, less transaction costs of $23 recorded in deficit, for total net proceeds of $728.
2017
On July 6, 2017, the Corporation issued 31,250,000 common shares following a bought deal public offering for gross proceeds
of $53,125. The underwriters received a cash commission of 6% of the gross proceeds of the offering. Concurrently with the
bought deal public offering, the Corporation concluded a private placement with the holder of the long-term debt. Using the rights
conveyed under the loan agreement, the holder of the long-term debt elected to extinguish a portion of the face value of the third
OID loan as consideration for the 5,045,369 shares issued (note 13). The aggregate issuance costs related to these issuances,
including the commission, in the amount of $3,878, were recorded against the deficit during the year ended December 31, 2017.
b) Contributed surplus (share-based payments)
Stock options
The Corporation has established a stock option plan for its directors, officers, employees and service providers. The plan
provides that the aggregate number of shares reserved for issuance at any time under the plan may not exceed 40,634,585
common shares and the maximum number of common shares, which may be reserved for issuance to any individual, may not
exceed 5% of the outstanding common shares. The stock options issued under the plan may be exercised over a period not
exceeding ten years from the date they were granted. The vesting period of the stock options varies from immediate vesting to
vesting over a period not exceeding 5 years. Participants meeting certain service and age requirements may see the vesting of
certain awards accelerate upon retirement. The vesting conditions are established by the Board of Directors on the grant date.
The exercise price is based on the weighted average share price for the five business days prior to the grant.
82
Prometic Life Sciences Inc.Financial Statements
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
Changes in the number of stock options outstanding during the years ended December 31, 2018 and 2017 were as follows:
Balance - beginning of year
Granted
Forfeited
Exercised
Expired
Balance - end of year
2018
$
Number
14,463,270
10,882,961
(428,578)
(1,689,624)
(1,413,000)
21,815,029
$
Weighted
average
exercise price
1.79
0.76
1.99
0.38
0.41
1.47
2017
$
Number
14,372,640
3,809,870
(630,037)
(3,086,203)
(3,000)
14,463,270
$
Weighted
average
exercise price
1.41
1.99
2.53
0.16
0.12
1.79
During the year ended December 31, 2018, 10,882,961 options having a contractual term of 10 years were granted.
During the year ended December 31, 2018, 1,689,624 stock options were exercised resulting in cash proceeds of $635 and a
transfer from contributed surplus to share capital of $438. The weighted average share price on the date of exercise of the
options during the year ended December 31, 2018 was $1.04.
During the year ended December 31, 2017, 177,050 and 3,632,820 options having a contractual term of five and ten years
respectively were granted. All other outstanding options have a contractual term of five years.
During the year ended December 31, 2017, 3,086,203 options were exercised resulting in cash proceeds of $481 and a transfer
from contributed surplus to share capital of $330. The weighted average share price on the date of exercise of the options during
the year ended December 31, 2017 was $1.71.
At December 31, 2018, stock options issued and outstanding by range of exercise price are as follows:
Range of
exercise price
$0.34 - $0.88
$1.10 - $2.02
$2.07 - $2.44
$2.55 - $3.19
Number
outstanding
10,860,761
2,731,036
5,595,533
2,627,699
21,815,029
Weighted average
remaining
contractual life
(in years)
Weighted
average
exercise price
9.9
1.7
5.1
2.4
6.7
$
$
0.76
1.27
2.23
2.98
1.47
Number
exercisable
727,822
2,335,427
3,423,087
1,683,194
$
8,169,530
$
Weighted
average
exercise price
0.77
1.22
2.29
2.98
1.99
The Corporation uses the Black-Scholes option pricing model to calculate the fair value of options at the date of grant. The
weighted average inputs into the model and the resulting grant date fair values during the year ended December 31, 2018 and
2017 were as follows:
Expected dividend rate
Expected volatility of share price
Risk-free interest rate
Expected life in years
Weighted average grant date fair value
2018
-
66.1%
2.1%
7.9
$ 0.22
2017
-
61.8%
1.2%
6.8
$ 1.19
The expected volatility was based on historical volatility of the common shares while the expected life was based on the historical
holding patterns. The fair value of the grants is expensed over the vesting period on the assumption that between 3.6% to 5.9%
(between 3.4% and 5.5% in 2017) of the unvested stock options will be forfeited annually over the service period.
A share-based payment compensation expense of $3,372 was recorded for the stock options for the year ended
December 31, 2018 ($3,436 for the year ended December 31, 2017).
83
Prometic Life Sciences Inc.
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
Restricted share units
The Corporation has established an equity-settled restricted share units plan for executive officers of the Corporation, as part of
its incentive program designed to align the interests of its executives with those of its shareholders, and in accordance with its
Long Term Incentive Plan. The vesting conditions are established by the Board of Directors on the grant date and must generally
be met within 3 years. Participants meeting certain service and age requirements may see the vesting of certain awards
accelerate upon retirement. Each vested RSU gives the right to receive a common share.
2018
On December 4, 2018, the Corporation granted 10,356,110 RSU to management (the “2018-2020 RSU”) with a time period to
meet the vesting conditions extending to December 31, 2020. The grant included 2,385,909 units that vest at a rate of 33.3% at
the end of each year and become available for release at the time of vesting, and 7,970,201 units that have performance-based
conditions with a scaling payout depending on performance (ranging from 0% to 150%). These 2018-2020 performance-based
RSU will only vest at the end of 2020 if individual RSU objectives are met and if the participant is still employed by the Corporation
at that time.
2017
During 2017, the Board decided to replace 1,220,623 of the expired RSU with an equivalent number of RSU keeping the same
vesting conditions but extending the evaluation period for the attainment of the objectives by one year to December 31, 2017.
The replacement RSU were issued on April 11, 2017. This transaction was accounted for as a modification of the existing RSU
that did not have an impact on the value of the RSU.
The RSU granted prior to the grant on November 24, 2017 vest upon achievement of various corporate and commercial
objectives and the underlying shares become available for issuance once the RSU are vested. On November 24, 2017, the
Corporation granted 6,228,456 RSU to management (the “2017-2019 RSU”), the time period to meet the vesting conditions goes
until December 31, 2019. The grant included 1,132,448 units that vest at a rate of 33.3% at the end of each year and become
available for release at the time of vesting, and 5,096,008 units that have performance-based conditions with a scaling payout
depending on performance. These 2017-2019 performance based RSU will only vest at the end of 2019 if individual RSU
objectives are met and if the participant is still at the employ of the Corporation at that time.
