Nuvo Pharmaceuticals® Inc. d/b/a Miravo Healthcare™
Management’s Discussion and Analysis (MD&A)
March 25, 2022 / The following information should be read in conjunction with Nuvo Pharmaceuticals Inc. d/b/a Miravo
Healthcare (Miravo or the Company) Consolidated Financial Statements for the year ended December 31, 2021, which
were prepared in accordance with International Financial Reporting Standards (IFRS). Additional information about the
Company, including the annual Consolidated Financial Statements and Annual Information Form (AIF), can be found on
SEDAR at www.sedar.com (under Nuvo Pharmaceuticals Inc.).
Unless otherwise noted, all amounts in the MD&A, the Consolidated Financial Statements and related Notes are
expressed in thousands of Canadian dollars, except per share amounts.
This MD&A contains “forward-looking information”. Please see the discussion under Forward-looking Statements below.
The Company uses non-IFRS financial performance measures in this MD&A. For a detailed reconciliation of the non-
IFRS measures used in this MD&A, please see the discussion under Non-IFRS Measures below.
Key Developments
Three months ended December 31, 2021 include the following:
•
Total revenue was $17.7 million, an increase of 2% compared to $17.3 million for the three months ended
December 31, 2020. Adjusted total revenue(1) was $17.8 million, an increase of 3% compared to $17.3 million
for the three months ended December 31, 2020.
•
Net loss was $5.6 million compared to net income of $2.4 million for the three months ended December 31,
2020. Adjusted EBITDA(1) was $3.4 million, a decrease of 46% compared to $6.2 million for the three months
ended December 31, 2020.
•
Revenue related to Blexten®, Cambia® and Suvexx® was $8.8 million, an increase of 30% compared to revenue
of $6.8 million for the three months ended December 31, 2020. Total Canadian prescriptions of Blexten, Cambia
and Suvexx increased by 20%, 3% and 80%, respectively compared to the three months ended December 31,
2020.
•
The Company repaid $3.1 million (US$2.5 million) of the Amortization Loan to Deerfield Management Company,
L.P. (Deerfield).
•
As at December 31, 2021, cash and cash equivalents were $30.9 million.
Year ended December 31, 2021 include the following:
•
Total revenue was $68.9 million, a decrease of 7% compared to $73.8 million for the year ended December 31,
2020. Adjusted total revenue(1) was $69.4 million, a decrease of 2% compared to $71.0 million for the year
ended December 31, 2020.
•
Net loss was $32.2 million compared to net loss of $4.1 million for the year ended December 31, 2020. Adjusted
EBITDA(1) was $22.2 million, a decrease of 22% compared to $28.4 million for the year ended December 31,
2020.
•
Revenue related to Blexten, Cambia and Suvexx was $32.3 million, an increase of 27% compared to revenue
of $25.5 million for the year ended December 31, 2020. Canadian prescriptions of Blexten and Cambia increased
by 21% and 8%, respectively compared to the year ended December 31, 2020.
•
The Company repaid $13.4 million (US$10.8 million) of the Amortization Loan to Deerfield.
(1) Non-IFRS financial measure. These measures are not recognized under IFRS and do not have standardized meanings prescribed by IFRS. See
the Non-IFRS Measures section for definitions, reconciliations and the basis of presentation of the Company’s non-IFRS measures.
Business Update
•
In February 2022, the United States District Court for the District of New Jersey (New Jersey District Court)
granted a motion for summary judgment filed by Dr. Reddy's Laboratories Inc. (Dr. Reddy’s). As a result, the
asserted claims of Nuvo Pharmaceuticals (Ireland) DAC’s (Miravo Ireland) U.S. Patent Nos. 8,858,996 (the '996
Patent) and 9,161,920 (the '920 Patent) related to Vimovo in the U.S. were found to be invalid. Miravo Ireland
and its partner are not planning on appealing this decision.
•
In February 2022, Blexten for pediatric use in patients 4 years of age and older* was commercially launched in
Canada by. The pediatric use includes two new dosage formats; a 2.5mg/mL oral solution and a 10mg
orodispersible tablet (quick melt) for the treatment of the symptoms of seasonal allergic rhinitis and chronic
spontaneous urticaria (such as itchiness and hives). The pediatric formats will be available to patients with a
prescription from their healthcare provider.
•
In October 2021, Resultz® was commercially launched in the U.S. market by The Mentholatum Company.
Resultz is marketed in the U.S. under the brand name Mentholatum Kids Headlice Removal Kit. The Company’s
Irish subsidiary, Miravo Ireland receives revenue from the supply of finished product to The Mentholatum
Company.
* Blexten (bilastine) is indicated for the symptomatic relief of nasal and non-nasal symptoms of seasonal allergic rhinitis and chronic spontaneous
urticaria (e.g. pruritus and hives) in patients 4 years of age and older with a body weight of at least 16 kg.
The Company’s Business
Miravo is a publicly traded, Canadian healthcare company with global reach and a diversified portfolio of prescription
and non-prescription products.
Miravo’s head office is located in Mississauga, Ontario, Canada, its international operations are headquartered in Dublin,
Ireland and its manufacturing facility is located in Varennes, Québec, Canada. The Varennes facility operates in a Good
Manufacturing Practices (GMP) environment respecting the U.S., Canada and E.U. GMP regulations and is regularly
inspected by Health Canada and the U.S. Food and Drug Administration (FDA).
As at December 31, 2021, the Company employed a total of 100 full-time employees across its manufacturing facility in
Varennes, Québec, corporate office, Commercial Business in Mississauga, Ontario and international headquarters in
Dublin, Ireland.
Global Presence
Products generating revenue
Products partnered
Unpartnered
Intellectual Property
The Company protects its intellectual property by means of a combination of patents, data exclusivity, trademarks, rights,
licenses, non-disclosure agreements and contractual provisions. Miravo currently holds over one hundred patents in a
number of jurisdictions and has several patent applications pending. Additionally, the Company holds commercial
licenses and cross-licenses to access third-party intellectual property.
Operating Segments
The Company has three operating segments: Commercial Business, Production and Service Business and Licensing
and Royalty Business.
Commercial Business
The Commercial Business segment is comprised of products commercialized by the Company in Canada. This segment
includes the Company’s promoted products – Blexten, Cambia, Suvexx and NeoVisc®, as well as a number of mature
products. The Company sells its products to wholesalers who in turn supply retail and hospital pharmacies across
Canada.
The Company’s promoted products are primarily prescribed by Canadian healthcare professionals, including
neurologists, pain and migraine specialists, dermatologists, allergists, primary care physicians, prescribing pharmacists
and nurse practitioners, which the Company’s in-house commercial team calls on and supports through various
educational and product detailing activities. The mature products are prescribed to treat patients across a broad range
of therapeutic areas, including pain management, cardiology, gastroenterology, antihyperlipidemic/metabolic agents,
dermatology and various non-prescription medicines. These mature products receive no or minimal promotional support,
and in some cases, have lost market exclusivity and now compete with generic alternatives.
The Company’s approved products related to the Commercial Business segment are as follows:
Distributed by Miravo in Canada
Product
Description
Product
Description
Promoted Products
Second-generation antihistamine for
the treatment of seasonal allergic
rhinitis and urticaria (e.g. pruritus
and hives) in patients 4 years of age
and older with a body weight of at
least 16 kg.
Treatment of mild to moderate acute
migraine with or without aura in adults 18
years and older.
Treatment of moderate to severe
acute migraine with or without aura
in adults.
Viscosupplementation for knee
osteoarthritis
Mature Products
Pesticide-free topical treatment of
head lice infestations.
Once daily treatment for patients with high
cholesterol or high levels of triglycerides.
Relief for tension-type headaches.
Iron supplement for the prevention and
treatment of iron deficiency.
Indicated for the cleansing of the
colon in preparation for
colonoscopy.
Once daily treatment for psoriasis and
other keratinization disorders.
Laxative for the treatment of
occasional constipation and,
irregularity.
Fully resorbable, antibiotic, collagen
“haemostat” for surgical implantation
during surgery to reduce the risk of
surgical site infections.
Probiotic for the management and
relief of chronic constipation and
associated abdominal pain and
cramps
1)
Products are available in Canada and not promoted in any capacity
Production and Service Business
The Production and Service Business segment includes revenue from the sale of products manufactured by Miravo from
its manufacturing facility in Varennes, Québec or contracted by Miravo Ireland from its international headquarters in
Dublin, Ireland, as well as service revenue for testing, development and related quality assurance and quality control
services provided by the Company. Key revenue streams in this segment, include Pennsaid® 2%, Pennsaid and Resultz.
The Company currently supplies Pennsaid 2% to Horizon Therapeutics plc (Horizon) for the U.S. market and to Gebro
Pharma AG (Gebro Pharma) for the Swiss market and is actively engaged in ongoing partnering efforts for Pennsaid 2%
in the rest of the world. The Company will continue to focus on identifying license partners for Resultz in key unpartnered
territories around the world, which has the potential to increase production revenue. Miravo believes its Production and
Service Business segment has continued growth potential, as Miravo has the in-house capabilities and capacity to
produce Pennsaid 2% and Resultz for new license partners.
Licensing and Royalty Business
The Licensing and Royalty Business segment includes the revenue generated from the licensing of the intellectual
property and the ongoing royalties received under these exclusive licensing agreements. The Company’s Licensing and
Royalty Business segment revenue is primarily generated from:
•
Net sales of Vimovo in various ex-U.S. markets, including Europe, Canada and South America by the Company’s
partner Grunenthal GmbH (Grunenthal) and its permitted sublicensees;
•
Net sales of Vimovo in the U.S. through the Company’s partner Horizon;
•
Net sales of Resultz in select European markets by the Company’s various European license partners (See table
below for full details);
•
Net sales of Cabpirin related to the licensing of the Company’s Yosprala intellectual property in the Japanese
market; and
•
Net sales of Pennsaid 2% in Switzerland by the Company’s partner Gebro Pharma.
The Company’s out-licensing efforts for Pennsaid 2%, Resultz, Suvexx and Yosprala are targeted on all regions that
remain unlicensed with a particular focus on Europe, the Middle East and Asia. The Company enters into exclusive,
long-term licensing agreements with strategic partners in specific geographies. Miravo believes its Licensing and Royalty
Business segment has growth potential, as Pennsaid 2%, Resultz and Suvexx are protected by patents that provide
licensees with market exclusivity and protection from generic competition, as well as favourable product profiles (See
Commercial Products below).
The Company’s approved products related to the Production and Service Business and Licensing and Royalty Business
segments are distributed worldwide and segmented as follows:
Product
Description
Segments
Licensee or Distributor
Pesticide-free topical treatment
of head lice infestations.
Production and Service
Business
Licensing and Royalty
Business
Fagron Belgium NV
Heumann Pharma GmbH & Co.
Generica KG
Reckitt Benckiser (Brands) Limited
The Mentholatum Company
Treatment of acute migraine
Licensing and Royalty
Business
Currax Holdings USA LLC
Orion Corporation
SK Chemicals Co., Ltd.
Topical treatment of
osteoarthritic pain in a more
convenient format.
Production and Service
Business
Licensing and Royalty
Business
Horizon Therapeutics plc
Paladin Labs Inc.
Sayre Therapeutics PVT Ltd
Gebro Pharma AG
Topical treatment of
osteoarthritic pain.
Production and Service
Business
Licensing and Royalty
Business
Paladin Labs Inc.
Vianex S.A.
Recordati S.p.A.
Oral treatment for relief of
arthritis symptoms with a
reduced risk of developing
gastric ulcers.
Licensing and Royalty
Business
Horizon Therapeutics plc
Grunenthal GmbH
Topical patch used to help
prevent pain associated with
needle sticks and other
superficial skin procedures.
Licensing and Royalty
Business
Production and Service
Business
Galen US Incorporated
Eurocept International B.V.
Once daily treatment to help in
the prevention of heart attacks
and strokes with a reduced risk
of developing gastric ulcers.
Licensing and Royalty
Business
Takeda Pharmaceutical Company
Limited
Genus Lifesciences Inc.
Growth Strategy
The Company intends to further expand its Canadian and international businesses through:
•
organic growth, line extensions and reformulations of existing products;
•
targeted in-licensing and acquisition opportunities, which leverage the Company’s in-house commercial,
scientific and manufacturing infrastructure; and
•
out-licensing of distribution rights for Miravo’s proprietary products - Pennsaid 2%, Resultz, Suvexx and
Yosprala in global markets.
The Company plans to continue to build on its commercial presence in Canada and will look to utilize a network of license
and distribution partners for its products in global markets. The Company targets global and regional pharmaceutical
companies that have therapeutic area expertise and established commercial infrastructure as potential license and
distribution partners.
To achieve its strategic objectives, the Company focuses on leveraging its competitive advantages through its in-house
capabilities:
•
Attracting, developing, pursuing and consummating transactions to in-license or acquire accretive, growth-
oriented products;
•
Creating intellectual property portfolios that provide defense against generic threats;
•
Launching new products in Canada;
•
Managing complex relationships with regulators to register new products in Canada, the U.S., Europe and other
global markets; and
•
Developing innovative processes to enhance the quality and efficiency of manufacturing operations.
Products
Commercial Products
Products Commercialized by Miravo in Canada
Blexten
Blexten is a second-generation antihistamine drug for the symptomatic relief of allergic rhinitis and chronic spontaneous
urticaria. Blexten exerts its effect through its highly selective inhibition of peripheral histamine H1 receptors and has an
efficacy comparable to cetirizine and desloratadine. In comparative studies, Blexten demonstrated somnolence rates
similar to placebo representing a potentially non-sedating effect at therapeutic doses. It was developed in Spain by Faes
Farma, S.A. (Faes). Bilastine, (the active ingredient in Blexten), is approved in Canada and over 100 countries worldwide,
including Japan and most European countries. In 2014, Miravo entered into an exclusive license and supply agreement
with Faes for the exclusive right to sell bilastine in Canada, which is sold under the brand name Blexten. The exclusive
license is inclusive of prescription and non-prescription rights for Blexten, as well as adult and pediatric presentations in
Canada.
In April 2016, Health Canada approved Blexten (bilastine 20 mg oral tablet) for the treatment of the symptoms of seasonal
allergic rhinitis and chronic spontaneous urticaria (such as itchiness and hives). Blexten was commercially launched in
Canada in December 2016. Miravo is contracted to pay additional milestone payments of approximately €0.3 million
and $0.4 million to Faes if certain sales targets or other milestone events are achieved over the life of the license and
supply agreement term.
Miravo’s original license agreement for Blexten included Canadian rights for the pediatric dosage formats. Blexten
pediatric dosing consists of either an oral solution formulation (2.5mg/mL) and an orodispersible tablet (quick melt)
formulation (10mg tablets). Health Canada approved Miravo’s pediatric dossier during August 2021 and the Company
launched its Blexten pediatric formats during the first quarter of 2022.
Cambia
Cambia (diclofenac potassium for oral solution) is a patent protected, nonsteroidal anti-inflammatory drug (NSAID) and
is currently the only prescription NSAID approved and available in Canada for the acute treatment of migraine with or
without aura in adults 18 years of age or older. In 2010, Miravo signed a license agreement with Nautilus Neurosciences,
Inc. (Nautilus) for the exclusive rights to develop, register, promote, manufacture, use, distribute, market and sell Cambia
in Canada. Since 2011, three separate amendments to the license agreement have been executed. The license was
assigned by Nautilus to Depomed, Inc. (Depomed) in December 2013. Depomed has subsequently been renamed
Assertio Therapeutics Inc. The Company pays a tiered royalty on net sales of Cambia and future sales-based milestone
payments of up to US$4.5 million may be payable over time.
Cambia was approved by Health Canada in March 2012 and was commercially launched to specialists in Canada in
October 2012 and broadly to all primary care physicians in February 2013.
Suvexx
Suvexx (sumatriptan/naproxen sodium) is a patent protected migraine medicine that was developed by POZEN, Inc.
(POZEN) in collaboration with Glaxo Group Limited, d/b/a GSK (GSK). The proprietary product is a single tablet that
combines a triptan, sumatriptan 85 mg, with an NSAID, naproxen sodium 500 mg. The Company received Health
Canada approval for Suvexx in the first quarter of 2020 and the product was commercially launched in Canada in
September 2020.
NeoVisc Line Extension
In January 2020, Miravo closed a licensing transaction bringing new line extensions to the NeoVisc Canadian
business. NeoVisc is an injectable viscosupplement used by orthopedic surgeons, sports medicine physicians and
healthcare practitioners to replenish synovial fluid in the knee joints of patients with osteoarthritis (OA) and is available
in two formats (NeoVisc ONE and NeoVisc+). NeoVisc ONE is a low volume (4 mL), single-dose injection
viscosupplement. The reduction of injection volume makes administration of NeoVisc ONE easier for healthcare
professionals and more comfortable for patients. NeoVisc+ consists of a three (2 mL) injection dosing regimen that is
administered to a patient over the course of a three-week period. Both NeoVisc ONE and NeoVisc+ were issued a
Medical Device License by Health Canada in September 2020. The new and improved NeoVisc formats were launched
in Canada in January 2021.
Mature Products Commercialized by Miravo in Canada
The Commercial Business segment also consists of a number of mature products including the Canadian business for
Resultz, Bezalip® SR, Proferrin®, Fiorinal®(1), Fiorinal® C(1), Collatamp® G, PegaLAX®, Mutaflor®, MoviPrep® and
Soriatane™.
(1) Products are available in Canada and not promoted in any capacity
Fiorinal
On October 30, 2019, Miravo received an amended application for authorization to institute a class action against a
group of 34 defendants, including Miravo, that manufacture, market, and/or distribute opioids in Québec. The claim is
for $30,000, plus interest for compensatory damages for each class member, $25.0 million from each defendant for
punitive damages and pecuniary damages for each class member. The proposed class is all natural persons in Québec
who have been prescribed and consumed any one or more of the opioids manufactured, marketed, distributed and/or
sold by the defendants between 1996 and the present day and who suffer or have suffered from opioid use disorder.
The proposed class includes any direct heirs of any deceased persons who met the above-description and excludes
certain persons subject to a prior settlement agreement. The amended application is currently pending before the
Superior Court in the Province of Québec. The Company believes that the claim is without merit and intends to vigorously
defend the matter.
Products Out-licensed and/or Manufactured by Miravo
Pennsaid 2%
Pennsaid 2% is a follow-on product to original Pennsaid (described below). Pennsaid 2% is a topical pain product that
combines a dimethyl sulfoxide (DMSO) based transdermal carrier with 2% diclofenac sodium. Pennsaid 2% is more
viscous, is supplied in a metered dose pump bottle and has been approved in the U.S. and Switzerland for twice daily
dosing compared to four times a day for original Pennsaid. This provides Pennsaid 2% with potential advantages over
Pennsaid and other competitor products and with patent protection. Miravo owns the worldwide rights to Pennsaid 2%,
excluding the U.S. rights owned by Horizon.
United States
Pennsaid 2% was approved on January 16, 2014 in the U.S. and launched by the Company’s then U.S. Pennsaid and
Pennsaid 2% licensee, Mallinckrodt Inc. (Mallinckrodt) in February 2014 for the treatment of pain of OA of the knee. In
October 2014, Miravo reacquired the rights to Pennsaid from Mallinckrodt and sold the U.S. rights to Pennsaid 2% to
Horizon. Under the terms of this agreement, Company earns product revenue from Horizon pursuant to a long-term,
exclusive supply agreement, as well as contract service revenue.
Rest of World
Gebro Pharma has the exclusive rights to register, distribute, market and sell Pennsaid 2% in Switzerland and
Liechtenstein. In January 2020, Gebro Pharma received marketing authorization for Pennsaid 2% from Swissmedic, the
overseeing Swiss regulatory authority. Gebro Pharma launched Pennsaid 2% in Switzerland in January 2021. The
Company is eligible to receive milestone payments and royalties on net sales of Pennsaid 2% in Switzerland and
Liechtenstein and will earn product revenue from the supply of Pennsaid 2% to Gebro Pharma on an exclusive basis
from its manufacturing facility in Varennes, Québec.
Unlicensed Territories
The Company is currently pursuing Pennsaid 2% registration in Greece. The Company is preparing its regulatory dossier
for Pennsaid 2% for submission to the Greek National Organization for Medicines (EOF) as a National procedure. As of
December 31, 2020, the Company withdrew the Pennsaid 2% marketing authorization application from the Austrian
Agency for Health and Food Safety for commercial reasons.
Pennsaid
Pennsaid, the Company’s first commercialized topical pain product, is used to treat the signs and symptoms of OA of
the knee. Pennsaid is a combination of a DMSO-based transdermal carrier and 1.5% diclofenac sodium and delivers
the active drug through the skin at the site of pain. While conventional oral NSAIDs expose patients to potentially serious
systemic side effects such as gastrointestinal bleeding and cardiovascular risks, Miravo’s clinical trials suggest that some
of these systemic side effects occur less frequently with topically applied Pennsaid. Pennsaid is currently sold in Canada
by Paladin Labs Inc., in Italy by Recordati S.p.A. and in Greece by Vianex S.A.
Resultz
United States
The Company acquired the U.S. product and intellectual property rights from Piedmont Pharmaceuticals LLC (Piedmont)
in January 2018. Resultz was cleared as a 510 (k) Exempt Class 1 medical device for the treatment of head lice by the
FDA in May 2017. In February 2021, Miravo Ireland entered into an exclusive license agreement with The Mentholatum
Company for the exclusive right to commercialize the Resultz formula and technology in the U.S. under the brand name
Mentholatum Kids Head Lice Removal Kit. Miravo Ireland will earn revenue from The Mentholatum Company pursuant
to the license agreement. The Mentholatum Company launched the Mentholatum Kids Head Lice Removal Kit during
October 2021. The license agreement has been structured with an 18-month term, which will allow both parties to
reassess market dynamics related to the COVID-19 pandemic and to determine if a longer-term agreement is warranted
in a post-pandemic commercial environment. The Mentholatum Kids Head Lice Removal Kit is currently manufactured
by the Company’s contract manufacturing partner in Europe.
Rest of World (excluding the U.S. and Canada)
The Company acquired the global, ex-U.S. product and intellectual property rights from Piedmont in December 2017.
Resultz is approved and marketed in Spain, Portugal, Belgium, Netherlands, Germany, Ireland, the United Kingdom and
Russia through a network of existing license agreements and global licensees, which include Reckitt Benckiser, Fagron
Belgium NV (Fagron) and Heumann Pharma GmbH & Co. (Heumann). Resultz is a CE marked, Class I medical device
for the treatment of lice, which does not require a prescription. The Company recognized a contingent and variable
consideration related to the ex-U.S. acquisition of Resultz for $93 as at December 31, 2021.
Fagron
has
the
exclusive
rights
to
register,
distribute,
market
and
sell
Resultz
in Belgium, the
Netherlands and Luxembourg (BeNeLux) as a Class I medical device for the human treatment of head lice infestation.
Resultz is cleared for marketing in BeNeLux. Miravo Ireland received upfront consideration, is eligible to receive royalties
on net sales of Resultz in BeNeLux and will earn revenue from Fagron pursuant to an exclusive supply agreement.
Fagron launched Resultz in BeNeLux in the second half of 2018. Resultz is currently manufactured by the Company’s
contract manufacturing partner in Europe.
Heumann has the exclusive rights to distribute, market and sell Resultz in Germany. Resultz is considered a Class I
medical device in Germany. Miravo Ireland received upfront consideration, is eligible to receive milestone payments and
royalties on net sales of Resultz in Germany and will earn revenue from Heumann pursuant to an exclusive supply
agreement. Heumann launched Resultz in Germany in November 2020. Resultz is currently manufactured by the
Company’s contract manufacturing partner in Europe.
The COVID-19 pandemic has created some uncertainty regarding the traditional seasonal demand for head lice
treatments. Due to physical distancing regulations currently being enforced globally, many children are not physically
attending school or daycare or are not able to participate in group activities, the traditional environments where head lice
outbreaks occur.
Vimovo
Vimovo (naproxen/esomeprazole magnesium) is the brand name for a proprietary fixed-dose combination of enteric-
coated naproxen, a pain-relieving NSAID, and immediate-release esomeprazole magnesium, a proton pump inhibitor, in
a single delayed-release tablet. Miravo Ireland acquired the global intellectual property related to Vimovo from POZEN
as part of the Aralez Transaction on December 31, 2018. On April 30, 2010, the FDA approved Vimovo for the relief of
the signs and symptoms of OA, rheumatoid arthritis, and ankylosing spondylitis and to decrease the risk of developing
gastric ulcers in patients at risk of developing NSAID-associated gastric ulcers. Vimovo is currently commercialized in
the U.S. by Horizon and by Grunenthal and its permitted sublicensees, in various rest of world territories,
including Canada, Europe and select additional countries.
United States
Under the terms of the license agreement with Horizon, Miravo Ireland in the past received a royalty of 10% based on
U.S. net sales of Vimovo. In the current quarter, this royalty decreased to 5% of U.S. net sales of Vimovo as a result of
a royalty step-down provision in Miravo Ireland’s license agreement with Horizon due to continued generic competitor
market share gains. A guaranteed minimum annual royalty payment of US$7.5 million (US$1.9 million per quarter)
ceased when Dr. Reddy’s Laboratories Inc. (Dr. Reddy’s) launched a generic version of Vimovo in the U.S. during the
first quarter of 2020. Horizon’s royalty payment obligation with respect to Vimovo expires on the later of (a) the last to
expire of certain patents covering Vimovo, and (b) ten years after the first commercial sale of Vimovo in the U.S., which
occurred in 2010. The last to expire patent covering Vimovo in the U.S. is anticipated to expire in October 2031. Horizon
and Miravo Ireland have reached litigation settlements with five other generic companies: (i) Teva Pharmaceuticals
Industries Limited (formerly known as Actavis Laboratories FL, Inc., which itself was formerly known as Watson
Laboratories, Inc. – Florida) and Actavis Pharma, Inc. (collectively, Actavis Pharma); (ii) Lupin; (iii) Mylan
Pharmaceuticals Inc., Mylan Laboratories Limited, and Mylan Inc. (collectively, Mylan); (iv) Ajanta Pharma Ltd. And
Ajanta Pharma USA, Inc. (collectively, Ajanta); and (v) Anchen Pharmaceuticals, Inc. (Anchen). Certain of these
settlement agreements include provisions allowing generic versions of Vimovo to enter the U.S. market as a
consequence of Dr. Reddy’s launching their generic version of Vimovo in March 2020. In December 2021, Mylan
launched a generic version of Vimovo in the U.S. market. When the Company acquired the Vimovo patents as part of
the Aralez Transaction, the Company anticipated that the US$7.5 million (US$1.9 million per quarter) annual minimum
royalty payments would cease in 2022.
Dr. Reddy’s launch of a generic version of Vimovo in the U.S. was “at risk” to Dr. Reddy’s, as there was pending patent
infringement litigation in the New Jersey District Court against Dr. Reddy’s involving the ‘996 and ‘920 Patents owned by
Miravo Ireland that cover Vimovo. In February 2022, the New Jersey District Court granted a summary judgment motion
filed by Dr. Reddy’s, finding the asserted claims in the ‘996 and ‘920 Patents invalid. Miravo Ireland and its partner are
not planning on appealing this decision. This ruling in the U.S. does not impact Miravo Ireland’s global Vimovo business
in markets outside of the U.S.
Rest of World (excluding the U.S.)
Grunenthal and its permitted sublicensees hold the rights to commercialize Vimovo outside of the U.S. and Japan and
pays Miravo Ireland a 10% royalty on net sales. Grunenthal’s royalty payment obligation with respect to Vimovo expires
on a country-by-country basis upon the later of (a) expiration of the last-to-expire of certain patent rights related to Vimovo
in that country, and (b) ten years after the first commercial sale of Vimovo in such country. The royalty rate may be
reduced to the mid-single digits in the event of a loss of market share as a result of certain competing products. Canada
is the only country where a generic naproxen/esomeprazole magnesium product was approved and commercialized in
2017, prior to the Company purchasing this royalty stream.
Suvexx/Treximet
Suvexx/Treximet (sumatriptan/naproxen sodium) is a migraine medicine that was developed by POZEN in collaboration
with GSK. The proprietary product is a single tablet that combines a triptan, sumatriptan 85 mg, with an NSAID, naproxen
sodium 500 mg.
United States
In 2008, the FDA approved Treximet (the U.S. brand name) for the acute treatment of migraine attacks with or without
aura in adults. Treximet is currently commercialized in the U.S. by Currax Holdings USA LLC.
