6100 Royalmount Avenue
Montreal, Quebec
Canada H4P 2R2
Tel.: (514) 496-2115
Fax: (514) 496-2079
info@prometic.com
www.prometic.com
annual report
2001
a company with its eye
on the present and the future
4
Highlights
24
Financials
Message to Shareholders
24. Management’s Report &
Auditors' Report to the Shareholders
25. Consolidated Balance Sheets
26. Consolidated Statements of
Operations and Deficit
27. Consolidated Statements of
Cash Flows
Growth Engine =
Core Technology +
Core Competency
46
Board of Directors
5
7
10
Inflammation
47
Scientific Advisory Committee
14
Cancer
48
Clinical Advisory Committee
(Arriva-ProMetic, Inc.)
18
Infectious diseases
49
Additional investor information
21
Management Discussion and
Analysis of the Financial Position
and Operating Results
50
Contact information
ProMetic Business Model
The Company fosters growth by offering its
enabling technology under license to pharma-
ceutical and biotech companies so as to allow
them to develop proprietary products that rely on
ProMetic's technology.
ProMetic expects to generate long-term annuity
revenues from its license and long-term supply
agreements that enter into effect once its clients'
products attain commercial status.
ProMetic further leverages its core technologies
by developing in-house "high-value therapeutics"
and medical applications, and limits its risk
exposure through partnerships with multinationals
for product development, clinical trials and marketing.
Table of contents
8
11
16
Mimetic Ligand™
Inflammation
Cancer
ProMetic annual report 2001
3
Highlights
» Strategic Alliance with Merck KGaA
» European Patent Office upholds
– Purification of Monoclonal Antibodies
Arriva-ProMetic patent rights for its
rAAT clinical indications
» Execution of a Memorandum of
Understanding for the Formation of
a Joint Venture Company with the
American Red Cross – Detection
and Removal of Viruses and Prions
» Completion of the Strategic Agreement
with PharmAAware Sepsis B.V. for the
Diagnosis and Treatment of Sepsis
» Expansion of the Therapeutic Research &
Development Team in Montreal
» Completion of supportive data &
International patent filing for PBI-1101
» Completion of supportive data &
International patent filing for PBI-1402
» Creation of Clinical
Advisory Committee for rAAT
» Expansion of the Mimetic Ligand™
Combinatorial chemistry into therapeutics
» rAAT successful completion of the
preclinical phases
» rAAT moves into clinical trials for
dermatological applications
ProMetic Life Sciences Inc. (PLI)
160%
140%
120%
100%
80%
60%
40%
20%
0%
-20%
-40%
800
700
600
500
400
300
200
100
0
e
g
n
a
h
C
%
)
0
0
0
(
e
m
u
o
V
l
PLI-T
BIO-I
NBI-I
PLI-T
01 Jan.
2001
01 Mar.
2001
01 May
2001
01 Jul.
2001
01 Sept.
2001
01 Nov.
2001
Share price performance vs. TSE Bio Index and Nasdaq Bio Index
4
ProMetic annual report 2001
Continued Performance of core
technology in joint development projects
» Genzyme Transgenics for human
serum albumin
» Delta Biotechnology (subsidiary of Aventis)
for recombinant human serum albumin
» Publication of results for the purification of
IgG from plasma
» Publication of results for the purification of
monoclonal antibodies
» Milestones achieved for the purification
of plasmid DNA
Financial achievements
» Successful financing of $19 million
(gross proceeds) out of which $9.9 million
was concluded December 31, 2001
» Share price increase of 156%
(from December 29, 2000 to
December 30, 2001)
Message to Shareholders
In 2001, ProMetic has maintained an
above-average performance compared to
other financial references, despite the overall
stock market performance and economic
uncertainty. ProMetic continues to prove its
ability to create value from its core technology
through the development of strategic agree-
ments and high-value proprietary products.
ProMetic is strategically well-positioned to capture
market share from multiple growth opportunities
within the expanding biotech industry.
Mimetic Ligand™ and Continued
Shareholders’ Value
Proteins are the building blocks of life. Over the
past twenty years, the biotechnology industry
has utilized recombinant DNA technology to
develop and manufacture natural and
engineered versions of proteins for therapeutic
use. The completion of the human genome
map has further enhanced the industry’s
understanding of genes and the proteins they
encode. Numerous protein and monoclonal
antibody therapeutics have already been
introduced on the market while hundreds more
are in development and poised for market
launch in the near future.
All of these therapeutic proteins will require
large-scale
isolation and purification at
commercial batch sizes using a cost-efficient
approach.
ProMetic has created shareholder value by
licensing the Mimetic Ligand™ technology to
pharmaceutical and biotechnology companies.
In 2002, the Company will continue to secure
long-term annuity revenues from the commercial
applications developed in collaboration with
its partners.
This will gain more impetus when commercial
products are approved for sale on key markets.
As the critical mass of such alliances develops
further, ProMetic will gradually intensify its
independent research and development of
high-value therapeutic products.
raise awareness of
ProMetic has implemented high-profile deals in
the past year. The monoclonal antibody sales
and marketing collaboration with Merck KGaA
will
the Company’s
proprietary Mimetic Ligand™ technology and
will facilitate our continued expansion into
the North American and European markets.
Although the impact of this alliance on the
company’s bottom line is not immediate, it
will provide a solid base for growing revenues.
Secondly, the Memorandum of Understanding
with the American Red Cross validates the
Company’s technology for pathogen diagnosis
and removal. This was further reinforced by
the agreement with PharmAAware Sepsis B.V.,
whereby ProMetic technology is being used to
develop both a diagnostic kit and a therapeutic
protein for sepsis and septic shock.
These announcements raised awareness in
Canada of ProMetic as both a “deal maker”
and a company with a viable business strategy.
Therapeutic Programs
In 2001, ProMetic significantly expanded its
Montreal-based research and development
division with seasoned industry scientists with
medicinal chemistry, biochemistry and biology
expertise. The combined efforts of this group
and those of our UK-based team have resulted
in the rapid development of entirely new
therapeutic applications of the Mimetic Ligand™
technology. These new and exciting insights are
helping to accelarate our monoclonal antibody
and in-licensed therapeutic product initiatives.
Two of our own products, recombinant alpha-1-
antitrypsin (rAAT) for inflammation and PBI-1402
for cancer, will enter clinical trials in 2002.
The Company’s lead compounds are well-
characterized molecules with remarkable safety
profiles. As we enter Phase I safety trials, the risk
and time associated with clinical development
will be reduced considerably. Most importantly,
these proprietary products provide cost-effective
solutions to unmet medical needs.
Pierre Laurin,
President and CEO
“ProMetic is strategically
well-positioned to capture
market share from multiple
growth opportunities
within the expanding
biotech industry.”
ProMetic annual report 2001
5
The Company’s lead compounds are well-characterized
molecules with remarkable safety profiles.
Clinical trials for the yeast-derived rAAT,
developed by the Arriva-ProMetic joint venture,
will commence in the first half of 2002. Tests will
evaluate the safety and efficacy of rAAT for the
treatment of dermatological conditions such as
atopic dermatitis and psoriasis. Because AAT is
involved in most forms of chronic inflammation,
various formulations of rAAT will be developed
to target additional inflammatory conditions
such as inflammatory bowel diseases (IBD)
and cystitis, and wound healing. Clinical
studies performed with the natural, serum-
derived form of AAT have already demonstrated
positive results in the treatment of several
the
dermatological diseases. Therefore,
Company anticipates a similar safety and
efficacy profile with its recombinant version.
The second leading drug, PBI-1402, is a
non-toxic, well-defined low molecular weight
synthetic chemoprotective compound, which,
in preclinical studies, has demonstrated
unequivocal protection and stimulation of neu-
trophils and bone marrow cells. Clinical trials
will commence in 2002 to evaluate the safety
and efficacy of PBI-1402 in accelerating the
recovery of neutrophil counts following a variety
of chemotherapy regimens.
rAAT and PBI-1402 are targeting multi-billion
dollar unsatisfied markets, where modest market
penetration would result in a significant return
to shareholders.
ProMetic will continue to leverage its core
technology and core competency to provide
solutions to unmet medical or industrial needs
and will do so in a manner that meets
cost-containment pressures. This is true for all
commercial applications being pursued by
ProMetic and its partners, and range from more
cost-efficient protein purification processes to
more cost-efficient diagnostics and therapeutics.
ProMetic will continue to do this for the benefit
of its shareholders, its employees and the patient
community at large.
Pierre Laurin
President and CEO
100%
ProMetic BioSciences
Ltd. (UK)
26%
4%
American Red Cross
Forthcoming joint venture
PharmAAware
Sepsis B.V.
4%
Arriva
Pharmaceuticals, Inc.
50%
Arriva-ProMetic
joint venture
100%
ProMetic BioSciences
Inc. (Therapeutics)
Detection & removal
systems for viruses
and prions
Septic Shock
Sepsis
rAAT
respiratory
indications
(Memorandum of
Understanding)
Diagnostic kit and
therapeutic protein
Joint venture
partner with
Baxter Health Sciences
rAAT
Dermatology
Gastro-enterology
Urinary inflammatory
indications
PBI-1402
PBI-1101
PBI-0032
Mimetics
Protein purification
MAb (MERCK)
Plasma
Transgenic
Genzyme, IPT Monsanto
Recombinant
Aventis, Novo Nordisk,
Menarini, etc.
DNA purification
Medical applications
Glycosal® (Provalis)
Theragyn® (Antisoma)
MitraDep® (Mitra)
Whenever appropriate, ProMetic’s strategy may include taking an equity position in high reward projects in lieu of a one-time licensing revenue.
The value being generated by these activities will gain even more impetus when more commercial products are approved for sale on key markets.
6
ProMetic annual report 2001
Growth Engine =
Core Technology + Core Competency
Increased investments
in our proprietary
Mimetic Ligand™
technology have resulted
in new molecules that can
significantly impact on
different aspects of
the healthcare business.
ProMetic has a remarkable growth engine capable of materializing strategic agreements and
developing high-value proprietary products. This stems from its core technology combined with its
core competency. Over the years, significant investments have been made to further the scope of
the company’s proprietary position on vast libraries of compounds. These libraries form the basis
on which ProMetic can develop its own proprietary therapeutics and collaborate with other
companies, and expand and validate the use of its technology, thereby supporting an impressive
pipeline of products.