Changes in the number of RSU outstanding during the years ended December 31, 2018 and 2017 are presented in the following
table. The units granted represent the maximum payout possible based on achievement of all objectives.
Balance - beginning of year
Granted
Expired
Forfeited
Released
Balance - end of year
2018
10,561,283
10,356,110
(2,032,872)
(53,329)
(313,625)
18,517,567
2017
9,999,251
7,449,079
(3,157,311)
(538,854)
(3,190,882)
10,561,283
The grant date fair value of a 2018-2020 RSU is $0.39 (2017-2019 RSU is $1.42). A share-based payment compensation
expense of $3,350 was recorded during the year ended December 31, 2018 ($5,226 for the year ended December 31, 2017).
At December 31, 2018, there were 3,303,687 vested RSU outstanding (1,895,224 at December 31, 2017) and 15,213,880
unvested RSU outstanding (8,666,059 at December 31, 2017). During the year ended December 31, 2018, 313,625 vested RSU
were released and an equivalent number of shares were issued out of treasury resulting in a transfer from contributed surplus
to share capital of $554 (3,190,882 and $5,058 respectively at December 31, 2017).
84
Prometic Life Sciences Inc.Financial Statements
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
Share-based payment expense
The total share-based payment expense, comprising the above-mentioned expenses for stock options and RSU, has been
included in the consolidated statements of operations for the years ended December 31, 2018 and 2017 as indicated in the
following table:
Cost of sales and other production expenses
Research and development expenses
Administration, selling and marketing expenses
c) Warrants
$
$
2018
299
2,295
4,128
6,722
$
$
2017
370
4,150
4,142
8,662
The following table summarizes the changes in the number of warrants outstanding during the years ended December 31, 2018
and 2017:
Balance of warrants - beginning of year
Issued to acquire assets
Issued for cash
Cancelled - debt modification
Issued - debt modification
Balance of warrants - end of year
Balance of warrants exercisable - end of year
December 31, 2018
December 31, 2017
Number
121,672,099
4,000,000
-
(100,117,594)
128,056,881
153,611,386
149,611,386
$
$
$
Weighted
average
exercise price
2.11
3.00
-
2.38
1.00
1.03
0.98
Number
57,071,692
-
64,600,407
-
-
121,672,099
87,672,099
$
$
$
Weighted
average
exercise price
2.21
-
2.03
-
-
2.11
2.27
2018
On January 29, 2018, the Corporation issued 4,000,000 warrants to acquire common shares, as consideration for a license. The
warrants have an exercise price of $3.00 per share and expire after five years. 2,000,000 warrants become exercisable after
one year and 2,000,000 warrants become exercisable after two years. The fair value of the warrants and consequently the value
of the license is $1,743 and was determined using a Black-Scholes option pricing model.
As the Corporation drew an amount of US$10 million on the Credit Facility on each of January 22, February 23, April 30,
August 2, September 21, and November 22, 2018, the amounts received were allocated to the debt and the Warrants #7 that
vested upon the draw, based on their fair value at the time of the drawdown. The aggregate value of the proceeds attributed to
the warrants that became exercisable on those dates was $11,159, which was recorded in equity.
On November 14, 2018 an agreement was signed between the Corporation and the holder of the long-term debt to extend the
maturity of the three OID loans and the Credit Facility (note 13). As part of the cost for the debt modification, the Corporation
proceeded on November 30, 2018 to cancel 100,117,594 existing warrants (Warrants #3 to 7) and replace them with
128,056,881 new warrants (Warrants #8), each giving the holder the right to acquire one common share at an exercise price of
$1.00 per share, paid either in cash or in consideration of the lender’s cancellation of an equivalent amount of the face value of
an OID loan. The warrants expire on November 30, 2026. A payment of $10 was received from the holder of the long-term debt
as part of this transaction. The increase in the fair value of the replacement warrants compared to those cancelled was $8,440
at the date of the modification. This value in addition to the payment received was recorded in shareholders’ equity – warrants
and the corresponding debit was recorded against the gain on extinguishment of liabilities relating to the debt modification
(note 13).
85
Prometic Life Sciences Inc.
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
2017
On April 27, 2017, pursuant to a financing for total proceeds of $25,010, the Corporation issued additional debt and the Sixth
Warrants to the holder of the long-term debt. Further details concerning the debt issued are provided in note 13. The Sixth
Warrants consist of 10,600,407 warrants, each giving the holder the right to acquire one common share at an exercise price of
$3.70, paid either in cash or in consideration of the lender’s cancellation of an equivalent amount of the face value of an OID
loan. The warrants expire on October 26, 2023. The value of the proceeds attributed to the warrants of $6,463 was recorded in
warrants and future investment rights. The issuance cost related to the warrants, in the amount of $145, has been recorded
against the deficit.
On November 30, 2017, pursuant to entering into a Credit Facility agreement, the Corporation issued Warrants #7 to the holder
of the long-term debt. Further details concerning the Credit Facility are provided in note 13. The Warrants #7 consist of
54,000,000 warrants from which 10,000,000 warrants were exercisable as of the date of the agreement and the remaining
44,000,000 warrants became exercisable when the Corporation drew upon the Credit Facility in increments of US$10 million.
Each warrant gives the holder the right to acquire one common share at an exercise price of $1.70. The warrants expire on
June 30, 2026. Although the warrants are issued and outstanding in the warrant table above, for accounting purposes, these
warrants will be recognized and measured at the time they become exercisable.
The amount of each US$10,000,000 drawdown on the Credit Facility is allocated to the debt and the warrants based on their
fair value at the time of the drawdown. The initial 10,000,000 warrants exercisable upon signature of the agreement were valued
at $5,214 and were recognized as a deferred financing costs with the offsetting entry in equity. The Corporation drew on the
facility on November 30, 2017 and on December 14, 2017 and the value of the proceeds attributed to the warrants was $2,363
and $2,245 respectively, which was recorded in equity. Issuance cost related to the issuance of the Seventh Warrants, in the
amount of $125, have been recorded against the deficit.
As at December 31, 2018, the following warrants, classified as equity, to acquire shares were outstanding:
Number
277,910
1,000,000
20,276,595
4,000,000
128,056,881
153,611,386
Expiry date
Exercise price
September 2019
September 2021
September 2021
January 2023
November 2026
$
$
6.39
0.52
0.77
3.00
1.00
1.03
d) Future investment rights
The future investment rights issued by the Corporation provide essentially the same rights as the warrants to the holders. The
following table summarizes the changes in the number of future investment rights outstanding during the years ended
December 31, 2018 and 2017:
Balance of future investment rights - beginning of year
Exercise of future investment rights
Balance of future investment rights - end of year
December 31, 2018
December 31, 2017
Number
-
-
-
$
$
Weighted
average
exercise price
-
-
-
Number
44,791,488
(44,791,488)
-
$
$
Weighted
average
exercise price
0.47
0.47
-
On February 3, 2017, all of the 44,791,488 future investment rights were exercised resulting in cash proceeds of $21,052 and a
transfer from future investment rights to share capital of $6,542.