Rest of World (excluding the U.S.)
Orion Corporation (Orion) holds the exclusive license and supply agreement for the right to package, distribute, market
and sell Suvexx in Finland, Sweden, Denmark, Norway, Poland, Hungary, Latvia, Lithuania and Estonia (the Territory).
Orion will be responsible for obtaining and maintaining the marketing authorizations for Suvexx in the Territory and will
also manage all Territory specific commercial activities. In June 2021, Orion’s marketing authorization application for
Suvexx was accepted for review by the Finnish Medicines Evaluation Agency. The agreement with Orion provides Miravo
Ireland the potential to receive up to €1.6 million in upfront consideration, regulatory and sales-based milestone
payments, as well as royalties on net sales of Suvexx in the Territory and revenue pursuant to the supply of product.
Miravo Ireland has received €0.1 million in milestone payments to-date. Suvexx is currently manufactured by the
Company's contract manufacturing partner in the U.S.
In July 2021, Miravo Ireland entered into an exclusive license and supply agreement with SK Chemicals Co., Ltd (SK
Chemicals) for the right to commercialize Suvexx in the Republic of South Korea. Miravo Ireland may receive up to €0.9
million in upfront consideration, regulatory and sales-based milestone payments, as well as royalties on net sales of
Suvexx in South Korea and revenue pursuant to the supply of product. Miravo Ireland has received €0.1 million in
milestone payments to date. SK Chemicals will be responsible for obtaining and maintaining the marketing authorizations
for Suvexx in South Korea and will also manage all South Korean specific commercial activities. In October 2021, SK
Chemicals filed the Suvexx marketing authorization application with the Ministry of Food and Drug Safety in South Korea.
The commercial launch of Suvexx in South Korea is anticipated to commence in 2023, subject to receipt of regulatory
approval from the local regulatory authorities. Suvexx is currently manufactured by the Company’s contract
manufacturing partner in the U.S.
Yosprala
Yosprala is currently the only prescription fixed-dose combination of aspirin (acetylsalicylic acid), an anti-platelet agent,
and omeprazole, a proton-pump inhibitor, in the U.S. It is indicated for patients who require aspirin for secondary
prevention of cardiovascular and cerebrovascular events and who are at risk of developing aspirin associated gastric
ulcers. Yosprala is designed to support both cardio- and gastro-protection for at-risk patients through the proprietary
Intelli-COAT system, which is formulated to sequentially deliver immediate-release omeprazole (40 mg) followed by a
delayed-release, enteric-coated aspirin core in either 81 mg or 325 mg dose strengths. Yosprala was approved by the
FDA in September 2016 and was commercially launched in the U.S. by Genus Lifesciences Inc. (Genus) in October
2016. In early 2020, Genus advised the Company that they discontinued sales of the product for commercial reasons.
The intellectual property related to Yosprala was licensed to Takeda Pharmaceutical Company Limited (Takeda) in May
2017, on a non-exclusive basis for the Japanese market. In March 2020, Miravo Ireland received notice from Takeda
that Japan’s Ministry of Health, Labor and Welfare (the MHLW) approved Cabpirin. Cabpirin is a fixed-dose combination
of vonoprazan fumarate and low-dose aspirin, which is protected by Miravo Ireland’s Japanese patent for the Yosprala
formulation. In the year ended December 31, 2020, Miravo Ireland received $2.5 million (US$1.8 million), in milestone
payments, net of withholding tax of 10%, triggered by the MHLW approval. Miravo Ireland is also contractually entitled
to receive a second US$1.8 million milestone payment, net of withholding tax of 10% on May 31, 2022 provided the
licensed intellectual property remains valid and enforceable. Miravo Ireland will receive a single-digit royalty on net sales
of Cabpirin in Japan until patent expiry on May 31, 2022.
Miravo Ireland is entitled to retain 50% of all royalty and milestone revenues generated from the Yosprala intellectual
property on a global basis, with the remaining 50% to be paid to the estate of POZEN.
The Heated Lidocaine/Tetracaine Patch
The Heated Lidocaine/Tetracaine Patch (HLT Patch) is a topical patch that combines lidocaine, tetracaine and heat,
using Miravo’s proprietary Controlled Heat-Assisted Drug Delivery (CHADD™) technology. The CHADD unit generates
gentle heating of the skin and in a well-controlled clinical trial has demonstrated that it contributes to the efficacy of the
HLT Patch by improving the flux rate of lidocaine and tetracaine through the skin. The HLT Patch resembles a small
adhesive bandage in appearance and for its currently approved indication is applied to the skin 20 to 30 minutes prior to
painful medical procedures, such as venous access, blood draws, needle injections and minor dermatologic surgical
procedures. The HLT Patch is marketed in the U.S. by Galen US Incorporated (Galen) under the brand name Synera.
In Europe, the HLT Patch is marketed by the Company’s European-based licensee, Eurocept International B.V.
(Eurocept) under the brand name Rapydan. The HLT Patch is manufactured by a third-party contract manufacturing
organization for Galen and Eurocept. Currently, Miravo manufactures the bulk drug product for both parties.
Product Pipeline
Products
Phase 2
Phase 3
Regulatory
Submission
Preparation
Regulatory
Submission
Approved
Pennsaid 2%
Greece
Suvexx(1)
in 9 EU markets
Suvexx(2)
Korea
(1)
See The Company’s Business – Licensing and Royalty Business
(2)
See Suvexx/Treximet – Rest of World (excluding the U.S.)
Medical Device
Reformulation
Testing and
Documentation
Attestation /
Ready for Market
Resultz
Global
Resultz Reformulation
Miravo has developed an improved reformulated version of Resultz and filed a U.S. provisional patent application in May
2021 to protect this new technology. Additional basic development work is anticipated to be conducted to support the
new product.
Selected Financial Information
(1) Non-current financial liabilities are the sum of the long-term portion of long-term debt, other obligations and derivative liabilities.
(1) Adjusted EBITDA, adjusted total revenue, adjusted EBITDA per common share and cash value of loans are non-IFRS measures. These
measures are not recognized under IFRS and do not have standardized meanings prescribed by IFRS. See the Non-IFRS Measures section
for definitions, reconciliations and the basis of presentation of the Company’s non-IFRS measures.
Year ended
December 31, 2021
Year ended
December 31, 2020
Year ended
December 31, 2019
$
$
$
Operations
Product sales
57,269
52,200
51,884
License revenue
11,555
21,519
15,758
Contract revenue
83
56
1,904
Total Revenue
68,907
73,775
69,546
Cost of goods sold
24,396
23,309
26,472
Gross profit
44,511
50,466
43,074
Sales and marketing expenses
10,836
8,928
9,796
General and administrative expenses
13,032
12,893
17,840
Amortization of intangibles
7,428
8,314
8,356
Net interest expense
10,103
11,441
10,305
Change in fair value of derivative liabilities
15,585
11,728
(31,070)
Change in fair value of contingent and variable consideration
(gain)
(1,376)
1,794
1,216
Impairment
17,928
1,583
23,780
Foreign currency loss (gain)
35
(1,145)
(2,598)
Other losses (gains)
287
(2,093)
2,022
Income (loss) before income taxes
(29,347)
(2,977)
3,427
Income tax expense
2,858
1,152
28
Net income (loss)
(32,205)
(4,129)
3,399
Unrealized gain (loss) on translation of foreign operations
221
100
(432)
Total comprehensive income (loss)
(31,984)
(4,029)
2,967
Total assets
130,329
151,765
163,129
Total non-current financial liabilities(1)
113,831
109,348
110,257
Share Information
Net income (loss) per common share
- basic
(2.83)
(0.36)
0.30
- diluted
(2.83)
(0.36)
(0.51)
Dividends declared per-share, common shares
-
-
-
Non-IFRS Measures(1)
Year ended
December 31, 2021
Year ended
December 31, 2020
$
$
Adjusted total revenue
69,404
70,959
Adjusted EBITDA
22,164
28,443
Adjusted EBITDA per common share
- basic
1.95
2.50
Average number of common shares outstanding
- basic
11,388
11,388
Cash value of loans
$112,041
$126,276
Results of Operations
Total Revenue
Total revenue is comprised of product sales, license revenue and contract revenue. Total revenue was $68.9 million for
the year ended December 31, 2021 compared to $73.8 million for the year ended December 31, 2020.
Product sales, which represent the Company’s sales to wholesalers, licensees and distributors, were $57.3 million for
the year ended December 31, 2021 compared to $52.2 million for the year ended December 31, 2020. In the current
year, the increase of $5.8 million in the Commercial Business segment was primarily related to an $7.3 million increase
in revenue for the Company’s promoted products (Blexten, Cambia, Suvexx and NeoVisc), offset by a $1.5 million
decrease in sales of the Company’s mature products over the comparative year. The overall increase in revenue from
the Commercial Business segment was offset by a $0.7 million decrease in revenue from the Production and Service
Business segment, which was mainly due to a decrease in the Company’s Pennsaid and Resultz product sales, as well
as the stronger Canadian dollar against the U.S. dollar and euro, which reduced the contribution from certain U.S. and
euro denominated product revenue streams.
License revenue was $11.6 million for the year ended December 31, 2021 compared to $21.5 million for the year ended
December 31, 2020. The Company receives license revenue from its exclusive licensing agreements with global
partners related to net sales of Vimovo, Resultz, Pennsaid, Pennsaid 2%, the HLT Patch, Yosprala and Treximet in
certain territories.
The $9.9 million decline in license revenue during the year ended December 31, 2021 was primarily attributable to a
$4.5 million reduction in the U.S. Vimovo royalty revenue due to a competitor launch of a generic version of Vimovo in
the U.S. during March 2020, as well as the stronger Canadian dollar against the U.S. dollar and euro, which reduced the
contribution from certain U.S. and euro denominated royalty streams during the current year. In addition, in the
comparative year, the Company received a $2.5 million (US $1.8 million) milestone payment, net of withholding taxes
related to the use of its Yosprala intellectual property in Japan.
Contract revenue was $83 for the year ended December 31, 2021 compared to $56 for the year ended December 31,
2020. Contract revenue is mainly derived from ad hoc service agreements for testing, development and related quality
assurance and quality control services provided by the Company.
Adjusted total revenue was $69.4 million for the year ended December 31, 2021 compared to $71.0 million for the year
ended December 31, 2020. Adjusted total revenue is a non-IFRS measure (See Non-IFRS Measures below).
Canada Emergency Wage Subsidy
During the year ended December 31, 2021, the Company recorded $293 in government assistance from the Canada
Emergency Wage Subsidy (CEWS) program. The funding was recorded as a reduction of the related salary expenditures
with $94 recorded in sales and marketing expenses, $114 recorded in general and administrative (G&A expenses
and $85 recorded in cost of goods sold (COGS). The Company recognized $1.2 million in government assistance from
the CEWS in the comparative year. The $1.2 million of government assistance was recorded as a reduction of the
related salary expenditures with $0.4 million recorded in sales and marketing expenses, $0.4 million recorded in G&A
expenses and $0.4 million recorded in COGS.
0
20,000
40,000
60,000
80,000
Product Sales
License Revenue
Total Revenue
$ Thousands
FY 2021
FY 2020
Cost of Goods Sold
COGS for the year ended December 31, 2021 was $24.4 million compared to $23.3 million for the year ended December
31, 2020. Gross margin on product sales for the year ended December 31, 2021 was $32.9 million or 57% compared to
$28.9 million or 55% for the year ended December 31, 2020. The increase in gross margin for the year ended December
31, 2021 was the result of a change in the mix of product sales, as well as a $1.4 million reduction of inventory step-up
expense, slightly offset by a $0.3 million decrease in funding received from the CEWS program. Inventory step up
expense was $35 during the year ended December 31, 2021 compared to $1.4 million during the year ended December
31, 2020.
Gross Profit
Gross profit on total revenue was $44.5 million or 65% for the year ended December 31, 2021 compared to $50.5 million
or 68% for the year ended December 31, 2020. The decrease in gross profit and gross profit percentage for the current
year was primarily attributable to a decrease in licensing revenue (See Cost of Goods Sold above).
Expenses
Total expenses includes sales and marketing expenses, G&A expenses, amortization of intangibles, net interest expense
change in fair value of derivative liabilities, change in fair value of contingent and variable consideration, impairment,
foreign currency losses (gains) and other losses (gains). Total expenses for the year ended December 31, 2021 were
$73.9 million, an increase from $53.4 million for the year ended December 31, 2020.
Sales and Marketing
The Company incurred $10.8 million in expenses for sales and marketing for the year ended December 31, 2021
compared to $8.9 million for the year ended December 31, 2020. The increase in sales and marketing expenses in the
current year was the result of targeted investment in certain promotional efforts for the Company’s promoted products -
Blexten, Cambia, Suvexx (launched September 2020) and NeoVisc (launched January 2021) and a $0.3 million decrease
in funding received from the CEWS program.
General and Administrative
G&A expenses were $13.0 million for the year ended December 31, 2021 compared to $12.9 million for the year ended
December 31, 2020. The increase in G&A expenses in the current year primarily related to timing of expenses and a
$0.3 million decrease in funding received from the CEWS program.
Amortization of Intangibles
For the year ended December 31, 2021, the Company recognized a $7.4 million charge for amortization of intangibles
compared to $8.3 million in the comparative year. In the current and comparative years, amortization related to the
licenses and patents acquired by Miravo as part of the Aralez Transaction.
Net Interest Expense
Net interest expense for the year ended December 31, 2021 was $10.1 million compared to net interest expense of $11.4
million for the year ended December 31, 2020. The Company’s Amortization Loan and Convertible Loan, each
components of the Deerfield Financing, are carried at amortized cost with effective interest rates of 10.20% and 10.13%,
respectively.
0
10,000
20,000
30,000
40,000
50,000
60,000
Full Year
$ Thousands
2021
2020
The Deerfield Financing requires the Company to make quarterly interest payments on outstanding loans. The interest
rate for both the Amortization Loan and the Convertible Loan is a fixed 3.5%. During the year ended December 31,
2021, the Company made interest payments of $4.1 million to Deerfield. During the year ended December 31, 2020,
the Company made interest payments of $5.0 million to Deerfield. The decrease in interest expense in the current year
relates to a lower principal loan balance, as well as a stronger Canadian dollar against the U.S. dollar, which decreased
interest expense by $0.7 million compared to the year ended December 31, 2020.
Derivative Liabilities
The Company holds two derivative liabilities related to the Deerfield Financing – the conversion feature that is embedded
in the Convertible Loan and the warrants (Warrants). These derivative liabilities are measured at fair value at each
reporting period. As a result of the increase in the share price, as well as an increase in the volatility of the Company’s
shares, amongst other inputs, the value of the Company’s derivative liabilities increased, and the Company recognized
a net loss of $15.6 million on the change in fair value of derivative liabilities for the year ended December 31, 2021 [$11.7
million net loss on the change in fair value of derivative liabilities for the year ended December 31, 2020].
Contingent and Variable Consideration
During the year ended December 31, 2021, the Company recognized a $1.4 million gain on the change in fair value of
contingent and variable consideration compared to a $1.8 million loss for the year ended December 31, 2020. The
Company reassesses the value of contingent consideration related to Resultz and Yosprala at each reporting period.
The ex-U.S. Resultz acquisition included additional contingent consideration based on meeting certain milestones in
partnered markets, payable only if those targets are achieved, as well as variable consideration based on annual royalties
earned in non-partnered markets. The Aralez Transaction included contingent consideration in the form of 50% of the
lifetime net earnings from monetization of the Yosprala product.
Impairment
The Company reviewed the carrying values of certain intangible assets and goodwill as at December 31, 2021 due to
changes in the commercial expectations for certain products.
In the year ended December 31, 2021, the Company noted that despite the easing of many COVID-19 government
restrictions within Canada and the uptake of people receiving the COVID-19 vaccinations, prescribers had not yet
resumed to seeing patients in person, at pre-COVID-19 pandemic levels. As a result, the Company revised its
commercial expectations for certain prescription products in its Commercial Business segment.
Furthermore, in the year ended December 31, 2021, the Company revised its commercial expectations for its global
Resultz product, a component of its Licensing and Royalty Business segment, as commercial performance was not
meeting the Company’s expectations. The Company believes its change in future commercial expectations was
triggered by the evolving COVID-19 pandemic. Despite the easing of government restrictions in certain countries and
the global uptake of people receiving the COVID-19 vaccination, social distancing measures continue worldwide, directly
impacting the future commercial expectations for the Resultz product.
The Company has also revised its expectations for its Vimovo License in ex-U.S. territories, a component of its Licensing
and Royalty Business segment. The Company has adjusted its expectations based on discussions with its license
partner for markets where generic competitors are expected to impact forecasted revenue after patent expiry.
In the year ended December 31, 2021, the impairment loss of $17.9 million represented a $13.8 million write-down of
goodwill and certain intangible assets in the Commercial Business segment and a $4.1 million write-down of goodwill
and certain intangible assets in the Licensing and Royalty Business segment.
Year ended
December 31, 2021
Year ended
December 31, 2020
$
$
Cash interest paid
4,147
5,010
Non-cash interest expense
5,956
6,431
Total interest expense
10,103
11,441
Foreign Currency
The Company recognized a foreign currency loss of $35 and a foreign currency gain of $1.1 million during the years
ended December 31, 2021 and 2020, respectively. The strengthening of the Canadian dollar against the U.S. dollar and
euro reduced the contribution from certain U.S. dollar and euro denominated revenue streams. This was partially offset
by the stronger Canadian dollar when compared against the U.S. dollar, which decreased the carrying value of the
Company’s long-term debt.
Other Losses
During the year ended December 31, 2021, the Company recognized other losses of $287, primarily related to the
disposal of two intangible assets and related inventories and the changes in the assumptions regarding the timing and
amount of debt repayments due to forecasted excess cash flows. During the year ended December 31, 2020, the
Company recognized other gains of $2.1 million, primarily related to the changes in the assumptions regarding the timing
and amount of debt repayments due to forecasted excess cash flows and deferral assumptions related to the amendment
to the financing agreement dated June 25, 2019 with Deerfield.
Net Loss and Total Comprehensive Loss
Income Tax Expense
During the year ended December 31, 2021, the Company recognized $2.9 million of income tax expense comprised of
$0.5 million of current income tax expense and $2.4 million of deferred income tax expense. The Company recognized
deferred income tax expense due to the utilization of loss carryforwards that were previously recognized. The Company
recognized a current income tax expense of $1.2 million for the comparative year.
Net Loss
Net loss for the year ended December 31, 2021 was $32.2 million compared to net loss of $4.1 million for the year ended
December 31, 2020. The increase in net loss was due to a decrease in gross profit and an increase in expenses. The
increase in expenses was primarily related to the impairment expense recognized by the Company and change in fair
value of derivative liabilities.
Total Comprehensive Loss
Total comprehensive loss was $32.0 million for the year ended December 31, 2021 compared to total comprehensive
loss of $4.0 million for the year ended December 31, 2020. The current year included unrealized gains of $0.2 million
on the translation of foreign operations compared to $0.1 million of unrealized gains in the comparative year.
Year ended
December 31, 2021
Year ended
December 31, 2020
$
$
Net loss before income taxes
(29,347)
(2,977)
Income tax expense
2,858
1,152
Net loss
(32,205)
(4,129)
Unrealized gain on translation of foreign operations
221
100
Total comprehensive loss
(31,984)
(4,029)
-35,000
-30,000
-25,000
-20,000
-15,000
-10,000
-5,000
0
Full Year
$ Thousands
2021
2020
Net Loss per Common Share
Year ended
December 31, 2021
Year ended
December 31, 2020
$
$
Net loss from per common share
- basic
(2.83)
(0.36)
- diluted
(2.83)
(0.36)
Average number of common shares outstanding
- basic
11,388
11,388
- diluted
11,388
11,388
Net loss per common share on a basic and diluted basis was $2.83 for the year ended December 31, 2021 [net loss per
common share on a basic and diluted basis was $0.36 for the year ended December 31, 2020].
The weighted average number of common shares outstanding on a basic basis was 11.4 million for the year ended
December 31, 2021, unchanged from the comparative year.
Non-IFRS Measures
The Company discloses non-IFRS financial measures (adjusted total revenue, adjusted EBITDA, and cash value of
loans) and a non-IFRS ratio (adjusted EBITDA per share) that are not recognized under and do not have standardized
meanings prescribed by IFRS. Accordingly, such measures are not necessarily comparable and may not have been
calculated in the same way as similarly named financial measures presented by other companies. These measures
should be considered as supplemental in nature and not as a substitute for related financial information prepared in
accordance with IFRS. The Company believes that shareholders, investment analysts and other readers find such
measures helpful in understanding and assessing the Company’s financial performance. We utilize these measures in
managing our business, including as means of performance measurement, cash management and debt compliance.
Because non-IFRS financial measures and non-IFRS ratios do not have standardized meanings prescribed under IFRS,
securities regulations require that such measures be clearly defined, identified, and for non-IFRS financial measures,
reconciled to their nearest IFRS measure. The applicable definition, calculation and reconciliation of each such measure
used in this MD&A is provided below.
Adjusted Total Revenue
The Company defines adjusted total revenue as total revenue, plus amounts billed to customers for existing contract
assets, less revenue recognized upon recognition of a contract asset. Management believes adjusted total revenue is a
useful supplemental measure to determine the Company’s ability to generate cash from its customer contracts used to
fund its operations.
The following is a summary of how adjusted total revenue is calculated, reconciled to the to the nearest IFRS measure:
Adjusted total revenue was $69.4 million for the year ended December 31, 2021 compared to $71.0 million for the year
ended December 31, 2020. The $1.6 million decrease in adjusted total revenue in the current year was primarily
attributable to a decrease of $6.7 million of revenue from the Licensing and Royalty Business segment and a decrease
in revenue of $0.7 million in the Production and Service Business segment, slightly offset by an increase of $5.8 million
in the Commercial Business segment.
Three months ended
December 31
Twelve months ended
December 31
2021
2020
2021
2020
$
$
$
$
Total revenue
17,709
17,283
68,907
73,775
Add:
Amounts billed to customers for existing contract assets
116
48
497
2,680
Deduct:
Revenue recognized upon recognition of a contract asset
-
-
-
(5,496)
Adjusted total revenue
17,825
17,331
69,404
70,959
Revenue attributable to the Commercial Business segment increased during the year ended December 31, 2021 due to
a $7.3 million increase in sales of the Company’s promoted products (Blexten, Cambia, Suvexx and Neovisc), offset by
a $1.5 million decrease in sales of the Company’s mature products.
The Production and Service Business segment revenue decreased during the year ended December 31, 2021, primarily
due to a decrease in Pennsaid 2% and Resultz product sales, as well as the stronger Canadian dollar against the U.S.
dollar and euro, which reduced the contribution from certain U.S. and euro denominated product revenue streams,
slightly offset by an increase in sales of Pennsaid.
The decrease in revenue attributable to the License and Royalty business segment during the year ended December
31, 2021 was primarily attributable to a $4.5 million reduction in U.S. Vimovo royalty revenue due to a competitor launch
of a generic version of Vimovo in the U.S. during March 2020, as well as the stronger Canadian dollar against the U.S.
dollar and euro, which reduced the contribution from certain U.S. and euro denominated royalty streams during the
current year. In addition, in the comparative year, the Company received a $2.5 million (US $1.8 million) milestone
payment, net of withholding taxes related to the use of its Yosprala intellectual property in Japan.
Adjusted total revenue for the three months ended December 31, 2021 increased to $17.8 million compared to $17.3
million for the three months ended December 31, 2020.
Adjusted EBITDA
EBITDA refers to net income (loss) determined in accordance with IFRS, before depreciation and amortization, net
interest expense (income) and income tax expense (recovery). The Company defines adjusted EBITDA as EBITDA, plus
amounts billed to customers for existing contract assets, inventory step-up expenses, stock-based compensation
expense, loss on fair value of derivative liabilities, loss on fair value of contingent and variable consideration, impairment
loss, foreign currency loss, other losses less revenue recognized upon recognition of a contract asset, stock-based
compensation recovery, gain on fair value of derivative liabilities, gain on fair value of contingent and variable
consideration, impairment recovery, foreign currency gain and other income. Management believes adjusted EBITDA
is a useful supplemental measure to determine the Company’s ability to generate cash available for working capital,
capital expenditures, debt repayments, interest expense and income taxes.
The following is a summary of how EBITDA and adjusted EBITDA are calculated, reconciled to the to the nearest IFRS
measure:
(1)
Income tax expense for the year ended December 31, 2021 includes $2.4 million for deferred income tax due to the utilization of loss
carryforwards that were previously recognized. The Company did not recognize deferred income tax expense in the comparative year.
Three months ended
December 31
Year ended
December 31
2021
2020
2021
2020
$
$
$
$
Net income (loss)
(5,593)
2,399
(32,205)
(4,129)
Add back:
Income tax expense (recovery)(1)
474
(435)
2,858
1,152
Net interest expense
2,526
2,422
10,103
11,441
Depreciation and amortization
1,925
2,291
8,050
9,256
EBITDA
(668)
6,677
(11,194)
17,720
Add back:
Amounts billed to customers for existing contract assets
116
48
497
2,680
Stock-based compensation
56
53
367
261
Deduct:
Revenue recognized upon recognition of a contract asset
-
-
-
(5,496)
Change in fair value of derivative liabilities(2)
1,138
587
15,585
11,728
Change in fair value of contingent and variable consideration
(371)
208
(1,376)
1,794
Impairment(3)
3,246
1,583
17,928
1,583
Foreign currency loss (gain)
(127)
(2,586)
35
(1,145)
Inventory step-up
-
352
35
1,411
Other losses (gains)
3
(680)
287
(2,093)
Adjusted EBITDA
3,393
6,242
22,164
28,443
(2)
The Company’s derivative liabilities are measured at fair value through profit or loss at each reporting date. As a result of the increase in the
share price in the current year and an increase in the volatility of the Company’s shares, amongst other inputs, the value of the Company’s
derivative liabilities increased, and the Company recognized net losses of $15.6 million on the change in fair value of derivative liabilities for
the year ended December 31, 2021.
(3)
During the year ended December 31, 2021, the Company recorded impairment of $17.9 million of goodwill and certain intangible assets in the
Commercial Business and Licensing and Royalty segments. Additional details regarding the Company’s methodology and assumptions are
disclosed in Note 9, Intangible Assets and Note 10, Goodwill to the Consolidated Financial Statements for the year ended December 31, 2021.
See Impairment and Risk Factors.
Adjusted EBITDA was $22.2 million for the year ended December 31, 2021 compared to $28.4 million for the year ended
December 31, 2020. During the year ended December 31, 2021, a $5.5 million increase in gross profit from the
Company’s Commercial Business segment (net a $1.4 million decrease in inventory step-up expense) was more than
offset by a $6.7 million decrease in the contribution from the Company’s License and Royalty Business segment, a $1.5
million decrease in gross profit contribution from the Production and Service Business segment, a $1.9 million increase
in sales and marketing expenses and a $0.1 million increase in G&A expenses (net a $0.1 million increase in stock-
based compensation). Adjusted EBITDA for the three months ended December 31, 2021 was $3.4 million compared to
$6.2 million for the three months ended December 31, 2020.
Adjusted EBITDA Per Common Share
The Company defines adjusted EBITDA per common share as adjusted EBITDA divided by the average number of
issued and outstanding common shares of the Company. Management believes adjusted EBITDA per share is a useful
supplemental non-IFRS ratio used to determine the Company’s ability to generate cash available for working capital,
capital expenditures, debt repayments, interest expense and income taxes as a ratio of average number of issued and
outstanding shares of the Company.
The following is a summary of how adjusted EBITDA per share is calculated:
Adjusted EBITDA per common share was $1.95 for the year ended December 31, 2021 compared to adjusted EBITDA
per common share of $2.50 for the year ended December 31, 2020. Adjusted EBITDA per common share was $0.30
for the three months ended December 31, 2021 compared to adjusted EBITDA per common share of $0.55 for the three
months ended December 31, 2020.
Cash Value of Loans
The Company’s long-term debt is carried at amortized cost in accordance with IFRS. The Deerfield Loans were initially
measured at fair value using a discounted cash flow model that considers the present value of contractual cash flows
using a risk-adjusted discount rate. As the Company revises its estimated future contractual cash flows it will adjust the
gross carrying amount of the amortized cost of a financial liability to reflect actual and revised estimated contractual cash
flows.