Commercial Reality: Products with improved technical performance,
and which also satisfy pharmaco-economic requirements
Increased investments in our proprietary
Mimetic Ligand™ technology have resulted in
new molecules that can significantly impact on
different aspects of the healthcare business.
Most importantly, our novel products provide
solutions for unmet medical or industrial needs
and do so in a cost-efficient manner. The
Company seeks to commercialize products that
both exceed standard market performance and
meet cost-containment pressures. This is true
for virtually all commercial applications
pursued by ProMetic and/or its partners, and
range from being more cost-efficient protein
purification processes to more cost-efficient
diagnostics and therapeutics.
Monoclonal Antibodies and Mimetic Ligand™
ProMetic’s core competency has been stimulated
with the new synergy between its Cambridge-
based (UK) and Montreal-based R&D groups.
All
those years of experience and past
investments in the UK combined with the
seasoned group of scientists in Montreal have
led to entirely new concepts in the utilization of
the Mimetic Ligand™ technology. This includes
new insights into the use of the technology with
monoclonal antibodies.
Antibodies are proteins, which act like weapons
of the body’s own immune system. The immune
system produces these proteins to specifically
recognize and interact with foreign proteins
(pathogens such as viruses) and some proteins
produced by cancer cells.
Monoclonal antibodies (MAb) are highly specific
antibodies derived from only one clone of cells.
They recognize a specific target.
This illustration represents the structure of an immunoglobulin (IgG) antibody molecule.
The IgG molecule is a large protein with a molecular weight of 152,000. By comparison, it is
approximately 6 times larger than the average enzyme protein and 8,500 times larger than a
water molecule. As shown, the IgG molecule consists of two identical heavy chains and two
identical light chains bound together to form a structure, which schematically resembles the
letter “Y”. The amino termini (NH2 in the diagram) of the four chains form the top of the “Y” while
the carboxyl termini (COOH) of the two heavy chains form the bottom. As indicated, both heavy
and light chains have a variable region (VH and VL domains). It is within this variable domain that
the antibody binds to a specific portion of a molecule (antigen or epitope). Binding to the
antigen is mediated by the contact points or the so-called complementarity determining region
(CDR). The tail portion of the heavy chain constitutes the effector domain. Here the antibody is
able to interact with other components of the immune system such as the complement cascade.
H2N
H2N
VL domain
VH domain
CL domain
CH1 domain
CH2 domain
CH3 domain
©
NH2
NH2
Antigen
combining
sites
Light chain
©=carbohydrate
©
Heavy chain
COOH
COOH
= – S–S–
ProMetic annual report 2001
7
The total market for therapeutic monoclonal antibodies
represents a multibillion-dollar opportunity.
(MAb) can be
Monoclonal antibodies
produced with different objectives in mind.
Some MAb can be designed to bind to
proteins on the surface of a cell and to break
down the cell (process referred to as cell lysis via
the antibody-dependent cell-mediated cytotoxi-
city, ADCC). Other MAb may be designed to act
more as a targeting mechanism to help deliver
a toxic or radioactive payload specifically to
cancerous cells. Some MAb target cytokines
(e.g. TNFα) or cell surface markers (e.g. CD4,
CD11a) in the treatment of auto-immune diseases.
The total market for therapeutic monoclonal
antibodies represents a multibillion-dollar
opportunity. Currently, the majority of approved
MAb targets arthritis and cancer. The total
markets for arthritis and cancer drug sales are
forecasted to reach 25 and 15 billion dollars
respectively by 2010. Over one hundred
recombinant antibodies are currently being
developed and constitute over 25% of all
therapeutics under development.
Antibody mimetics are low molecular weight synthetic compounds that can mimic high
molecular weight monoclonal antibodies (MAb).
mediated cytotoxicity mechanisms (ADCC and
complement-mediated) could produce side-
effects especially among antibodies targeted for
the treatment of auto-immune diseases. A
tremendous and lucrative opportunity exists for
any technology with the potential to replace a
glycoprotein antibody with a synthetic low
molecular weight functional equivalent.
Therefore, MAb can also be viewed as an
opportunity to derive information useful in the
design of a mimetic.
Although the manufacturing process of MAb
has made significant progress, issues exist
concerning the difficulties and disadvantages of
a biological compared to a synthetic drug. These
issues include manufacturing costs and the
stability of biologicals. The phenomenal market
growth for MAb coupled with relatively limited
production capacity (cell culture capacity) for
protein biologicals could result in a serious
production bottleneck. Issues also exist for the
therapeutic use of a protein versus a synthetic
drug. These include potential immunological
reactions, especially with prolonged use of
proteins. In addition to the well-known HAMA
(human anti-mouse antibody) response, antibody
ProMetic strategy – capitalize on growth opportunities related to the use of monoclonal antibodies
Production
Downstream
processing
Alliance
Pure MAb
Mimetic Ligand™
Foreign Protein
Bacteria
Virus
Cancer Cell
8
ProMetic annual report 2001
Radiotherapy
Radio-imaging
ProMetic's proprietary and enabling technologies are key to protein isolation and purification,
and the development of protein mimetics. Its core technologies and competence are the basis
for commercial applications ranging from proteomics research to industrial biopharmaceutical
manufacturing, and from diagnostics to therapeutics. In addition to providing its strategic
partners with products and technologies, ProMetic is also in the process of developing its own
proprietary drug candidates for the treatment of cancer and inflammatory diseases.
Purification
Diagnosis
Therapeutic
Infectious diseases
Purification of
Alkaline Phosphatase
(PharmAAware Sepsis B.V.)
Removal of
Endotoxins
Detection and Removal
of viruses and pathogens
Forthcoming joint venture
with the American Red Cross
Cartridge
Device to remove
excess radioactivity
(radiotherapy)
(Antisoma)
Monoclonal Antibodies
Strategic Alliance with
MERCK KGaA
Cancer
Purification of
DNA vaccines
Purification of
recombinant albumin
Collaboration agreement
with Aventis
Detection of
Alkaline Phosphatase
(PharmAAware Sepsis B.V.)
PBI-0032
Auto-immune
Diseases
rAAT
PBI-1101
Atopic dermatitis,
Psoriasis, Ulcerative
Colitis, Cystitis
PBI-1402
Chemoprotectant
Other mimetics
In libraries
Cartridge
Adapted to dialysis
machine to remove
excess radioactivity
(radiotherapy, radio-imaging)
(Mitra)
Monoclonal Antibodies
Strategic Alliance with
MERCK KGaA
Inflammation
Purification of
IgG from plasma
ProMetic annual report 2001
9
Inflammation
Inflammation is a common condition into which tissues enter as a reaction to injury.
In some specific reactions, parts of the body’s system are affected by injuries caused by auto-immune
(antibodies produced against the body’s own tissues) or allergic reactions. In this broad therapeutic
area, ProMetic focuses on conditions with unsatisfied medical needs and for which it can offer
advanced and cost-efficient treatment alternatives.
Purification of
recombinantAlbumine®
from Aventis used as excipient
for vaccines
Purification of
recombinantAlbumine®
from Aventis used as excipient
for vaccines
In addition to its own therapeutics, ProMetic
collaborates with various companies for the
purification of antibodies to treat
Detection of
Detection of
ne Phosphatase
caline Phosphatase
inflammatory conditions.
PharmAAware BV)
(PharmAAware BV)
Monoclonal Antibodies
Strategic Alliance with
MERCK KGaA
PBI-0032
Auto-immune
Diseases
rAAT
PBI-1101
Atopic dermatitis,
Psoriasis, Ulcerative
Colitis, Cystitis
Purification of
IgG from plasma
Diagnosis
Purification
02
tant
PBI-1393
PBI-1393
IL-2 mimetic adjuvant
IL-2 mimetic adjuvant
to chemotherapy
to chemotherapy
Cartridge
Cartridge
adapted to dyalisis
adapted to dyalisis
machine to remove
machine to remove
excess radioactivity
excess radioactivity
(Mitra)
(Mitra)
Therapeutic
In the U.S.A. alone,
approximately 7 million
people suffer from a
form of psoriasis.
10
ProMetic annual report 2001
ProMetic’s first therapeutic compounds are being
formulated to address the following indications:
Skin
Atopic dermatitis and psoriasis are common forms
of inflammation of the skin.
Atopic dermatitis (AD) is a disease that causes itchy,
inflamed skin. AD is the most severe and chronic
type of eczema with flares and sores. It is a very
common disease that affects approximately 6%
of the general population at least once during
their lifetime. Since 1970, the incidence of atopic
dermatitis has increased by 30%.
Gastro-intestinal tract
Inflammatory Bowel Diseases (IBD) refers to a
group of disorders that cause the intestines to
become inflamed. IBD can involve either the small
or large bowels. Crohn’s disease and ulcerative
colitis are
IBD.
The inflammation lasts a long time and usually
recurs over time. More than 600,000 Americans
suffer from some form of IBD every year.
the best-known
forms of
Crohn’s disease can involve any part of the
gastro-intestinal tract, but most frequently involves
Genito-urinary tract
Interstitial cystitis (IC), a chronic pelvic pain
disorder, is a condition resulting in recurring
discomfort or pain in the bladder and the
surrounding pelvic region. The symptoms of IC
vary from case to case. Symptoms may include an
urgent need to urinate (urgency), a frequent need
to urinate (frequency), or a combination of these
symptoms. In IC, the bladder wall is irritated and
may become scarred or stiff. IC is far more
common in women than in men. Of the more than
700,000 Americans estimated to have IC, 90
percent are women.
Psoriasis is a T-cell mediated inflammatory skin
disease that generally appears in the form of
patches of raised red skin covered by flaky
white buildup. 1-3% of the world’s population
is affected by psoriasis. In the U.S.A. alone,
approximately 7 million people suffer from a form
of psoriasis.
the distal small bowel and colon. Inflammation is
transmural and can produce anything from a small
ulcer to a deep fissuring ulcer, to transmural
scarring and chronic inflammation. Transmural
inflammation leads to the development of fistulas
between loops of bowel.
Ulcerative colitis involves the colon. It is a diffuse
mucosal disease with distal predominance causing
ulcers. The rectum is virtually always involved,
and additional portions of the colon may also
be involved.
Of the more than 700,000
Americans estimated to have
IC, 90 percent are women.