86
Prometic Life Sciences Inc.Financial Statements
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
18. Non-controlling interests
The interest in the subsidiaries for which the Corporation held less than 100 % interest during 2018 and 2017 are as follows:
Name of subsidiary
Segment activity
Place of incorporation
and operation
Proportion of ownership
interest held by the group
Prometic Bioproduction Inc. ("PBP")
Pathogen Removal and Diagnostic
Technologies Inc. ("PRDT")
NantPro Biosciences, LLC ("NantPro")
Plasma-derived therapeutics
Quebec, Canada
Bioseparations
Plasma-derived therapeutics
Delaware, U.S.
Delaware, U.S.
2018
100%
77%
73%
2017
87%
77%
73%
In April 2018, the Corporation and the non-controlling shareholders of Prometic Bioproduction Inc. entered into an agreement
whereby Prometic acquired the non-controlling shareholders 13% interest in the subsidiary in exchange for 4,712,422 common
shares of the Corporation. Consequently, $15,278 was recognized in the deficit to reflect Prometic’s increase in the ownership
of the subsidiary, representing the difference in value between the $3,629 of equity issued in payment of the 13% ownership
acquired and $11,649 of total net liabilities attributed to the NCI at the date of the transaction that was derecognized from the
statement of financial position.
Summarized financial information for the entities having a non-controlling interest at December 31, 2018 and 2017 is provided
in the following tables. This information is based on amounts before inter-company eliminations.
2018
Summarized statements of financial position
Capital and intangible assets (long-term)
Trade and other payables (current)
Intercompany loans and lease inducements and obligations (long-term)
Total equity (negative equity)
Attributable to non-controlling interests
Summarized statements of operations
Revenues or services rendered to other members of the group
Cost of sales and production
Research and development expenses
Adminstration and other expenses
Impairment loss
Net loss and comprehensive loss
Attributable to non-controlling interests
$
$
$
$
$
$
$
$
$
$
$
PRDT
351
(613)
(15,672)
(15,934)
(6,542)
PRDT
839
(190)
(179)
(1,001)
-
(531)
(641)
$
$
$
$
$
$
NantPro
-
-
-
-
-
NantPro
-
(10,526)
(30)
(131)
(141,025)
(151,712)
(40,962)
87
Prometic Life Sciences Inc.
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
2017
Summarized statements of financial position
Investment tax credits receivables and other current assets
Capital and intangible assets (long-term)
Trade and other payables (current)
Intercompany loans (long-term)
Total equity (negative equity)
Attributable to non-controlling interests
Summarized statements of operations
Revenues or services rendered to other members of the group
Cost of sales and production
Research and development expenses
Adminstration and other expenses
Net loss and comprehensive loss
Attributable to non-controlling interests
$
$
$
$
$
$
PBP
13,250
20,427
(6,965)
(120,789)
(94,077)
(10,722)
PBP
3,712
(1,635)
(34,027)
(4,587)
(36,537)
(4,750)
$
$
$
$
$
$
PRDT
-
398
(417)
(15,003)
(15,022)
(5,901)
PRDT
181
-
(335)
(957)
(1,111)
(779)
$
$
$
$
$
$
NantPro
-
141,025
-
-
141,025
38,070
NantPro
-
-
(17,482)
(210)
(17,692)
(4,776)
During the year ended December 31, 2017, PBP used $24,394 and $3,544 in cash for its operating and investing activities
respectively and received $28,200 from financing activities.
The non-controlling interests balance on the consolidated statements of financial position and the losses allocated to
non-controlling interests in the consolidated statements of operations, per subsidiary are as follows:
Consolidated statements of financial position :
Prometic Bioproduction Inc.
Pathogen Removal and Diagnostic Technologies Inc.
NantPro Biosciences, LLC
Total non-controlling interests
Consolidated statements of operations :
Prometic Bioproduction Inc.
Pathogen Removal and Diagnostic Technologies Inc.
NantPro Biosciences, LLC
Total non-controlling interests
$
$
$
$
$
2018
$
(1)
(28)
(38,760)
2017
(2,510)
(96)
(2,969)
(38,789)
$
(5,575)
$
(42,530)
$
2018
2017
$
-
(6,542)
-
(6,542)
$
(10,722)
(5,901)
38,070
21,447
2018
2017
$
(927)
(641)
(40,962)
(4,750)
(779)
(4,776)
(10,305)
The NantPro Biosciences, LLC non-controlling interest’s share in the funding of the subsidiary by Prometic was $2,892 for the
year ended December 31, 2018 ($4,776 for the year ended December 31, 2017) and has been presented in the consolidated
statements of changes in equity.
88
Prometic Life Sciences Inc.Financial Statements
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
19. Capital disclosures
Warrant liability
Finance lease obligations
Long-term debt
Total equity (negative equity)
Cash
Total Capital
$
$
$
2018
157
818
125,804
(62,746)
(7,389)
56,644
$
2017
-
972
87,020
143,431
(23,166)
208,257
The Corporation’s objective in managing capital is to ensure sufficient liquidity to finance its research and development activities,
administration, selling and marketing expenses, working capital and overall expenditures on capital and intangible assets. The
Corporation makes every effort to manage its liquidity to minimize dilution to its shareholders, whenever possible. The
Corporation is subject to one externally imposed capital requirement (note 13) and the Corporation’s overall strategy with respect
to capital risk management remains unchanged from the year ended December 31, 2017.
20. Revenues
Revenues from the sale of goods
Milestone and licensing revenues
Revenues from the rendering of services
Rental revenue
$
$
$
2018
10,283
-
267
47
10,597
$
2017
5,479
-
880
237
6,596
$
$
$
2018
45,584
-
1,291
499
47,374
$
2017
16,461
19,724
1,930
1,000
39,115
In August 2017, the Corporation entered into a licensing agreement with a third-party in China and as a result, milestone and
licensing revenues of $19,724 were recorded during the third quarter of 2017. The third party having not remitted funds
associated with the license fee and initial milestone payment within the specified payment terms was consequently in breach of
the agreement. As a result, the Corporation was in a position to exercise its contractual rights and opted to terminate the
agreement in March 2018 thereby returning all the rights previously conferred under the license agreement back to Prometic.