The Company defines cash value of loans as the total sum of money borrowed under the Deerfield Facility Agreement
less any payments to date. Cash value of loans does not consider fair value discounting when describing the Company’s
outstanding debt. Management believes cash value of loans is a useful supplemental measure to describe the debt
outstanding under the Deerfield Facility Agreement.
Three months ended
December 31
Year ended
December 31
2021
2020
2021
2020
$
$
$
$
Adjusted EBITDA
3,393
6,242
22,164
28,443
Adjusted EBITDA per common share
0.30
0.55
1.95
2.50
Average number of common shares outstanding
- basic
11,388
11,388
11,388
11,388
The following is a summary of how cash value of loans is calculated, reconciled to the to the nearest IFRS measure, as
at:
December 31, 2021
December 31, 2020
$US
Amortization
Loan
Convertible
Loan
Amortization
Loan
Convertible Loan
Total long-term debt
32,030
43,484
40,426
41,042
IFRS present value adjustment (interest and
principal)
3,844
9,016
6,254
11,458
Cash Value of Loans
35,874
52,500
46,680
52,500
$CDN
Amortization
Loan
Convertible
Loan
Amortization
Loan
Convertible Loan
Total long-term debt
40,581
55,129
51,453
52,244
IFRS present value adjustment (interest and
principal)
4,900
11,431
7,980
14,599
Cash Value of Loans
45,481
66,560
59,433
66,843
During the year ended December 31, 2021, the Company repaid $13.4 million (US$10.8 million) of the Amortization Loan
to Deerfield reducing its cash value of loans outstanding to $112.0 million (US$88.4 million). Since the inception of the
Deerfield Financing on December 31, 2018, the Company has repaid US$30.1 million towards the Deerfield Loans. The
interest rate for both the Amortization Loan and the Convertible Loan is a fixed 3.5%. During the three months ended
December 31, 2021, the Company repaid $3.1 million (US$2.5 million) of the Amortization Loan.
Operating Segments
IFRS 8 - Operating Segments requires operating segments to be determined based on internal reports that are regularly
reviewed by the chief operating decision maker for the purpose of allocating resources to the segment and to assessing
its performance. For the year ended December 31, 2021, the Company had three operating segments: Commercial
Business, Production and Service Business and Licensing and Royalty Business.
Operating Segments
The Commercial Business segment is comprised of products commercialized by the Company in Canada. This segment
includes the Company’s promoted products - Blexten, Cambia, Suvexx, and NeoVisc, as well as a number of mature
products.
The Production and Service Business segment includes revenue from the sale of products manufactured by the
Company from its manufacturing facility in Varennes, Québec or contracted by Miravo Ireland from its international
headquarters in Dublin, Ireland, as well as service revenue for testing, development and related quality assurance and
quality control services provided by the Company. Key revenue streams in this segment include Pennsaid 2%, Pennsaid,
and Resultz.
The Licensing and Royalty Business segment includes the revenue generated by the licensing of intellectual property
and ongoing royalties from exclusive licensing agreements with global partners. Key revenue streams in this segment
include royalties from the Company’s Vimovo, Yosprala, Resultz, Suvexx/Treximet and HLT Patch license agreements.
Total Revenue by Operating Segment
Selected Financial Information
Commercial Business
Year ended
December 31, 2021
Year ended
December 31, 2020
Change
$
$
$
Revenue
45,255
39,449
5,806
Cost of Sales
16,564
16,231
333
Gross profit
28,691
23,218
5,473
Gross profit %
63%
59%
4%
During the year ended December 31, 2021, the Company’s Commercial Business segment contributed $45.3 million or
66% of the Company’s total revenue [$39.4 million or 53% during the year ended December 31, 2020] and $28.7 million
or 64% of the Company’s gross profit [$23.2 million or 46% during the year ended December 31, 2020].
Revenue attributable to the Commercial Business segment increased during the year ended December 31, 2021 due to
a $7.3 million increase in sales of the Company’s promoted products, offset by a $1.5 million decrease in sales of the
Company’s mature products.
The increase in gross profit during the year ended December 31, 2021, primarily related to a change in product mix that
provided more favourable profit margins, as well as the reduction of inventory step-up expense. Inventory step-up
expense was $35 during the year ended December 31, 2021 compared to $1.4 million during the year ended December
31, 2020.
Production and Service Business
Year ended
December 31, 2021
Year ended
December 31, 2020
Change
$
$
$
Revenue
12,097
12,807
(710)
Cost of Sales
7,832
7,078
754
Gross profit
4,265
5,729
(1,464)
Gross profit %
35%
45%
(10%)
During the year ended December 31, 2021, the Company’s Production and Service Business segment contributed $12.1
million or 18% of the Company’s total revenue [$12.8 million or 17% during the year ended December 31, 2020] and
$4.3 million or 10% of the Company’s gross profit [$5.7 million or 11% during the year ended December 31, 2020].
The decrease in the Production and Service Business segment revenue during the year ended December 31, 2021 was
the result of a decrease in the Company’s Pennsaid 2% and Resultz product sales, as well as the stronger Canadian
0
20,000
40,000
60,000
80,000
Commercial
Business
Production &
Service Business
Licensing &
Royalty Business
Total
$ Thousands
FY 2021
FY 2020
dollar against the U.S. dollar and euro, which reduced the contribution from certain U.S. and euro denominated product
revenue streams. This was slightly offset by an increase in sales of Pennsaid.
The decrease in gross profit during the year ended December 31, 2021 was attributable to a decrease in the Company’s
Pennsaid and Resultz product sales, as well as unfavourable foreign exchange movements and an increase in material
and freight costs.
Licensing and Royalty Business
Year ended
December 31, 2021
Year ended
December 31, 2020
Change
$
$
$
Revenue
11,555
21,519
(9,964)
Cost of Sales
-
-
-
Gross profit
11,555
21,519
(9,964)
Gross profit %
100%
100%
-
During the year ended December 31, 2021, the Company’s Licensing and Royalty Business segment contributed $11.6
million or 17% of the Company’s total revenue [$21.5 million or 29% during the year ended December 31, 2020] and
$11.6 million or 26% of the Company’s gross profit [$21.5 million or 43% during the year ended December 31, 2020].
License revenue was $11.6 million for the year ended December 31, 2021 compared to $21.5 million for the year ended
December 31, 2020. The $9.9 million decline in license revenue during the year ended December 31, 2021 was primarily
attributable to a $4.5 million reduction in U.S. Vimovo royalty revenue due to a competitor launch of a generic version of
Vimovo in the U.S. during March 2020, as well as the stronger Canadian dollar against the U.S. dollar and euro, which
reduced the contribution from certain U.S. and euro denominated royalty streams during the current year. In addition, in
the comparative year, the Company received a $2.5 million (US $1.8 million) milestone payment, net of withholding taxes
related to the use of its Yosprala intellectual property in Japan.
Financial Position
As at
December 31, 2021
As at
December 31, 2020
$
$
Financial Position
Working capital
5,816
10,654
Contract assets
2,518
2,845
Long-lived assets
78,710
104,409
Right-of-use assets
921
1,027
Long-term debt (including current portion)
95,710
103,697
Other obligations (including current portion)
2,661
4,719
Derivative liabilities
29,160
13,665
Total equity
(11,393)
20,362
Working Capital
The Company defines the working capital above as total current assets (excluding cash and contract assets), less
accounts payable and accrued liabilities and current income tax liabilities. The $4.8 million decrease in working capital
from December 31, 2020 to December 31, 2021 was primarily due to the following factors:
•
Accounts receivable decreased $1.0 million due to a decrease in sales from the Company’s Production
and Service Business segment and royalties from the Company’s Licensing and Royalty Business
segment.
•
Inventory decreased $1.0 million as a result of the timing of purchases and supply chain management.
•
Other current assets decreased $0.4 million, primarily due to the timing of purchases of promotional
supplies and payment of prepaid expenses.
•
Accounts payable and accrued liabilities increased by $3.1 million, primarily attributable to the timing of
payments and milestone accruals.
•
Current income tax liabilities decreased by $0.7 million due to the settlement of current tax liabilities by
the Company’s Irish subsidiary.
Contract Assets
Contract assets represent the present value of current and future guaranteed minimum sales-based royalties, upfront
fees and milestone payments that are expected to be received over the life of the licensing agreements. Contract asset
balances are reduced as contractual entitlements are billed and realized throughout the life of the agreement.
The timing of revenue recognition, billings and cash collections results in accounts receivable and unbilled receivables
(contract assets). Generally, billing occurs subsequent to revenue recognition, resulting in accounts receivable. The
Company’s contract assets relate to license revenue attributable to minimum guaranteed sales-based royalties, upfront
fees and milestone payments that have not been billed at the reporting date. Unbilled receivables (contract assets) will
be billed (and subsequently transferred to accounts receivable) in accordance with the agreed-upon contractual terms.
The Company carries contract assets related to Yosprala and Resultz. No new contract assets were recognized during
the year ended December 31, 2021.
Long-lived Assets
Long-lived assets consist of property, plant and equipment (PP&E), intangible assets and goodwill. The $25.7 million
decrease for the year ended December 31, 2021 was primarily related to $17.9 million of impairment charges on
intangibles assets and goodwill, $8.0 million of intangible assets and PP&E amortization and a $0.5 million disposal of
intangible assets, partially offset by an increase in the balance due to additions of PP&E and intangible software totalling
$0.7 million.
Right-of-use Assets
Right-of-use assets consist of leased assets, which under IFRS 16 - Leases (IFRS 16), are accounted for as a right-of-
use asset with a corresponding lease liability.
On February 26, 2020, the Company renegotiated its premises leases, which resulted in the surrender of two of its leases
and the signing of a new lease. The renegotiation has been accounted for as a single lease modification, as it was
completed with the overall objective of consolidating the premises leased by the Company and all leases were entered
into with the same head lessor. As part of the renegotiation, the Company agreed to pay a termination fee of $0.2 million
in order to be released from the remaining future lease obligation for both base rent and operating cost recovery of $0.5
million. During the year ended December 31, 2020, the decrease in the area under lease due to the modification has
resulted in a decrease to the right-of-use asset of $0.1 million and the increase in the lease term and a corresponding
increase in lease payments resulted in an increase to the right-of-use asset of $0.7 million. Depreciation expense of
$0.1 million was recorded in the year ended December 31, 2021 compared to $0.2 million in the year ended December
31, 2020.
Long-term Debt
Long-term debt includes the long-term carrying values of the Company’s Amortization Loan and Convertible Loan. No
new loan facilities were entered into during the year ended December 31, 2021. As payments are made, and interest is
accreted, the net impact reduces the long-term debt balance over time. During the year ended December 31, 2020, the
Company repaid the outstanding balance of the Bridge Loan.
During the year ended December 31, 2021, the Company made principal payments of $13.4 million (US$10.8 million) to
Deerfield under the Deerfield Financing.
Other Obligations
As at December 31, 2021, the Company recognized $1.4 million [December 31, 2020 - $1.5 million] of lease obligations
related to IFRS 16.
The Company recognized $1.2 million in contingent and variable consideration as at December 31, 2021 [December 31,
2020 - $3.3 million], which represented the present value of the Company’s probability-weighted estimate of the cash
outflow related to the ex-U.S. Resultz acquisition and the profits earned from Yosprala. The ex-U.S. Resultz acquisition
included contingent consideration related to meeting certain milestones in partnered markets, payable only if those
targets are achieved, as well as variable consideration based on annual royalties earned in the non-partnered markets.
The Yosprala purchase agreement included contingent consideration in the form of 50% of the lifetime net earnings from
the monetization of Yosprala intellectual property. The Company has estimated contingent consideration for the use of
Yosprala intellectual property in the Japanese market.
Derivative liabilities
The Company’s derivative liabilities include the conversion feature embedded in the Convertible Loan and the
Warrants. These derivative liabilities are measured at fair value at each reporting period. As a result of the increase in
the share price and an increase in the volatility of the Company’s shares, amongst other inputs, the value of the
Company’s derivative liabilities increased during the year ended December 31, 2021.
Fluctuations in Results
The Company anticipates that its quarterly and annual results of operations will be impacted for the foreseeable future
by several factors, including the level and timing of product sales to the Company’s customers, licensees and distributors,
the timing and amount of royalties, milestones and other payments made or received pursuant to current and future
licensing arrangements, interest costs associated with servicing the Deerfield Financing, revaluation of derivative
liabilities, fluctuations in foreign exchange rates and the impact of the COVID-19 pandemic.
Liquidity and Capital Resources
Year ended
December 31, 2021
Year ended
December 31, 2020
$
$
Net loss
(32,205)
(4,129)
Items not involving current cash flows
48,581
24,639
Cash provided by operations
16,376
20,510
Net change in non-cash working capital
4,894
4,810
Payment of contingent consideration
(426)
(1,168)
Cash provided by operating activities
20,844
24,152
Cash used in investing activities
(242)
(568)
Cash used in financing activities
(13,626)
(22,689)
Effect of exchange rates on cash
91
(107)
Net change in cash during the year
7,067
788
Cash and cash equivalents, beginning of the year
23,807
23,019
Cash and cash equivalents, end of the year
30,874
23,807
Cash and Cash Equivalents
Cash and cash equivalents were $30.9 million as at December 31, 2021 compared to $23.8 million as at December 31,
2020.
Cash Provided by Operating Activities
Overall cash provided by operating activities was $20.8 million for the year ended December 31, 2021 compared to cash
provided by operating activities of $24.2 million for the year ended December 31, 2020.
In the current year, the $4.9 million provided by non-cash working capital was attributable to a $1.0 million decrease in
accounts receivable due to the timing of royalty receipts, a $0.6 million decrease in inventories due to the timing of
purchases and supply chain management, a $0.5 million decrease in contract assets, a $0.4 million decrease in other
current assets, primarily related to promotional supplies and prepaid expenses and a $3.1 million increase in accounts
payable and accrued liabilities, primarily due to the timing of payments and milestone accruals, offset by a $0.7 million
decrease in income taxes payable due to the settlement of current tax labilities by the Company’s Irish subsidiary.
Cash Used in Investing Activities
Net cash used by investing activities was $0.2 million for the year ended December 31, 2021 compared to net cash used
in investing activities of $0.6 million for the year ended December 31, 2020. In the current year, cash used by investing
activities included additions to intangible assets and PP&E, offset by cash received from the disposal of intangible assets.
Cash Used in Financing Activities
Net cash used in financing activities was $13.6 million for the year ended December 31, 2021 compared to net cash
used in financing activities of $22.7 million for the year ended December 31, 2020. During the year ended December
31, 2021, the Company repaid $13.4 million of debt to Deerfield and paid $0.2 million as cash payments for lease liabilities
[during the year ended December 31, 2020, the Company repaid $22.4 million of debt to Deerfield and paid cash
payments of $0.3 million for lease liabilities].
Capital Structure
The Company’s stated strategy is to expand its Canadian and international business through targeted in-licensing and
acquisition opportunities. To execute this strategy, the Company may need to access the additional financing capacity
under its senior secured term loan facility or seek alternate sources of financing.
In April 2021, the Company filed and obtained a receipt for a final base shelf prospectus (the Prospectus) with the
securities regulatory authorities in each of the provinces of Canada. The Company filed the Prospectus to maintain
financial flexibility and to have the ability to offer the securities on an accelerated basis pursuant to the filing of prospectus
supplements. The Prospectus is valid for a 25-month period, during which time the Company may offer and issue, from
time-to-time, common shares, preferred shares, debt securities, warrants and subscription receipts, or any combination
thereof, having an aggregate offering value of up to $40 million.
The Company expects to continue to be able to meet all obligations as they become due using some or all of the following
sources of liquidity: cash flow generated from operations, existing cash and cash equivalents on hand, and additional
borrowing capacity under its senior secured term loan facility. In addition, subject to market conditions, the Company
may raise funding through equity financing. The Company believes that its capital structure will provide it with financial
flexibility to pursue future growth strategies. However, the Company’s ability to fund expenses and debt service
requirements will depend on, among other things, future operating performance, which will be affected by general
economic, industry, financial and other factors, including the impact of the COVID-19 pandemic and other factors beyond
the Company’s control. See Risk Factors.
Selected Quarterly Information
The following is selected quarterly financial information for the Company over the last eight quarterly reporting periods.
Q4
2021
Q3
2021
Q2
2021
Q1
2021
Q4
2020
Q3
2020
Q2
2020
Q1
2020(1)
$
$
$
$
$
$
$
$
Product sales
15,028
13,613
17,216
11,412
12,876
13,597
12,253
13,474
License revenue
2,671
3,326
2,548
3,010
4,373
2,997
3,277
10,872
Contract revenue
10
50
23
-
34
7
-
15
Sales and marketing expenses
2,847
2,405
2,654
2,930
2,352
1,643
2,703
2,230
General and administrative
expenses
3,499
2,880
3,707
2,946
3,461
2,684
2,808
3,940
Net income (loss)
(5,593)
(17,770)
9,147
(17,989)
2,399
(2,832)
(1,967)
(1,729)
Net income (loss) per common
share
- basic
(0.49)
(1.56)
0.80
(1.58)
0.21
(0.25)
(0.17)
(0.15)
- diluted
(0.49)
(1.56)
0.10
(1.58)
0.05
(0.25)
(0.17)
(0.15)
Non-IFRS Measures
Adjusted total revenue
17,825
17,130
19,900
14,549
17,331
16,669
18,046
18,913
Adjusted EBITDA
3,393
7,040
7,380
4,351
6,242
6,565
7,646
7,990
Adjusted EBITDA per common
share
- basic
0.30
0.62
0.65
0.38
0.55
0.58
0.67
0.70
Cash value of loans (US$)
88,374
90,874
93,818
96,318
99,180
101,982
104,777
107,277
(1) Includes restated figures for the three months ended March 31, 2020.
Adjusted total revenue, adjusted EBITDA, adjusted EBITDA per common share and cash value of loans are non-IFRS measures. These
measures are not recognized under IFRS and do not have standardized meanings prescribed by IFRS. See the Non-IFRS Measures section
for definitions, reconciliations and the basis of presentation of the Company’s non-IFRS measures,
Fourth Quarter Results
Three months ended
December 31, 2021
Three months ended
December 31, 2020
$
$
Product sales
15,028
12,876
License revenue
2,671
4,373
Contract revenue
10
34
Total revenue
17,709
17,283
Cost of goods sold
8,294
5,877
Gross profit
9,415
11,406
Sales and marketing
2,847
2,352
General and administrative expenses
3,499
3,461
Amortization of intangibles
1,773
2,095
Net interest expense
2,526
2,422
Change in fair value of derivative liabilities
1,138
587
Change in fair value of contingent and variable
consideration (gain)
(371)
208
Impairment
3,246
1,583
Foreign currency loss (gain)
(127)
(2,586)
Other losses (gains)
3
(680)
Income (loss) before income taxes
(5,119)
1,964
Income tax expense (recovery)
474
(435)
Net income (loss)
(5,593)
2,399
Unrealized gain (loss) on translation of foreign operations
70
(631)
Total comprehensive income (loss)
(5,523)
1,768
Quarterly Results
Total revenue for the three months ended December 31, 2021 was $17.7 million compared to $17.3 million for the three
months ended December 31, 2020. The increase in revenue for the current quarter was primarily attributable to a $1.6
million increase in the Commercial Business segment and a $0.5 million increase in the Production and Service Business
segment, offset by a $1.7 million decrease in the Licensing and Royalty Business segment.
The increase in the Commercial Business segment was primarily related to a $2.0 million increase in the Company’s
promoted products (Blexten, Cambia, Suvexx and NeoVisc) over the comparative quarter, offset by a $0.4 million
decrease in sales of the Company’s mature products. The increase in the Production and Service segment was primarily
related to an increase in the Company’s Pennsaid 2% sales, offset by a stronger Canadian dollar against the U.S. dollar
and euro, which reduced the contribution from certain U.S. and euro denominated product revenue streams.
The decrease of $1.7 million in the Licensing and Royalty Business segment over the comparative quarter primarily
related to a reduction in the U.S. Vimovo royalties of $1.0 million and a reduction in Vimovo ex-U.S. royalties of $0.7
million. Additionally, a stronger Canadian dollar against the euro reduced the contribution from certain euro denominated
royalty streams.
COGS for the three months ended December 31, 2021 was $8.3 million compared to $5.9 million for the three months
ended December 31, 2020. The increase in COGS in the current quarter was attributable to a change in the mix of
product sales between the Production and Service Business segment and the Commercial Business segment, as well
as an increase in material and freight costs related to the Production and Service Business segment.
Total expenses for the three months ended December 31, 2021 increased to $14.5 million compared to $9.4 million for
the three months ended December 31, 2020.
The Company incurred $2.8 million in expenses for sales and marketing activities during the three months ended
December 31, 2021 compared to $2.4 million for the comparative three-month period. Sales and marketing expenses
are related to the Company’s dedicated commercial efforts to promote Blexten, Cambia, Suvexx and NeoVisc (See
Operating Segments above). The increase in sales and marketing expenses for the current quarter was related to
increased investment to maintain competitiveness within the market, preparation for the launch of Blexten pediatric, as
well as fluctuations in the timing of expenses.
G&A expenses were consistent at $3.5 million for the three months ended December 31, 2021 and December 31, 2020.
Net interest expense was $2.5 million for the three months ended December 31, 2021 compared to net interest expense
of $2.4 million for the three months ended December 31, 2020. The Company’s Amortization Loan and Convertible
Loan, all components of the Deerfield Financing, are carried at amortized cost with effective interest rates of 10.20% and
10.13%, respectively. For the three months ended December 31, 2021, the Company recognized $2.5 million of interest
expense on financial instruments measured at amortized cost, which was partially offset by $13 of interest income related
to contract asset interest accretion and cash and cash equivalents.
The increase in expenses from the comparative quarter were also attributable to the change in fair value of derivative
liabilities, which was primarily a result of an increase in the volatility in the current quarter, impairment charges on certain
intangible assets and goodwill and the decrease in foreign currency gains, which will vary based on fluctuations in foreign
currency rates, offset by the change in fair value of contingent and variable consideration, which was primarily a result
of a change in estimates, as well as a decrease in amortization of intangibles.
Net loss was $5.6 million for the three months ended December 31, 2021 compared to net income of $2.4 million for the
three months ended December 31, 2020. The decrease from the comparative period was related to a decrease in gross
profit and an increase in expenses.
Liquidity
Three months ended
December 31, 2021
Three months ended
December 31, 2020
$
$
Net income (loss)
(5,593)
2,399
Items not involving current cash flows
7,624
3,549
Cash provided by operations
2,031
5,948
Net change in non-cash working capital
3,729
1,507
Payment of contingent consideration
(244)
(33)
Cash provided by operating activities
5,516
7,422
Cash used in investing activities
(167)
(599)
Cash used in financing activities
(3,179)
(3,680)
Effect of exchange rates on cash
294
(444)
Net change in cash
2,464
2,699
Cash and cash equivalents, beginning of period
28,410
21,108
Cash and cash equivalents, end of period
30,874
23,807
Cash was $30.9 million as at December 31, 2021, an increase of $7.1 million compared to $23.8 million as at December
31, 2020. In the current quarter, cash increased due to cash provided by operating activities, partially offset by cash
used in investing activities and cash used in financing activities.
Cash provided by operating activities was $5.5 million for the three months ended December 31, 2021 compared to $7.4
million for the three months ended December 31, 2020. In the current quarter, the $5.5 million of cash provided by
operating activities included a $3.7 million recovery in non-cash working capital.
Net cash used in investing activities was $0.2 million for the three months ended December 31, 2021 compared to net
cash used in investing activities of $0.6 million for the three months ended December 31, 2020. In the current three-
month period, the Company’s net cash used in investing activities included investments in PP&E and intangible assets.
Net cash used in financing activities was $3.2 million for the three months ended December 31, 2021 compared to $3.7
million for the three months ended December 31, 2020. In the current quarter, the Company made a $3.1 million
(US$2.5) principal repayment towards its Amortization Loan.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Financial Instruments at Amortized Cost
For the year ended December 31, 2021, the Company recognized $28 in interest income from financial assets held at
amortized cost [$78 for the year ended December 31, 2020].
For the year ended December 31, 2021, the Company recognized $10.3 million in interest expense from financial
liabilities held at amortized cost [$11.9 million for the year ended December 31, 2020].
Credit Risk
The Company, in the normal course of business, is exposed to credit risk from its global customers, most of whom are
in the pharmaceutical industry. The accounts receivable and contract assets are subject to normal industry risks in each
geographic region in which the Company operates. The Company attempts to manage these risks prior to the signing of
distribution or licensing agreements by dealing with creditworthy customers; however, due to the limited number of
potential customers in each market, this is not always possible. In addition, a customer’s creditworthiness may change
subsequent to becoming a licensee or distributor and the terms and conditions in the agreement may prevent the
Company from seeking new licensees or distributors in these territories during the term of the agreement.
As at December 31, 2021, the Company’s largest customer represented 30% [December 31, 2020 - 30%] of accounts
receivable. Pursuant to their collective terms, accounts receivable, net of allowance, were aged as follows:
December 31, 2021
December 31, 2020
$
$
Current
6,162
7,018
0 - 30 days past due
23
463
31 - 60 days past due
249
2
Over 60 days past due(i)
91
5
6,525
7,488
(1)
See “loss allowance provision” below.
The loss allowance provision for all segments as at December 31, 2021 was determined using reference to expected
loss rates and management judgment as follows:
Current
Less than 61
days past due
61 to 120
days past due
121 to 180
days past due
More than 181
days past due
Total
Expected loss rate
%
0%(i)
0%(i)
25%
50%
100%
-
Gross carrying amount
$
6,247
276
105
-
-
6,628
Loss allowance provision
$
(85)
(4)
(14)
-
-
(103)
(1)
Loss allowance provision balance consists of credit memos and purchase deductions, realized in the normal course of business, on invoices that
take time to be processed. As a result, loss provision was 0%.
During the year ended December 31, 2021, the Company recorded $44 of bad debt reversal in total comprehensive loss
[$nil of bad debt reversal for the year ended December 31, 2020]. For the year ended December 31, 2021, the
impairment of accounts receivable was assessed based on the incurred loss model in compliance with IFRS 9 - Financial
Instruments (IFRS 9). Individual receivables that were known to be uncollectible were written off by reducing the carrying
amount directly.
For contract assets within the scope of IFRS 15, the Company recognizes an asset to the extent contractual minimums
established in certain customer licensing agreements are deemed fixed consideration. After analysis of historical default
rates and forward-looking estimates, the Company’s contract assets were considered to have low credit risk, and as a
result, the Company has not recognized a loss allowance as at December 31, 2021 [December 31, 2020 - $nil].
The Company’s cash and cash equivalents subject the Company to a concentration of credit risk. As at December 31,
2021, the Company had $30.9 million deposited with three financial institutions in various bank accounts. These financial
institutions are major banks located in Canada, the U.S. and Ireland, which the Company believes lessens the degree
of credit risk. The Company has not recognized a loss allowance as at December 31, 2021 [December 31, 2020 - $nil].
The Company has not noted a significant change in the credit risk of the financial instruments related to the COVID-19
pandemic.
Financial Instruments
IFRS 7 - Financial Instruments, Disclosures requires disclosure of a three-level hierarchy that reflects the significance of
the inputs used in making fair value measurements. All assets and liabilities for which fair value is measured or disclosed
in these Consolidated Financial Statements are categorized within the fair value hierarchy, described as follows, based
on the lowest level input that is significant to the fair value measurement as a whole:
•
Level 1 - Unadjusted quoted prices at the measurement date for identical assets or liabilities in active markets.
•
Level 2 - Observable inputs other than quoted prices in Level 1, such as quoted prices for similar assets and
liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not
active or other inputs that are observable or can be corroborated by observable market data.
•
Level 3 - Significant unobservable inputs that are supported by little or no market activity.
The Company did not have any transfer of assets and liabilities between Level 1, Level 2 and Level 3 of the fair value
hierarchy during the year ended December 31, 2021.
As at December 31, 2021, the Company’s financial assets and liabilities consisted of cash and cash equivalents,
accounts receivable, accounts payable and accrued liabilities, contingent and variable consideration, long-term debt and
derivative liabilities. The Company has determined the estimated fair values of its financial instruments based on
appropriate valuation methodologies. However, considerable judgment is required to develop these estimates.