ProMetic annual report 2001
11
Therapeutic Pipeline
Product
Disease
category
Targeted
indications / use
Research Manufacturing Preclinical
Toxicology Clinical phase
Recombinant
alpha-1-antitrypsin
(rAAT)
Inflammation
Atopic dermatitis
Psoriasis
Inflammatory bowel
diseases
Interstitial cystitis
PBI-1101
PBI-0032
Inflammation
Dermatology
Inflammation
Auto-immune
diseases
2002
2002
2003
2003
2002
2004
Products in development
Alpha-1-antitrypsin
Alpha-1-antitrypsin
is a glycoprotein
(AAT)
primarily synthesized by the liver and released into
the blood circulation. Some inflammatory cells
such as the macrophages, the monocytes and the
neutrophils also secrete AAT. AAT belongs to a
family of structurally-related molecules called
serine protease inhibitors or SERPINS, which act as
inhibitors of specific target proteases. AAT inhibits
trypsin, cathepsin G, thrombin, tissue kallikrein,
pancreatic and neutrophil elastase by forming
a 1-to-1 molar ratio complex at the protease active
site. The inhibitory profile of AAT points to the
anti-inflammatory action of this inhibitor.
The natural form of AAT, derived from pooled
plasma, has been on the market since 1989. It is
marketed by Bayer as Prolastin®. It is used to treat
patients with hereditary emphysema and its
availability is not sufficient to satisfy this market: it
covers only approximately 5% of the diagnosed
cases. The lack of availability of AAT until
now has precluded the further development of
this steroid-sparing anti-inflammatory agent in
various disorders.
An open-label pilot study with the approved
plasma-derived AAT product has demonstrated
positive results in the treatment of several
dermatological diseases including atopic dermatitis
and psoriasis. In this study, AAT stopped pain and
itching and promoted tissue healing without
scarring. Arriva-ProMetic is presently developing a
yeast-derived product (rAAT). The proprietary
production system has been developed to provide
an abundant source of rAAT and a finished
product free from potential contamination by
infectious pathogens (e.g. virus and prions). This
production process has been scaled up and
produces GMP grade material to enable Arriva-
ProMetic to prepare various formulations and
commence clinical trials.
ProMetic has also invested in proprietary topical
formulations of rAAT to treat dermatological
conditions. The first indication being pursued is
atopic dermatitis with clinical trials starting in the
first half of 2002. Other formulations will be
developed to address gastroenterology and
urology indications. The clinical trials for other
indications will commence as soon as the optimal
rAAT formulation for the targeted indications has
been completed and validated.
In March 2001, the use of protease inhibitors for
the treatment of skin inflammatory conditions
claimed in the European patent (numbered EP 0
512 090) was upheld by the European Patent
Office. This ruling followed an opposition filed by
Bayer AG, which attempted to restrict the scope of
the patent.
12
ProMetic annual report 2001
PBI-1101
PBI-1101 is a well-known chemical entity for which
the Company has discovered anti-inflammatory
activities. A method of use and formulation patent
was filed in Q4 2001.
PBI-1101 can be used as an effective stand-alone
anti-inflammatory drug and in combination with
other anti-inflammatory drugs. The Company
anticipates that the most promising clinical uses for
PBI-1101 are for the treatment of dermatological,
gastro-intestinal and uro-genital inflammations.
One of the mechanisms of action of PBI-1101 was
elucidated with experiments, which demonstrated
inhibition of T-cell proliferation. This mechanism of
action is complementary to those of other
anti-inflammatory drugs such as rAAT and
corticosteroids. PBI-1101 can be used to produce
an improved range of well-characterized therapeu-
tics with new patent protection.
PBI-1101 can be
used to produce an
improved range of
well-characterized
therapeutics with new
patent protection.
Antibodies, auto-immune diseases and PBI-0032
Several monoclonal antibodies are being
developed and others are being commercialized
for the treatment of inflammatory conditions
such as arthritis.
Through its strategic alliance with Merck KGaA,
ProMetic markets Mimetic Ligand™ for the
purification of antibodies.
ProMetic’s technology is also being developed to
extract and purify IgG from human plasma.
IgG is commonly used for the treatment of
various auto-immune diseases.
When the immune system mistakes “self tissues”
for “non-self tissues” and mounts an inappropriate
attack, the result is an auto-immune disease.
Auto-immune diseases can affect the body in
different ways. For instance, the auto-immune
reaction will target brain tissue in multiple sclerosis,
the gut in Crohn’s disease, the joints in rheumatoid
arthritis and multiple organs in systemic lupus
erythematosus. These diseases are chronic
conditions affecting millions of people worldwide.
They are more prevalent in women than men.
From ProMetic’s libraries of proprietary chemicals,
a group of compounds has been developed
to specifically target immunoglobulins and in
particular immunoglobulin G (IgG). The high
affinity of PBI-0032 for this family of proteins has
yielded a selected candidate for binding to IgG
and IgG-immune complexes and thereby acts to
remove these complexes from damaged tissue
and prevent further tissue damage.
ProMetic annual report 2001
13
Cancer
The cancer market
represents a large,
unsatisfied market.
In North America, cancer is the second-leading
cause of death after heart disease. It is
anticipated that with the aging trend in
demographics, cancer will become the number
one cause of death. It is further estimated that
in the U.S. alone, 1.3 million new cases will
have been diagnosed in 2001. That’s the
equivalent of 2 persons per minute.
The main curative therapies for cancer (surgery,
radiotherapy and chemotherapy) are generally
more successful when the cancer is diagnosed at
an early stage. The rationale for the use
of chemotherapy is to try to kill the tumor.
Chemotherapy relies on toxic compounds that
cause damage to the genetic material of fast
dividing cells and prevent normal repair
mechanisms. However, some normal cells are
also fast dividing and so are susceptible to the
toxic effects of chemotherapy. This includes bone
marrow, which produces immune cells.
ProMetic’s technology and competency have
allowed it to position itself in the new era of
cancer therapy.
These new therapies are either meant to:
» complement current standard treatments by
reducing toxicity and increasing efficacy,
which should lead to better response
rates, or;
» be more specific in targeting cancer cells.
represents a
large,
The cancer market
unsatisfied market. It requires smaller R&D
and marketing investments; and its regulatory
process is usually faster. In addition, there is
significant off-label use.
ProMetic is developing its own range of
therapeutic agents as well as providing its
enabling technology under license to its partners
for their proprietary therapeutic and diagnostic
products. These include the purification of MAb
(strategic alliance with MERCK) and the removal
of excess radioactivity associated with the use
of radioactive MAb for radiotherapy and
radio-imaging. (see page 17)
In addition to its own therapeutics,
ProMetic collaborates with
several other companies on
various cancer therapies.
PBI-0032
Autoimmune
Diseases
rAAT
PBI-1101
Atopic dermatitis,
Psoriasis Ulcerative
Colitis, Genito-urinary
PBI: 2056
Adjurant
PBI-1402
Chemoprotectant
Other mimetics
In libraries
Cartridge
Adapted to dialysis
machine to remove
excess radioactivity
(radiotherapy, radio-imaging)
(Mitra)
Detection and Removal
of viruses and pathogens that
may cause the human form of
Mad cow disease (vCJD)
(Joint Venture whit the
American Red Cross)
Therapeutic
Diagnosis
Cartridge
Device to remove
excess radioactivity
(radiotherapy)
(Antisoma)
Monoclonal Antibodies
Strategic Alliance with
MERCK KGaA
Purification
14
ProMetic annual report 2001
PBI-1402 protects neutrophils following
a variety of chemotherapy regimens.
Therapeutic Pipeline
Product
Disease
category
Targeted
indications / use
Research Manufacturing Preclinical
Toxicology Clinical phase
PBI-1402
Cancer
Mimetic
Cancer
Chemoprotection /
neutropenia
Adjuvant to
chemotherapy /
IL-2 Mimetic
2002
PBI-1402
The toxic effects of chemotherapy on the immune
system is one of the most important limitations of
this therapeutic approach. During chemotherapy,
patients are much more susceptible
to
developing infectious diseases. The therapeutic
doses must be spaced to allow for the patient’s
immune system to recover. The therapeutic dose
is also subject to the relative condition of the
patient's immune system. Before and during
chemotherapy, blood samples are taken to
measure the patient’s neutrophil counts.
Neutrophils constitute the body's first line of
defense. Their numbers and ability to attack and
destroy intruders (phagocytosis) are affected by
chemotherapy. Physicians must wait for the
neutrophil counts to return to normal before
administering follow-up doses of chemotherapy.
PBI-1402
Natural
killer cell
T lymphocytes
Bone
Lymphoid
progenitor cell
B lymphocyte
Hematopoietic
stem cell
PBI-1402
Neutrophil
Basophil
Eosinophil
Multipotential
stem cell
Myeoid
progenitor cell
Monocyte/macrophage
Bone
matrix
Blood
vessel
Pericyte
Red blood cell
Hematopoietic
supportive stroma
Stromal
stem cell
Skeletal muscle stem cell
Hepatocyte stem cell
Platelets
Hematopoietic
stem cell
Marrow
adipocyte
Osteoclast
Adipocyte
ProMetic annual report 2001
15
ProMetic's research team demonstrated that PBI-1402, when combined
with chemotherapeutic agents, protects human neutrophils.
Breast cancer
Growth factors such as Neupogen® (rmethuG-CSF),
Leukine®
(rhuGM-CSF) and Granocyte®
(rhuG-CSF) are safe and effective in accelerating
the recovery of neutrophil counts following a
variety of chemotherapy regimens. However,
these growth factors are very expensive and
consequently, have not met their full market
potential.
PBI-1402 is a non-toxic, well-defined low-
molecular-weight synthetic chemoprotective
drug. In vitro, PBI-1402 enhances human
neutrophil survival and phagocytosis with an
efficacy comparable to GM-CSF.
Based on its pharmacological activity, PBI-1402
may be classified as a chemoprotective drug and
hematopoietic growth stimulant. PBI-1402 is
targeted as an adjunct to cancer chemotherapy,
bone marrow transplantation and diseases
involving neutropenia.
ProMetic's research team demonstrated that
PBI-1402, when combined with chemotherapeutic
agents, protects human neutrophils. For
instance, PBI-1402 chemoprotection activity has
been confirmed in combination with cytotoxic
drugs used routinely to treat various cancers
such as breast, colon and lung. When combined
with cyclophosphamide, 5-fluorouracil, doxoru-
bicin and taxol, PBI-1402 significantly increases
the survival of neutrophils and the cell counts in
hematopoietic tissue such as bone marrow and
the spleen.
On the basis of these results, patent applications
have been filed for PBI-1402 and analogs.