The Corporation wrote-off the accounts receivable to bad debt expense as at December 31, 2017 (note 30b).
89
Prometic Life Sciences Inc.
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
21. Supplemental Information included in the consolidated statements of operations
Year ended December 31,
2018
2017
a) Government assistance included in research and development
Gross research and development expenses
Research and development tax credits
b) Finance costs
Interest accretion on long-term debt
Amortization of fees for Credit Facility
Other interest expense, transaction and bank fees
Interest income
c) Wages and salaries
Wages and salaries
Employer's benefits
Share-based payments expense
Total employee benefit expense
22. Pension plan
$
$
$
$
$
$
$
$
$
94,841
(3,175)
91,666
18,856
2,625
886
(307)
22,060
$
46,775
8,377
6,722
61,874
$
$
101,946
(1,554)
100,392
7,686
208
384
(313)
7,965
44,211
8,556
8,662
61,429
The Corporation maintains a defined contribution pension plan for its permanent employees. The Corporation matches the
contributions made by employees who elect to participate in the plan up to a maximum percentage of their annual salary. The
Corporation’s contributions recognized as an expense for the year ended December 31, 2018 amounted to $1,635 ($1,596 for
the year ended December 31, 2017).
23. Government assistance
The Corporation has received government grants from the Isle of Man Government relating to operating and capital expenditures
to be incurred by the Corporation and are disbursed to the Corporation when such expenditures are made.
The Isle of Man Government reserves the right to reclaim part or all of the grants received should the Corporation leave the Isle
of Man according to the following schedule – 100% repayment within five years of receipt, then a sliding scale after that for the
next 5 years; year 6 - 80%; year 7 - 60%; year 8 - 40%; year 9 - 20%; year 10 - 0%.
If the Corporation were to cease operations in the Isle of Man as December 31, 2018, it would be required to repay $1,806 in
relation to grants received in the past amounting to $2,064. No provision has been made in these consolidated financial
statements for any future repayment relating to the grants received.
90
Prometic Life Sciences Inc.Financial Statements
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
24. Impairment losses
The following table represents the details of impairment losses recorded for the year ended December 31, 2018 ($Nil for the
year ended December 31, 2017).
Impairment on IVIG CGU:
Intangible assets (note 9)
Fixed assets (note 8)
Option to purchase equipment (note 7c)
Impairment on Prothera:
Investment in an associate (note 10)
Deferred revenue
2018
142,609
5,689
653
148,951
1,182
(181)
1,001
149,952
$
$
$
$
$
As a result of various events affecting the Corporation during 2018, including; 1) the delay of the commercial launch of
RyplazimTM following the identification by the FDA of a number of changes required in the Chemistry, Manufacturing and Controls
(“CMC”) section of the Biological License Application (“BLA”) submission for congenital plasminogen deficiency, 2) the
Corporation’s limited financial resources since the fourth quarter of 2018, which significantly delayed manufacturing expansion
plans and resulted in the Corporation focusing its resources on refiling the RyplazimTM BLA as soon as possible; 3) the
recognition of the larger than anticipated commercial opportunities for RyplazimTM, and 4) the change in executive leadership in
December 2018, the Corporation modified its strategic plans during the fourth quarter to focus all available plasma-derived
therapeutic segment resources on the manufacturing and development of RyplazimTM, for the treatment of congenital
plasminogen deficiency and other indications.
These changes and their various impacts prompted Management to perform an impairment test of the IVIG cash generating
unit, which includes assets such as the licenses held by NantPro and Prometic Biotherapeutics inc. amongst others,
manufacturing equipment located at our Canadian manufacturing facilities and the CMO facility at December 31, 2018, and to
review whether other assets pertaining to follow-on proteins might be impaired.
In regards to the IVIG CGU, the substantial work, time and investment required to complete a robust CMC package for IVIG
prior to the BLA filing, the limited resources available to complete the CMC section and the reduction of the forecasted IVIG
production capacity at all plants will significantly delay the commercialisation of IVIG compared to previous timelines and as a
result, cash inflows beginning beyond 2023 were not considered in the determination of the value in use due to the inherent
uncertainty in forecasting cash flows beyond a five year period. As a result, the value in use for the IVIG CGU was $Nil.
Management also evaluated the fair value less cost to sell and determined that this value would also approximated $Nil.
Consequently, impairment losses for the carrying amounts of the NantPro license and a second license acquired in January
2018, giving the rights to use IVIG clinical data and the design plans for a plant with a production capacity in excess of current
needs, of $141,025 and $1,584, respectively, were recorded. An impairment was also recorded on the option to purchase
equipment in the amount of $653 since the likelihood of exercising this option is low in view of the current manufacturing and
production plans. Finally, an impairment of $5,689 was recorded on IVIG production equipment, to reduce its value to the fair
value less cost to sell. When performing the impairment test in the previous year, a pre-tax discount rate of 17.33% was used to
calculate the value in use at November 30, 2017 equivalent to a post-tax discount rate of 11.87%.
Management also reviewed the carrying amount of its investment in ProThera, as this represents an investment in follow-on
proteins the Corporation had acquired, since the resources for further advancement of these assets are currently limited due to
the focus on RyplazimTM. The uncertainty of future cash flows for therapeutics that have not yet commenced phase 1 trials was
an important consideration is making these estimates. As a result, the Corporation recorded an impairment on its investment in
an associate of $1,182 and the fair value of the investment in convertible debt was also reduced to $Nil. The value in use and
the fair value less cost to sell of the investment in an associate were estimated to approximate $Nil, as was the fair value of the
convertible debt.
91
Prometic Life Sciences Inc.
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
25. Income taxes
The income tax recovery reported in the consolidated statement of operations for the years ended December 31, 2018 and 2017
are as follows:
Current income taxes
Deferred income taxes
$
$
2018
(6,204)
(13,815)
(20,019)
$
$
2017
(3,165)
(11,587)
(14,752)
The following table provides a reconciliation of the income tax recovery calculated at the combined statutory income tax rate to
the income tax recovery recognized in the consolidated statements of operations:
Net loss before income taxes
Combined Canadian statutory income tax rate
Income tax at combined income tax rate
Increase (decrease) in income taxes resulting from:
Unrecorded potential tax benefit arising from current-period losses
and other deductible temporary differences
Effect of tax rate differences in foreign subsidiaries
Non-deductible or taxable items
Change in tax rate
Write off of previously recognized tax losses
Non taxable gain on debt renegociation
Recognition of previous years unrecognized deferred tax assets
Research and development tax credit
Foreign witholding tax
Other
$
2018
(257,915)
26.7%
(68,863)
$
2017
(134,788)
26.8%
(36,123)
29,693
4,481
6,074
242
22,415
(8,784)
-
(5,072)
-
(205)
35,568
(2,513)
(1,132)
(6,175)
-
-
(1,221)
(4,193)
1,039
(2)
$
(20,019)
$
(14,752)
The following table presents the nature of the deferred tax assets and liabilities that make up the deferred tax assets and deferred
tax liabilities balance at December 31, 2018 and 2017.