Accordingly, these estimated values are not necessarily indicative of the amounts the Company could realize in a current
market exchange. The estimated fair value amounts can be materially affected by the use of different assumptions or
methodologies.
The Company’s cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities (excluding
SARs and DSUs) are measured at amortized cost and their fair values approximate carrying values. Cash and cash
equivalents are Level 1, while the other short-term financial instruments are Level 3.
Level 2 liabilities include obligations of the Company for the DSU Plan. The fair values of the DSUs issued and
outstanding are revalued at each reporting period using the period-end share price. The Company accrued $88 for DSUs
as at December 31, 2021 [December 31, 2020 - $nil].
Level 2 liabilities include obligations of the Company for the SARs Plan. The fair values of each tranche of SARs issued
and outstanding are revalued at each reporting period using the Black-Scholes option pricing model. The Company
accrued $50 for SARs as at December 31, 2021 [December 31, 2020 - $nil].
The fair values of the Loans are Level 3 measurements determined using a discounted cash flow model that considers
the present value of the contractual cash flows using a risk-adjusted discount rate. The Company recognized $95.7
million for the Amortization Loan and host liability of the Convertible Loan as at December 31, 2021 [December 31, 2020
- $103.7 million].
The conversion feature that accompanies the Company’s Convertible Loan is considered a Level 3 liability. The value
is determined as the difference between the fair value of the hybrid Convertible Loan contract, using an income approach
with a binomial-lattice model and the fair value of the host liability contract, using a discounted cash flow model. The
Company recognized $12.1 million for the conversion feature as at December 31, 2021 [December 31, 2020 - $5.7
million].
The fair values of the prepayment option that allows the Company to make prepayments against the Amortization Loan
at any time is considered a Level 3 financial instrument. The fair value of the prepayment option bifurcated from the
Amortization Loan was a derivative asset with a nominal value as at December 31, 2021 and is presented net of the non-
current portion of the long-term debt. The fair value of this option was determined using a binomial-lattice model.
The fair value of the Company’s Warrants is revalued at each reporting period using the Black-Scholes option pricing
model. As at December 31, 2021, the Company recognized a $17.0 million derivative liability related to outstanding
Warrants [December 31, 2020 - $8.0 million]. These Warrants are Level 3.
Level 3 liabilities include the fair value of contingent and variable consideration related to the acquisition of the ex-U.S.
rights to Resultz and Yosprala.
Risk Factors
The following is a discussion of liquidity risk, interest rate risk, currency risk and market risk and related mitigation
strategies that have been identified. Credit risk has been discussed in the Company’s assessment of impairment under
IFRS 9. This is not an exhaustive list of all risks nor will the mitigation strategies eliminate all risks listed.
Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulties in meeting its financial obligations as they become
due.
As at December 31, 2021, the Company’s financial liabilities had undiscounted contractual maturities (including interest
payments where applicable) as summarized below:
Current
Non-current
Total
$
Within 12
Months
$
1 to 2
Years
$
2 to 5
Years
$
> 5
Years
$
Accounts payable and accrued liabilities
11,490
11,490
-
-
-
Other obligations
3,348
1,226
605
491
1,026
Senior secured Amortization Loan
48,314
14,412
33,902
-
-
Senior secured Convertible Loan
73,652
2,362
71,290
-
-
136,804
29,490
105,797
491
1,026
Due to the impact of the COVID-19 pandemic on the economic environment, the Company has reviewed the working
capital requirements as a result of managing the supply chain and changes in demand. The Company anticipates that
its current cash of $30.9 million as at December 31, 2021, together with the cash flows generated from operations, will
be sufficient to execute its current business plan for the next 12 months and to meet its current debt obligations.
Interest Rate Risk
The Company’s policy is to minimize interest rate cash flow risk exposures on its long-term financing. The Company’s
loans and borrowings and lease obligations are at fixed interest rates.
The fair value of the Company’s prepayment option on the Amortization Loan and the Company’s derivative liabilities
are impacted by market rate changes.
Currency Risk
The Company operates globally, which gives rise to a risk that income and cash flows may be adversely affected by
fluctuations in foreign currency exchange rates. The Company is primarily exposed to the U.S. dollar and euro, but also
transacts in other foreign currencies. The Company currently does not use financial instruments to hedge these risks.
The significant balances in foreign currencies were as follows:
U.S. Dollar
Euro
Dec. 31,
2021
$
Dec. 31,
2020
$
Dec. 31,
2021
€
Dec. 31,
2020
€
Cash and cash equivalents
4,921
7,214
1,566
1,444
Accounts receivable
2,501
3,145
346
133
Contract assets
1,787
1,964
-
-
Loans and borrowings
(75,514)
(81,468)
-
-
Derivative liabilities
(9,569)
(4,452)
-
-
Accounts payable and accrued liabilities
(1,770)
(803)
(1,044)
(281)
Other obligations
(896)
(1,882)
(64)
(552)
(78,540)
(76,282)
804
744
Based on the aforementioned net exposure as at December 31, 2021, and assuming that all other variables remain
constant, a 10% appreciation or depreciation of the Canadian dollar against the U.S. dollar would have an effect of $10.0
million on total comprehensive loss and a 10% appreciation or depreciation of the Canadian dollar against the euro would
have an effect of $116 on total comprehensive loss.
In terms of the U.S. dollar, the Company has five significant exposures: its U.S. dollar-denominated cash held in its
Canadian operations, its U.S. dollar-denominated loans and borrowings and derivative liabilities held in its Canadian and
European operations, its net investment and net cash flows in its European operations, the cost of purchasing raw
materials either priced in U.S. dollars or sourced from U.S. suppliers and payments made to the Company under its U.S.
dollar-denominated licensing arrangements.
The Company does not currently hedge its U.S. dollar cash flows. The Company funds its U.S. dollar-denominated
interest expense and loan obligations using the Company’s U.S. dollar-denominated cash and cash equivalents and
payments received under the terms of the licensing and supply agreements. Periodically, the Company reviews its
projected future U.S. dollar cash flows and, if the U.S. dollars held are insufficient, the Company may convert a portion
of its other currencies into U.S. dollars. If the amount of U.S. dollars held is excessive, they may be converted into
Canadian dollars or other currencies, as needed for the Company’s other operations.
Market Risk
The Company’s derivative liabilities, the Warrants and the conversion feature that accompanies the Company’s
Convertible Loan, are impacted by a variety of valuation inputs, including changes in the Company’s share price. As at
December 31, 2021, an additional $1.00 increase in the Company’s share price would increase the value of the Warrants
by $17.0 million and an increase to the conversion feature of $12.3 million, with a corresponding loss of $29.3 million
recognized in the change in fair value of derivative liabilities.
The Company has not noted a significant change in the market risk due to changes to the Company’s share price as a
result of the impact of the COVID-19 pandemic on the economic environment.
Contractual Obligations
The following table lists the Company’s contractual obligations for the twelve months ending December 31 as follows:
(1)
Included in the Deerfield Financing is the Convertible Loan in the principal amount of US$52.5 million, convertible into 19,444,444 common shares
of the Company at a conversion price of US$2.70.
(2)
Other obligations include accounts payable and accrued liabilities and contingent and variable consideration.
The Deerfield Financing
On December 31, 2018, the Company and Miravo Ireland, as borrowers, and Aralez Pharmaceuticals Canada Inc., as
guarantor, entered into the Deerfield Facility Agreement with Deerfield, as agent and certain funds managed by Deerfield,
as lenders, to fund the purchase price of the Aralez Transaction (the Deerfield Financing).
The Deerfield Financing consisted of (i) a 6-year, amortizing loan made available to Miravo Ireland in the principal amount
of US$60 million with a fixed interest rate of 3.5% per annum (the Amortization Loan), (ii) an 18-month Bridge Loan made
available to the Company in the principal amount of US$6.0 million with an interest rate of 12.5% per annum (the Bridge
Loan), (iii) a 6-year, Convertible Loan made available to the Company in the principal amount of US$52.5 million with a
fixed interest rate of 3.5% per annum, initially convertible into 19,444,444 common shares of the Company at a
conversion price of US$2.70 (the Convertible Notes), and (iv) 25,555,556 million common share purchase Warrants,
each such Warrant initially exercisable for one common share of the Company for a period of six years from the date of
issuance at an exercise price of $3.53 per share.
Each quarter, the Company shall pay to the lenders the greater of US$2.5 million or 50% of the Company’s excess cash
flows (a defined term in the Deerfield Facility Agreement), which is applied in the following order: (a) any unpaid fees
and transaction costs; (b) proportionately to any accrued and unpaid interest related to these Loans; (c) any unpaid
principal of the Bridge Loan, including the applicable prepayment fee; (d) any unpaid principal of the Amortization Loan,
2022
2023
2024
2025
2026
2027 and
thereafter
Total
$
$
$
$
$
$
$
Variable lease payments
47
2
-
-
-
-
49
Lease liability (principal and interest)
226
238
238
239
252
1,025
2,218
Deerfield Financing(1)
16,774
15,982
89,209
-
-
-
121,965
Purchase commitments
5,510
4,286
5,053
117
117
117
15,200
Other obligations(2)
13,271
1,560
200
242
207
-
15,480
35,828
22,068
94,700
598
576
1,142
154,912
including the applicable prepayment fee; and (e) any other obligations owing to the lenders, administrative agent or other
secured parties (the Waterfall Provisions). Quarterly principal payments are to be made on the Amortization Loan until
December 31, 2024.
Litigation
From time-to-time, during the ordinary course of business, the Company may be threatened with, or may be named as,
a defendant in various legal proceedings, including lawsuits based upon product liability, personal injury, breach of
contract and lost profits or other consequential damage claims.
On October 30, 2019, the Company received an application for an industry-wide class action in the Superior Court of
Québec. In the application, the Company was named as a defendant, along with 33 other defendants, which includes a
group of companies that manufacture, market, and/or distribute opioids in Québec. The claim is for $30,000, plus interest
for compensatory damages for each class member, $25.0 million from each defendant for punitive damages and
pecuniary damages for each class member. The Company believes that the claim is without merit and intends to
vigorously defend the matter.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
Related Party Transactions
For the year ended December 31, 2021, there were no related party transactions.
Outstanding Share Data
The number of common shares outstanding as at December 31, 2021 was 11.4 million. The Company had no preferred
shares issued and outstanding as at December 31, 2021.
As at December 31, 2021, there were 1.5 million options outstanding of which 1.2 million have vested. The Company
also has 25.6 million common share purchase Warrants outstanding, each exercisable for one common share of the
Company at an exercise price of $3.53 per share. As at December 31, 2021, 12.3 million of the 25.6 million Warrants
outstanding were classified as Flexible Exercise Shares. The Convertible Loan is convertible into 19.4 million common
shares of the Company at a conversion price of US$2.70 per share.
Critical Accounting Policies and Estimates
The preparation of the Consolidated Financial Statements in conformity with IFRS requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenue and expenses
during the reporting periods. Management has identified accounting estimates that it believes are most critical to
understanding the Consolidated Financial Statements and those that require the application of management’s most
subjective judgments, often requiring the need to make estimates about the effect of matters that are inherently uncertain
and may change in subsequent periods. The Company’s actual results could differ from these estimates and such
differences could be material. All significant accounting policies are disclosed in Note 2, Basis of Preparation and Note
3, Summary of Significant Accounting Policies of the Company’s Consolidated Financial Statements for the year ended
December 31, 2021 found on SEDAR at www.sedar.com (under Nuvo Pharmaceuticals Inc.).
Recent Accounting Pronouncements
Accounting Standards Issued But Not Yet Applied
Certain new standards, interpretations, amendments and improvements to existing standards were issued by the IASB
or IFRS Interpretations Committee that are mandatory for fiscal periods beginning on or after January 1, 2022.
Amendments to IAS 1, Classification of Liabilities as Current or Non-current
In January 2020, the IASB issued amendments to paragraphs 69 to 76 of IAS 1, Classification of Liabilities as
Current or Non-current (IAS 1) to specify the requirements for classifying liabilities as current or non-current.
The amendments clarify:
•
What is meant by a right to defer settlement
•
That a right to defer must exist at the end of the reporting period
•
That classification is unaffected by the likelihood that an entity will exercise its deferral right
•
That only if an embedded derivative in a convertible liability is itself an equity instrument would the terms
of a liability not impact its classification
The amendments are effective for annual reporting periods beginning on or after January 1, 2023 and must be
applied retrospectively. The amendments to IAS 1 are not expected to have a significant impact on the
Company’s Consolidated Financial Statements.
Reference to the Conceptual Framework – Amendments to IFRS 3
In May 2020, the IASB issued Amendments to IFRS 3 - Business Combinations (IFRS 3). The amendments are
intended to replace a reference to the Framework for the Preparation and Presentation of Financial Statements,
issued in 1989, with a reference to the Conceptual Framework for Financial Reporting issued in March 2018
without significantly changing its requirements. The IASB also added an exception to the recognition principle
of IFRS 3 to avoid the issue of potential “day 2” gains or losses arising for liabilities and contingent liabilities that
would be within the scope of IAS 37 or IFRIC 21 Levies, if incurred separately. At the same time, the IASB
decided to clarify existing guidance in IFRS 3 for contingent assets that would not be affected by replacing the
reference to the Framework for the Preparation and Presentation of Financial Statements. The amendments
are effective for annual reporting periods beginning on or after January 1, 2022 and apply prospectively.
Property, Plant and Equipment: Proceeds before Intended Use - Amendments to IAS 16
In May 2020, the IASB issued Property, Plant and Equipment - Proceeds before Intended Use, which prohibits
entities deducting from the cost of an item of PP&E, any proceeds from selling items produced while bringing
that asset to the location and condition necessary for it to be capable of operating in the manner intended by
management. Instead, an entity recognizes the proceeds from selling such items, and the costs of producing
those items, in profit or loss. The amendment is effective for annual reporting periods beginning on or after
January 1, 2022 and must be applied retrospectively to items of PP&E made available for use on or after the
beginning of the earliest period presented when the entity first applies the amendment. The amendments are
not expected to have a material impact on the Company.
Onerous Contracts - Costs of Fulfilling a Contract - Amendments to IAS 37
In May 2020, the IASB issued amendments to IAS 37 to specify which costs an entity needs to include when
assessing whether a contract is onerous or loss-making. The amendments apply a “directly related cost
approach”. The costs that relate directly to a contract to provide goods or services include both incremental
costs and an allocation of costs directly related to contract activities. G&A costs do not relate directly to a contract
and are excluded unless they are explicitly chargeable to the counterparty under the contract. The amendments
are effective for annual reporting periods beginning on or after January 1, 2022. The Company will apply these
amendments to contracts for which it has not yet fulfilled all its obligations at the beginning of the annual reporting
period in which it first applies the amendments. The amendments are not expected to have a material impact
on the Company.
Amendments to IFRS 9 - Financial Instruments
As part of its 2018-2020 annual improvements to IFRS standards process, the IASB issued amendments to
IFRS 9. The amendments clarify the fees that an entity includes when assessing whether the terms of a new or
modified financial liability are substantially different from the terms of the original financial liability. These fees
include only those paid or received between the borrower and the lender, including fees paid or received by
either the borrower or lender on the other’s behalf. An entity applies the amendments to financial liabilities that
are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies
the amendment. The amendments are effective for annual reporting periods beginning on or after January 1,
2022 with earlier adoption permitted. The Company will apply the amendments to financial liabilities that are
modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies
the amendment. The amendments are not expected to have a material impact on the Company.
Amendments to IAS 8 - Definition of Accounting Estimates
In February 2021, the IASB issued amendments to IAS 8 - Definition of Accounting Estimates, in which it
introduces a definition of ‘accounting estimates. The amendments clarify the distinction between changes in
accounting estimates and changes in accounting policies and the correction of errors. Also, the amendments
clarify how entities use measurement techniques and inputs to develop accounting estimates.
The amendments are effective for annual reporting periods beginning on or after January 1, 2023 and apply to
changes in accounting policies and changes in accounting estimates that occur on or after the start of that period.
Earlier application is permitted as long as this fact is disclosed. The amendments are not expected to have a
material impact on the Company.
Amendments to IAS 1 - Disclosure of Accounting Policies
In February 2021, the IASB issued amendments to IAS 1 and IFRS Practice Statement 2, Making Materiality
Judgments (Practice Statement 2), in which it provides guidance and examples to help entities apply materiality
judgments to accounting policy disclosures. The amendments aim to help entities provide accounting policy
disclosures that are more useful by replacing the requirement for entities to disclose their “significant” accounting
policies with a requirement to disclose their “material” accounting policies and adding guidance on how entities
apply the concept of materiality in making decisions about accounting policy disclosures.
The amendments to IAS 1 are applicable for annual periods beginning on or after January 1, 2023 with earlier
application permitted. Since the amendments to Practice Statement 2 provides non-mandatory guidance on the
application of the definition of material to accounting policy information, an effective date for these amendments
is not necessary. The amendments are not expected to have a material impact on the Company.
Management’s Responsibility for Financial Reporting
The Company’s management maintains appropriate information systems, procedures and controls to ensure that
information used internally and disclosed externally is complete, accurate, reliable and timely. Disclosure controls and
procedures (DCP) are designed to provide reasonable assurance that (i) material information relating to the Company is
made known to management by others, particularly during the period in which the filings are being prepared, and (ii)
information required to be disclosed by the Company in its filings under Canadian securities legislation is recorded,
processed, summarized and reported in a timely manner. The system of DCP includes, among other things, the
Company’s Corporate Disclosure and Code of Conduct and Business Ethics policies, the review and approval
procedures of the Corporate Disclosure Committee and continuous review and monitoring procedures by senior
management.
Management is also responsible for the design of internal controls over financial reporting (ICFR) within the Company,
in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with IFRS.
As of the end of the period covered by this MD&A, the Chief Executive Officer and the Chief Financial Officer of the
Company have reviewed and evaluated the Company’s DCP (as that term is defined in National Instrument 52-109 –
Certification of Disclosures in Issuers’ Annual and Interim Filings (NI 52-109)) and, based upon that review and
evaluation, concluded that those DCP were effective and met the requirements thereof. Nevertheless, management
recognizes that any controls and procedures, no matter how well designed and operated, can only provide reasonable
assurance and not absolute assurance of achieving the desired control objectives.
NI 52-109 requires the Chief Executive Officer and Chief Financial Officer to certify that they are responsible for
establishing and maintaining ICFR for the Company and that those internal controls have been designed and are effective
in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with IFRS. The Chief Executive Officer and Chief Financial Officer are
also responsible for disclosing any changes to the internal controls for the Company that have materially affected, or are
reasonably likely to materially affect, the Company’s ICFR.
Management, including the Chief Executive Officer and Chief Financial Officer, does not expect that the disclosure
controls or internal controls over financial reporting of the Company will prevent or detect all errors and all fraud or will
be effective under all potential future conditions. A control system is subject to inherent limitations and, no matter how
well designed and operated, can provide only reasonable, not absolute, assurance that the control systems objectives
will be met.
Further, the design of a control system must reflect that there are resource constraints, and the benefits of controls must
be considered relative to their costs. Inherent limitations include the realities that judgments in decision making can be
faulty, and that breakdowns can occur because of simple errors or mistakes. Controls can also be circumvented by
individual acts of some persons, by collusion of two or more people or by management override of the controls. Due to
the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be
detected. The design of any control system is also based in part upon certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential
conditions. Projections of any evaluations of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
The Chief Executive Officer and Chief Financial Officer have evaluated the design and operating effectiveness of the
internal controls over financial reporting of the Company and concluded that, as of December 31, 2021, and subject to
the inherent limitations described above, internal controls over financial reporting were appropriately designed and were
operating effectively in accordance with the framework and criteria used by the Company.
There have been no changes in the ICFR of the Company during the period of this MD&A that have materially affected,
or are reasonably likely to materially affect, the Company’s ICFR.
Risk Factors
Prospects for companies in the biotechnology and pharmaceutical industry generally may be regarded as uncertain given
the nature of the industry and, accordingly, investments in biotechnology and pharmaceutical companies should be
regarded as speculative. An investor should carefully consider the information contained in this MD&A, in addition to the
risk factors discussed in the Company’s AIF under the heading “Risk Factors”, which section is hereby incorporated herein
by reference. The disclosures in this MD&A are subject to the risk factors outlined in the AIF. Additional risks and
uncertainties not presently known to the Company or that the Company believes to be immaterial may also adversely
affect the Company’s business. If any one or more of the risks occur as outlined in the AIF, the Company’s business,
financial condition and results of operations could be seriously harmed. Further, if the Company fails to meet the
expectations of the public market in any given period, the market price of the Company’s common shares could decline.
Before making an investment decision, each prospective investor should carefully consider the risk factors included in the
AIF and other public documents.
Disease Outbreaks
The occurrence of an illness that leads, or is anticipated to lead, to a local, regional, or national outbreak or epidemic, or
to an international outbreak or pandemic, such as Middle East Respiratory Syndrome (MERS-CoV), Severe Acute
Respiratory Syndrome (SARS), Ebola (EVD), H1N1 influenza virus, avian flu, or most notably the ongoing COVID-19
pandemic, or any similar illness or mutations thereof, could affect the Company’s business as a result of a general or
acute short or medium-term decline in economic activity affecting the Company’s supply chain, the markets for its
products, production capacity and staffing levels, and could lead to increased government regulation, quarantine
measures, as well as restrictions on travel and the movement of persons or goods. Each of these risk factors has the
potential to have a material adverse impact on the Company’s business, financial condition and results of operations.
As a result of COVID-19, border closures and economic and supply chain disruptions could materially affect the
Company’s financial results and operations. The COVID-19 pandemic could also cause significant impacts to product
demand in connection with an ensuing economic downturn and contribute to supply shortages, trade disruption,
temporary staff shortages and temporary closures of facilities. The extent to which COVID-19 and its effect on the
economy will continue to impact the Company’s financial results and operations may lead to adverse changes in the
Company’s cash flows, working capital levels, debt balances, operating results and financial position. The situation is
dynamic and the ultimate duration and magnitude of the impact on the economy and the Company’s business remains
uncertain.
Impairment Risk
Impairment exists when the carrying amount of an asset exceeds its recoverable amount, which is the higher of its fair
value less costs to sell and its value in use. Certain intangible assets and goodwill of the Company are reviewed for
possible impairment whenever events or changes in circumstances indicate that the carrying amount of such assets or
goodwill may not be recoverable. As noted above, in the year-ended December 31, 2021, the Company revised its
commercial expectations for certain prescription products in its Commercial Business segment and Licensing and
Royalty Business segment as a result of the ongoing impacts of COVID-19, resulting in impairment losses.
The uncertainties regarding the continued effect of the COVID-19 pandemic require the use of significant judgments and
estimates by management. There is a risk of further material impairment of our intangible assets and goodwill if our
commercial expectations continue to be unmet and/or a heightened risk as a result of COVID-19, and any such
impairments may have a material adverse impact on the Company’s business, financial condition and results of
operations.
Forward-looking Statements
This MD&A contains “forward-looking information” as defined under Canadian securities laws (collectively, forward-
looking statements). This document should be read in conjunction with material contained in the Company’s
Consolidated Financial Statements for the year ended December 31, 2021, along with the Company’s other publicly filed
documents. Forward-looking statements appear in this MD&A and include, but are not limited to, statements which
reflect management’s expectations regarding objectives, plans, goals, strategies, future growth, results of operations,
performance, business prospects, opportunities and macroeconomic and industry trends.
The words “plans”, “expects”, “does not expect”, “goals”, “seek”, “strategy”, “future”, “estimates”, “intends”, “anticipates”,
“does not anticipate”, “projected”, “believes” or variations of such words and phrases or statements to the effect that
certain actions, events or results “may”, “will”, “could”, “would”, “should”, “might”, “likely”, “occur”, “be achieved” or
“continue” and similar expressions identify forward-looking statements. In addition, any statements that refer to
expectations, intentions, projections or other characterizations of future events or circumstances contain forward-looking
statements. Forward-looking statements are not historical facts but instead represent management’s expectations,
estimates and projections regarding future events or circumstances. Some of the specific forward-looking statements in
this MD&A include, but are not limited to, statements with respect to the following:
•
the ability of the Company to execute its growth strategies;
•
the ability of the Company to meet its debt commitments;
•
the Company’s competitive position within its industry;
•
expectations regarding laws, rules and regulations applicable to the Company and the drug development
process in general;
•
expectations regarding ongoing litigation with respect to the Company’s and competitors’ products;
•
expectations regarding industry and demographic trends applicable to the Company;
•
expectations regarding the receipt of regulatory decisions applicable to the Company’s or competitors’ products;
•
expectations regarding the receipt of milestone and royalty payments in respect of the Company’s products; and
•
the expected impact of COVID-19 on the operations, business and financial results of the Company.
Such forward-looking statements are qualified in their entirety by the inherent risks, uncertainties and changes in
circumstances surrounding future expectations which are difficult to predict and many of which are beyond the control of
the Company.
Forward-looking statements are necessarily based on a number of estimates and assumptions that, while considered
reasonable by management of the Company as of the date of this MD&A, are inherently subject to significant business,
economic and competitive uncertainties and contingencies. The Company’s estimates, beliefs and assumptions, which
may prove to be incorrect, include the various assumptions set forth herein, including, but not limited to, the Company’s
future growth potential, results of operations, future prospects and opportunities, the competitive landscape, industry
trends, legislative or regulatory matters, future levels of indebtedness, availability of capital and current economic
conditions.
When relying on forward-looking statements to make decisions, the Company cautions readers not to place undue
reliance on these statements, as forward-looking statements involve significant risks and uncertainties. Forward-looking
statements should not be read as guarantees of future performance or results and will not necessarily be accurate
indications of whether or not the times at or by which such performance or results will be achieved. A number of factors
could cause actual results to differ, possibly materially from the results discussed in the forward-looking statements,
including, but not limited to:
•
the impact of changing conditions in the regulatory environment and drug development processes;
•
increasing competition in the industries in which the Company operates;
•
the inability of the Company to meet its debt commitments;
•
the impact of unexpected product liability matters;
•
the impact of ongoing litigation involving the Company and/or its products;
•
the impact of changes in relationships with customers and suppliers;
•
the impact of disruptions and volatility in the Company’s supply chain;
•
the degree of intellectual property protection currently afforded to the Company’s products;
•
the conditions applicable to the Company’s milestone and royalty payments being met or unmet;
•
the degree of market acceptance of the Company’s products;
•
changes in prevailing economic conditions;
•
developments and changes in applicable laws and regulations;
•
the impact of COVID-19 on the operations, business and financial results of the Company;
•
business interruptions resulting from geo-political actions, natural disasters, or failures or significant downtime
of the Company’s information technology systems resulting from cyber-attacks on such systems; and
•
such other factors discussed under “Risk Factors” in the Company’s most recent AIF.
If any risks or uncertainties with respect to the above materialize, or if the opinions, estimates or assumptions underlying
the forward-looking statements prove incorrect, actual results or future events might vary materially from those
anticipated in the forward-looking statements. The opinions, estimates or assumptions referred to above and described
in greater detail under “Risk Factors” in the AIF should be considered carefully by readers. Although management has
attempted to identify important risk factors that could cause actual results to differ materially from those contained in
forward-looking statements, there may be other risk factors not presently known that management believes are not
material that could also cause actual results or future events to differ materially from those expressed in such forward-
looking statements.
All forward-looking statements are based only on information currently available to the Company and are made as of the
date of this MD&A. Except as expressly required by applicable Canadian securities law, the Company assumes no
obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future
events or otherwise. All forward-looking statements in this MD&A are qualified by these cautionary statements.
Additional Information
Additional information relating to the Company, including the Company’s most recently filed AIF and Management
Information Circular, can be found on SEDAR at www.sedar.com (under Nuvo Pharmaceuticals Inc.).
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
Management Report
The accompanying Consolidated Financial Statements have been prepared by management and approved by the
Board of Directors of the Company. Management is responsible for the information and representations contained
in these Consolidated Financial Statements and the accompanying Management’s Discussion and Analysis. These
Consolidated Financial Statements have been prepared in accordance with International Financial Reporting
Standards (IFRS). The significant accounting policies followed by the Company are set out in Note 3, Summary of
Significant Accounting Policies to these Consolidated Financial Statements.
To assist management in discharging these responsibilities, the Company maintains a system of procedures and
internal controls, which are designed to provide reasonable assurance that its assets are safeguarded, that
transactions are executed in accordance with management’s authorization, and that the financial records form a
reliable base for the preparation of accurate and timely financial information.