Given its remarkable safety profile, PBI-1402 is
expected to advance to clinical trial phases
in 2002.
Effect of PBI-1402 on human neutrophil survival
Human neutrophils have a relatively short life
cycle. In these experiments, between 40% to
80% of neutrophils died within 24 hours. The %
of cell death was significantly reduced in the
presence of PBI-1402.
t
h
a
e
d
l
l
e
c
%
100
80
60
40
20
0
16
ProMetic annual report 2001
1
2
3
4
5
6
7
8
Subject number
Control
PBI-1402
Monoclonal antibodies (MAb) are becoming increasingly
important in cancer diagnosis and therapy.
Cancer
MERCK – Strategic Alliance to
purify antibodies
ProMetic’s enabling technology used for
radiotherapy and radio-imaging
Monoclonal antibodies (MAb) are becoming
increasingly important in cancer diagnosis and
therapy. Typically for cancer, MAb are targeted
to bind proteins (markers or antigens) present on
the surface of a cancer cell, which are not
present on the surface of normal cells. There are
5 MAb drugs currently approved for the
treatment of a variety of tumors and several are
in clinical and preclinical development.
joined
Merck and ProMetic
forces by
combining their respective technology to
offer a superior purification process
to
biopharmaceutical companies active in the
development of MAb products. One of the
major challenges faced by MAb producers is the
current lack of manufacturing capacity. As a
consequence, methods increasing MAb yields
from existing facilities are now being actively
sought. The ProMetic-Merck offering provides a
robust and integrated system capable of
achieving improved yield, purity and process
economics.
in
MAb can be used to destroy cancer cells in
different ways. Upon binding to cell surface
antigens, MAb can activate the body’s natural
immune defense system resulting
the
destruction of the cancer cell (a process referred
to as cell lysis via the antibody-dependent
cell-mediated cytotoxicity). Alternatively, MAb
can be used to target the delivery of toxic or
radioactive substances directly at the surface of
cancerous cells whilst leaving normal cells
untouched. In addition to is own therapeutic
cancer program, ProMetic’s technology is also
used to improve cancer therapeutics and
diagnostics relying on MAb.
Once an antigen expressed by a cancer cell has
been identified, a MAb specific to that
antigen can be produced. The MAb can then
be attached to a radioactive isotope or
cytotoxic drug to provide a therapeutic reagent,
which delivers a toxic payload directly to tumour
cells. However, the process used to attach a
radioactive agent to a MAb is not 100%
efficient and a small amount of the radioactive
agent remains free (not attached to the
antibody). Injecting such a mixture would
introduce excess and unnecessary radioactivity,
which can cause significant adverse side-effects
in patients. Consequently, a purification step is
necessary to remove excess radioactivity prior to
injection into a patient.
ProMetic’s technology is used to quickly remove
the non-linked or free radioactive agent before
the product is injected into the patient.
This provides the patient with a high-purity
radioactive antibody directed only to cancer
cells, thereby minimizing side-effects and
unnecessary toxicity.
ProMetic’s technology is also used to address
another issue relating to radioactive antibodies.
When a radioactive MAb targeting a specific
cancer site is administered to patients, only a
small proportion attaches to tumour cells and
more than ninety percent (90%) can remain
unbound to the tumor site. The removal of
excess circulating radioactive MAb provides
significant clinical advantages such as reduced
toxicity, the ability to deliver higher concentra-
tions of labeled MAb to the tumour site, and
the improved imaging resolution for radio-
diagnostics. ProMetic’s technology has led to
the development of cartridges that can be
installed on regular dialysis equipment.
ProMetic technology used to purify MAb (alliance with MERCK), and to remove excess radioactivity when MAb are used to
deliver radioactive substances on the surface of cancer cells (collaboration with Antisoma PLC and Mitra Ab)
Production
Downstream
processing
Pure MAb
Alliance
Cancer
Cell
Radiotherapy
Radio-imaging
ProMetic annual report 2001
17
Infectious diseases
ProMetic’s core technology and core competency
are leading to different commercial applications
related
treatment and
prevention of transmissible infectious diseases.
the diagnosis,
to
A Memorandum of
Understanding (MOU) was
signed with the American
Red Cross to form a new
joint venture (JV) company...
Detection and removal of Pathogens
A Memorandum of Understanding (MOU) was
signed with the American Red Cross to form a
new joint venture (JV) company for the
development and
commercialization of
detection and removal systems for viruses such
as hepatitis A and human parvovirus B19, and
that may cause Transmissible
pathogens
Spongiform Encephalopathies (TSEs). At the
time of writing, finalization of the corporate
entity was still in progress.
Under the terms of the MOU, ProMetic and the
American Red Cross will each contribute
intellectual property and technical expertise to
develop diagnostic and removal systems.
Specifically, the JV will utilize ProMetic’s
proprietary Mimetic Ligand™ technology in
combination with American Red Cross expertise
in diagnostic and pathogen removal systems in
blood and blood components. The JV will also
investigate developing other commercial applica-
tions for detecting and removing TSEs in
industries such as biopharmaceuticals, food,
cosmetics and personal care.
The Memorandum of Understanding allows for
the jointly–owned company to retain all rights to
the technology and products developed under
the partnership, and to facilitate licensing for
all parties wishing to access these proprietary
systems upon completion of their validation.
Rationale for the JV
The American Red Cross will benefit from
ProMetic’s platform technology that is able to
distinguish between very similar proteins.
Additionally, ProMetic’s technology has been
validated and manufactured to meet stringent
commercial requirements. ProMetic also has a
solid and unique knowledge base to deal with
both removal and purification systems for the
large-scale manufacturing of biopharmaceuticals,
as well as diagnostics.
The American Red Cross will share its extensive
expertise in handling blood products, and in
the successfull elimination of blood pathogens.
The American Red Cross provides skilled
and experienced individuals, fully-equipped
facilities, validated models
the
efficiency of the systems jointly developed, as
well as other capabilities.
test
to
Purification
Diagnosis
Therapeutic
Removal of
Endotoxins
Purification of
Alkaline Phosphatase
(PharmAAware Sepsis B.V.)
Detection and Removal
of viruses and pathogens
Forthcoming joint venture
with the American Red Cross
Purification of
DNA vaccines
Purification of
recombinant albumin
Collaboration agreement
with Aventis
Detection of
Alkaline Phosphatase
(PharmAAware Sepsis B.V.)
18
ProMetic annual report 2001
Cartridge
D i
t
PBI-1402
Chemoprotectant
PBI-0032
Autoimmune
Diseases
rAAT
PBI-1101
Atopic dermatitis,
Psoriasis Ulcerative
Colitis, Genito-urinary
The American Red Cross will benefit from ProMetic’s platform
technology that is able to distinguish between very similar proteins.
About Hepatitis A and Parvovirus B19
Hepatitis A is a type of liver inflammation caused
by a virus. Hepatitis A is predominantly
transmitted by the fecal-oral route (e.g. inade-
quate handwashing practices), but a few cases
of transmission by blood transfusion, while rare,
are well-documented. Parvovirus B 19 is a virus
that can cause asymptomatic infection, as well
as acute and chronic infections ranging from
joint illness to bone marrow failure. Virus
transmission usually occurs via respiratory
droplets, but while rare, transmission by blood
and blood products obtained from infected
donors is well documented.
About transmissible spongiform encephalopathies (TSE)
Mimetic Ligand™
Bacteria
Virus
Foreign Protein
including
the human
TSE,
form variant
Creutzfeldt-Jakob Disease (vCJD), are believed
to be prion diseases. Prions are normal protein
molecules that exist in many cells of the body but
become infectious when folded into abnormal
shapes. These prions clump together and form
plaques in the brain, leaving sponge-like holes
that lead to a fatal degenerative central nervous
system disorder. Currently, there is no treatment
for these diseases or a sensitive method for their
early detection. According to the U.S. Food and
transmitted by blood
Drug Administration, vCJD is not known to have
been
transfusion.
Furthermore, no cases of BSE or vCJD have
been reported in the United States. However,
animal models suggest that transmission by
blood products may be possible. In addition,
cases of vCJD in the United Kingdom continue
to increase and BSE has become widespread
in Europe and is becoming a significant issue
in Japan.
Blood
Removal
Detection
Detection
Food chain
Red Blood Cells
Platelets
Removal
Detection
+
Removal
By products
e.g. Gelatine
Collagen
Cosmetics
Pharmaceuticals
Removal
Removal
Plasma
Plasma
Fractionnation:
Albumin
Gammaglobulin
Coagulation Factors
Removal
ProMetic annual report 2001
19
Sepsis is a major
medical concern, which
accounts for $5 billion
in healthcare costs
in the U.S. alone.
The purification of these
vaccines (particularly DNA
vaccines), as part of their
industrial manufacturing
process, represents a
significant opportunity
for ProMetic.
Sepsis and Septic shock
Through a
licensing agreement with
PharmAAware Sepsis B.V., ProMetic’s technology
will be used to develop both a diagnostic kit and
a therapeutic protein for sepsis and septic shock.
PharmAAware Sepsis B.V. will utilize ProMetic’s
technology to purify alkaline phosphatase (AP),
an enzyme known to prevent inflammation and
the sepsis cascade, which has shown significant
potential as an effective therapy for septic shock.
PharmAAware Sepsis B.V. will initially focus on
exploiting the endotoxin neutralizing properties
of AP to develop a therapeutic for sepsis, and a
diagnostic device to improve the monitoring of
these patients.
Sepsis is a major medical concern, which
accounts for $5 billion in healthcare costs in
the U.S. alone. ProMetic’s technology will help
address this health problem by assisting in the
purification of AP, which has shown great
promise as a therapeutic, for sepsis, without
the complexities and side-effects seen in many
existing treatments. This agreement will enable
the production of large enough quantities
of pure AP to allow for the industrial-scale
production of a therapeutic to meet the growing
medical need for a more effective treatment.
Vaccines and ProMetic technology
A review of data from the U.S. Centre for
Disease Control and the WHO for the past
several years has revealed two trends.
First, there seems to be an increase in
“emerging infectious diseases”, newly-identified
and previously unknown infectious diseases of
concern to public health authorities (new variant
CJD could fall in this category).
Second, “re-emerging infectious diseases”: these
are due to the reappearance of, and an increase
in, the number of infections from a disease which
is known, but which had formerly caused so
few infections that it was no longer considered
a public health problem. A good example
would be tuberculosis with its re-emergence
due in part to the AIDS epidemic and treatment
resistance.