As at January 1, 2017
$
40,690
$
(97)
$
(15,426)
$
28
$
25,195
Intangible assets R&D expenses
Losses
Other
Total
Charged (credited) to profit or loss
Charged (credited) to profit and loss (foreign exchange)
As at December 31, 2017
Deferred tax liabilities
Charged (credited) to profit and loss
Charged (credited) to profit and loss (foreign exchange)
As at December 31, 2018
Comprised of the following :
Deferred tax assets
Deferred tax liabilities
(13,209)
-
27,481
(27,481)
-
-
-
-
$
$
$
$
$
$
(841)
-
(938)
320
-
(618)
(618)
-
$
$
$
2,582
684
(12,160)
13,356
(1,196)
-
-
-
$
$
$
(7)
-
21
(9)
-
12
12
-
$
$
$
(11,475)
684
14,404
(13,814)
(1,196)
(606)
(606)
-
92
Prometic Life Sciences Inc.Financial Statements
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
Available temporary differences not recognized at December 31, 2018 and 2017 are as follows:
Tax losses (non-capital)
Tax losses (capital)
Unused research and development expenses
Undeducted financing expenses
Interest expenses carried forward
Trade and other payable
Capital assets
Intangible assets
Start-up expense
Unrealized loss on exchange rate
Other
2018
2017
$
$
461,123
36,951
86,255
19,007
7,433
1,579
1,753
88,980
4,290
-
1,252
$
708,623
$
280,002
33,962
72,636
17,894
8,176
1,141
580
95,980
3,952
413
241
514,977
At December 31, 2018, the Corporation has non-capital losses of $492,945 of which $461,123 are available to reduce future
taxable income for which the benefits have not been recognized. These losses expire at various dates from 2022 to 2038 (except
for the non-capital losses in the United Kingdom which do not expire). The Corporation has capital losses of $36,951 that are
available to reduce future taxable income for which the benefits have not been recognized. These tax attributes can be carried
forward indefinitely. At December 31, 2018, the Corporation also has unused research and development expenses of $88,586
of which $86,255 are available to reduce future taxable income for which the benefits have not been recognized. These expenses
can be carried forward indefinitely.
At December 31, 2018, the Corporation also had unused federal tax credits available to reduce future income tax in the amount
of $21,078 expiring between 2022 and 2038. Those credits have not been recorded and no deferred income tax assets have
been recognized in respect to those tax credits. An amount of $877 of credits was utilized in the current taxation year to shelter
an income tax expense of the current taxation year.
The unused non-capital losses expire as indicated in the table below:
At December 31, 2018
Losses carried forward expiring in:
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
$
Canada
Federal
Provincial
Foreign
Countries
$
-
-
-
-
-
-
3,510
-
76
977
855
4,215
8,761
9,401
30,186
43,643
47,891
$
-
-
-
-
-
-
3,495
-
76
977
855
3,975
8,261
10,826
22,668
44,014
47,890
1,977
3,212
4,319
3,375
8,353
12,041
8,577
7,445
11,903
3,440
1,933
2,319
13,770
28,215
44,588
54,090
43,478
$
149,515
$
143,037
$
253,035
As at December 31, 2018, the Corporation and its subsidiaries have tax losses which arose in the United Kingdom of $90,396
that are available to reduce future taxable income for which the benefits have not been recognized. These tax attributes can be
carried forward indefinitely.
93
Prometic Life Sciences Inc.
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
26. Segmented information
The Corporation’s three operating segments are Small molecule therapeutics, Plasma derived therapeutics and Bioseparations.
Small molecule therapeutics: The segment is a small molecule drug discovery and development business. It has lead
compounds, namely PBI-4050 which targets unmet medical needs such as the treatment of idiopathic pulmonary fibrosis (“IPF”),
Alström syndrome as well as other fibrotic indications. The operating segment is also working on multiple follow-on drugs such
as PBI-4547 and PBI-4425 at the pre-clinical stage.
Plasma-derived therapeutics: The segment develops manufacturing processes, based on Prometic’s own affinity technology, to
provide efficient extraction and purification of therapeutic proteins from human plasma, the Plasma Protein Purification System
(PPPSTM), a multi-product sequential purification process. This technology is key for extracting proteins, which Prometic plans
to commercialize with an emphasis on therapeutic products targeting orphan and rare diseases.
Bioseparations: The segment develops and manufactures Prometic’s core bioseparation technologies and products. Its
proprietary affinity absorbents and Mimetic LigandTM purification platform are used by pharmaceutical and medical companies
worldwide and for its own extraction and purification manufacturing processes.
The reconciliation to the statement of operations column includes the elimination of intercompany transactions between the
segments and the remaining activities not included in the above segments. These expenses generally pertain to public entity
reporting obligations, investor relations, financing and other corporate office activities.
The accounting policies of the segments are the same as the accounting policies of the Corporation. The operating segments
results include intercompany transactions between the segments which are done in a manner similar to transactions with third
parties.