The Company’s external auditors are appointed by the shareholders. They independently perform the necessary
tests of accounting records and procedures to enable them to report their opinion as to the fairness of the
Consolidated Financial Statements and their conformity with IFRS.
The Board of Directors ensures that management fulfils its responsibilities for financial reporting and internal control.
The Board of Directors exercises this responsibility through an Audit Committee composed of four Directors, all of
whom are not involved in the day-to-day operations of the Company. The Audit Committee meets quarterly with
management, and with external auditors to review audit recommendations and any matters that the auditors believe
should be brought to the attention of the Board of Directors. The Audit Committee reviews the Consolidated
Financial Statements and Management’s Discussion and Analysis and recommends their approval to the Board of
Directors.
/s/ Jesse F. Ledger
/s/ Mary-Jane E. Burkett
Jesse F. Ledger
Mary-Jane E. Burkett
President & Chief Executive Officer
Vice President & Chief Financial Officer
March 25, 2022
March 25, 2022
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
Independent auditor’s report
To the Shareholders of
Nuvo Pharmaceuticals Inc. [d/b/a Miravo Healthcare]
Opinion
We have audited the consolidated financial statements of Nuvo Pharmaceuticals Inc. [d/b/a Miravo Healthcare] [the
“Company”], which comprise the consolidated statements of financial position as at December 31, 2021 and 2020 and the
consolidated statements of loss and 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 Company as at December 31, 2021 and 2020, and its consolidated financial performance and its
consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards [“IFRS”].
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those
standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of
our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the
consolidated financial statements in Canada, and we have fulfilled our 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.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the consolidated
financial statements of the current period. These matters were addressed in the context of the audit of the consolidated financial
statements as a whole, and in forming the auditor’s opinion thereon, and we do not provide a separate opinion on these matters.
For each matter below, our description of how our audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the consolidated financial
statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of
procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements.
The results of our audit procedures, including the procedures performed to address these matters below, provide the basis for
our audit opinion on the accompanying consolidated financial statements.
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
Key audit matter
How our audit addressed the key audit matter
Impairment of goodwill and intangible assets
The Company discloses the nature of goodwill and
intangible assets, and the valuation methodologies
used relating to the valuation of goodwill and
intangible assets in notes 9 and 10 to the
consolidated financial statements. At December 31,
2021, the total carrying value of goodwill and
intangible assets amounted to $13.6M and $61.9M,
respectively. Goodwill and intangible assets are
allocated to Cash Generating Units [“CGUs”] and
management is required to test the carrying values of
the CGUs for impairment annually, or more
frequently if there is an indicator of impairment.
The determination of the CGUs’ recoverable
amounts was significant to our audit and considered
a key audit matter due to the significance of the
amounts and the degree of judgement and
subjectivity in evaluating management’s estimates
and assumptions in determining the recoverable
amount of the respective CGU. Significant
assumptions included the timing and growth of future
cash flow projections, earnings margins, and the pre-
tax discount rate or revenue multiple, which are
affected by expectations about future product,
market and economic conditions.
We performed audit procedures that included,
among others, evaluating management’s key
assumptions for determining the recoverable
amount. With the assistance of our valuations
specialists, we evaluated the Company’s model and
valuation methodology, and evaluated
management’s discount rates against Company,
industry and economic specific data. We also
evaluated additional risk premiums that reflect
current industry risks and achievement risk of the
future cash flow projections. We compared future
cash flow projections to historical results and to
product, market and economic information. We
performed sensitivity analyses on key assumptions
including pre-tax discount rate, revenue multiple in
comparison to market comparables, and elements of
future cashflow projections such as projected
expenses and evaluated the results of the analysis.
We also assessed the adequacy of the Company’s
disclosures included in notes 9 and 10 of the
accompanying consolidated financial statements in
relation to the valuation of goodwill and intangible
assets.
Valuation of derivative financial instruments
As described in notes 11 and 12 to the consolidated
financial statements, the Company entered into
financing arrangements in 2018, as part of financing
the acquisition of Aralez Pharmaceuticals Canada,
U.S. and international rights to Vimovo® and other
related assets.
These financing arrangements include derivatives
and embedded derivatives such as warrants to the
holder of the loan and a conversion feature in the
convertible loan. As at December 31, 2021, the fair
value of the warrants and conversion option were
$17.0M and $12.1M, respectively. The determination
of the fair values of derivative liabilities was
significant to our audit and considered as a key audit
matter due to the significance of its value and the
degree of judgment and subjectivity in evaluating
management’s estimates. In particular, the valuation
is based on, and sensitive to, changes in specific
inputs such as volatility and the discount for lack of
marketability.
With the assistance of our valuation specialists, our
audit procedures to assess the valuation of derivative
liabilities included, among others, an assessment of
the methodology and the appropriateness of the
valuation models used by management to value
derivative liabilities. We obtained an understanding
of the valuation methodology and inputs used by
management and evaluated management’s key
assumptions such as credit spread and discount for
lack of marketability. As part of those procedures, we
assessed specific inputs including share-price and
volatility using publicly available historical financial
data. We also assessed the discount for lack of
marketability using a typical put-option pricing model
and evaluated the credit spread based on publicly
available company, economic and industry data. We
performed sensitivity analysis on these key inputs
and evaluated the results of the analysis.
Other information
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 auditor’s report thereon, in the Annual Report
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
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. We
have nothing to report in this regard.
The Annual Report is expected to be made available to us after the date of the auditor’s 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
IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting
unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally
accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and
maintain professional skepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or
error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher
than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
•
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
•
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by management.
•
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on
the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to
draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures
are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditor’s report. However, future events or conditions may cause the 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.
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
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.
From the matters communicated with those charged with governance, we determine those matters that were of most significance
in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe
these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely
rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences
of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Kwan-Ho Song, CPA, CA.
Toronto, Canada
March 25, 2022
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
NUVO PHARMACEUTICALS INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at
December 31, 2021
As at
December 31, 2020
(Canadian dollars in thousands)
Notes
$
$
ASSETS
CURRENT
Cash and cash equivalents
3, 23
30,874
23,807
Accounts receivable
3, 23
6,525
7,488
Inventories
3, 5
8,534
9,490
Other current assets
6
2,247
2,699
Contract assets
3, 20, 24
2,518
251
TOTAL CURRENT ASSETS
50,698
43,735
NON-CURRENT
Contract assets
3, 20, 24
-
2,594
Right-of-use assets
7
921
1,027
Property, plant and equipment
3, 8
3,182
3,478
Intangible assets
3, 9
61,901
73,486
Goodwill
3, 10
13,627
27,445
TOTAL ASSETS
130,329
151,765
LIABILITIES AND EQUITY
CURRENT
Accounts payable and accrued liabilities
11,490
8,314
Current portion of long-term debt
11
12,340
12,337
Current portion of other obligations
13
1,360
396
Current income tax liabilities
21
-
709
TOTAL CURRENT LIABILITIES
25,190
21,756
NON-CURRENT
Long-term debt
11
83,370
91,360
Other obligations #
13
1,301
4,323
Derivative liabilities
12
29,160
13,665
Deferred income tax liabilities
21
2,701
299
TOTAL LIABILITIES
141,722
131,403
EQUITY
Common shares
14
184,764
184,764
Contributed surplus
14, 15
16,382
16,153
Accumulated other comprehensive income (AOCI)
258
37
Deficit
(212,797)
(180,592)
TOTAL EQUITY
(11,393)
20,362
TOTAL LIABILITIES AND EQUITY
130,329
151,765
Note 22, Commitments and Contingencies
See accompanying Notes.
On behalf of the Nuvo Board of Directors:
/s/ Anthony E. Dobranowski
Anthony E. Dobranowski
Director
/s/ Daniel N. Chicoine
Daniel N. Chicoine
Director
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
NUVO PHARMACEUTICALS INC.
CONSOLIDATED STATEMENTS OF LOSS AND
COMPREHENSIVE LOSS
Year ended
December 31, 2021
Year ended
December 31, 2020
(Canadian dollars in thousands, except per share
and share figures)
Notes
$
$
REVENUE
Product sales
24, 25
57,269
52,200
License revenue
24, 25
11,555
21,519
Contract revenue
24, 25
83
56
Total revenue
68,907
73,775
Cost of goods sold
5, 19, 25
24,396
23,309
Gross profit
44,511
50,466
EXPENSES
Sales and marketing expenses
19, 25
10,836
8,928
General and administrative expenses
19, 25
13,032
12,893
Amortization of intangibles
9, 25
7,428
8,314
Net interest expense
16, 25
10,103
11,441
Change in fair value of derivative liabilities
12, 25
15,585
11,728
Change in fair value of contingent and variable consideration
(gain)
11, 25
(1,376)
1,794
Impairment
3, 9, 10, 24, 25
17,928
1,583
Foreign currency loss (gain)
35
(1,145)
Other losses (gains)
17, 25
287
(2,093)
Net loss before income taxes
(29,347)
(2,977)
Income tax expense
3, 21, 25
2,858
1,152
NET LOSS
(32,205)
(4,129)
Other comprehensive loss to be reclassified to net loss
in subsequent periods
Unrealized gain on translation of foreign operations
221
100
TOTAL COMPREHENSIVE LOSS
(31,984)
(4,029)
Net loss per common share
- basic
18
(2.83)
(0.36)
- diluted
18
(2.83)
(0.36)
Average number of common shares outstanding
(in thousands)
- basic
18
11,388
11,388
- diluted
18
11,388
11,388
See accompanying Notes.
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
NUVO PHARMACEUTICALS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Common Shares
Contributed
Surplus
AOCI
Deficit
Total
(Canadian dollars in thousands,
except for number of shares)
000s
$
$
$
$
$
Notes
14, 15
14, 15
14, 15
Balance, December 31, 2019
11,388
184,764
15,892
(63)
(176,463)
24,130
Stock option compensation expense
-
-
261
-
-
261
Unrealized gain on translation of foreign
operations
-
-
-
100
-
100
Net loss
-
-
-
(4,129)
(4,129)
Balance, December 31, 2020
11,388
184,764
16,153
37
(180,592)
20,362
Stock option compensation expense
-
-
229
-
-
229
Unrealized gain on translation of foreign
operations
-
-
-
221
-
221
Net loss
-
-
-
-
(32,205)
(32,205)
Balance, December 31, 2021
11,388
184,764
16,382
258
(212,797)
(11,393)
See accompanying Notes.
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
NUVO PHARMACEUTICALS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended
December 31, 2021
Year ended
December 31, 2020
(Canadian dollars in thousands)
Notes
$
$
OPERATING ACTIVITIES
Net loss
(32,205)
(4,129)
Items not involving current cash flows:
Depreciation and amortization
19
8,050
9,256
Impairment
3, 9, 10
17,928
1,583
Other losses
138
-
Contract asset additions
3, 20, 24
-
(5,496)
Contract asset change in estimate
3, 20, 24
-
561
Provision for deferred income taxes
2,402
-
Accreted non-cash interest, net and amortization of deferred
financing fees
11
5,969
6,491
Change in fair value of long-term debt
11
149
(2,434)
Change in fair value of derivative liabilities
12
15,585
11,728
Equity-settled stock-based compensation
15
229
261
Unrealized foreign exchange gain
(765)
(1,015)
Change in fair value of contingent and variable consideration
13
(1,376)
1,794
Change in allowance for doubtful accounts
(44)
(74)
Inventory write-down
5
281
573
Inventory step-up expense
5
35
1,411
16,376
20,510
Net change in non-cash working capital
20
4,894
4,810
Payment of contingent consideration
13
(426)
(1,168)
CASH PROVIDED BY OPERATING ACTIVITIES
20,844
24,152
INVESTING ACTIVITIES
Acquisition of property, plant and equipment
(220)
(555)
Acquisition of intangible assets
(510)
(193)
Disposal of fixed assets
-
180
Disposal of intangible assets
488
-
CASH USED IN INVESTING ACTIVITIES
(242)
(568)
FINANCING ACTIVITIES
Principal payment on debt
11
(13,401)
(22,436)
Cash payment of lease liabilities
(225)
(253)
CASH USED IN FINANCING ACTIVITIES
(13,626)
(22,689)
Effect of exchange rate changes on cash
91
(107)
Net change in cash during the year
7,067
788
Cash and cash equivalents, beginning of year
23,807
23,019
CASH AND CASH EQUIVALENTS, END OF YEAR
30,874
23,807
Supplemental Cash Flow Information
Interest received(i)
29
75
Interest paid(i)
4,147
5,010
Income taxes paid
1,014
102
(i)
Amounts have been reflected as operating cash flows in the Consolidated Statements of Cash Flows.
See accompanying Notes.
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
NUVO PHARMACEUTICALS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unless noted otherwise, all amounts shown are in thousands of Canadian dollars, except per share
amounts.
1. NATURE OF BUSINESS
Nuvo Pharmaceuticals® Inc. d/b/a Miravo Healthcare™ (Miravo or the Company) is a Canadian-focused, healthcare
company with global reach and a diversified portfolio of commercial products. The Company’s products target
several therapeutic areas, including pain, allergy, neurology and dermatology. The Company’s strategy is to in-
license and acquire growth-oriented, complementary products for Canadian and international markets. The
Company’s registered office and principal place of business is located at 6733 Mississauga Road, Suite 800,
Mississauga, Ontario, Canada, L5N 6J5, its international operations are located in Dublin, Ireland and its
manufacturing facility is located in Varennes, Québec, Canada. The Varennes facility operates in a Good
Manufacturing Practices (GMP) environment respecting the U.S., Canada and E.U. GMP regulations and is
regularly inspected by Health Canada and the U.S. Food and Drug Administration (FDA).
The Aralez Transaction
On December 31, 2018, the Company announced the acquisition of a portfolio of more than 20 revenue-generating
products from Aralez Pharmaceuticals Inc. (Aralez) (the Aralez Transaction). For further details, please refer to the
annual Consolidated Financial Statements of the Company for the year ended December 31, 2018, which are
available on SEDAR at www.sedar.com (under Nuvo Pharmaceuticals Inc.).
2. BASIS OF PREPARATION
Statement of Compliance
These Consolidated Financial Statements have been prepared by management in accordance with International
Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB).
The policies applied to these Consolidated Financial Statements are based on IFRS, which have been applied
consistently to all periods presented. These Consolidated Financial Statements were issued and effective as at
March 25, 2022, the date the Board of Directors approved these Consolidated Financial Statements.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Measurement
These Consolidated Financial Statements have been prepared under the historical cost convention, except for the
revaluation of certain financial assets and financial liabilities to fair value. Items included in the financial statements
of each consolidated entity in the Company are measured using the currency of the primary economic environment
in which the entity operates (the functional currency). These Consolidated Financial Statements are presented in
Canadian dollars, which is the Company’s functional and presentation currency.
Use of Estimates and Judgments
Estimates
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date,
that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within
the next financial year, are described below. The Company based its assumptions and estimates on parameters
available when these Consolidated Financial Statements were prepared. Existing circumstances and assumptions
about future developments; however, may change due to market changes or circumstances arising that are beyond
the control of the Company. Such changes are reflected in the assumptions when they occur.
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
(i)
Contract Assets:
The Company’s contract assets are subject to estimation regarding the likelihood of the minimum guaranteed
sales-based royalties (ex-U.S. Resultz®) and the validity and enforceability of intellectual property (Yosprala
Japanese licensee) (See Note 24, Revenue). The Company recognizes contract assets, which represent
the present value of anticipated payments discounted at a 1.86% (ex-U.S. Resultz) and 1.7% (Yosprala
Japanese licensee).
(ii)
Revenue Recognition and Returns
As is typical in the pharmaceutical industry, the Company’s royalty streams are subject to a variety of sales
deductions, including rebates, discounts, incentives and product returns. Sales deductions are typically
estimates resulting from judgments about future events and uncertainties and rely on management
assumptions. Sales deductions are recorded in the same period that the revenues are recognized.
The provision for sales returns is an estimate used in the recognition of revenue. The Company has a return
policy that allows wholesalers to return product within a specified period prior to, and subsequent to, the
expiration date. Provisions for returns are recognized in the period in which the underlying sales are
recognized, as a reduction of product sales revenue. The Company estimates provisions for returns based
upon historical return data of each product to determine return percentages and current market conditions,
representing management’s best estimate. As historical experience may not always be an accurate indicator
of future returns, the Company continually monitors return provisions and makes adjustments when it
believes that actual product returns may differ from established reserves.
(iii)
Determination of Amortized Cost for Debt Liabilities
The Company’s Amortization Loan, Bridge Loan and host liability of the Convertible Loan (the Loans) are
initially measured at fair value using a discounted cash flow model that considers the present value of the
contractual cash flows using a risk-adjusted discount rate. The discounted cash flow model requires
management to estimate the timing of debt repayments and the effective interest rate related to the debts.
When the Company revises its estimates and timing of payments for financial liabilities held at amortized
cost, it will adjust the gross carrying amount of the amortized cost of a financial liability to reflect actual and
revised estimated contractual cash flows. The Company recalculates the gross carrying amount of the
amortized cost of the financial liability as the present value of the estimated future contractual cash flows
that are discounted at the financial instrument’s original effective interest rate. The adjustment is recognized
in income.
The Company has made assumptions regarding the timing of the payments, which may differ significantly
depending upon quarterly excess cash flows and whether the quarterly payment deferral mechanism
included within the financing agreement is utilized.
(iv) Determination of Fair Value for Derivative Liabilities
The fair value of the Company’s warrants (Warrants) (See Note 11, Loans and Borrowings) is initially
recognized and subsequently revalued at each reporting period using the Black-Scholes option pricing
model. The conversion feature that accompanies the Company’s Convertible Loan is valued by determining
the difference between the fair value of the hybrid Convertible Loan contract, determined using an income
approach with a binomial lattice model and the fair value of the host liability contract, determined using a
discounted cash flow model. The Warrants and conversion feature are measured at fair value through profit
and loss at each period-end (See Note 12, Derivative Liabilities).
(v) Impairment of Non-financial Assets
Impairment exists when the carrying value of an asset or cash-generating unit (CGU) exceeds its
recoverable amount, which is the higher of its fair value less costs of disposal and its value-in-use. The
value-in-use calculations are based on discounted cash flow (DCF) models. The cash flows are derived
from the budget and do not include restructuring activities that the Company is not yet committed to or
significant future investments that will enhance the performance of the assets of the CGU being tested. The
recoverable amount is sensitive to the discount rate used for the DCF model, as well as the expected future
cash-inflows and outflows and the growth rate used for extrapolation purposes. These estimates are most
relevant to goodwill and other intangibles recognized by the Company. The key assumptions used to
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
determine the recoverable amount for the different CGUs, including a sensitivity analysis, are disclosed and
further explained in Note 9, Intangible Assets and Note 10, Goodwill.
(vi) Useful Lives of Intangible Assets
Management estimates the useful lives of intangible assets based on the period during which the assets are
expected to be available for use and also estimates their recoverability to assess if there has been an
impairment. The amounts and timing of recorded expenses for amortization and impairments of intangible
assets for any period are affected by these estimates. The estimates are reviewed at least annually and are
updated if expectations change as a result of commercial obsolescence, generic threats and legal or other
limits to their use. It is possible that changes in these factors may cause significant changes in the estimated
useful lives of the Company’s intangible assets in the future.
(vii) Valuation of Inventory
The Company estimates future product sales when establishing appropriate provisions for inventory. In
making these estimates, the Company considers the product life of inventory and the profitability of recent
sales of inventory. In many cases, products sold by the Company turn quickly and inventory on-hand values
are low, which reduces the risk of inventory obsolescence. Management relies on expiry dates in the
determination of realizable value of inventory (See Note 5, Inventories).
(viii) Contingent Consideration
Contingent consideration, resulting from business combinations, is valued at fair value at the acquisition date
as part of the business combination. When the contingent consideration meets the definition of a financial
liability, it is subsequently remeasured to fair value at each reporting date. The determination of the fair value
is based on discounted cash flows. The key assumptions take into consideration the probability of meeting
each performance target and the discount factor (See Note 13, Other Obligations).
(ix) Employee Stock Options
The Company measures the cost of share-based payments, either equity or cash-settled, with employees
by reference to the fair value of the equity instrument or underlying equity instrument at the date on which
they are granted. In addition, cash-settled, share-based payments are revalued to fair value at every
reporting date.
Estimating fair value for share-based payments requires management to determine the most appropriate
valuation model for a grant, which is dependent on the terms and conditions of each grant. In valuing certain
types of stock-based payments, such as incentive stock options and share appreciation rights, the Company
uses the Black-Scholes option pricing model.
Several assumptions are used in the underlying calculation of fair values of the Company’s stock options
and share appreciation rights using the Black-Scholes option pricing model, including the expected life of
the option, stock-price volatility and forfeiture rates (See Note 15, Stock-based Compensation and Other
Stock-based Payments).
(x) Determination of Share Appreciation Rights Liabilities
Share Appreciation Rights (SARs) are accounted for by the Company as cash-settled awards. SARs are
issued to directors, officers or employees to provide incentive compensation based on the appreciation in
value of the Company’s common shares. Fair market value is based on the closing price of the Company’s
common share, determined based on Black-Scholes option pricing model. Under the SARs Plan, participants
receive, upon vesting, a cash amount equal to the difference between the SARs’ fair market value and the
grant price value, also known as the intrinsic value. Until SARs vest, compensation expense is measured
based on the fair value of the SARs at the end of each reporting period. The fair value of the liability is
remeasured at the end of each reporting date and adjusted at the settlement date when the intrinsic value
is realized. The SARs’ accrual is included in accounts payable and accrued liabilities (See Note 15, Stock-
based Compensation and Other Stock-based Payments).
(xi) Determination of Deferred Share Units Liabilities
Deferred Share Units (DSUs) are accounted for by the Company as cash-settled awards. DSUs are issued
to directors to provide incentive compensation based on the appreciation in the value of the Company’s
common shares. Fair market value is based on the market price of the Company’s common share,
determined based on a volume weighted average share price (VWAP) model. Under the DSU Plan, directors
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
receive, after the effective date that the Director ceases to be a Director of the Company, a cash amount
equal to the fair market value multiplied by the number of units held. Until the DSUs are settled,
compensation expense is measured based on the fair value of the DSUs at the end of each reporting period.
The fair value of the liability is remeasured at the end of each reporting date and adjusted at the settlement
date when realized. The DSUs accrual is included in accounts payable and accrued liabilities (See Note 15,
Stock-based Compensation and Other Stock-based Payments).
Judgments
In the process of applying the Company’s accounting policies, management has made the following judgments,
which have the most significant effect on the amounts recognized in these Consolidated Financial Statements.
(i) Functional Currency
The Company and its subsidiary companies use judgment when determining its functional currency. This
determination includes an assessment of the indicators as prescribed in International Accounting Standards
21, The Effects of Changes on Foreign Exchange Rates (IAS 21). However, applying the factors in IAS 21
does not always result in a clear indication of functional currency. Where IAS 21 factors indicate differing
functional currencies, management uses judgment in the ultimate determination of the functional currency.
(ii) Determination of Groups of CGUs
The determination of the Company’s CGUs, group of CGUs and their associated assets involves judgment
and is based on how senior management monitors the operations of the Company. The Company has
determined that the lowest aggregation of assets that generate largely independent cash inflows, include
individual patents, brands and licenses. For purposes of the Company’s goodwill impairment testing, the
Company has grouped certain CGUs to test at the operating segment level, the lowest level at which
management monitors goodwill for internal management purposes. The Company has used significant
judgment in determining the groups of CGUs. The Company allocates goodwill to the groups of CGUs that
are expected to benefit from the synergies of the business combination (See Note 10, Goodwill).
Basis of Consolidation
These Consolidated Financial Statements include the accounts of the Company and its subsidiaries as follows:
All significant intercompany balances and transactions have been eliminated upon consolidation.
Foreign Currency Translation
The Company and its subsidiary companies each determine their functional currency based on the currency of the
primary economic environment in which they operate. The Company’s functional currency is the Canadian dollar.
(i) Transactions
Transactions denominated in a currency other than the functional currency of an entity are translated at
exchange rates prevailing at the time the transaction occurred. The resulting exchange gains and losses are
included in each entity’s net income (loss) in the period in which they arise.
(ii) Translation into Presentation Currency
The Company’s foreign operations are translated into the Company’s presentation currency, which is the
Canadian dollar, for inclusion in these Consolidated Financial Statements. Foreign-denominated monetary
and non-monetary assets and liabilities of foreign operations are translated at exchange rates in effect at
the end of the reporting period, and revenue and expenses are translated at the average exchange rate for
the period (as this is considered a reasonable approximation to actual rates). The resulting translation gains
and losses are included in other comprehensive income (loss) (OCI) with the cumulative gain or loss reported
in accumulated other comprehensive income (loss) (AOCI).
When the Company disposes of its entire interest in a foreign operation or loses control or influence over a foreign
operation, the foreign currency gains or losses in AOCI related to the foreign operation are recognized in profit or
loss. If the Company disposes of part of an interest in a foreign operation that remains a subsidiary, the proportionate
% Ownership
Aralez Pharmaceuticals Canada Inc.
100
Nuvo Pharmaceuticals (Ireland) Designated Activity Company
100
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
amount of foreign currency gains or losses in AOCI related to the subsidiary are reallocated between controlling
and non-controlling interests.
Cash and Cash Equivalents
Cash and cash equivalents includes cash-on-hand and deposits held with banks. These are readily convertible into
known amounts of cash and have an insignificant risk of changes in value. The cost basis of cash approximates
its fair value.
Inventories
Inventories include raw materials, work-in-process and finished goods. Raw materials are stated at the lower of
cost and replacement cost with cost determined on a first-in, first-out basis. Manufactured inventory (finished goods
and work-in-process) is valued at the lower of cost and net realizable value determined on a first-in, first-out basis.
Manufactured inventory cost includes the cost of raw materials, direct labour, an allocation of overhead and the
cost to acquire finished goods. The Company monitors the shelf life and expiry of finished goods to determine when
inventory values are not recoverable and a write-down is necessary.
An inventory provision is estimated by management based on expected future sales and expiry dates and is
recorded in cost of goods sold (COGS). Subsequent changes to provisions are recorded in COGS in the
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss).
Contract Assets
Contract assets represent the present value of current and future guaranteed minimum sales-based royalties,
upfront fees and milestone payments that are expected to be received over the life of the licensing agreements.
Contract asset balances are reduced as contractual entitlements are billed and realized throughout the life of the
agreement.
The timing of revenue recognition, billings and cash collections results in accounts receivable and unbilled
receivables (contract assets). Generally, billing occurs subsequent to revenue recognition, resulting in accounts
receivable. The Company’s contract assets relate to license revenue attributable to minimum guaranteed sales-
based royalties, upfront fees and milestone payments that have not been billed at the reporting date. Unbilled
receivables (contract assets) will be billed (and subsequently transferred to accounts receivable) in accordance with
the agreed-upon contractual terms.
Property, Plant and Equipment
Property, plant and equipment (PP&E) is recorded at cost.
The Company allocates the amount initially recognized in respect of an item of PP&E to its significant parts and
amortizes separately each such part. Depreciation of PP&E is provided for over the estimated useful lives from the
date the assets become available for use as follows:
Residual values, method of depreciation and useful lives of the assets are reviewed annually and adjusted if
appropriate.
Intangible Assets
Intangible assets acquired in a business combination are recognized separately from goodwill at their fair value at
the date of acquisition, which is considered to be at cost. Following initial recognition, intangible assets are carried
at cost, less any accumulated amortization and accumulated impairment losses. Amortization commences when
the intangible asset is available for use. For patented assets, amortization is computed on a straight-line basis over
the intangible asset’s estimated useful life, which cannot exceed the lesser of the remaining patent life and 20 years.
For license assets, amortization is computed on a straight-line basis over the intangible assets’ estimated useful
life, which management estimates based on the license period and opportunity for license renewal. For software
Buildings
10 - 25 years
Straight-line
Leasehold improvements
Term of lease
Straight-line
Furniture and fixtures
5 years
Straight-line
Computer equipment
1 - 3 years
Straight-line
Production, laboratory and other equipment
3 - 12 years
Straight-line
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
assets, amortization is computed on a straight-line basis over the intangible assets’ estimated useful life, which is
5 years. The estimated useful lives are as follows:
Brand
Indefinite life
-
Patents
5 - 20 years
Straight-line
Licenses
4 - 27 years
Straight-line
Software
5 years
Straight-line
Goodwill and Business Combinations
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as
the aggregate of the consideration transferred, which is measured at the acquisition date fair value and the amount
of any non-controlling interest in the acquiree.