Not mentioned above are diseases such as
malaria, which continues to spread in tropical
countries, but for which vaccines are under
development. Hepatitis B continues to spread in
Asia where there is a large pool of carriers.
Vaccines do exist but
special
programmes for their introduction.
require
The development of new viral vaccines
(recombinant and DNA) is at an advanced stage
in some cases, while in others, it will be
many years before products are marketable.
The purification of these vaccines (particularly
DNA vaccines), as part of their industrial
manufacturing process, represents a significant
opportunity for ProMetic.
ProMetic has developed a family of patented
chromatographic adsorbents designed primarily
for plasmid/DNA purification in research
laboratories and
large scale DNA
for
purification by pharmaceutical companies.
20
ProMetic annual report 2001
Management Discussion and Analysis
of the Financial Position and Operating Results
The management discussion and analysis of the
financial position and operating
results
presented below should be read in conjunction
with the consolidated financial statements and
accompanying notes to be found further on in
the annual report. All amounts are in Canadian
dollars unless otherwise indicated.
Overview
ProMetic Life Sciences Inc. (“ProMetic” or “the
Company”) is in the process of becoming
a major player among
international
biopharmaceutical companies. Through its
subsidiaries in the U.K., the Isle of Man, in
Canada and the U.S.A., ProMetic is active in
researching, developing, manufacturing and
marketing a variety of commercial applications
that are based on its patented technology and
used
large-scale
purification of drugs, genomic products
and proteomics, and for the discovery and
development of drugs.
therapeutically
the
for
Financial Analysis
Financial Summary – “Shareholder yield and
achievement of an important strategic agreement”
As predicted in its 2000 annual report, the
Company reached its goal of increasing share-
holders’ value in 2001. Over the course of the
year, the value of ProMetic shares increased by
more than 150% ($0.90/share to $2.30/share),
despite the collapse of the NASDAQ exchange
last spring and the tragic events of September
11. Capitalizing on this excellent performance,
the Company improved its liquidity by raising
$19.1 million, of which $9.9 million was
concluded as at December 31, 2001 and $9.2
million was subscribed as at December 31,
2001. Out of this $9.2 million, an amount of
$7.2 million had already been cashed at the
date of signature of these financial statements.
From the beginning of 2001, the Company took
a highly proactive approach to controlling its
expenditures and capital asset investments.
These measures allowed the Company to ensure
the progression of its development projects in
spite of a highly difficult economic and financial
context. In addition, during the year, the Company
signed a Memorandum of Understanding with
the American Red Cross to develop systems
capable of detecting and eliminating the
pathogens that cause mad cow disease and a
new variant of Creutzfeldt-Jakob syndrome.
Balance Sheet –
“A healthy financial condition”
The financial reorganization that started at the
end of 1999 was completed. It allowed investors
to significantly increase their level of confidence
in the Company’s day-to-day management of
operations and its future development.
Current assets reached $13.2 million as at
December 31, 2001 compared to $5.3 million
as at December 31, 2000. This increase is
mainly due to subscriptions receivable of $9.2
million as at December 31, 2001. As of March
15, 2002,
received
$7.2 million with respect to the subscription.
the Company had
joint venture
increased by $536,000,
Capital assets
corresponding to acquisitions of $961,000
and an amortization of $425,000. Intellectual
property appreciated by approximately
$1.1 million; this increase amounts to 50% of
company disbursements in Arriva-ProMetic, Inc.,
a
to develop recombinant
alpha-1-antitrypsin ($1.3 million), and a
$199,000 amortization of all intellectual
property. The Company undertook to disburse
$4 million U.S. in the joint venture, in which it
holds a 50% interest. The Company records
50% of its commitment as “Intellectual Property”
in consideration of the exclusive and perpetual
license granted to the joint venture.
Deferred development costs increased by
$566,000 over the year, corresponding to a
development cost capitalization of $907,000,
an amortization of these costs in the amount of
$232,000 and write-offs in the amount of
$109,000 during the year ending December
31, 2001. To this effect, the Company applies
the same policies as those followed last year.
The Company’s total assets increased from
$14.2 million as at December 31, 2000
to $24.3 million as at December 31, 2001,
representing an increase of $10.1 million.
André Bédard
Executive Vice-President
and Chief Financial Officer
As predicted in its
2000 annual report,
the Company reached
its goal of increasing
shareholders’ value
in 2001.
Cash, Cash Equivalents
Short-Term Investments &
Subscriptions Receivable
11.8
4.3
0.8
1999
2000
2001
ProMetic annual report 2001
21
Millions
of $
12
10
8
6
4
2
R&D expenditures increased from $3.8 million as
at December 31, 2000 to $6.9 million as at December 31, 2001,
representing an increase of $3.1 million or 82%.
Shareholders’ equity
Current liabilities increased from $1.9 million as
at December 31, 2000 to $3.3 million as
at December 31, 2001, for an increase of
$1.4 million that can be attributed to the
issuance cost of the subscriptions receivable
($0.9 million) and to accounts payable and
expenses of $0.5 million concerning the
increase in current R&D expenditures, in
corporate business development expenses and
capital assets acquisitions.
21.0
Shareholders’ equity reached $21 million as at
December 31, 2001.
12.3
Revenues
Millions
of $
25
20
15
10
5
3.9
1999
2000
2001
Research &
Development Expenditures
Millions
of $
7
6
5
4
3
2
1
6.9
3.8
3.2
1999
2000
2001
22
ProMetic annual report 2001
slight
is due
increase
Revenues for the year ended December 31,
2001 totalled $2.5 million compared to
$2.1 million for the period ended December 31,
2000. This
to
product development contracts. The signing of
cooperation agreements in 2001 and of new
agreements in 2002 should result in an
increase in R&D revenues next year. Most
from
revenues correspond
cooperation,
development
agreements. Revenues from sales of products
that had
the marketing stage
represented less than 10% of the total.
to payments
and
reached
R&D
Whenever appropriate, the Company’s strategy
may include taking an equity position in high-
reward projects (in lieu of a one-time licensing
revenue for signing an agreement). This allows
ProMetic to further maximize the potential value
arising from such high-profile projects.
The average period between a customer’s
adoption of ProMetic technology and the first
commercial sale is approximately three to four
years. Generally speaking, a customer must
pass a series of development, scaling and
preclinical validation stages before being in a
position to submit documents to the appropriate
this period,
regulatory agencies. During
ProMetic’s revenues will increase gradually,
thereby achieving stronger growth once
regulatory approvals are adopted. The revenues
for each product that reaches the marketing stage
to that product’s market
will be proportional
penetration and should sustain throughout the
product’s life cycle. The fact that ProMetic has
chosen widespread partners will allow it to
better distribute its technology-based products.
The resulting rapid market penetration will
accelerate the generation of future revenues.
Expenditures – “Acceleration of R&D
programmes and expansion of its
therapeutic sector”
Total expenditures before R&D expenses,
amortization of capital assets and intellectuel
property and financial costs were $3.5 million
in 2001 compared to $2.8 million in 2000.
This increase can be attributed to investments in
corporate and business development and the
expansion of commercial activities in Asia. The
investment has proved to be a sound strategy, as
the Company’s shares increased from $0.90 as
at December 31, 2000 to $2.30 as at
December 31, 2001.
R&D expenditures increased from $3.8 million
as at December 31, 2000 to $6.9 million as at
December 31, 2001, representing an increase
of $3.1 million that can basically be attributed
to: 1) the development of the therapeutic sector
and the hiring of a therapeutic team in Montreal
in anticipation of upcoming clinical trials and the
increasing importance of the new drug discovery
programme. The team expects to announce
clinical studies of certain main components,
such as PBI-1402 in chemotherapy and the
anti-inflammatory rAAT, over the next few
quarters; 2) the acceleration of the main
development projects in drug purification.
Amortization of capital assets and intellectual
property stood at $624,000 for the year ended
December 31, 2001, for an increase of
$63,000 over 2000. This increase is due
to additional investments over the year. Financial
revenues as at December 31, 2001 were
$63,000 compared to financial costs of
$101,000 for the year ended December 31,
2000. This decrease can be attributed to the
Company’s having paid interest in 2000 on
its long-term debt repaid that year, and to its
having maintained a higher average cash
balance in 2001 than in 2000, thereby generating
greater interest revenues.
“ProMetic: well-positioned in niche
and high-growth markets”
Results
Net losses for the fiscal year ended December
31, 2001 stood at $8.4 million ($0.14 per
share) compared to $5.2 million ($0.10 per
share) for the twelve-month period ended
December 31, 2000. The reasons for this
difference are fully explained in the “Revenues”
and “Expenditures” sections above.
Cash Flows
During financial year 2001, cash flows used
for operating activities reached $7.6 million
compared to $5.2 million for the financial year
ended December 31, 2000. This increase is
mainly due to an increase in operating losses of
$3.2 million, which was itself due to an increase
in R&D expenses (see additional comments in the
Expenditures section).
For the twelve-month period ended December
31, 2001, cash flows from financing activities
were mainly attributable to the issue of
subordinate voting shares worth $9.9 million,
net of share issue expenses of $955,000.
During financial year 2001, cash flows from
investing activities amounted to $893,000
compared to $5.7 million for the financial year
ended December 31, 2000, an improvement of
$4.8 million constituted as follows: receipt of a
short-term investment in financial year 2001,
thereby creating a positive difference of
$4 million; reduction of investment needs
(acquisition of an investment) by $1.5 million
in 2001 following the finalization of the
Quarterly information
Company’s participation in Arriva Pharmaceu-
ticals, Inc. in 2000; reduction by $90,000 of
additional capital assets during the financial year
ended December 31, 2001; investments of $1.2
million in intellectual property attributable to our
participation in the Arriva-ProMetic, Inc. joint
venture (see balance sheet section), and a
$467,000 reduction in the level of deferred
development costs (see Balance Sheet section).
During financial year 2001, Company activities
generated $0.3 million in cash and cash
equivalents, compared to $1.5 million during
financial year 2000.
Outlook
“A strategic position in niche and high-growth
markets”
The Company should announce important
stages in the realization of its R&D programmes
over the next few quarters. This will help
to increase investor and analyst interest.
Management will continue to maintain rigorous
control of all Company operations.