a) Revenues and expenses by operating segments
Small
molecule
therapeutics
Plasma-derived
therapeutics
Bioseparations
Reconciliation
to statement
of operations
$
-
-
-
-
1,692
14,234
3,468
(19,394)
$
$
24,492
29
24,521
25,297
37,061
31,727
10,445
(80,009)
$
22,741
319
23,060
12,929
-
7,084
2,947
100
$
$
141
(348)
(207)
(224)
(132)
-
14,672
(14,523)
For the year ended December 31, 2018
External revenues
Intersegment revenues
Total revenues
Cost of sales and other production expenses
Manufacturing and purchase cost of therapeutics
used for R&D activities
R&D - Other expenses
Administration, selling and marketing expenses
Segment profit (loss)
$
$
Loss (gain) on foreign exchange
Finance costs
Loss (gain) on extinguishments of liabilities
Change in fair value of financial instruments measured at FVPL
Impairment losses
Share of losses of an associate
Net loss before income taxes
Other information
Depreciation and amortization
Share-based payment expense
$
$
480
1,270
$
3,644
1,524
$
919
322
415
3,606
$
$
$
$
Total
47,374
-
47,374
38,002
38,621
53,045
31,532
(113,826)
4,681
22,060
(33,626)
1,000
149,952
22
(257,915)
5,458
6,722
94
Prometic Life Sciences Inc.Financial Statements
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
For the year ended December 31, 2017
External revenues
Intersegment revenues
Total revenues
Cost of sales and other production expenses
Manufacturing and purchase cost of therapeutics
used for R&D activities
R&D - Other expenses
Administration, selling and marketing expenses
Bad debt expense
Segment profit (loss)
Loss (gain) on foreign exchange
Finance costs
Loss (gain) on extinguishments of liabilities
Net loss before income taxes
Other information
Depreciation and amortization
Share-based payment expense
$
$
$
Small
molecule
therapeutics
Plasma-derived
therapeutics
Bioseparations
$
19,724
-
19,724
-
1,755
17,426
3,633
20,491
(23,581)
$
2,490
39
2,529
4,014
32,764
40,960
13,539
-
(88,748)
$
$
$
16,802
1,566
18,368
7,877
-
7,301
2,719
-
471
$
Reconciliation
to statement
of operations
$
99
(1,605)
(1,506)
(1,742)
184
2
11,550
-
(11,500)
$
$
$
Total
39,115
-
39,115
10,149
34,703
65,689
31,441
20,491
(123,358)
(726)
7,965
4,191
(134,788)
4,576
8,662
428
1,509
$
2,880
2,269
$
$
907
394
361
4,490
During the quarter ended September 30, 2018, the Corporation corrected the allocation of R&D expenses between the
Manufacturing and purchase cost of therapeutics and Other expenses within the Small molecule segment. Previously, no
amounts had been presented in the Manufacturing and purchase cost of therapeutics. The total segment loss presented during
the first and second quarters of 2018 remains unchanged and the above tables for the year ended December 31, 2018 reflect
the correction. The restated R&D figures for the first two quarters of 2018 are as follows:
Quarter ended
March 31, 2018
Quarter ended
June 30, 2018
Six months ended
June 30, 2018
Manufacturing and purchase cost of therapeutics
used for R&D activities
Other research and development expenses
Total research and development expenses
Information by geographic area
b) Capital and intangible assets by geographic area
$
$
684
4,266
4,950
Canada
United States
United Kingdom
c) Revenues by location
United States
Switzerland
Austria
South Korea
Sweden
Netherlands
China
Other countries
$
$
$
$
$
$
$
$
$
$
$
1,067
3,215
4,282
2018
27,647
19,287
13,982
60,916
2018
25,557
7,033
4,534
2,657
2,408
1,688
620
2,877
47,374
$
1,751
7,481
9,232
2017
33,979
155,034
12,888
201,901
2017
1,075
7,411
1,439
2,825
-
2,722
19,724
3,919
39,115
95
Prometic Life Sciences Inc.
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
Revenues are attributed to countries based on the location of customers.The Corporation derives significant revenues from
certain customers. During the year ended December 31, 2018, there were two customers in the Plasma-derived therapeutics
segment who accounted for 49% (30% and 19% respectively) of total revenues and two customers in the Bioseparations
segment who accounted for 30% (15% and 15% respectively) of total revenues. For the year ended December 31, 2017, there
was one customer in the Small molecule therapeutics segment that accounted for 50% of total revenues and two customers in
the Bioseparations segment that accounted for 27% (20% and 7% respectively) of total revenues.
27. Related party transactions
Balances and transactions between the Corporation and its subsidiaries, which are related parties of the Corporation, have been
eliminated on consolidation and are not disclosed in this note. Details of transactions between the Corporation and other related
parties are disclosed below and in other notes accordingly to the nature of the transactions. These transactions have been
recorded at the exchange amount, meaning the amount agreed to between the parties.
The former CEO has a share purchase loan outstanding in the amount of $400 at December 31, 2018 and 2017. The loan bears
interest at prime plus 1% and has a maturity date of the earlier of (i) March 31, 2019 or (ii) 30 days preceding a targeted NASDAQ
or NYSE listing date of Prometic’s shares. During the year ended December 31, 2018, the Corporation earned interest revenues
in the amount of $19 and at December 31, 2018, the unpaid interest was $31.
Following the debt modification on November 14, 2018, the Corporation assessed whether the holder of the debt had gained
significant influence for accounting purposes, despite holding less than 20% of voting rights. The Corporation deemed that
qualitative factors were significant enough to conclude that the holder of the debt had gained significant influence over the
Corporation and had become a related party. All material transactions with the holder of the long-term debt are disclosed in
notes 13, 14 and 16.
28. Compensation of key management personnel
The Corporation’s key management personnel comprises the external directors, officers and executives which included 25
individuals in 2018 and 24 individuals in 2017. The remuneration of the key management personnel during the years ended
December 31, 2018 and 2017 was as follows:
Current employee benefits1)
Pension costs
Share-based payments
Termination benefits
$
$
$
2018
5,953
268
3,685
3,651
2017
7,750
293
6,515
-
13,557
$
14,558
1) Current employee benefits include director fees paid in cash, salaries, bonuses and the cost of other employee benefits.
29. Commitments
CMO Lease
The Corporation signed a long-term manufacturing contract with a third party which provides the Corporation with additional
manufacturing capacity (“the CMO contract”). The payments under the CMO contract cover the use of the production facility, a
specified number of direct and indirect labour hours and the related overhead expense during a minimum of 20 weeks per year,
until 2030. The term of the agreement will be automatically extended after the initial term for successive terms of five years,
unless a notification of termination is produced by one of the parties. The annual minimum payments under the agreement are
subject to escalation annually calculated as the greatest of 3% or the Industrial Product Price / Pharmaceutical and Medicine
96
Prometic Life Sciences Inc.Financial Statements
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
Manufacturing index under the North American Industry Classification System. The annual payments are also subject to an
adjustment calculated as 50% of the exchange rate between the U.S. dollar and the Canadian dollar at December 31st of each
year.