When the Company acquires a business, it assesses the classification and designation of financial assets and
liabilities assumed in accordance with the contractual terms, economic circumstances and conditions as at the
acquisition date. Any contingent consideration to be transferred by the acquirer will be recognized at fair value at
the acquisition date. All contingent consideration (unless classified as equity) is subsequently remeasured to fair
value at each reporting period-end, with the changes in fair value recognized in profit or loss.
Goodwill is initially measured at cost over the net identifiable assets acquired and liabilities assumed. If the fair
value of the net assets acquired is in excess of the aggregate consideration transferred, the Company reassesses
whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the
procedures used to measure the amounts recognized at the acquisition date. If the reassessment still results in an
excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is
recognized in net income (loss).
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. See Impairment of
Non-financial Assets below for a description of the Company’s impairment testing procedures.
Impairment of Non-financial Assets
The Company assesses at each reporting date, whether there is an indication that an asset may be impaired. If
any indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset’s
recoverable amount. An asset’s recoverable amount is the higher of an asset’s or CGU’s fair value less costs of
disposal and its value-in-use. The recoverable amount is determined for an individual asset, unless the asset does
not generate cash inflows that are largely independent of those from other assets or groups of assets. When the
carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written
down to its recoverable amount. In assessing value-in-use, the estimated future cash flows are discounted to their
present value using a pretax discount rate that reflects current market assessments of the time value of money and
the risks specific to the asset.
The Company bases its impairment calculation on the most recent budgets and forecast calculations, which are
prepared separately for each of the Company’s CGUs to which the individual assets are allocated. A long-term
growth rate is calculated and applied to project future cash flows. Impairment losses of continuing operations are
recognized in the Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) in expense
categories consistent with the function of the impaired asset. For assets excluding goodwill, an assessment is made
at each reporting date to determine whether there is an indication that previously recognized impairment losses no
longer exist or have decreased. If such indication exists, the Company estimates the asset’s or CGU’s recoverable
amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions
used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is
limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying
amount that would have been determined, net of depreciation, had no impairment loss been recognized for the
asset in prior years. Such reversal is recognized in the Consolidated Statements of Income (Loss) and
Comprehensive Income (Loss).
Goodwill is tested for impairment annually as at December 31 and when circumstances indicate that the carrying
value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each CGU
(or group of CGUs) to which the goodwill relates. When the recoverable amount of the CGU is less than its carrying
amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future
periods.
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
Leased Assets
Leased assets are capitalized at the commencement date of the lease and are comprised of the initial lease liability
amount, initial direct costs incurred when entering into the lease, less any lease incentives received.
Leased Liabilities
The lease liability is measured at the present value of the fixed and variable lease payments that depend on an
index or rate, net of cash lease incentives that are unpaid. Lease payments are apportioned between the finance
charges and reduction of the lease liability using the incremental borrowing rate implicit in the lease to achieve a
constant rate of interest on the remaining balance of the liability.
Lease modifications are accounted for as either a new lease with an effective date of the modification or as a change
in the accounting for the existing lease.
Financial Instruments
There are three measurement categories in which the Company classifies its financial assets:
•
Amortized cost: Financial instruments that are held for collection of contractual cash flows, where those
cash flows represent solely payments of principal and interest, are measured at amortized cost. Interest
income (expense) from these financial instruments is recorded in net income (loss) using the effective
interest rate method.
•
Fair value through other comprehensive income (FVOCI): Debt instruments that are held for collection of
contractual cash flows and for selling the financial instruments, where the financial instruments’ cash flows
represent solely payments of principal and interest, are measured at FVOCI. Movements in the carrying
amount are taken through OCI, except for the recognition of impairment gains or losses, interest income
and foreign exchange gains and losses that are recognized in net income (loss). When the financial
instrument is derecognized, the cumulative gain or loss previously recognized in OCI is reclassified from
equity to net income (loss) and recognized in other gains (losses). Interest income (expense) from these
financial instruments is included in interest using the effective interest rate method. Foreign exchange gains
(losses) are presented in other gains (losses) and impairment expenses in expenses (income).
•
Fair value through profit (loss) (FVTPL): Financial instruments that do not meet the criteria for amortized
cost or FVOCI are measured at FVTPL. A gain or loss on a financial instrument that is subsequently
measured at FVTPL and is not part of a hedging relationship is recognized in net income (loss) and
presented net in comprehensive income (loss) within other gains (losses) in the period in which it arises.
Financial liabilities are either classified as amortized cost or FVTPL. For financial liabilities held at amortized cost,
when the Company revises its estimates of payments, it will adjust the gross carrying amount of the amortized cost
of a financial liability to reflect actual and revised estimated contractual cash flows. The Company recalculates the
gross carrying amount of the amortized cost of the financial liability as the present value of the estimated future
contractual cash flows that are discounted at the financial instrument’s original effective interest rate. The
adjustment is recognized in income.
The Company classifies its financial instruments as follows:
•
Cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, long-term debt and
other obligations are measured at amortized cost. Interest income and interest expense are recorded in net
income (loss), as applicable.
•
Embedded derivatives, including the conversion feature of the Convertible Loan and the prepayment option
on the Amortization Loan, are separated from the host contract and accounted for separately if the host
contract is not a financial asset and certain criteria are met. The conversion feature, prepayment option and
the Warrants are initially measured at fair value and subsequently measured at FVTPL.
Impairment of Financial Assets
The Company assesses, on a forward-looking basis, the expected credit losses associated with its financial
instruments carried at amortized cost and FVOCI. The impairment methodology applied depends on whether the
asset originated from a contract that is in the scope of IFRS 15 - Revenue from Contracts with Customers (IFRS
15) or if there have been significant increases in credit risk.
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
•
Accounts receivable and contract assets: For accounts receivable and contract assets, the Company
applies the simplified approach to providing for expected credit losses prescribed by IFRS 9 - Financial
Instruments (IFRS 9), which requires the use of the lifetime expected loss provision for all accounts
receivable and contract assets within the scope of IFRS 15. The Company has established a provision
based on the Company’s historical credit loss experience, adjusted for forward-looking factors specific to
the debtors and the economic environment.
•
Cash equivalents: For cash equivalents and short-term investments at amortized cost, the Company
applies the general approach to providing for expected credit losses. These instruments are considered to
be low credit risk, and therefore, the impairment provision is determined using a 12-month expected credit
loss basis.
Comprehensive Income
Comprehensive income (loss) is the change in equity from transactions and other events and circumstances from
non-shareholder sources. Other comprehensive income (loss) refers to items recognized in comprehensive income
(loss), but that are excluded from net income (loss) calculated in accordance with IFRS. The resulting changes from
translating the financial statements of foreign operations into Canadian dollars, the Company’s presentation
currency, are recognized in comprehensive income (loss) for the year.
Revenue Recognition
Product Sales
Revenue from product sales is recognized upon shipment of the product to the customer, provided transfer of title
to the customer occurs upon shipment and provided the Company has not retained any significant risks of
ownership or future obligations with respect to the product shipped, the price is fixed and determinable and
collection is reasonably assured.
Rights of return give rise to variable consideration. The variable consideration is estimated at contract inception
using the expected value method, as this best predicts the amount of variable consideration to which the Company
is entitled to receive. The variable consideration is constrained to the extent that it is highly probable that a significant
reversal in the amount of cumulative revenue recognized will not occur when any uncertainty is subsequently
resolved. For products that are expected to be returned, a sales return provision is recognized as a reduction of
revenue at the time control of the products is transferred to the customers.
The Company may provide discounts and rebates to its customers, which give rise to variable consideration. The
variable consideration is constrained to the extent that it is highly probable that a significant reversal in the amount
of cumulative revenue recognized will not occur when any uncertainty is subsequently resolved. The application of
the constraint on variable consideration increases the amount of revenue that will be deferred. The Company
applies the most likely amount method estimating discounts and rebates provided to customers using contracted
rates. Consequently, revenue is recognized net of reserves for estimated sales discounts and rebates.
License Revenue
The Company has tied the sales-based royalties to the distinct performance obligation to which it relates - the
license of intellectual property rights to the Company’s commercial products. With the application of the sales-based
royalties exception, sales-based royalties and milestone payments contingent on sales-based thresholds are
recognized when the subsequent sales occur.
The license of intellectual property rights includes minimum guaranteed sales-based royalties and the Company
assesses the contractual minimums as fixed consideration (where a significant reversal is remote). The Company
recognizes all of the contractual minimums when control of the intellectual property rights is transferred and a
contract asset is recognized. Any sales-based royalties earned, in excess of the contractual minimums, would be
recognized in accordance with the royalty exception (when the subsequent sales occur). This can result in
significant differences in the timing of revenue recognition and the corresponding receipt of cash flows.
Contract Revenue
Revenue from contracted services is generally recognized as the contracted services are performed and the related
expenditures are incurred pursuant to the terms of the agreement and provided collectability is reasonably assured.
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
Government Assistance
Government assistance received under incentive programs is accounted for using the cost reduction method;
whereby, the assistance is netted against the related expense or capital expenditure to which it relates when there
is reasonable assurance that the credits will be realized.
Government assistance received under reimbursement or funding programs is accounted for using the cost
reduction method; whereby, a receivable is set up as the costs are incurred based on the terms of reimbursement
or funding program and the expected recoveries are netted against the related expense.
Net Income or Loss Per Common Share
Basic net income or loss per common share is calculated using the weighted average number of common shares
outstanding during the year.
Diluted net income or loss per common share is calculated assuming the weighted average number of common shares
outstanding during the year is increased to include the number of additional common shares that would have been
outstanding if the dilutive potential shares had been issued. The dilutive effect of warrants, stock options and
convertible debt is determined using the treasury-stock method. The treasury-stock method assumes that the
proceeds from the exercise of warrants and options are used to purchase common shares at the volume weighted
average market price during the year. The dilutive effect of convertible securities is determined using the “if-converted”
method. The “if-converted” method assumes that the convertible securities are converted into common shares at the
beginning of the period and all income charges related to the convertible securities are added back to income.
Income Taxes
Income taxes on profit or loss include current and deferred taxes. Income taxes are recognized in profit or loss, except
to the extent that they relate to business combinations or items recognized directly in equity or in OCI. Current taxes
are the expected income taxes payable or recoverable on the taxable income or loss for the period, using tax rates
enacted or substantively enacted, at the reporting date and any adjustment to income taxes payable in respect of
previous years. The Company is subject to withholding taxes on certain forms of income earned under its in-licensing
agreements from foreign jurisdictions.
Deferred income taxes are generally recognized in respect of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred income
taxes are measured at the tax rates that are expected to be applied to temporary differences when they are reversed,
based on the tax laws that have been enacted or substantively enacted in the relevant jurisdiction by the reporting
date.
Deferred tax assets and liabilities are recognized, where the carrying amount of an asset or a liability in the
Consolidated Statements of Financial Position differs from its tax base, except for differences arising on:
•
The initial recognition of goodwill;
•
The initial recognition of an asset or a liability in a transaction that is not a business combination and at the
time of the transaction affects neither accounting or taxable profit; and
•
Investments in subsidiaries, branches and associates, and interests in joint ventures where the Company is
able to control the timing of the reversal of the difference and it is probable that the difference will not reverse
in the foreseeable future.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences to the extent
it is probable that future taxable income will be available against which they can be utilized. Deferred tax assets are
reviewed as at each reporting date and are reduced to the extent it is no longer probable the related tax benefit will be
realized. Within the scope of IAS 12, Income Taxes, the Company recognizes its investment tax credits as a reduction
against current income tax expense.
Stock-based Compensation and Other Stock-based Payments
The Company has five stock-based compensation plans: the Share Option Plan, the Share Purchase Plan, the
Share Bonus Plan, each a component of the Company’s Share Incentive Plan, the SARs Plan and the DSU Plan.
Share Incentive Plan
The Company measures and recognizes compensation expense for the Share Incentive Plan based on the fair
value of the common shares or options issued.
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
Under the Share Option Plan, the Company issues either fixed awards or performance-based options. Options vest
either immediately upon grant or over a period of one to four years or upon the achievement of certain performance-
related measures or milestones. Each tranche in an award is considered a separate award with its own vesting
period and grant date fair value. Fair value of each tranche is measured at the date of grant using the Black-Scholes
option pricing model. Compensation expense is recognized over the tranche’s vesting period based on the number
of awards expected to vest, by increasing contributed surplus. When options are exercised, the proceeds received
by the Company, together with the fair value amount in contributed surplus, are credited to common shares.
Under the Share Purchase Plan, consideration paid by employees on the purchase of common shares is credited
to common shares when the shares are issued. The fair value of the Company’s matching contribution, determined
based upon the trading price of the common shares, is recorded as compensation expense. These expenses are
included in stock-based compensation expense and credited to common shares.
Under the Share Bonus Plan, the fair value of the direct award of common shares, determined based upon the
trading price of the common shares, is recorded as compensation expense. These expenses are included in stock-
based compensation expense and credited to contributed surplus over the vesting period, until the common shares
are issued and the value is transferred from contributed surplus to common shares.
Share Appreciation Rights Plan
SARs are issued to directors, officers, employees or designated affiliates to provide incentive compensation based
on the appreciation in value of the Company’s common shares. Under the SARs Plan, participants receive, upon
vesting, a cash amount equal to the difference between the SARs' fair market value and the grant price value, also
known as the intrinsic value. Fair market value is determined by the closing price of the Company’s common share
on the Toronto Stock Exchange (TSX) on the day preceding the exercise date. SARs vest in tranches prescribed
at grant date, and each tranche is considered a separate award with its own vesting period and fair value. Until
SARs vest, compensation expense is measured based on the fair value of the SARs at the end of each reporting
period, using a Black-Scholes option pricing model. The fair value of the liability is remeasured at the end of each
reporting date and adjusted at the settlement date, when the intrinsic value is realized. The SARs’ accrual is included
in accounts payable and accrued liabilities.
Deferred Share Unit Plan
Under the DSU Plan, the Company issues DSUs to non-employee directors based on value of services provided
based on their elected portion of quarterly earnings they wish to receive in units of the DSU plan, as well as an
annual grant. DSUs are intended to be settled in cash and recorded as liabilities and included in accounts payable
and accrued liabilities. Upon issuance, the fair value of the DSUs is recorded as compensation expense and a
corresponding liability (the DSU Accrual) is established. At all subsequent reporting dates, the DSU accrual is
adjusted for movements in fair value, with the amount of the adjustment charged to compensation expense.
Issuance Costs of Debt Instruments
The Company records issuance costs of debt instruments against the fair value of the debt and will amortize the
debt issuance costs over the remaining term of the debt.
Issuance Costs of Equity Instruments
The Company records issuance costs of equity instruments against the equity instrument that was issued. For
derivative instruments, the cost of issuance is expensed immediately.
Operating Segments
IFRS 8 - Operating Segments requires operating segments to be determined based on internal reports that are
regularly reviewed by the chief operating decision maker for the purpose of allocating resources to the segment
and to assessing its performance. For the years ended December 31, 2021 and 2020, the Company had three
operating segments: Commercial Business, Production and Service Business and Licensing and Royalty Business
(See Note 25, Segment Reporting).
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
Accounting Standards Issued But Not Yet Applied
Certain new standards, interpretations, amendments and improvements to existing standards were issued by the
IASB or IFRS Interpretations Committee that are mandatory for fiscal periods beginning on or after January 1, 2022.
Amendments to IAS 1, Classification of Liabilities as Current or Non-current
In January 2020, the IASB issued amendments to paragraphs 69 to 76 of IAS 1, Classification of Liabilities
as Current or Non-current (IAS 1) to specify the requirements for classifying liabilities as current or non-
current. The amendments clarify:
•
What is meant by a right to defer settlement
•
That a right to defer must exist at the end of the reporting period
•
That classification is unaffected by the likelihood that an entity will exercise its deferral right
•
That only if an embedded derivative in a convertible liability is itself an equity instrument would the
terms of a liability not impact its classification
The amendments are effective for annual reporting periods beginning on or after January 1, 2023 and must
be applied retrospectively. The Company is currently assessing the impact the amendments to IAS 1 will
have.
Reference to the Conceptual Framework - Amendments to IFRS 3
In May 2020, the IASB issued Amendments to IFRS 3 - Business Combinations (IFRS 3). The amendments
are intended to replace a reference to the Framework for the Preparation and Presentation of Financial
Statements, issued in 1989, with a reference to the Conceptual Framework for Financial Reporting issued
in March 2018 without significantly changing its requirements. The IASB also added an exception to the
recognition principle of IFRS 3 to avoid the issue of potential “day 2” gains or losses arising for liabilities
and contingent liabilities that would be within the scope of IAS 37 or International Financial Reporting
Interpretations Committee 21, Levies, if incurred separately. At the same time, the IASB decided to clarify
existing guidance in IFRS 3 for contingent assets that would not be affected by replacing the reference to
the Framework for the Preparation and Presentation of Financial Statements. The amendments are
effective for annual reporting periods beginning on or after January 1, 2022 and apply prospectively.
Property, Plant and Equipment: Proceeds before Intended Use - Amendments to IAS 16
In May 2020, the IASB issued Property, Plant and Equipment - Proceeds before Intended Use, which
prohibits entities deducting from the cost of an item of PP&E, any proceeds from selling items produced
while bringing that asset to the location and condition necessary for it to be capable of operating in the
manner intended by management. Instead, an entity recognizes the proceeds from selling such items, and
the costs of producing those items, in profit or loss. The amendment is effective for annual reporting periods
beginning on or after January 1, 2022 and must be applied retrospectively to items of PP&E made available
for use on or after the beginning of the earliest period presented when the entity first applies the
amendment. The amendments are not expected to have a material impact on the Company.
Onerous Contracts - Costs of Fulfilling a Contract - Amendments to IAS 37
In May 2020, the IASB issued amendments to IAS 37 to specify which costs an entity needs to include
when assessing whether a contract is onerous or loss-making. The amendments apply a “directly related
cost approach”. The costs that relate directly to a contract to provide goods or services include both
incremental costs and an allocation of costs directly related to contract activities. General and
administrative (G&A) costs do not relate directly to a contract and are excluded unless they are explicitly
chargeable to the counterparty under the contract. The amendments are effective for annual reporting
periods beginning on or after January 1, 2022. The Company will apply these amendments to contracts for
which it has not yet fulfilled all its obligations at the beginning of the annual reporting period in which it first
applies the amendments. The amendments are not expected to have a material impact on the Company.
Amendments to IFRS 9 - Financial Instruments
As part of its 2018 - 2020 annual improvements to IFRS standards process, the IASB issued amendments
to IFRS 9. The amendments clarify the fees that an entity includes when assessing whether the terms of a
new or modified financial liability are substantially different from the terms of the original financial liability.
These fees include only those paid or received between the borrower and the lender, including fees paid or
received by either the borrower or lender on the other’s behalf. An entity applies the amendments to
financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
in which the entity first applies the amendment. The amendments are effective for annual reporting periods
beginning on or after January 1, 2022 with earlier adoption permitted. The Company will apply the
amendments to financial liabilities that are modified or exchanged on or after the beginning of the annual
reporting period in which the entity first applies the amendment. The amendments are not expected to have
a material impact on the Company.
Amendments to IAS 8 - Definition of Accounting Estimates
In February 2021, the IASB issued amendments to IAS 8 - Definition of Accounting Estimates, in which it
introduces a definition of accounting estimates. The amendments clarify the distinction between changes
in accounting estimates and changes in accounting policies and the correction of errors. Also, the
amendments clarify how entities use measurement techniques and inputs to develop accounting estimates.
The amendments are effective for annual reporting periods beginning on or after January 1, 2023 and apply
to changes in accounting policies and changes in accounting estimates that occur on or after the start of
that period. Earlier application is permitted as long as this fact is disclosed. The amendments are not
expected to have a material impact on the Company.
Amendments to IAS 1 - Disclosure of Accounting Policies
In February 2021, the IASB issued amendments to IAS 1 - Disclosure of Accounting Policies (IAS 1) and
IFRS Practice Statement 2, Making Materiality Judgments (Practice Statement 2), in which it provides
guidance and examples to help entities apply materiality judgments to accounting policy disclosures. The
amendments aim to help entities provide accounting policy disclosures that are more useful by replacing
the requirement for entities to disclose their “significant” accounting policies with a requirement to disclose
their “material” accounting policies and adding guidance on how entities apply the concept of materiality in
making decisions about accounting policy disclosures.
The amendments to IAS 1 are applicable for annual periods beginning on or after January 1, 2023 with
earlier application permitted. Since the amendments to Practice Statement 2 provides non-mandatory
guidance on the application of the definition of material to accounting policy information, an effective date
for these amendments is not necessary. The amendments are not expected to have a material impact on
the Company.
4. CHANGES IN ACCOUNTING POLICIES
Certain new standards, interpretations, amendments and improvements to existing standards were issued by the
IASB or IFRS Interpretations Committee that are mandatory for fiscal periods beginning on or after January 1,
2021.
Amendments to IFRS 7 - Financial Instruments: Disclosure (IFRS 7); IFRS 9; IAS 39, Financial Instruments:
Recognition and Measurement; IFRS 4 - Insurance Contracts; and IFRS 16 - Leases (IFRS 16)
In August 2020, the IASB published the Interbank Offered Rate (IBOR) Reform Phase 2, which address
issues that might affect financial reporting after the reform of an interest rate benchmark, including its
replacement with alternative benchmark rates. For financial instruments at amortized cost, the
amendments introduce a practical expedient such that if a change in the contractual cash flows is as a
result of IBOR reform and occurs on an economically equivalent basis, the change will be accounted for by
updating the effective interest rate with no immediate gain or loss recognized. The amendments also
provide temporary relief that allow the Company's hedging relationships to continue upon replacement of
the existing interest rate benchmark with the alternative risk-free rate resulting from IBOR reform. The relief
requires the Company to amend hedge designations and hedge documentation. Updates to hedging
documentation must be made by the end of the reporting period in which a replacement takes place. The
amendments are effective for annual periods beginning on or after January 1, 2021, with earlier application
permitted. The Company does not have any contracts in scope and was not affected by this amendment.
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
5. INVENTORIES
Inventories consist of the following as at:
December 31, 2021
December 31, 2020
$
$
Raw materials
1,706
2,514
Work in process
-
546
Finished goods, net of provision
6,828
6,430
8,534
9,490
During the year ended December 31, 2021, inventories in the amount of $22.4 million were recognized as COGS
[December 31, 2020 - $20.4 million]. During the year ended December 31, 2021, inventories in the amount of $340
were written down [December 31, 2020 - $578]. During the year ended December 31, 2021, there were reversals
of prior year write-downs of $59 [December 31, 2020 - $5].
COGS for the year ended December 31, 2021 included $35 of inventory step-up expense [December 31, 2020 -
$1.4 million] for the sale of inventory that was acquired by the Company as part of the Aralez Transaction. In
accordance with IFRS 3 inventory was initially recognized at fair value less reasonable selling costs.
6. OTHER CURRENT ASSETS
Other current assets consist of the following as at:
December 31, 2021
December 31, 2020
$
$
Deposits
342
295
Prepaid expenses(i)
1,713
2,031
Other receivables
192
373
2,247
2,699
(i) Included in prepaid expenses for the year ended December 31, 2021 were inventory samples of $1.2 million [December 31, 2020 - $1.1
million].
7. RIGHT-OF-USE ASSETS
The change in carrying value of the Company’s right-of-use assets was as follows:
2021
$
2020
$
As at January 1
1,027
573
Net additions
-
635
Remeasurement of asset
-
(17)
Depreciation expense
(106)
(164)
Balance, December 31
921
1,027
On February 26, 2020, the Company renegotiated its premises leases, which resulted in the surrender of two of its
leases and the signing of a new lease. The renegotiation has been accounted for as a single lease modification,
as it was completed with the overall objective of consolidating the premises leased by the Company and all leases
were entered into with the same head lessor. As part of the renegotiation, in the year ended December 31, 2020,
the Company agreed to pay a termination fee of $0.2 million. The decrease in the area under lease due to the
modification resulted in a decrease to the right-of-use asset of $0.1 million and a decrease to the lease liability of
$0.1 million. Further, the increase in the lease term and corresponding increase in lease payments resulted in an
increase to the right-of-use asset and lease liability of $0.7 million. The modification did not result in a separate
lease.
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
8. PROPERTY, PLANT AND EQUIPMENT
PP&E consists of the following as at:
Land
Buildings
Leasehold
Improvements
Furniture &
Fixtures
Computer
Equipment
Production,
Laboratory
& Other
Equipment
Total
Cost
$
$
$
$
$
$
$
Balance, December 31, 2019
42
1,654
610
228
294
6,243
9,071
Additions (disposals)
-
-
(190)
5
35
90
(60)
Balance, December 31, 2020
42
1,654
420
233
329
6,333
9,011
Additions (disposals)
-
(8)
44
(57)
(50)
(580)
(651)
Balance, December 31, 2021
42
1,646
464
176
279
5,753
8,360
Accumulated depreciation
Balance, December 31, 2019
-
1,069
214
160
241
3,499
5,183
Depreciation expense net of
disposals
-
84
(214)
22
42
416
350
Balance, December 31, 2020
-
1,153
-
182
283
3,915
5,533
Depreciation expense net of
disposals
-
35
46
(33)
(57)
(346)
(355)
Balance, December 31, 2021
-
1,188
46
149
226
3,569
5,178
Net book value as at
December 31, 2020(i)
42
501
420
51
46
2,418
3,478
Net book value as at
December 31, 2021(i)
42
458
418
27
53
2,184
3,182
(i) As at December 31, 2021 and 2020, all of the Company’s PP&E was located in Canada.
9. INTANGIBLE ASSETS
Intangible assets consist of the following as at:
Patents
Brand
Licenses
Software
Total
Cost
$
$
$
$
$
Balance, December 31, 2019
40,680
2,327
50,817
-
93,824
Additions
-
-
-
193
193
Impairment
(1,583)
-
-
-
(1,583)
Foreign exchange movements
(674)
(202)
-
-
(876)
Balance, December 31, 2020
38,423
2,125
50,817
193
91,558
Additions
-
-
-
510
510
Disposals(i)
-
-
(574)
-
(574)
Impairment
(3,302)
-
(816)
-
(4,118)
Foreign exchange movements
(816)
5
-
-
(811)
Balance, December 31, 2021
34,305
2,130
49,427
703
86,565
Accumulated amortization
Balance, December 31, 2019
7,359
-
2,907
-
10,266
Amortization expense
5,433
-
2,881
-
8,314
Foreign exchange movements
(508)
-
-
-
(508)
Balance, December 31, 2020
12,284
-
5,788
-
18,072
Amortization expense
4,585
-
2,843
-
7,428
Disposals
-
-
(86)
-
(86)
Impairment
-
-
(33)
-
(33)
Foreign exchange movements
(717)
-
-
-
(717)
Balance, December 31, 2021
16,152
-
8,512
-
24,664
Net book value as at December 31, 2020
26,139
2,125
45,029
193
73,486
Net book value as at December 31, 2021
18,153
2,130
40,915
703
61,901
(i)
During the year ended December 31, 2021, the Company disposed of two mature products from its commercial segment for proceeds of
$0.6 million.
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
The Company reviewed the carrying values of all intangible assets as at December 31, 2021.
In the year ended December 31, 2021, the Company noted that despite the easing of many COVID-19 government
restrictions within Canada and the uptake of people receiving the COVID-19 vaccination, prescribers had not yet
resumed seeing patients in person at pre-COVID-19 pandemic levels. As a result, the Company revised its
commercial expectations for certain prescription products in its Commercial Business segment.
Furthermore, in the year ended December 31, 2021, the Company revised its commercial expectations for its global
Resultz product, a component of its Licensing and Royalty Business segment, as commercial performance was not
meeting the Company’s expectations. The Company believes its change in future commercial expectations was
triggered by the evolving COVID-19 pandemic. Despite the easing of government restrictions in certain countries
and the global uptake of people receiving the COVID-19 vaccination, social distancing measures continue
worldwide, directly impacting the future commercial expectations for the Resultz product.
The Company has also revised its expectations for its Vimovo license in ex-US territories, a component of its
Licensing and Royalty Business segment. The Company has adjusted its expectations based on discussions with
its license partner, for markets where generic competitors are expected to impact forecasted revenue after patent
expiry.