Since 1999, the Company has repositioned itself
to maximize its value and minimize risks inherent
to its development. Its approach is to sign
development agreements with customer-partners
who agree to defray development costs. In the
majority of cases, the Company also signs
production agreements that will allow it to obtain
a profit margin on product manufacturing and a
royalty on the sale of finished products using
ProMetic’s technology. In certain targeted
markets with strong growth potential, the
the
future
Company has secured other source of revenue
through equity participation in companies
that will market these potentially highly profitable
products. This is the case with recombinant
alpha-1-antitrypsin, for which ProMetic will
obtain 50% of
revenues of
Arriva-ProMetic, Inc., in addition to an equity
participation in Arriva Pharmaceuticals, Inc. This
is also the case for the development of
systems capable of detecting and eliminating the
pathogens that cause mad cow disease and
Creutzfeldt-Jakob syndrome, with a participation
in the joint venture resulting from the future
association with the American Red Cross.
Through its recent signing of a Memorandum of
Understanding with the American Red Cross, the
Company has confirmed the value and potential
of its technology. Many now consider ProMetic
to be indispensable.
The Company must commit significant financial
resources before products can be developed
successfully and revenues are high enough to
generate profit. The Company believes that its
current liquid assets, combined with those to be
obtained during 2002, will be sufficient to meet
its needs for liquid assets associated with
operations and capital asset expenditures over
the next twenty-four months.
The issues dealt with in this annual report, more
specifically in the management discussion and
analysis of the financial condition and operating
results, are of a somewhat forward-looking
nature. Consequently, for various reasons, the
actual results obtained may be substantially
different.
Fourth
Quarter
2001
Third
Quarter
2001
Second
Quarter
2001
First
Quarter
2001
Fourth
Quarter
2000
Third
Quarter
2000
Second
Quarter
2000
First
Quarter
2000
Revenues
$565,454
$1,111,096
$446,752
$377,493
$464,792
$397,127
$346,134
$871,286
Net loss
Net loss per share
$2,728,203
$0.04
$1,856,903
$0.03
$2,158,067
$0.04
$1,671,912
$0.03
$1,245,536
$0.02
$1,553,489
$0.03
$1,337,089
$0.03
$1,031,526
$0.02
ProMetic annual report 2001
23
ProMetic Life Sciences Inc.
Management’s Report
The accompanying consolidated financial statements for ProMetic Life Sciences Inc. are management’s responsibility and have been approved by the
ProMetic Life Sciences Inc. Board of Directors. These financial statements were prepared by management in accordance with generally accepted
Canadian accounting principles. They include some amounts that are based on estimates and judgments. The financial information contained
elsewhere in the Annual Report is consistent with that contained in the financial statements.
To ensure the accuracy and objectivity of the information contained in the financial statements, the management of ProMetic Life Sciences Inc.
maintains a system of internal accounting controls. Management believes that this system gives a reasonable degree of assurance that the
financial documents are reliable and provide an adequate basis for the financial statements, and that the Company’s assets are properly accounted for
and safeguarded.
The Board of Directors upholds its responsibility for the financial statements in this Annual Report primarily through its audit committee. The audit
committee is made up of outside directors who review the Company’s consolidated annual financial statements as well as management’s analysis and
the operating results, and recommend their approval by the Board. KPMG LLP, Chartered Accountants, the external auditors designated by the
shareholders, periodically meet with the audit committee to discuss auditing, the reporting of financial information and other related subjects.
Pierre Laurin
Chairman, President
and Chief Executive Officer
André Bédard
Executive Vice-President
and Chief Financial Officer
Montreal, Canada, March 15, 2002
Auditors' Report to the Shareholders
We have audited the consolidated balance sheets of ProMetic Life Sciences Inc. as at December 31, 2001 and 2000 and the consolidated statements
of operations and deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally-accepted auditing standards. Those standards require that we plan and perform an
audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at
December 31, 2001 and 2000 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally
accepted accounting principles.
KPMG LLP
Chartered Accountants
Montreal, Canada, March 15, 2002
24
ProMetic annual report 2001
Consolidated Balance Sheets
December 31, 2001 and 2000
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Accounts and other receivables (note 3)
Subscriptions receivable (note 10 (d))
Inventories (note 4)
Prepaid expenses
Investment (note 5)
Capital assets (note 6)
Intellectual property (note 7)
Deferred development costs (note 9)
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities
Current portion of long-term debt
Shareholders' equity:
Share capital (note 10)
Deficit
Commitments (notes 7 and 11)
Subsequent events (note 10 (d))
Contingencies (note 12)
ProMetic Life Sciences Inc.
2001
$
2,606,798
–
924,159
9,150,000
292,333
228,093
13,201,383
2,281,245
1,973,001
3,272,535
3,583,831
2000
$
2,270,316
2,000,000
524,133
–
300,594
172,659
5,267,702
2,281,245
1,436,717
2,183,669
3,018,104
24,311,995
14,187,437
3,271,521
–
3,271,521
83,500,266
(62,459,792)
21,040,474
1,741,756
110,758
1,852,514
64,432,379
(52,097,456)
12,334,923
24,311,995
14,187,437
See accompanying notes to consolidated financial statements.
On behalf of the Board:
Pierre Laurin, Director Claude Lemire, Director
ProMetic annual report 2001
25
ProMetic Life Sciences Inc.
Consolidated Statements of Operations and Deficit
Years ended December 31, 2001 and 2000
Revenues
Cost of sales and expenses other than the undernoted items
Research and development expenses (note 9)
Depreciation of capital assets
Amortization of intellectual property
Financial (revenues) expenses, net
Net loss
Deficit, beginning of year
Share issue expenses
Deficit, end of year
Net loss per share
Weighted average number of outstanding shares
(in thousands)
See accompanying notes to consolidated financial statements.
2001
$
$2,500,795
3,456,849
6,897,467
425,188
199,009
(62,633)
10,915,880
8,415,085
52,097,456
1,947,251
62,459,792
0.14
62,487
2000
$
2,079,339
2,815,166
3,769,555
409,246
151,926
101,086
7,246,979
5,167,640
45,785,821
1,143,995
$52,097,456
0.10
53,068
26
ProMetic annual report 2001
ProMetic Life Sciences Inc.
Consolidated Statements of Cash Flows
Years ended December 31, 2001 and 2000
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to cash flows used in operating activities:
Depreciation of capital assets
Amortization and write-off of deferred development costs (note 9)
Amortization of intellectual property
Loss on disposal of capital assets
Net change in non-cash operating working capital
items (note 16)
Cash flows from financing activities:
Proceeds from share issues
Share issue expenses
Repayment of long-term debt
Cash flows from investing activities:
Disposal (acquisition) of short-term investments
Acquisition of an investment (note 5)
Additions to intellectual property
Deferred development costs (note 9)
Additions to capital assets
Proceeds from disposal of capital assets
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Other information related to cash flows:
Interest paid during the year
Interest received during the year
Non-cash transactions:
Unpaid capital asset purchases
Unpaid share issue expenses
Conversion of long-term debt into shares
See accompanying notes to consolidated financial statements.
2001
$
(8,415,085)
425,188
341,330
199,009
–
(7,449,558)
(172,423)
(7,621,981)
9,917,887
(955,171)
(110,758)
8,851,958
2,000,000
–
(1,287,875)
(907,057)
(698,563)
–
(893,495)
336,482
2,270,316
2,606,798
6,863
144,895
262,909
992,080
–
2000
$
(5,167,640)
409,246
21,613
151,926
3,739
(4,581,116)
(592,039)
(5,173,155)
14,272,400
(1,143,995)
(735,664)
12,392,741
(2,000,000)
(1,539,345)
(56,031)
(1,374,284)
(788,878)
27,606
(5,730,932)
1,488,654
781,662
2,270,316
229,612
74,947
–
–
500,000
ProMetic annual report 2001
27
ProMetic Life Sciences Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2001 and 2000
The Company is a biopharmaceutical company which operates in the fields of bioseparation, medical devices, drug delivery and the development of
biopharmaceutical products.
1. Significant accounting policies:
(a) Basis of presentation:
These consolidated financial statements have been prepared on the going concern basis which assumes the realization of assets and the
settlement of liabilities in the normal course of operations. The ability of the Company to continue as a going concern is dependent
upon the continued financial support of its shareholders and other external funding sources, if applicable, and on the ability of the Company to
generate cash flow from operations and other measures to eliminate the deficit. These financial statements do not reflect adjustments
that would be necessary if the going concern assumption were not appropriate. If the going concern basis was not appropriate for these
financial statements, then adjustments would be necessary in the carrying value of assets and liabilities, the reported revenues and expenses,
and the balance sheet classifications used. Management is of the opinion that adequate resources will be available to complete the projects under
development as at December 31, 2001.
(b) Consolidation basis:
The consolidated financial statements include the accounts of ProMetic Life Sciences Inc. and its subsidiaries as well as those of the joint venture
which are accounted for using the proportionate consolidation method whereby the Company’s proportionate share of the revenues, expenses,
assets and liabilities are consolidated. All significant intercompany transactions and balances have been eliminated.
(c) Cash and cash equivalents and short-term investments:
Cash equivalents are highly liquid investments purchased with an original maturity of three months or less. Short-term investments are
investment grade short-term debt instruments with original maturities greater than three months. Short-term investments are valued at the lower
of cost and market value. The carrying value of these investments approximates their fair value due to their short maturity.
(d) Inventories:
Work in progress and finished goods are valued at the lower of cost and net realizable value and raw materials are valued at the lower of cost
and replacement cost. Cost is established using the first in, first out method.
28
ProMetic annual report 2001
ProMetic Life Sciences Inc.
Notes to Consolidated Financial Statements, page 2
Years ended December 31, 2001 and 2000
1. Significant accounting policies (continued):
(e)
Investment:
The investment is recorded at cost. When, in the opinion of management, a permanent decline in value has occurred, the investment is written
down to its estimated realizable value. In determining the estimated realizable value of its investments, management relies on its judgment and
knowledge of each investment as well as assumptions of general business and economic conditions that prevail and are expected to prevail.
These assumptions are limited due to the uncertainty of predictions concerning future events.
(f) Capital assets:
Capital assets are recorded at cost. Depreciation is provided over the estimated useful lives of capital assets using the following methods
and rates:
Asset
Leasehold improvements
Equipment and tools
Office equipment and furniture
Computer equipment
(g) Intellectual property:
Method
Straight-line
Declining balance
Declining balance
Declining balance
Rate/period
Lease period
10% to 30%
20%
30%
Intellectual property includes patent fees and vested rights as well as license fees to obtain rights for product manufacturing and marketing.