The following table represent the future minimum operating lease payment as of December 31, 2018:
Future minimum operating lease payment
$
3,572
$
15,393
$
28,271
$
Within 1 year
2 - 5 years
Later than
5 years
Total
47,236
The above payments include non-lease elements pertaining to the arrangement as it was impracticable to separate the operating
expenses from the lease payment. The operating lease expense recognised in the consolidated statements of operations for
the CMO contract was $3,980 for the year ended December 31, 2018 ($4,707 for the year ended December 31, 2017), which
includes contingent rent of $558 for the year ended December 31, 2018 ($727 for the year ended December 31, 2017).
Other Leases
The Corporation has total commitments in the amount of $27,741 under various operating leases for the rental of offices,
production plant, laboratory space and office equipment. The payments for the coming years and thereafter are as follows:
2019
2020
2021
2022
2023 and thereafter
$
$
4,043
4,162
3,710
3,626
12,200
27,741
The operating lease expense recognised in the consolidated statements of operations was $6,476 for the year ended
December 31, 2018 ($5,431 for the year ended December 31, 2017).
Royalties
The long-term debt holder who has significant influence over the Corporation, has a right to receive a 2% royalty on future
revenues relating to patents existing as of the date of the agreement of PBI-1402 and analogues, including PBI-4050. The
obligation under this royalty agreement is secured by all the assets of the Corporation until the expiry of the last patent anticipated
in 2033.
In the normal course of business, the Corporation enters into license agreements for the market launching or commercialization
of products. Under these licenses, including the ones mentioned above, the Corporation has committed to pay royalties ranging
generally between 0.5% and 15.0% of net sales from products it commercializes and 3% of license revenues in regards to
certain small molecule therapeutics.
Other commitments
In connection with the CMO contract, the Corporation has committed to a minimum spending between $7,000 and $9,000 each
year from 2019 to 2030 (the end of the initial term). As of December 31, 2018, the remaining payment commitment under the
CMO contract was $97,700 or $50,464 after deduction of the minimum lease payments under the CMO contract disclosed
above.
The Corporation has entered into multiple plasma purchase agreements whereby it has committed to purchase varying volumes
of plasma until December 31, 2022. As at December 31, 2018, total commitment are as follows:
97
Prometic Life Sciences Inc.
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
2019
2020
2021
2022
2023 and thereafter
$
$
8,853
20,281
30,422
5,152
-
64,708
In February 2019, the Corporation renegotiated the purchase commitment with one of its suppliers reducing the commitment
for 2019, 2020 and 2021 by $5,043, $10,086 and $15,129, respectively.
30. Financial instruments and financial risk management
a) Fair value
The fair values of financial assets and financial liabilities for which fair value disclosure is required, together with the carrying
amounts included in the statement of financial position, are as follows:
Financial liabilities
Royalty payment obligation
License acquisition payment obligations
Long-term debt
2018
Carrying
amount
Fair
value
$
$
3,077
2,726
125,804
$
2,685
2,492
112,914
2017
Carrying
amount
$
2,963
-
87,020
Fair
value
3,133
-
99,662
The fair value of the long-term debt at December 31, 2018 was calculated using a discounted cash flow model via the market
interest rate specific to the term of the debt instruments ranging from 14.43% to 21.94% (7.6% to 16.4% at December 31, 2017).
The fair value differs from the carrying value of the long-term debt of $125,804 which is carried at amortized cost.
The fair value of the advance on revenues from a supply agreement approximates the carrying amount since the loan bears
interest at a fixed rate of interest approximating market rates for this type of advance.
Fair value hierarchy
Financial instruments recorded at fair value on the consolidated statements of financial position are classified using a fair value
hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following
levels:
Level 1 – valuation based on quoted prices observed in active markets for identical assets or liabilities.
Level 2 – valuation techniques based on inputs that are quoted prices of similar instruments in active markets; quoted prices for
identical or similar instruments in markets that are not active; inputs other than quoted prices used in a valuation model that are
observable for that instrument; and inputs that are derived principally from or corroborated by observable market data by
correlation or other means.
Level 3 – valuation techniques with significant unobservable market inputs.
A financial instrument is classified to the lowest level of the hierarchy for which a significant input has been considered in
measuring fair value.
Cash and restricted cash are considered to be level 1 fair value measurements.
98
Prometic Life Sciences Inc.Financial Statements
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
The long-term receivables, settlement fee payable, royalty payment obligation, license acquisition payment obligations, and
long-term debt are level 2 measurements.
The investment in convertible debt and the warrant liability are considered to be a level 3 measurements. Further discussion
regarding assumptions used in determining their fair values are discussed in note 24 and 14, respectively.
b) Financial risk management
The Corporation has exposure to credit risk, liquidity risk and market risk. The Corporation’s Board of Directors has the overall
responsibility for the oversight of these risks and reviews the Corporation’s policies on an ongoing basis to ensure that these
risks are appropriately managed.
Credit risk:
Credit risk is the risk of financial loss to the Corporation if a customer, partner or counterparty to a financial instrument fails to
meet its contractual obligations, and arises principally from the Corporation’s cash, investments, receivables and share purchase
loan to a former officer. The carrying amount of the financial assets represents the maximum credit exposure.
The Corporation mitigates credit risk through its reviews of new customer’s credit history before extending credit and conducts
regular reviews of its existing customers’ credit performance. The Corporation evaluates at each reporting period, the lifetime
expected credit losses of its accounts receivable balances based on the age of the receivable, credit history of the customers
and past collection experience.
As at December 31, 2018 and 2017, the allocation of the trade receivables based on aging is indicated in the following table:
Current and not impaired
Past due in the following periods:
31 to 60 days
61 to 90 days
91 to 180 days
Over 180 days
Allowance for doubtful accounts
$
$
2018
5,911
$
1,136
-
4
-
-
7,051
2017
919
876
-
1
782
(782)
$
1,796
The Corporation’s trade receivables totaled $7,051 as at December 31, 2018 ($1,796 as at December 31, 2017). The amount
of trade receivables that the Corporation has determined to be past due and unprovisioned for (which is defined as a balance
that is more than 30 days past due) is $1,140 as at December 31, 2018 ($877 as at December 31, 2017). The Corporation’s
lifetime expected credit loss was $Nil as at December 31, 2018.
Trade receivables included amounts from two customers which represent approximately 81% (45% and 35% respectively) of
the Corporation’s total trade accounts receivable as at December 31, 2018, and two customers which represent approximately
82% (70% and 13% respectively) of the Corporation’s total trade accounts receivable as at December 31, 2017.
In August 2017, the Corporation entered into a licensing agreement with a third-party in China and as a result, milestone and
licensing revenues of $19,724 were recorded during the third quarter. The third party having not remitted funds associated with
the license fee and initial milestone payment within the specified payment terms was consequently in breach of the agreement.