In the year ended December 31, 2021, the impairment loss of $4.1 million represented the write-down of certain
intangible assets in the Commercial Business and Licensing and Royalty Business segments to the recoverable
amount as a result of a change in the Company’s commercial expectations. This was recognized in the
Consolidated Statements of Loss and Comprehensive Loss as impairment. The recoverable amount as at
December 31, 2021 was based on value-in-use and was determined at the level of the CGU.
The fair value measurement was categorized as a Level 3 fair value based on the inputs in the valuation technique
used. The value-in-use calculations are considered forecasted cash flows of each CGU based on the current
commercialization plans for these products. Cash from product sales and royalties, net of labour and infrastructure
costs, were included in determining the CGU’s recoverable value. The Company’s approach for discounted cash
flow projections included consideration of prior year actuals, current market conditions and planned commercial
efforts per product and range over a period of 1 to 11 years.
In determining the discount rate applied to each CGU, management uses the Company’s weighted average cost of
capital as a starting point and applies adjustments to take into account specific tax rates, geographical risk and any
additional risks specific to the CGU.
The terminal-growth rate in the range of -2% to -10% was used for discounted cash flow projections. An after-tax
discount rate in the range of 13.63% to 23.63% [December 31, 2020 - 11.82% to 21.82%] was applied, which
approximates the Company’s current weighted average cost of capital.
Sensitivity Analysis
The Company’s intangible asset impairment test is sensitive to changes in assumptions. An increase or decrease
of 5 basis points to the discount rates used by the Company in the range of 12.95% to 24.81% for its intangible
asset impairment test and assuming all other variables remain constant, would have resulted in an increase or
decrease of $0.5 million to the recoverable amount of the Company’s intangible assets.
Impairment amounts of intangible assets as at December 31, 2021 were as follows:
Intangibles
$
Aralez Pharmaceuticals Canada Inc. cash-generating units
-
Resultz Canada cash-generating units
-
Resultz Rest of World cash-generating units
Vimovo U.S. cash-generating units
Vimovo Rest of World cash-generating units
1,550
-
1,739
Remaining cash-generating units
796
Total
4,085
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
10. GOODWILL
Goodwill is recognized on the acquisition date when total consideration exceeds the net identifiable assets acquired.
Goodwill consists of the following as at:
December 31, 2021
December 31, 2020
Cost
$
$
Ex-U.S. Resultz acquisition
1,187
1,187
Aralez Transaction
26,763
26,763
Impairment
(13,843)
-
Foreign exchange movements, cumulative
(480)
(505)
Balance
13,627
27,445
Goodwill continuity for the year ended:
2021
$
2020
$
Balance, January 1
27,445
27,580
Impairment
(13,843)
-
Foreign exchange movements
25
(135)
Balance, December 31
13,627
27,445
The Company reviewed the carrying values of all goodwill as at December 31, 2021.
In the year-ended December 31, 2021, the Company reduced commercial expectations for certain products as a
result of changes in patient and prescriber behaviours (See Note 9, Intangible Assets). The Company believes the
change in commercial expectations was triggered by the evolving COVID-19 pandemic. The recoverable amount
of the Aralez Pharmaceuticals (Canada) Inc. (Aralez Canada) CGU as at December 31, 2021 has been determined
based on both a value-in-use and fair value less costs of disposal calculation using cash flow projections and
financial budgets, as well as a multiple indicating the current fair value. The fair value measurement was categorized
as a Level 3 fair value based on the inputs in the valuation technique used.
In determining the discount rate applied to the Aralez Canada CGU, management uses the Company’s weighted
average cost of capital as a starting point and applies adjustments to take into account specific tax rates,
geographical risk and any additional risks specific to the Aralez Canada CGU. An after-tax discount rate of 23.63%
(December 31, 2020 - 16.82%) was applied, along with a terminal-growth rate of -3%. It was concluded that the
carrying value exceeded the recoverable amount. As a result, impairment for the Aralez Canada CGU was identified
and recorded in the Consolidated Statements of Loss and Comprehensive Loss in the amount of $12.9 million.
The recoverable amount of the Resultz Rest of World CGU as at December 31, 2021 has been determined based
on a value-in-use calculation using cash flow projections. An after-tax discount rate of 23.78% [December 31, 2020
- 16.82%] was applied along with a terminal-growth rate of -5%. It was concluded that the carrying value exceeded
the recoverable amount. As a result, impairment for the Resultz Rest of World CGU was identified and recorded in
the Consolidated Statements of Loss and Comprehensive Loss in the amount of $0.9 million.
In the year ended December 31, 2021, the impairment loss of $13.8 million represented the write-down of goodwill
in the Aralez Canada CGU and Resultz Rest of World CGU. This was recognized in the Consolidated Statements of
Loss and Comprehensive Loss as impairment. The recoverable amount as at December 31, 2021 was based on
value-in-use for the Resultz Rest of World CGU and fair value less costs of disposal for the Aralez Canada CGU
and was determined at the level of the CGU.
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
Impairment amounts of goodwill allocated to each CGU as at December 31, 2021 was as follows:
Goodwill
$
Aralez Canada cash-generating units
Resultz Canada cash-generating units
12,971
-
Resultz Rest of World cash-generating units
872
Total
13,843
Sensitivity analysis
The Company’s goodwill impairment test is sensitive to changes in assumptions. An increase or decrease of 5 basis
points to the discount rates used by the Company, assuming all other variables remain constant, for its goodwill
impairment test would have resulted in an increase or decrease of $0.7 million to the recoverable amount of the
Company’s Aralez Canada CGU and Resultz Rest of World CGU.
11. LOANS AND BORROWINGS
The Company financed the Aralez Transaction through funding provided by Deerfield Management Company, L.P.
(Deerfield) on December 31, 2018. The Company received total proceeds of $161.7 million (US$118.5 million) from
Deerfield in exchange for issuing the Amortization Loan, the Bridge Loan, the Convertible Loan and Warrants. In
addition to these freestanding instruments, there were two embedded derivatives requiring bifurcation: the
conversion feature in the Convertible Loan (See Note 12, Derivative Liabilities) and the prepayment option in the
Amortization Loan.
The Company’s loans and borrowings were measured at amortized cost as follows:
December 31, 2021
$
December 31, 2020
$
CURRENT
Amortization Loan (i)
12,340
12,337
12,340
12,337
NON-CURRENT
Amortization Loan (ii)
28,241
39,116
Convertible Loan – debt host (ii)
55,129
52,244
83,370
91,360
The Loans are guaranteed by Aralez Canada and cross-guaranteed by each of the companies and Miravo Ireland
as to each other’s obligations and are secured by a first ranking charge over substantially all property of each of the
Company, Miravo Ireland and Aralez Canada.
The Amortization Loan, Bridge Loan and Convertible Loan were issued on December 31, 2018. Interest on these
Loans is accrued and paid on a quarterly basis. During the year ended December 31, 2020, the Company repaid
the $4.5 million (US$3.5 million) outstanding balance of the Bridge Loan.
Any repayment of principal on the Amortization Loan prior to the payment terms is considered a prepayment to
which a 0.25% prepayment fee applies. Early repayment is not permitted for the Convertible Loan. The fair value
of the prepayment option bifurcated from the Amortization Loan was a derivative asset with a nominal value as at
December 31, 2021 and December 31, 2020 and is presented net of the non-current portion of the long-term debt.
Each quarter, the Company is required to pay to the lenders the greater of US$2.5 million or 50% of the Company’s
excess cash flows, a defined term in the facility agreement with Deerfield (Deerfield Facility Agreement), which is
applied in the following order: (a) any unpaid fees and transaction costs; (b) proportionately to any accrued and
unpaid interest related to these Loans; (c) any unpaid principal of the Bridge Loan, including the applicable
prepayment fee; (d) any unpaid principal of the Amortization Loan, including the applicable prepayment fee; and (e)
any other obligations owing to the lenders, administrative agent or other secured parties (the Waterfall Provisions).
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
(i) Amortization Loan
The Amortization Loan was issued on December 31, 2018 in the principal amount of $81.9 million (US$60 million).
The carrying value reflects an allocation of transaction costs, which reduced the carrying value of the respective
liability and are reflected in the calculation of interest expense under the effective interest rate method.
The change in the carrying value of this liability was as follows:
2021
$
2020
$
As at January 1
51,453
68,464
Principal repayment
(13,401)
(17,908)
Interest accretion during the period
2,880
3,851
Change in fair value of long-term debt
149
(2,434)
Foreign currency movement
(500)
(520)
Balance, December 31
40,581
51,453
In the year ended December 31, 2021, the Company made principal loan repayments of $13.4 million (US$10.8
million) applied to the Amortization Loan. During the year ended December 31, 2020, the Company made principal
loan repayments of $17.9 million (US$13.3 million) applied to the Amortization Loan.
The interest on the Amortization Loan is accrued as well as paid on a quarterly basis. In the year ended December
31, 2021, the net interest accrued on the Amortization Loan was $2.9 million (US$2.3 million) [the net interest
accrued on the Amortization Loan was $3.9 million (US$2.9 million) in the year ended December 31, 2020]. In the
year ended December 31, 2021, the gross interest expense accrued on the Amortization Loan was $4.7 million
(US$3.8 million), which was offset by a $1.8 million ($US1.5 million) payment to Deerfield [the gross interest
expense on the Amortization Loan was $6.4 million (US$ 4.8 million), which was offset by a $2.5 million (US$1.9
million) payment to Deerfield in the year ended December 31, 2020].
The carrying value of the debt includes assumptions regarding the estimated timing of payments. As a result of
changes in the assumptions regarding the timing of the payments, losses of $149 (US$118) were recorded in the
year ended December 31, 2021 [gains of $2.4 million (US$1.8 million) were recorded in the year ended December
31, 2020].
(ii) Convertible Loan
The Convertible Loan was issued on December 31, 2018 in the principal amount of $71.6 million (US$52.5 million).
The fair value of the conversion feature as at December 31, 2021 in the amount of $12.1 million has been classified
as a derivative financial liability, as described in Note 12, Derivative Liabilities. The carrying value reflects an
allocation of transaction costs, which reduces the carrying value of the respective liability and are reflected in the
calculation of interest expense under the effective interest rate method.
The change in carrying value of this liability was as follows:
2021
$
2020
$
As at January 1
52,244
50,420
Interest accretion during the period
3,061
2,966
Foreign currency movement
(176)
(1,142)
Balance, December 31
55,129
52,244
The interest on the Convertible Loan is accrued as well as paid on a quarterly basis. Early repayment is not
permitted for the Convertible Loan. Any debenture not converted will be repaid on December 31, 2024. In the year
ended December 31, 2021, the net interest accrued on the Convertible Loan was $3.1 million (US$2.4 million) [net
interest accrued on the Convertible Loan was $3.0 million (US$2.2 million) in the year ended December 31, 2020].
In the year ended December 31, 2021, the gross interest expense accrued on the Convertible Loan was $5.4 million
(US$4.3 million), which was offset by a $2.3 million ($US1.9 million) payment to Deerfield [the gross interest
expense on the Convertible Loan was $5.5 million (US$ 4.1 million), which was offset by a $2.5 million (US$1.9
million) payment to Deerfield in the year ended December 31, 2020].
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
12. DERIVATIVE LIABILITIES
The Company’s derivative liabilities are measured at fair value through profit and loss and are summarized below:
December 31, 2021
$
December 31, 2020
$
Conversion feature on Convertible Loan
12,130
5,664
Warrants
17,030
8,001
29,160
13,665
During the year ended December 31, 2021, the Company recognized non-cash losses of $15.6 million on the
change in fair value of derivative liabilities [non-cash losses of $11.7 million for the year ended December 31, 2020].
During the year ended December 31, 2021, the Company recognized a gain on foreign exchange of $0.1 million [a
gain of $0.3 million for the year ended December 31, 2020].
Conversion feature
The conversion feature is embedded in the Convertible Loan described in Note 11, Loans and Borrowings and
allows the holder to convert the outstanding principal amount of the debentures into common shares of the
Company at any time at a conversion price of US$2.70 per share, subject to a restriction that the holder shall not
ultimately hold more than 4.985% of the total number of common shares of the Company at any one time.
Warrants
On December 31, 2018, the Company issued 25,555,556 Warrants with a total fair value of $19.1 million (US$14.0
million). Each Warrant is exercisable at the option of the holder for one common share of the Company at an
exercise price of $3.53 per Warrant. The outstanding Warrants expire on December 31, 2024. Any exercise is
subject to a restriction that the holder shall not ultimately hold more than 4.985% of the total number of common
shares of the Company at any one time.
There are three methods of Warrant settlement, all at the option of the holder. The first method of settlement
requires the holder to remit the exercise price of $3.53 per Warrant and the Company will issue a common share
of the Company. The second method results in the $3.53 per Warrant strike price being applied as a payment
against the outstanding principal balance of the Amortization Loan. The third method of exercise applies to those
Warrants classified as Flexible Exercise Shares (FES). Warrants considered FES can be exercised without upfront
remuneration to the Company. The Company issues fractional shares equal to the difference between the current
share price and the $3.53 exercise price of the Warrant. As at December 31, 2021, 12,268,920 of the 25,555,556
Warrants outstanding were classified as FES.
Inputs to fair value models
Key assumptions used in determining the fair values of the Company’s derivative liabilities at initial recognition and
period-end are summarized below as at:
Conversion Feature
Issue date
December 31, 2018
December 31, 2018
Valuation date
December 31, 2021
December 31, 2020
Share price
$1.44
$0.91
Risk-free interest rate
0.97%
0.26%
Discount for lack of marketability
12.00%
10.00%
Dividend yield
0%
0%
Volatility factor
114%
92%
Expected life
3 years
4 years
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
Warrants
Issue date
December 31, 2018
December 31, 2018
Valuation date
December 31, 2021
December 31, 2020
Share price
$1.44
$0.91
Risk-free interest rate
1.04%
0.32%
Discount for lack of marketability
12.00%
10.00%
Dividend yield
0%
0%
Volatility factor
114%
92%
Expected life
3 years
4 years
13. OTHER OBLIGATIONS
Other obligations consist of the following as at:
December 31, 2021
December 31, 2020
$
$
Contingent and variable consideration
1,228
3,254
Lease obligations
1,433
1,465
Less amounts due within one year(i)
1,360
(396)
Long-term balance
1,301
4,323
(i)
As at December 31, 2021, the amounts due within one year were comprised of $1.1 million [December 31, 2020 - $0.2 million] of contingent
and variable consideration and $0.2 million [December 31, 2020 - $0.2 million] of lease obligations.
Contingent and Variable Consideration
The change in the carrying value of this liability was as follows:
2021
$
2020
$
As at January 1
3,254
2,814
Recognition of contingent consideration in relation to Yosprala
-
2,548
Remeasurement of contingent consideration in relation to the ex-U.S. Resultz
acquisition
(1,917)
(710)
Payments during the period in relation to Yosprala
(426)
(1,168)
Additions to contingent consideration in relation to the Aralez Transaction
-
171
Change in estimates for payments in relation to Yosprala
497
(561)
Interest accretion
103
76
Foreign exchange
(283)
84
Balance, December 31
1,228
3,254
The Company recognized $1.2 million in contingent and variable consideration as at December 31, 2021 [December
31, 2020 - $3.3 million], which represented the present value of the Company’s probability-weighted estimate of the
cash outflow related to the ex-U.S. Resultz acquisition and the profits earned from Yosprala, which was acquired
as part of the Aralez Transaction.
Contingent and variable consideration related to the ex-U.S. Acquisition of Resultz
The ex-U.S. Resultz acquisition included additional contingent consideration based on meeting certain milestones
in partnered markets, payable only if those targets are achieved, as well as variable consideration based on annual
royalties earned in non-partnered markets. As at December 31, 2021, the Company recognized $93 [December
31, 2020 - $2.2 million] for contingent and variable consideration related to the ex-U.S. Resultz acquisition. The
decrease of $2.1 million from the comparative year was the result of a $1.9 million remeasurement of contingent
consideration due to a change in forecasted, commercial expectations and a $0.2 million foreign exchange gain.
The change in commercial forecasts was triggered by the evolving COVID-19 pandemic and social distancing
measures continuing worldwide. During the years ended December 31, 2021 and 2020, the Company did not make
any contingent consideration payments related to the ex-U.S. Resultz acquisition.
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
Contingent and variable consideration related to Yosprala
The Aralez Transaction included contingent consideration in the form of 50% of the lifetime net earnings from
monetization of the Yosprala product. As at December 31, 2021, the Company recognized $1.1 million [December
31, 2020 - $1.1 million] for contingent and variable consideration related to Yosprala.
During the year ended December 31, 2020, the Company recognized a $5.5 million (US $3.9 million) contract asset
as the Company’s Japanese licensee of Yosprala obtained a regulatory approval, which triggered two milestone
payments due to Miravo Ireland of US$2.0 million each, less related costs (See Note 24, Revenue). Miravo Ireland
received the first $2.5 million (US$1.8 million) milestone payment, net of withholding tax during the year ended
December 31, 2020. The second milestone payment is expected to be received no later than May 31, 2022,
provided the intellectual property remains valid and enforceable.
During the year ended December 31, 2021, the Company made contingent consideration payments of $426 related
to Yosprala [$76 for the year ended December 31, 2020].
Lease Obligations
The change in the carrying value of this liability was as follows:
2021
$
2020
$
As at January 1
1,465
594
Modification of lease (Note 7)
-
632
Payments during the year
(225)
(253)
Interest expense during the year
151
89
Remeasurement
-
(17)
Lease Incentive
42
420
Balance, December 31
1,433
1,465
During the years ended December 31, 2021 and 2020, the Company’s lease obligations related to its head office
in Mississauga, Ontario.
14. CAPITAL STOCK
Authorized
•
Unlimited first and second preferred shares, non-voting, non-participating, issuable in series, number,
designation, rights, privileges, restrictions and conditions are determinable by the Company’s Board of
Directors.
•
Unlimited common shares, voting, without par value.
15. STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS
The Company has five stock-based compensation plans: the Share Option Plan, the Share Purchase Plan, the
Share Bonus Plan, each a component of the Company’s Share Incentive Plan, the SARs Plan and the DSU Plan.
As at December 31, 2021, the number of common shares available for issuance under the Share Incentive Plan
was 160,739.
Share Option Plan
Under the Share Option Plan, the Company may grant options to purchase common shares to officers, directors,
employees or consultants of the Company or its affiliates. Options issued under the Share Option Plan are granted
for a term not exceeding ten years from the date of grant. All options issued to-date have a life of ten years. In
general, options have vested either immediately upon grant or over a period of one to four years or upon the
achievement of certain performance-related measures or milestones. Under the provisions of the Share Option
Plan, the exercise price of all stock options shall not be less than the closing price of the common shares on the
last trading date immediately preceding the grant date of the option.
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
The following is a schedule of the options outstanding as at:
Options
Range of
Exercise Price
Weighted Average
Exercise Price
000s
$
$
Balance, December 31, 2020
1,572
0.57 - 5.75
3.38
Granted
96
1.74
1.74
Expired
(120)
4.32 - 5.08
4.88
Balance, December 31, 2021
1,548
0.57 - 5.75
3.17
The fair value of each tranche is measured at the date of grant using the Black-Scholes option pricing model.
Options were valued with a calculated forfeiture rate of 7% [December 31, 2020 - 7%] and the remaining model
inputs for options granted during the year ended December 31, 2021 were as follows:
Options
Grant Date
Share
Price
Exercise
Price
Risk-free
Interest Rate
Expected
Life
Volatility
Factor
Fair Values
000s
$
$
%
(years)
%
$
96
March 11, 2021
1.74
1.74
1.09
5 - 7
72 - 73
1.06 - 1.17
The following table summarizes the outstanding and exercisable options held by directors, officers, employees and
consultants as at December 31, 2021:
Outstanding
Exercisable
Exercise
Price Range
Options
Remaining
Contractual Life
Weighted Average
Exercise Price
Vested
Options
Weighted Average
Exercise Price
$
000s
years
$
000s
$
0.57 - 1.53
350
7.36
0.72
219
0.80
1.54 - 2.65
498
6.15
2.28
336
2.40
2.66 - 5.08
221
5.90
3.70
187
3.73
5.09 - 5.75
479
4.84
5.63
478
5.63
1,548
5.99
3.17
1,220
3.59
Share Purchase Plan
During the years ended December 31, 2021 and 2020, there were no issuances of shares under the Share Purchase
Plan.
Share Appreciation Rights
On March 5, 2021, the Company’s directors approved a SARs Plan for directors, officers and employees of the
Company and its affiliates to provide incentive compensation based on the appreciation in value of the Company’s
common shares. Pursuant to the terms of the SARs Plan, participants are eligible to receive a grant of SARs, which
are priced at no less than the value of the closing price of the Company’s common shares on the TSX on the day
preceding the date of the grant (Grant Price). Upon vesting, a cash amount equal to the difference between the
SARs’ fair market value on the vesting date and the Grant Price, also known as the intrinsic value, is paid to the
participant. Fair market value on the vesting date is the closing price of the Company’s common share on the TSX
on the day preceding the vesting date. The compensation expense is measured quarterly based on the fair value
of the SARs, amortized over the vesting period, using the Black-Scholes option pricing model. The fair value of the
liability is remeasured at the end of each reporting period.
The fair value of the tranche issued and outstanding in the period was measured as at the grant date, determined
based on the Black-Scholes option pricing model, using the following inputs:
SARs
Grant Date
Exercise Price
(Grant Price)
Risk-free
Interest Rate
Expected Life
Volatility
Factor
Fair Values
(000s)
$
%
(years)
%
$
284
March 11, 2021
1.74
0.23
3
90.52
0.99
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
The following table summarizes the outstanding SARs and related accrual as at December 31, 2021:
Number of
SARs
Fair
Values
Accrual
000s
$
$
Balance, December 31, 2020
-
-
-
Granted
284
0.99
-
Remeasurement
-
(0.34)
50
Balance, December 31, 2021
284
0.65
50
For the year ended December 31, 2021, a $50 expense was recorded in G&A expenses as compensation expense
related to SARs. For the current year, the expense consisted of a decrease of $26 in the fair value of the issued
SARs, combined with a $76 increase in the aggregate SARs accrual to the market value of the underlying shares.
The SARs’ accrual was included in accounts payable and accrued liabilities.
Deferred Share Unit Plan
Under the DSU Plan, non-employee directors can be allotted and elect to receive a portion of their quarterly retainers
and other Board-related compensation in the form of DSUs. One DSU has a cash value equal to the market price
of one of the Company’s common shares and the number of DSUs issued to a director’s DSU account for any
payment is determined using the five-day VWAP of the Company’s common shares immediately preceding the
payment date.
Upon issuance, the fair value of the DSUs is recorded as compensation expense and the DSU accrual is recognized.
At all subsequent reporting dates, the DSU accrual is adjusted to the market value of the underlying shares and the
adjustment is recorded as compensation cost or recovery. Within a specified time after retirement or termination,
non-employee directors receive a cash payment equal to the market value of the DSUs.
The following table summarizes the outstanding DSUs and related accrual as at:
Number of
DSUs
Market
Values
Accrual
000s
$/unit
$
Balance, January 1, 2021
-
-
-
Issued for directors’ fees
61
1.53
94
Adjustment to market value
-
(0.09)
(6)
Balance, December 31, 2021
61
1.44
88
For the year ended December 31, 2021, a $88 expense was recorded in G&A expenses as compensation expense
related to DSUs. A $94 compensation expense on issuance was offset by a $6 decrease in the aggregate DSU
accrual to the decline in market value of the underlying shares. The DSU accrual was included in accounts payable
and accrued liabilities.
Summary of Stock-based Compensation
Year ended
December 31, 2021
Year ended
December 31, 2020
$
$
Stock option compensation expense under the Share Option Plan
229
261
SARs compensation expense
50
-
DSUs compensation expense
88
-
Stock-based compensation expense
367
261
Recorded in the Consolidated Statements of Loss and
Comprehensive Loss as follows:
Cost of goods sold
27
31
Sales and marketing expenses
11
11
General and administrative expenses
329
219
Stock-based compensation expense
367
261
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
16. NET INTEREST EXPENSE
Year ended
December 31, 2021
Year ended
December 31, 2020
$
$
Interest expense on financial liabilities measured at amortized cost(i)
10,253
11,925
Interest income on contract assets
(122)
(406)
Interest income on cash and cash equivalents
(28)
(78)
Net interest expense
10,103
11,441
(i)
The Deerfield Financing requires the Company to make quarterly interest payments on outstanding loans. The interest rate for the
Amortization Loan and the Convertible Loan is a fixed 3.5%. During the year ended December 31, 2021, the Company made cash
payments of $4.1 million (US$3.4 million) to Deerfield for interest due [December 31, 2020 - $5.0 million (US$3.8 million)].
17. OTHER LOSSES (GAINS)
Year ended
December 31, 2021
Year ended
December 31, 2020
$
$
Loss (gain) on valuation of long-term debt(i)
149
(2,434)
Loss on disposal of fixed assets
-
180
Other losses
138
161
Other losses (gains)
287
(2,093)
(i)
As a result of changes in the assumptions regarding the timing of the payments, losses of $149 (US$118) were recorded in the year ended
December 31, 2021 [gains of $2.4 million (US$1.8 million) were recorded in the year ended December 31, 2020].
18. NET LOSS PER COMMON SHARE
Net loss per common share is computed as follows:
Year ended
December 31, 2021
Year ended
December 31, 2020
$
$
Basic loss per share:
Net loss
(32,205)
(4,129)
Average number of shares outstanding during the year
11,388
11,388
Basic loss per share
(2.83)
(0.36)
Net loss
(32,205)
(4,129)
Dilutive effect of:
Warrants
-
-
Convertible Loan
-
-
Stock options
-
-
Net loss, assuming dilution
(32,205)
(4,129)
Average number of shares outstanding during the year
11,388
11,388
Dilutive effect of:
Warrants
-
-
Convertible Loan
-
-
Stock options
-
-
Weighted average common shares outstanding,
assuming dilution
11,388
11,388
Diluted loss per share
(2.83)
(0.36)
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
The following table presents the maximum number of shares that would be outstanding if all dilutive and potentially
dilutive instruments were exercised or converted as at:
December 31, 2021
December 31, 2020
Weighted Average
Exercise Price
Units
Outstanding
Weighted Average
Exercise Price
Units
Outstanding
$
000s
$
000s
Common shares issued and
outstanding
n/a
11,388
n/a
11,388
Stock options outstanding (Note 15)
3.17
1,548
4.10
1,572
Warrants (Note 12)
3.53
25,556
3.53
25,556
Convertible Loan (Note 11)
US$2.70
19,444
US$2.70
19,444
57,936
57,960
19. EXPENSES BY NATURE
The Consolidated Statements of Loss and Comprehensive Loss include the following expenses by nature:
(a) Employee costs, net of Canada Emergency Wage Subsidy (CEWS):
Year ended
December 31, 2021
Year ended
December 31, 2020
$
$
Short-term wages, bonuses and benefits
14,401
12,380
Share-based payments
273
242
Termination benefits
108
-
Total employee costs
14,782
12,622
Included in:
Cost of goods sold
3,222
2,731
Sales and marketing
4,361
3,692
General and administrative expenses
7,199
6,199
Total employee costs
14,782
12,622
During the year ended December 31, 2021, the Company recorded $293 in government assistance resulting from
the CEWS [December 31, 2020 - $1.2 million]. The funding has been recorded as a reduction of the related salary
expenditures with $94 recorded in sales and marketing expenses [December 31, 2020 - $0.4 million], $114 recorded
in G&A expenses [December 31, 2020 - $0.4 million] and $85 recorded in COGS [December 31, 2020 - $0.4 million].
There are no unfulfilled conditions or other contingencies attaching to the current CEWS.