Amortization is provided over the estimated useful lives of the intellectual property assets acquired using the straight-line method ranging from
5 to 15 years. On an ongoing basis, management reviews the valuation and amortization of intellectual property, taking into consideration any
events and circumstances which might have impaired its value. The Company assesses impairment by determining whether the unamortized
balance can be recovered through undiscounted future cash flows to be derived from the intellectual property over its remaining life.
Any permanent impairment is written off against earnings.
(h) Deferred development costs:
Development costs of new products and processes, which are considered technically and financially feasible, are stated at cost less related
research and development tax credits and grants. These costs are amortized from the date of commercialization or use of the product or process,
based on sales or the internal use of the product or process. Should the Company determine that the unamortized balance is in excess of
recoverable amounts, the excess will be charged to operations for the year.
ProMetic annual report 2001
29
ProMetic Life Sciences Inc.
Notes to Consolidated Financial Statements, page 3
Years ended December 31, 2001 and 2000
1. Significant accounting policies (continued):
(i) Revenue recognition:
The Company recognizes revenues from various research and technology agreements when the contracted services are provided and the
various conditions, if any are met, and recognizes revenues from sale of products at the time of product shipment.
(j) Scientific research and experimental development expenses:
Research and development expenditures are charged to operations in the year in which they are incurred, net of related tax credits.
(k) Foreign currency translation:
The Company's foreign subsidiaries are considered to be integrated foreign operations. Foreign denominated monetary assets and liabilities of
Canadian and foreign transactions are translated into Canadian dollars using the temporal method. Under this method, monetary assets and
liabilities are translated at year-end exchange rates while non-monetary items are translated at historical exchange rates. Expense items are
translated at the exchange rate on the transaction date or at average exchange rates prevailing during the period. Exchange gains or losses are
included in the statement of operations.
(l)
Income taxes:
The Company uses the asset and liability method of accounting for income taxes. Future income tax assets and income tax liabilities are
recognized in the balance sheet to account for the future tax consequences of timing differences between the respective accounting and taxable
value of balance sheet assets and liabilities. As appropriate, a valuation allowance is recognized to decrease the value of tax assets to an amount
that is more likely than not to be realized. Future income tax assets and income tax liabilities are measured using the income tax rates that are
expected to apply when the asset is realized or the liability is settled. The effect of changes in income tax rates is recognized in the year during
which these rates change.
(m) Stock option plan:
The Company has established a stock option plan, as described in note 10 (b). No charge is recognized for this plan when stock options are
granted. Any consideration paid on the exercise of stock options is credited to share capital.
30
ProMetic annual report 2001
ProMetic Life Sciences Inc.
Notes to Consolidated Financial Statements, page 4
Years ended December 31, 2001 and 2000
1. Significant accounting policies (continued):
(n) Use of estimates:
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items for which
management must make estimates relate to the valuation and assessment of recoverability of the investment, intellectual property, research tax
credits and deferred development costs. Reported amounts and note disclosure reflect the overall economic conditions that are most likely to
occur and anticipated measures to be taken by management. Actual results could differ from those estimates.
2. Changes in accounting policies:
The Company has made certain changes in accounting policies to conform to new accounting standards.
(a) Earnings per share:
In January 2001, the Company adopted retroactively the new recommendations of the Canadian Institute of Chartered Accountants
(“CICA”) with respect to the calculation of earnings per share. These new recommendations of CICA Handbook Section 3500 harmonize the
Canadian standards with the United States standards. The standard requires the disclosure of the calculation of basic and diluted amounts
per share and the use of the treasury stock method for calculating the dilutive impact of stock options and warrants.
This restatement did not have an impact on the diluted amounts per share for the year ended December 31, 2000.
(b) Business combinations, goodwill and other intangible assets:
In August 2001, the CICA issued Section 1581, Business Combinations, and Section 3062, Goodwill and other Intangible Assets, of the CICA
Handbook. Under Section 1581 of the CICA Handbook, business combinations initiated or completed after June 30, 2001 are accounted
for under the purchase method. Also, the section specifies criteria that intangible assets acquired in a business combination method must meet
in order to be recognized and reported apart from goodwill. For purchase combinations that were initiated or completed after June 30, 2001,
goodwill and intangibles are recorded and amortized in accordance with Section 1581 and Section 3062 of the Handbook. In accordance
with Section 3062, goodwill and intangible assets with indefinite lives are not amortized and other identified intangibles are amortized.
ProMetic annual report 2001
31
ProMetic Life Sciences Inc.
Notes to Consolidated Financial Statements, page 5
Years ended December 31, 2001 and 2000
2. Changes in accounting policies (continued):
(b) Business combinations, goodwill and other intangible assets (continued):
For purchase business combinations initiated or completed on or before June 30, 2001, the accounting under Section 1580, Business
Combinations and under Section 3060, Capital assets, have been applied. Under these sections, goodwill and separately identifiable
intangibles are recorded and amortized until the Company adopts Section 3062 of the Handbook, which must be applied by the Company
for fiscal year beginning on January 1, 2002.
3. Accounts and other receivables:
Trade
Sales taxes receivable
Research tax credits receivable
Advance to an executive
Other
4. Inventories:
Raw materials
Work in progress and finished goods
5. Investment:
2001
$
414,965
150,060
177,510
70,000
111,624
924,159
2001
$
156,734
135,599
292,333
2000
$
344,496
60,244
–
–
119,393
524,133
2000
$
148,552
152,042
300,594
Investment in preferred voting shares in the share capital of Arriva Pharmaceuticals, Inc. (see note 7(c)).
32
ProMetic annual report 2001
ProMetic Life Sciences Inc.
Notes to Consolidated Financial Statements, page 6
Years ended December 31, 2001 and 2000
6. Capital assets:
Leasehold improvements
Equipment and tools
Office equipment and furniture
Computer equipment
Leasehold improvements
Equipment and tools
Office equipment and furniture
Computer equipment
7. Intellectual property:
Intellectual property ((a),(b) and (c))
Intellectual property ((a) and (b))
Cost
$
462,625
3,087,319
282,505
266,688
4,099,137
Cost
$
390,856
2,412,439
157,716
176,654
3,137,665
Cost
$
3,758,878
Cost
$
2,471,003
Accumulated
depreciation
$
188,942
1,758,749
61,325
117,120
2,126,136
Accumulated
depreciation
$
136,824
1,472,353
34,540
57,231
1,700,948
Accumulated
amortization
$
486,343
Accumulated
amortization
$
287,334
2001
Net book
value
$
273,683
1,328,570
221,180
149,568
1,973,001
2000
Net book
value
$
254,032
940,086
123,176
119,423
1,436,717
2001
Net book
value
$
3,272,535
2000
Net book
value
$
2,183,669
ProMetic annual report 2001
33
ProMetic Life Sciences Inc.
Notes to Consolidated Financial Statements, page 7
Years ended December 31, 2001 and 2000
7. Intellectual property (continued):
(a) The Company owns the rights, title and interest in and to the know-how, the information, the technology and the patents relating to its Mimetic
Ligand Technology. Part of these rights, title and interest were assigned to the Company by the Cambridge University’s Institute of Biotechnology
in consideration of the payment of continuing royalties; the others were developed by the Company.
(b) The Company owns the exclusive right to a patented technology permitting the link of its Mimetic Ligand™ to a matrix with a Teflon-like surface
such as the Teflon® beads (Teflon® is a registered mark of Dupont Chemical & Energy Operations, Inc.) and the Company’s perfluorocarbon
beads. This technology is useful in chromatographic applications and for medical devices. This license is subject to the payment of a royalty to
Arkion Life Sciences, Inc. ("Arkion", which purchased in July 2000, all of the assets of DCV Inc., the company with which ProMetic had entered
into a license agreement per the patented technology) on net sales with respect to any products covered by the patent rights.
(c) As of April 13, 1999, through Arriva-ProMetic Inc. ("Arriva-ProMetic", formerly known as AlphaOne-ProMetic, Inc.), the Company entered into a
50-50 joint venture with Arriva Pharmaceuticals, Inc. ("Arriva") of Alameda, California for the development of applications relating to
commercializing serine protease inhibitors as a platform for various pharmaceutical products for dermatological (ex.: eczema, psoriasis, genital
herpes), gastrointestinal (ex.: Crohn’s disease, irritable bowel syndrome) and urinary tract indications. The first serine protease pursued is rAAT,
a lead compound produced in genetically-engineered yeast cells.
Arriva has granted to Arriva-ProMetic an exclusive, perpetual license to develop, manufacture and commercialize these serine protease inhibitors
and the Company has granted Arriva-ProMetic an exclusive, perpetual license for the use of its Mimetic Ligand™ purification technology for the
indications within the scope of the joint venture. The Company has also undertaken to fund the joint venture to a maximum of US$4 million of
which US$1,543,651 was contributed in 2001. The Company will progressively record 50% of its US$4 million contribution as "Intellectual
property" in consideration for Arriva’s exclusive and perpetual license granted to the joint venture. In 2001, the Company recorded an amount
of $1,209,672 as intellectual property.
The Company had also undertaken to purchase preferred voting shares in Arriva for a total amount of US$1.5 million. This transaction was
completed in November 2000 (see note 5).
34
ProMetic annual report 2001
ProMetic Life Sciences Inc.
Notes to Consolidated Financial Statements, page 8
Years ended December 31, 2001 and 2000
8. Investment in a joint venture:
The consolidated financial statements include the Company's proportionate share of the revenues, expenses, assets and liabilities of Arriva-ProMetic,
Inc. as follows:
Current assets
Long-term assets
Total liabilities
Total expenses being net loss
Cash flow from:
Operations
Financing
Investing
9. Deferred development costs:
Research and development:
Incurred during the year
Amount deferred
Research tax credits
Amortization of deferred development costs
Write-off of deferred development costs
Expense for the year
2001
$
3,357
1,162,590
68,289
(1,321,686)
(1,206,315)
–
(1,209,672)
2000
$
5,122,226
(1,374,284)
–
3,747,942
6,000
15,613
3,769,555
2001
$
7,640,704
(907,057)
(177,510)
6,556,137
232,331
108,999
6,897,467
ProMetic annual report 2001
35
ProMetic Life Sciences Inc.