As a result, the Corporation was in a position to exercise its contractual rights and opted to terminate the agreement in March
2018 thereby returning all the rights previously conferred under the license agreement back to Prometic. The Corporation has
written-off the accounts receivable of $18,518 to bad debt expense and has reversed the withholding taxes of $1,972 expected
to be paid on this transaction as at December 31, 2017. The difference between the amount of revenue recognized and the bad
debt amount is the withholding taxes that were recorded in deduction of the accounts receivable and the effect of the change in
the CAD/GBP exchange rate on the accounts receivable.
99
Prometic Life Sciences Inc.
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
Liquidity risk:
Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they come due. The Corporation
manages its liquidity risk by continuously monitoring forecasts and actual cash flows. The Corporation’s current liquidity situation
is discussed in note 1.
The following table presents the contractual maturities of the financial liabilities as of December 31, 2018:
At December 31, 2018
Accounts payable and accrued liabilities 1)
Long-term portion of royalty payment obligations
Long-term license acquisition payment obligation
Long-term portion of other employee benefit liabilities
Long-term debt 2)
Carrying
amount
Payable
within 1 year
2 - 3 years
Later than
4 years
Contractual Cash flows
$
$
26,011
3,009
1,363
993
125,804
157,180
$
$
26,011
-
-
-
12,588
38,599
$
$
-
3,469
1,363
993
18,776
24,601
$
$
-
354
-
-
268,261
268,615
$
$
Total
26,011
3,823
1,363
993
299,625
331,815
1) Excluding $5,844 for current portion of operating and finance lease inducement and obligations (note 15).
2) Under the terms of the OID loans and the non-revolving line of credit (note 13), the holder of Warrants #2, 8 and 9 may decide to cancel a
portion of the face values of these loans as payment upon the exercise of these warrants. The maximum repayment due on these loans has
been included in the above table.
Market risk:
Market risk is the risk that changes in market prices, such as interest rates and foreign exchange rates, will affect the
Corporation’s income or the value of its financial instruments.
Interest risk
i)
The majority of the Corporation’s debt is at a fixed rate or a fixed amount including interest. Therefore there is limited exposure
to changes in interest payments as a result of interest rate risk.
ii) Foreign exchange risk:
The Corporation is exposed to the financial risk related to the fluctuation of foreign exchange rates. The Corporation operates
in the United States, Isle of Man and the United Kingdom and a portion of its expenses incurred are in U.S. dollars and in Great
British Pounds (“GBP”). The majority of the Corporation’s revenues are in U.S. dollars and in GBP which serve to mitigate a
portion of the foreign exchange risk relating to the expenditures. Financial instruments potentially exposing the Corporation to
foreign exchange risk consist principally of cash, short-term investments, receivables, trade and other payables, licence payment
obligation, advance on revenues from a supply agreement and the amounts drawn on the Credit Facility. The Corporation
manages foreign exchange risk by holding foreign currencies to support forecasted cash outflows in foreign currencies.
As at December 31, 2018 and 2017, the Corporation’s net exposure to currency risk through assets and liabilities denominated
respectively in U.S. dollars and GBP was as follows:
Exposure in US dollars
Cash
Accounts receivable
Other long-term assets
Accounts payable and accrued liabilities
Other long-term liabilities
Finance lease obligations
Long-term debt
Net exposure
2018
2017
Amount due
in U.S. dollar
2,600,253
2,718,508
51,127
(9,006,635)
(3,126,476)
(600,674)
(81,601,614)
(88,965,511)
Equivalent in
full CDN dollar
3,544,145
3,705,326
69,686
(12,276,044)
(4,261,387)
(818,719)
(111,223,000)
(121,259,993)
Amount due
in U.S, dollar
4,813,581
536,496
69,438
(11,609,837)
(1,051,790)
(774,978)
(20,209,000)
(28,226,089)
Equivalent in
full CDN dollar
6,041,526
673,357
87,152
(14,571,506)
(1,320,102)
(972,675)
(25,364,316)
(35,426,564)
100
Prometic Life Sciences Inc.Financial Statements
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2018 and 2017
(In thousands of Canadian dollars)
Exposure in GBP
Cash
Accounts receivable
Accounts payable and accrued liabilities
Advance on revenues from a supply agreement
Net exposure
2018
2017
Amount
due in GBP
729,732
6,837,168
(1,535,107)
-
6,031,793
Equivalent in
full CDN dollar
1,266,596
11,867,272
(2,664,485)
-
10,469,383
Amount
due in GBP
991,372
3,236,910
(1,772,712)
(1,123,000)
1,332,570
Equivalent in
full CDN dollar
1,678,591
5,480,736
(3,001,556)
(1,901,464)
2,256,307
Based on the above net exposures as at December 31, 2018, and assuming that all other variables remain constant, a 10 %
depreciation or appreciation of the Canadian dollar against the U.S. dollar would result in a decrease or an increase of the
consolidated net loss of approximately $12,126 while a 10 % depreciation or appreciation of the Canadian dollar against the
GBP would result in a decrease or an increase of the other comprehensive loss of approximately $1,047. The Corporation has
not hedged its exposure to currency fluctuations.
31. Comparative information
Certain of the December 31, 2017 figures have been reclassified to conform to the current year’s presentation.
32. Subsequent events
In January 2019, the Corporation issued 12,568,600 RSU at a grant price of $0.30 which will vest over a one year period.
From January 1, 2019 to February 15, 2019 12,870,600 shares were issued for net cash proceeds of $4,088 under the ATM
equity distribution agreement,
In February 2019, the holder of the long term debt agreed to extend the Credit Facility by an additional US$15 million which the
Corporation drew in February and March 2019, receiving the equivalent of $19,854 in financing. In exchange, the Corporation
agreed to reduce the exercise price of Warrants #9 from $1.00 to $0.156 per warrant and to immediately issue those warrants
which otherwise would have been issued in March 2019. Consequently, 19,401,832 warrants with a term of eight years were
issued on February 22, 2019. The Corporation is currently assessing the accounting treatment of this transaction.
As at March 31, 2019, the Corporation was not in breach of its covenants under its credit facilities, as a result of a waiver obtained
on March 20, 2019, wherein the holder of the long-term debt confirmed that the breached covenants will not be deemed to
constitute an event of default. The holder of the long-term debt also agreed to defer the payment of interest that was originally
due under the terms of the existing Credit Facility on March 31, 2018, to a later date in April 2019.
101
Prometic Life Sciences Inc.
Financial Statements
102
Prometic Life Sciences Inc.