(b) Depreciation and amortization:
Year ended
December 31, 2021
Year ended
December 31, 2020
$
$
Amortization of intangibles
7,428
8,314
Cost of goods sold
419
434
General and administrative expenses
203
508
Total depreciation and amortization
8,050
9,256
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
20. NET CHANGE IN NON-CASH WORKING CAPITAL
Net change in non-cash working capital consists of:
Year ended
December 31, 2021
Year ended
December 31, 2020
$
$
Accounts receivable
1,001
7,595
Inventories
573
(3,547)
Contract assets
437
2,374
Other current assets
452
(902)
Accounts payable and accrued liabilities
3,140
(1,411)
Current income taxes payable
(709)
701
Net change in non-cash working capital
4,894
4,810
21. INCOME TAXES
Deferred Tax Assets and Liabilities
Deferred income taxes represent the net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant
components of deferred tax assets (liabilities) consist of the following:
Year ended
December 31, 2021
Year ended
December 31, 2020
$
$
Investment tax credits
723
-
Accounting value of indefinite lived intangible assets in excess of tax
basis
(222)
(299)
Accounting value of PP&E and intangibles in excess of tax basis
(4,670)
-
Financing costs, deferred revenue and other
448
-
Capital losses
-
-
Non-capital and operating losses
1,022
-
Other
-
-
(2,699)
(299)
A deferred income tax asset has not been recognized for certain temporary differences that may be available to
reduce income. The tax effected amounts of such temporary differences that have not been recognized in the
Consolidated Statements of Financial Position or Consolidated Statements of Loss and Comprehensive Loss are
as follows:
Year ended
December 31, 2021
Year ended
December 31, 2020
$
$
Investment tax credits
1,488
1,737
Accounting value of PP&E and intangibles in excess of tax basis
1,571
(3,864)
Financing costs, deferred revenue and other
(222)
312
Capital losses
12,664
12,640
Non-capital and operating losses
5,743
9,123
Other
(328)
(208)
20,916
19,740
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
A reconciliation between the Company’s statutory and effective tax rates is presented below:
Year ended
December 31, 2021
Year ended
December 31, 2020
%
%
Statutory rate
26.50
26.50
Items not deducted for tax
(29.12)
(142.41)
Utilization of previously unrecognized deferred tax assets
1.02
47.88
Foreign rate differences
(1.04)
37.63
Withholding taxes
(0.42)
(9.37)
Other
(6.38)
0.16
(9.44)
(39.61)
The Company has net capital losses of $47.8 million in Canada available to offset net taxable capital gains in future
years that have not been recognized [December 31, 2020 - $47.7 million].
Government Assistance
A portion of the Company’s research and development expenditures are eligible for Canadian federal investment
tax credits that it may carry forward to offset any future Canadian federal income taxes payable as follows:
Year of Credit
Amount
Year of Expiry
$
2004
149
2024
2005
130
2025
2006
121
2026
2007
340
2027
2008
234
2028
2009
142
2029
2010
395
2030
2011
208
2031
2012
43
2032
2014
80
2034
2015
494
2035
2016
27
2036
2,363
The benefits of these non-refundable Canadian federal investment tax credits have not been recognized in these
Consolidated Financial Statements.
Non-capital Losses
Year of Losses
Amount
Year of Expiry
$
2011
-
2031
2012
-
2032
2013
-
2033
2014
-
2034
2015
-
2035
2016
2,611
2036
2017
-
2037
2018
-
2038
2019
-
2039
2019
18,376
Indefinite
2020
4,847
2040
2021
7,337
2041
33,171
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
As at December 31, 2021, the Company has not recognized the benefits of Canadian and foreign non-capital losses
of $15.9 million and $17.3 million, respectively [December 31, 2020 - $30.0 million and $16.7 million].
22. COMMITMENTS AND CONTINGENCIES
The Company has minimum future payments under variable lease payment obligations, purchase commitments,
minimum royalties and anticipated milestones for the 12 months ending December 31 as follows:
$
2022
6,430
2023
5,959
2024
5,491
2025
597
2026
562
2027 and thereafter
1,051
20,090
For the year ended December 31, 2021, payments for lease obligations totalled $225 [December 31, 2020 - $0.3
million].
Under the terms of the Pennsaid® 2% U.S. Asset Sale with Horizon, the Company is contractually obligated to
manufacture Pennsaid 2% for the U.S. market to December 2029 and, unless terminated, the supply agreement
will renew for successive two-year terms, thereafter. The agreement provides for tiered pricing based on volumes
of product shipped. The Company is also required to maintain certain raw material inventory levels. The Company
has additional long-term supply contracts where the Company is contractually obligated to manufacture Pennsaid
2% and Pennsaid for its customers.
The Company has a long-term supply agreement with a third-party manufacturer for the supply of dimethyl sulfoxide,
one of the key raw materials in Pennsaid 2% and Pennsaid, which expires in December 2022. The agreement
requires the Company to purchase 100% of its dimethyl sulfoxide requirements from the third-party manufacturer
at specified pricing, but does not contain any minimum purchase commitments.
The Company has a long-term supply agreement with a third-party manufacturer for Blexten®. The agreement
automatically renews for successive five-year terms, unless terminated in writing by either party at least 12 months
prior to the expiration of the current term in 2024. The agreement requires the Company to purchase 100% of its
Blexten requirements from the third-party manufacturer at specified pricing.
Under certain licensing agreements for the Heated Lidocaine/Tetracaine (HLT) Patch, Blexten and Cambia®, the
Company is required to make royalty payments ranging from 1% to 30% for annual net sales and certain milestone
payments.
Under certain exclusive distribution agreements, the Company is required to make minimum royalty payments to a
company of $0.3 million per year and 30% incremental royalty payments on net receipts above the minimum
payments for Soriatane™ and Bezalip®.
During the current and comparative years, the Company leased property for offices in Canada and Ireland. The
Company expenses the lease payments for short-term leases and low-value leases as incurred. There are no
financial covenants imposed by any of the leases.
Year ended
December 31, 2021
Year ended
December 31, 2020
$
$
Interest expense on lease liabilities
151
89
Expenses related to variable lease payments not classified as lease
obligations
18
207
Cash outflow for leases classified as lease obligations
225
253
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
The Company did not have any sale and leaseback transactions during the year ended December 31, 2021.
The Company’s future cash outflows may change due to variable lease payments, renewal options, termination
options, residual value guarantees and leases not yet commenced to which the Company is committed, but are not
reflected in the lease obligations.
The following is a maturity analysis for undiscounted lease payments that are reflected in the lease obligations as
at December 31, 2021:
$
Less than 1 year
226
1 to 2 years
238
2 to 3 years
238
3 to 4 years
239
Beyond 4 years
1,277
2,218
On October 30, 2019, the Company received an application for an industry-wide class action in the Superior Court
of Québec. In the application, the Company was named as a defendant, along with 33 other defendants, which
includes a group of companies that manufacture, market, and/or distribute opioids in Québec. The claim is for $30,
plus interest for compensatory damages for each class member, $25.0 million from each defendant for punitive
damages and pecuniary damages for each class member. The financial impact cannot be estimated at this time,
as the class has not yet been defined by the court. The Company believes that the claim is without merit and
intends to vigorously defend the matter.
23. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Financial Instruments at Amortized Cost
For the year ended December 31, 2021, the Company recognized $28 in interest income from financial assets held
at amortized cost [$78 for the year ended December 31, 2020].
For the year ended December 31, 2021, the Company recognized $10.3 million in interest expense from financial
liabilities held at amortized cost [$11.9 million for the year ended December 31, 2020].
Credit Risk
The Company, in the normal course of business, is exposed to credit risk from its global customers, most of whom
are in the pharmaceutical industry. The accounts receivable and contract assets are subject to normal industry
risks in each geographic region in which the Company operates. The Company attempts to manage these risks
prior to the signing of distribution or licensing agreements by dealing with creditworthy customers; however, due to
the limited number of potential customers in each market, this is not always possible. In addition, a customer’s
creditworthiness may change subsequent to becoming a licensee or distributor and the terms and conditions in the
agreement may prevent the Company from seeking new licensees or distributors in these territories during the term
of the agreement.
As at December 31, 2021, the Company’s largest customer represented 30% [December 31, 2020 - 30%] of
accounts receivable. Pursuant to their collective terms, accounts receivable, net of allowance, were aged as follows:
December 31, 2021
December 31, 2020
$
$
Current
6,162
7,018
0 - 30 days past due
23
463
31 - 60 days past due
249
2
Over 60 days past due(i)
91
5
6,525
7,488
(i)
See “loss allowance provision” below.
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
The loss allowance provision for all segments as at December 31, 2021 was determined using reference to
expected loss rates and management judgment as follows:
Current
Less than 61
days past due
61 to 120
days past due
121 to 180
days past due
More than 181
days past due
Total
Expected loss rate
%
0%(i)
0%(i)
25%
50%
100%
-
Gross carrying amount
$
6,247
276
105
-
-
6,628
Loss allowance provision
$
(85)
(4)
(14)
-
-
(103)
(i)
Loss allowance provision balance consists of credit memos and purchase deductions, realized in the normal course of business, on invoices
that take time to be processed. As a result, loss provision was 0%.
During the year ended December 31, 2021, the Company recorded $44 of bad debt reversal in total comprehensive
loss [$nil of bad debt reversal for the year ended December 31, 2020]. For the year ended December 31, 2021,
the impairment of accounts receivable was assessed based on the incurred loss model in compliance with IFRS 9.
Individual receivables that were known to be uncollectible were written off by reducing the carrying amount directly.
For contract assets within the scope of IFRS 15, the Company recognizes an asset to the extent contractual
minimums established in certain customer licensing agreements are deemed fixed consideration. After analysis of
historical default rates and forward-looking estimates, the Company’s contract assets were considered to have low
credit risk, and as a result, the Company has not recognized a loss allowance as at December 31, 2021 [December
31, 2020 - $nil].
The Company’s cash and cash equivalents subject the Company to a concentration of credit risk. As at December
31, 2021, the Company had $30.9 million deposited with three financial institutions in various bank accounts. These
financial institutions are major banks located in Canada, the U.S. and Ireland, which the Company believes lessens
the degree of credit risk. The Company has not recognized a loss allowance as at December 31, 2021 [December
31, 2020 - $nil].
The Company has not noted a significant change in the credit risk of the financial instruments related to the COVID-
19 pandemic.
Financial Instruments
IFRS 7 - Financial Instruments, Disclosures requires disclosure of a three-level hierarchy that reflects the
significance of the inputs used in making fair value measurements. All assets and liabilities for which fair value is
measured or disclosed in these Consolidated Financial Statements are categorized within the fair value hierarchy,
described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
•
Level 1 - Unadjusted quoted prices at the measurement date for identical assets or liabilities in active
markets.
•
Level 2 - Observable inputs other than quoted prices in Level 1, such as quoted prices for similar assets
and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that
are not active or other inputs that are observable or can be corroborated by observable market data.
•
Level 3 - Significant unobservable inputs that are supported by little or no market activity.
The Company did not have any transfer of assets and liabilities between Level 1, Level 2 and Level 3 of the fair
value hierarchy during the year ended December 31, 2021.
As at December 31, 2021, the Company’s financial assets and liabilities consisted of cash and cash equivalents,
accounts receivable, accounts payable and accrued liabilities, contingent and variable consideration, long-term debt
and derivative liabilities. The Company has determined the estimated fair values of its financial instruments based
on appropriate valuation methodologies. However, considerable judgment is required to develop these estimates.
Accordingly, these estimated values are not necessarily indicative of the amounts the Company could realize in a
current market exchange. The estimated fair value amounts can be materially affected by the use of different
assumptions or methodologies.
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
The Company’s cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities
(excluding SARs and DSUs) are measured at amortized cost and their fair values approximate carrying values.
Cash and cash equivalents are Level 1, while the other short-term financial instruments are Level 3.
Level 2 liabilities include obligations of the Company for the DSU Plan described in Note 15, Stock-based
Compensation and Other Stock-based Payments. The fair values of the DSUs issued and outstanding are revalued
at each reporting period using the period-end share price. The Company accrued $88 for DSUs as at December
31, 2021 [December 31, 2020 - $nil].
Level 2 liabilities include obligations of the Company for the SARs Plan described in Note 15, Stock-based
Compensation and Other Stock-based Payments. The fair values of each tranche of SARs issued and outstanding
are revalued at each reporting period using the Black-Scholes option pricing model. The Company accrued $50
for SARs as at December 31, 2021 [December 31, 2020 - $nil].
The fair values of the Loans are Level 3 measurements determined using a discounted cash flow model that
considers the present value of the contractual cash flows using a risk-adjusted discount rate. The Company
recognized $95.7 million for the Amortization Loan and host liability of the Convertible Loan as at December 31,
2021 [December 31, 2020 - $103.7 million].
The conversion feature that accompanies the Company’s Convertible Loan is considered a Level 3 liability. The
value is determined as the difference between the fair value of the hybrid Convertible Loan contract, using an
income approach with a binomial-lattice model and the fair value of the host liability contract, using a discounted
cash flow model, as described in Note 12, Derivative Liabilities. The Company recognized $12.1 million for the
conversion feature as at December 31, 2021 [December 31, 2020 - $5.7 million].
The fair values of the prepayment option that allows the Company to make prepayments against the Amortization
Loan at any time is considered a Level 3 financial instrument. The fair value of the prepayment option bifurcated
from the Amortization Loan was a derivative asset with a nominal value as at December 31, 2021 and is presented
net of the non-current portion of the long-term debt (See Note 11, Loans and Borrowings). The fair value of this
option was determined using a binomial-lattice model.
The fair value of the Company’s Warrants is revalued at each reporting period using the Black-Scholes option
pricing model. As at December 31, 2021, the Company recognized a $17.0 million derivative liability related to
outstanding Warrants [December 31, 2020 - $8.0 million]. These Warrants are Level 3.
Level 3 liabilities include the fair value of contingent and variable consideration related to the acquisition of the ex-
U.S. rights to Resultz and Yosprala.
Risk Factors
The following is a discussion of liquidity risk, interest rate risk, currency risk and market risk and related mitigation
strategies that have been identified. Credit risk has been discussed in the Company’s assessment of impairment
under IFRS 9. This is not an exhaustive list of all risks nor will the mitigation strategies eliminate all risks listed.
Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulties in meeting its financial obligations as they
become due.
As at December 31, 2021, the Company’s financial liabilities had undiscounted contractual maturities (including
interest payments where applicable) as summarized below:
Current
Non-current
Total
$
Within 12
Months
$
1 to 2
Years
$
2 to 5
Years
$
> 5
Years
$
Accounts payable and accrued liabilities
11,490
11,490
-
-
-
Other obligations
3,348
1,226
605
491
1,026
Senior secured Amortization Loan
48,314
14,412
33,902
-
-
Senior secured Convertible Loan
73,652
2,362
71,290
-
-
136,804
29,490
105,797
491
1,026
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
Due to the impact of the COVID-19 pandemic on the economic environment, the Company has reviewed the
working capital requirements as a result of managing the supply chain and changes in demand. The Company
anticipates that its current cash of $30.9 million as at December 31, 2021, together with the cash flows generated
from operations, will be sufficient to execute its current business plan for the next 12 months and to meet its current
debt obligations.
Interest Rate Risk
The Company’s policy is to minimize interest rate cash flow risk exposures on its long-term financing. The
Company’s loans and borrowings and lease obligations are at fixed interest rates.
The fair value of the Company’s prepayment option on the Amortization Loan and the Company’s derivative
liabilities are impacted by market rate changes.
Currency Risk
The Company operates globally, which gives rise to a risk that income and cash flows may be adversely affected
by fluctuations in foreign currency exchange rates. The Company is primarily exposed to the U.S. dollar and euro,
but also transacts in other foreign currencies. The Company currently does not use financial instruments to hedge
these risks. The significant balances in foreign currencies were as follows:
U.S. Dollar
Euro
Dec. 31,
2021
$
Dec. 31,
2020
$
Dec. 31,
2021
€
Dec. 31,
2020
€
Cash and cash equivalents
4,921
7,214
1,566
1,444
Accounts receivable
2,501
3,145
346
133
Contract assets
1,787
1,964
-
-
Loans and borrowings
(75,514)
(81,468)
-
-
Derivative liabilities
(9,569)
(4,452)
-
-
Accounts payable and accrued liabilities
(1,770)
(803)
(1,044)
(281)
Other obligations
(896)
(1,882)
(64)
(552)
(78,540)
(76,282)
804
744
Based on the aforementioned net exposure as at December 31, 2021, and assuming that all other variables remain
constant, a 10% appreciation or depreciation of the Canadian dollar against the U.S. dollar would have an effect of
$10.0 million on total comprehensive loss and a 10% appreciation or depreciation of the Canadian dollar against
the euro would have an effect of $116 on total comprehensive loss.
In terms of the U.S. dollar, the Company has five significant exposures: its U.S. dollar-denominated cash held in its
Canadian operations, its U.S. dollar-denominated loans and borrowings and derivative liabilities held in its Canadian
and European operations, its net investment and net cash flows in its European operations, the cost of purchasing
raw materials either priced in U.S. dollars or sourced from U.S. suppliers and payments made to the Company
under its U.S. dollar-denominated licensing arrangements.
The Company does not currently hedge its U.S. dollar cash flows. The Company funds its U.S. dollar-denominated
interest expense and loan obligations using the Company’s U.S. dollar-denominated cash and cash equivalents
and payments received under the terms of the licensing and supply agreements. Periodically, the Company reviews
its projected future U.S. dollar cash flows and, if the U.S. dollars held are insufficient, the Company may convert a
portion of its other currencies into U.S. dollars. If the amount of U.S. dollars held is excessive, they may be
converted into Canadian dollars or other currencies, as needed for the Company’s other operations.
Market Risk
The Company’s derivative liabilities, the Warrants and the conversion feature that accompanies the Company’s
Convertible Loan, are impacted by a variety of valuation inputs (See Note 12, Derivative Liabilities), including
changes in the Company’s share price. As at December 31, 2021, an additional $1.00 increase in the Company’s
share price would increase the value of the Warrants by $17.0 million and an increase to the conversion feature of
$12.3 million, with a corresponding loss of $29.3 million recognized in the change in fair value of derivative liabilities.
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
The Company has not noted a significant change in the market risk due to changes to the Company’s share price
as a result of the impact of the COVID-19 pandemic on the economic environment.
24. REVENUE
In the following table, revenue is disaggregated by primary geographic market, major categories of revenue and
timing of revenue recognition as follows:
Year ended December 31
2021
2020
2021
2020
2021
2020
2021
2020
$
$
$
$
$
$
$
$
United States
International
Canada
Total
Primary categories of revenue
Product sales
9,307
10,125
2,708
2,390
45,254
39,685
57,269
52,200
License revenue
1,325
6,038
10,076
15,332
154
149
11,555
21,519
Contract revenue
-
-
78
56
5
-
83
56
10,632
16,163
12,862
17,778
45,413
39,834
68,907
73,775
Timing of revenue recognition
Transferred over time
-
-
-
-
-
-
-
-
Transferred at a point in time
10,632
16,163
12,862
17,778
45,413
39,834
68,907
73,775
10,632
16,163
12,862
17,778
45,413
39,834
68,907
73,775
Accounts Receivable and Contract Assets
December 31, 2021 December 31, 2020
$
$
Accounts receivable
6,525
7,488
Contract assets
2,518
2,845
The timing of revenue recognition, billings and cash collections result in accounts receivable and unbilled
receivables (contract assets). Generally, receipt of payment occurs subsequent to billing and revenue recognition,
resulting in accounts receivable. The Company’s contract assets relate to license revenue attributable to minimum
guaranteed sales-based royalties, upfront fees and milestone payments, which have not been billed at the reporting
date. Unbilled receivables (contract assets) will be billed (and subsequently transferred to accounts receivable) in
accordance with the agreed-upon contractual terms.
Significant changes in the contract assets’ current and long-term balance during the year were as follows:
2021
$
2020
$
Balance, December 31
2,845
402
Additions to contract assets
-
5,573
Transfers to accounts receivable
(437)
(2,651)
Impairment
(32)
-
Interest accretion
122
407
Change in estimates
-
(572)
Foreign exchange movements
20
(314)
Balance, December 31
2,518
2,845
As at December 31, 2021, the Company recognized contract assets of $2.5 million [December 31, 2020 - $2.8
million], which represented $0.2 million [December 31, 2020 - $0.6 million] for the present value of the Company’s
minimum royalty for Resultz and $2.3 million [December 31, 2020 - $2.2 million] for the present value of a milestone
anticipated from the Company’s Japanese licensee of Yosprala.
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
During the year ended December 31, 2020, the Company recognized a $5.5 million (US $3.9 million) contract asset
as the Company’s Japanese licensee of Yosprala obtained a regulatory approval, which triggered two milestone
payments due to Miravo Ireland of US$2.0 million each, less related costs (See Note 13, Other Obligations). Miravo
Ireland received the first $2.5 million (US$1.8 million) milestone payment, net of withholding tax during the year
ended December 31, 2020. The second milestone payment is expected to be received no later than May 31, 2022,
provided the intellectual property remains valid and enforceable.
Significant Customers
For the year ended December 31, 2021, the Company’s four largest customers generating product sales
represented 85% [December 31, 2020 - 88%] of total product sales and the Company’s largest customer
represented 33% [December 31, 2020 - 32%] of total product sales.
25. SEGMENT REPORTING
Operating Segments
The Company has three operating segments: Commercial Business, Production and Service Business and
Licensing and Royalty Business.
The Commercial Business segment is comprised of products commercialized by the Company in Canada. This
includes products with dedicated promotional efforts - Blexten, Cambia, Suvexx® and NeoVisc®, as well as a number
of mature products.
The Production and Service Business segment includes revenue from the sale of products manufactured by the
Company from its manufacturing facility in Varennes, Québec or contracted by Miravo Ireland from its international
headquarters in Dublin, Ireland, as well as service revenue for testing, development and related quality assurance
and quality control services provided by the Company. Key revenue streams in this segment include product sales
of Pennsaid 2%, Pennsaid and Resultz.
The Licensing and Royalty Business segment includes the revenue generated by the licensing of intellectual
property and ongoing royalties from exclusive licensing agreements with global partners. Key revenue streams in
this segment include royalties from the Company’s ex-U.S. and U.S. Vimovo, Yosprala, Resultz, Suvexx/Treximet
and HLT Patch license agreements.
The Corporate and Other total includes overhead and financing costs incurred by the Company to support its public
company infrastructure and the three operating segments.
Commercial
Business
Production
and Service
Business
Licensing
and Royalty
Business
Corporate
and Other
Total
Year ended December 31, 2021
$
$
$
$
$
Total revenue
45,255
12,097
11,555
-
68,907
Cost of goods sold
16,564
7,832
-
-
24,396
Gross profit
28,691
4,265
11,555
-
44,511
Sales and marketing expenses
10,836
-
-
-
10,836
General and administrative expenses
-
-
-
13,032
13,032
Interest expense (income)
-
-
(122)
10,225
10,103
Amortization of intangibles
3,079
-
4,349
-
7,428
Change in fair value of derivative liabilities
(Note 12)
-
-
-
15,585
15,585
Change in fair value of contingent and
variable consideration (Note 13)
-
-
(1,376)
-
(1,376)
Impairment (Note 9 and Note 10)
13,767
-
4,161
-
17,928
Foreign currency losses
-
-
-
35
35
Other losses (Note 17)
-
-
-
287
287
Income tax expense
-
-
-
2,858
2,858
Segment net income (loss)
1,009
4,265
4,543
(42,022)
(32,205)
Total segment assets
78,246
7,680
37,193
7,210
130,329
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
Commercial
Business
Production
and Service
Business
Licensing
and Royalty
Business
Corporate
and Other
Total
Year ended December 31, 2020
$
$
$
$
$
Total revenue
39,449
12,807
21,519
-
73,775
Cost of goods sold
16,231
7,078
-
-
23,309
Gross profit
23,218
5,729
21,519
-
50,466
Sales and marketing expenses
8,928
-
-
-
8,928
General and administrative expenses
-
-
-
12,893
12,893
Interest expense (income)
-
-
(406)
11,847
11,441
Amortization of intangibles
3,366
-
4,948
-
8,314
Change in fair value of derivative liabilities
(Note 12)
-
-
-
11,728
11,728
Change in fair value of contingent and
variable consideration (Note 13)
-
-
1,794
-
1,794
Impairment (Note 9 and Note 10)
740
-
843
-
1,583
Foreign currency gains
-
-
-
(1,145)
(1,145)
Other gains (Note 17)
-
-
-
(2,093)
(2,093)
Income tax expense
-
-
-
1,152
1,152
Segment net income (loss)
10,184
5,729
14,340
(34,382)
(4,129)
Total segment assets
94,183
10,476
41,791
5,315
151,765
26. KEY MANAGEMENT COMPENSATION
Key management personnel are those persons having authority and responsibility for planning, directing and
controlling the activities of the Company, including directors. In 2021, key management included the Company’s
President & Chief Executive Officer, Vice President & Chief Financial Officer, Interim Chief Financial Officer, Vice
President, Secretary & General Counsel, Vice President Operations & Chief Scientific Officer and Vice President,
Sales & Marketing. In 2020, key management included the Company’s President & Chief Executive Officer, Vice
President & Chief Financial Officer, Interim Chief Financial Officer, Vice President, Secretary & General Counsel,
Vice President Operations & Chief Scientific Officer, Vice President, Sales & Marketing and the Executive
Chairman.
Compensation for the Company’s key management personnel was as follows:
Year ended
December 31, 2021
Year ended
December 31, 2020
$
$
Short-term wages, bonuses and benefits
1,745
1,797
Share-based payments
316
217
Total key management compensation
2,061
2,014
Included in:
Sales and marketing
450
425
General and administrative expenses
1,611
1,589
Total key management compensation
2,061
2,014
27. CAPITAL MANAGEMENT
The Company currently defines its capital to include its cash and cash equivalents, long-term debt (including current
portion), derivative liabilities and shareholders’ equity, excluding AOCI.
The Company’s objective when managing capital is to provide returns for its shareholders by safeguarding its ability
to continue as a going concern while maintaining a flexible capital structure that allows the Company to execute on
Consolidated Financial Statements (audited)
Nuvo Pharmaceuticals Inc. d/b/a Miravo Healthcare
its strategic objectives and respond to changes in economic and marketplace conditions while minimizing the cost
of capital.
In the past, the Company has financed its business primarily through its operations, the net proceeds received from
the sale of common shares and warrants, issuance of secured debt and convertible debentures, finance lease
obligations and investment income earned on cash balances and short-term investments. The Company continues
to manage its capital structure and will maintain or adjust its capital structure to facilitate the execution of the
Company’s objectives or changes in the economic environment.
The Company’s capital is comprised of debt and shareholders’ equity as follows:
December 31, 2021
December 31, 2020
$
$
Cash and cash equivalents and restricted cash
30,874
23,807
Long-term debt, including current portion
95,710
103,697
Derivative liabilities
29,160
13,665
Shareholders’ equity, excluding AOCI
(11,651)
20,325
144,093
161,494
Corporate Information
HEAD OFFICE
6733 Mississauga Road, Suite 800
Mississauga, Ontario, Canada L5N 6J5
Tel. (905) 673-6980
Fax. (905) 673-1842
Email: info@miravohealth.com
Website: www.miravohealthcare.com
INVESTOR RELATIONS
Email: ir@miravohealth.com
STOCK EXCHANGE LISTING
The Toronto Stock Exchange
Symbol: MRV
OTCQX
Symbol: MRVFF
TRANSFER AGENT/REGISTRAR
Common Shares
TSX Trust Company
P.O. Box 700, Station B
Montreal, QC
H3B 3K3
Canada
Telephone: 1-800-387-0825
or outside Canada and U.S. 416-682-3860
Fax: 1-888-249-6189 or
outside Canada and U.S. 514-985-8843
Email: shareholderinquiries@tmx.com
Website: www.tsxtrust.com
AUDITORS
Ernst & Young LLP
Toronto, Canada
LEGAL COUNSEL
Goodmans LLP
Toronto, Canada
CORPORATE GOVERNANCE
The Company’s website www.miravohealthcare.com contains the Company’s corporate governance
documents including Articles and By-laws, Committee Charters and Key Position Descriptions and
Corporate Policies and Practices.
Board of Directors and Executive Officers
Robert Harris
Chairman
Chair of the Transaction Committee
John C. London, LLB, LLM
Vice Chairman
David A. Copeland, BMath, CPA, CA
Lead Director
Chair of the Audit Committee
Anthony E. Dobranowski, BSc, MBA, CPA, CA
Director
Chair of the Compensation, Corporate
Governance & Nominating Committee
Daniel N. Chicoine, BComm, CPA, CA
Director
Mary C. Ritchie, BCom, CPA, CA
Director
Jesse F. Ledger, BBA
President & Chief Executive Officer
Mary-Jane E. Burkett, CPA, CA, HBA
Vice President & Chief Financial Officer
Katina K. Loucaides, MSc, LLB
Vice President, Secretary & General Counsel