Notes to Consolidated Financial Statements, page 9
Years ended December 31, 2001 and 2000
9. Deferred development costs (continued):
Deferred development costs:
Deferred development costs, beginning of year
Deferred development costs for the year
Amortization of deferred development costs
Write-off for the year
Deferred development costs, end of year
10. Share capital:
Authorized and without par value:
2001
$
3,018,104
907,057
(232,331)
(108,999)
3,583,831
2000
$
1,665,433
1,374,284
(6,000)
(15,613)
3,018,104
Unlimited number of Subordinate voting shares, participating, carrying one vote per share
20,000,000 Multiple voting shares, participating, carrying ten votes per share, convertible at the option of the holder or automatically
converted upon their sale to a third party by the holder into an equal number of Subordinate voting shares
An unlimited number of Preferred shares, no par value, issuable in one or several series:
1,050,000 Preferred shares, series A, non-participating, non-voting, convertible at the option of the holder into Subordinate voting shares at $0.50
per share except for unpaid dividends, convertible at a rate equal to the trading average of the Subordinate voting shares during the 20 days
preceding the conversion, preferential cumulative dividend of 12% per year, payable quarterly
950,000 Preferred shares, series B, non-participating, non-voting, convertible at the option of the holder into Subordinate voting shares at $0.60
per share except for unpaid dividends, convertible at a rate equal to the trading average of the Subordinate voting shares during the 20 days
preceding the conversion, preferential cumulative dividend of 12% per year, payable quarterly
36
ProMetic annual report 2001
ProMetic Life Sciences Inc.
Notes to Consolidated Financial Statements, page 10
Years ended December 31, 2001 and 2000
10. Share capital (continued):
Issued and fully paid:
54,056,402 Subordinate voting shares
(2000 - 46,254,045)
13,261,586 Multiple voting shares
(2000 - 13,703,197)
900,000 Preferred shares, series A
(2000 - 1,050,000)
950,000 Preferred shares, series B
Subscriptions (d)
2001
$
70,908,876
1,591,390
900,000
950,000
9,150,000
83,500,266
2000
$
60,787,994
1,644,385
1,050,000
950,000
–
64,432,379
Cumulative dividends on Preferred shares amount to $414,885 as at December 31, 2001 (2000 - $208,525).
(a) Share issuance:
Changes in the issued and outstanding subordinate voting shares were as follows:
Number
Amount
$
Balance as at December 31, 1999
32,777,747
46,395,130
Shares issued pursuant to:
Private placements
Public offerings
Conversion of loans
Conversion of multiple voting shares
3,986,438
7,590,000
1,300,000
599,860
3,584,900
9,487,500
1,250,000
70,464
Balance as at December 31, 2000
46,254,045
60,787,994
Shares issued pursuant to:
Private placements
Public offering
Exercise of warrants and options
Conversion of shares
2,094,433
3,300,500
1,650,700
756,724
3,141,650
4,950,750
1,825,487
202,995
Balance as at December 31, 2001
54,056,402
70,908,876
Except for shares issued pursuant to the conversions of loans and shares, all subordinate voting shares were issued for a cash consideration.
ProMetic annual report 2001
37
ProMetic Life Sciences Inc.
Notes to Consolidated Financial Statements, page 11
Years ended December 31, 2001 and 2000
10. Share capital (continued):
(a) Share issuance (continued):
During 2001, 441,611 Multiple voting shares and 150,000 Preferred shares series A were converted into 441,611 and 315,113 Subordinate
voting shares, respectively.
In 2000, the Company issued 2,000,000 Preferred shares (1,050,000 series A and 950,000 series B) for gross proceeds of $2,000,000.
(b) Stock options:
The Company established a stock option plan for its directors, officers and employees or consultants. The plan provides that the aggregate
number of shares reserved for issuance at any time under the plan and any other employee incentive plans may not exceed 6,000,000
(3,500,000 in 2000) Subordinate voting shares. The 2001 increase in the maximum number of shares reserved under the plan is subject to the
approval of the shareholders. The options could be exercised in a period not exceeding 10 years from the date they were granted.
Year of grant
1997
1998
1999
2000
2001
Exercise price
(in Dollars)
1.49 to 1.75
2.00 to 3.00
1.00 to 2.00
1.35
1.00 to 2.00
Number of options outstanding
2000
2001
165,502
65,500
2,195,000
300,000
2,196,833
165,502
65,500
2,265,000
300,000
–
4,922,835
2,796,002
38
ProMetic annual report 2001
ProMetic Life Sciences Inc.
Notes to Consolidated Financial Statements, page 12
Years ended December 31, 2001 and 2000
10. Share capital (continued):
(b) Stock options (continued):
Changes in the number of options outstanding during the past two fiscal years were as follows:
Number of options as at December 31, 1999
Granted
Cancelled
Number of options as at December 31, 2000
Granted
Exercised
Cancelled
Number of options as at December 31, 2001
Options
3,055,318
300,000
(559,316)
2,796,002
2,206,833
(3,000)
(77,000)
4,922,835
The following table summarizes information about stock options outstanding at December 31, 2001:
Range of
exercise prices
$
1.00 to 1.49
1.50 to 1.75
2.00 to 3.00
Number
outstanding
2,532,002
1,869,833
521,000
4,922,835
(c) Warrants and other options:
Weighted
average
remaining
contractual
life (in years)
7.58
3.96
6.24
Weighted
average
exercise
price
$
1.08
1.63
2.10
Number
exercisable
1,435,802
118,400
191,500
1,745,702
Weighted average
exercise price
per share
$
1.16
1.35
1.01
1.21
1.62
1.00
1.08
1.40
Weighted
average
exercise
price
$
1.03
1.70
2.16
In connection with shares issued pursuant to offerings and private placements, the Company also granted warrants and options for the
purchase of shares.
ProMetic annual report 2001
39
ProMetic Life Sciences Inc.
Notes to Consolidated Financial Statements, page 13
Years ended December 31, 2001 and 2000
10. Share capital (continued):
(c) Warrants and other options (continued):
As at December 31, 2001, the following warrants and other options were outstanding:
Warrants/options
100,000(1)
180,000
531,300
330,050(1)
Expiry date
September 2003
September 2002
September 2002
September 2003
Price
per share
$
1.64
1.44
1.44
1.64
(1) The exercise price will increase to $1.80 after September 2002.
During 2001 and pursuant to the exercise of warrants, the Company issued 1,600,000 and 47,700 Subordinate voting shares at a price of
$1.10 and $1.31 per share respectively, for total gross proceeds of $1,822,487.
(d) Subscriptions:
As at December 31, 2001, the Company accepted subscriptions for an amount of $9,150,000 (4,575,000 Subordinate voting shares at
$2 per share). As at March 15, 2002, the Company had received $7,150,000 with respect to the subscriptions.
11. Commitments:
The Company has commitments under various operating leases for office space and laboratories. The minimum annual payments are as follows:
2002
2003
2004
2005
2006
2007 and thereafter
40
ProMetic annual report 2001
$
847,111
711,352
564,464
487,648
480,665
2,054,765
ProMetic Life Sciences Inc.
Notes to Consolidated Financial Statements, page 14
Years ended December 31, 2001 and 2000
12. Contengencies:
Following the discontinuation of the generic pharmaceutical business by ProMetic Pharma Inc. ("Pharma") a former subsidiary of the Company,
in 1999, the Company received the two following outstanding claims:
– A guaranteed creditor of Pharma is claiming $2,021,619 from the Company pursuant to guarantees and agreements related to certain credit
contracts concluded between this creditor and Pharma. The action commenced on June 29, 2000.
– Another Pharma creditor instituted an action on account for the recovery of certain amounts totaling $305,104.
The Company and a subsidiary have an outstanding claim from a former employee for an amount of approximately $320,000. This claim
was rejected by the Superior Court (Quebec, Canada) on August 8, 2000 and the former employee appealed this judgment.
After obtaining representation from their legal counselors, management is of the opinion that these claims are without substantial merit and
no provision related to these matters has been recorded in these consolidated financial statements in that respect. Settlements, if any, will
be charged to operations in the period in which the settlement occurs.
13. Financial instruments:
(a) Fair value:
The carrying amount of cash and cash equivalents, short-term investments, accounts and other receivable, accounts payable and accrued
liabilities approximates their fair value because of the near-term maturity of these instruments. The carrying amount of the Company’s
floating rate long-term debt approximates its fair value because it bears interest at current market floating rates.
(b) Credit risk:
The Company reviews a new customer’s credit history before extending credit and conducts regular reviews of its existing customers’
credit performance.
(c) Foreign currency rate risk:
The Company receives a substantial part of its revenues in US dollars and the majority of its expenses are incurred in pounds sterling.
The Company does not possess nor issue financial instruments for hedging or trading purposes.
ProMetic annual report 2001
41
ProMetic Life Sciences Inc.
Notes to Consolidated Financial Statements, page 15
Years ended December 31, 2001 and 2000
14. Related party transactions:
The Company entered into the following transaction with related parties:
Consulting fees paid to directors
15. Income taxes:
Items relating to income taxes are as follows:
Net loss
Basic income tax rate
Computed income tax provision
Decrease in income taxes resulting from:
Unrecorded potential tax benefit of current period losses
Effect of tax rate differences in foreign subsidiaries
Non-taxable items
Significant components of the Company’s net future income tax balances are as follows:
Future income tax assets:
Operating losses carried forward
Share issue expenses
Unused research and development expenses
Unused tax credits, net of related taxes
Capital assets
Less: valuation allowance
Net future income tax assets
Future income tax liabilities:
Capital assets
Intellectual property
Deferred development costs
Net future income tax assets
42
ProMetic annual report 2001
2001
$
248,540
2000
$
194,175
2001
$
(8,415,085)
37%
(3,113,581)
1,895,779
1,182,151
35,651
2000
$
(5,167,640)
38%
(1,963,703)
1,245,628
661,862
56,213
–
–
2001
$
6,782,922
1,032,465
154,342
92,761
76,562
8,139,052
(6,954,309)
1,184,743
(89,701)
(595,997)
(499,045)
–
2000
$
4,516,570
1,143,648
59,132
33,329
11,125
5,763,804
(4,958,599)
805,205
(244,914)
(238,988)
(321,303)
–
ProMetic Life Sciences Inc.
Notes to Consolidated Financial Statements, page 16
Years ended December 31, 2001 and 2000
15. Income taxes (continued):
In assessing the realizability of future tax assets, management considers whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and tax
planning strategies in making this assessment.
At December 31, 2001, the Company had the following operating loss carry forwards and unclaimed deductions and credits available for
carry forward:
Research and development expenditures,
without time limitation
Losses carried forward:
Expiring:
2002
2003
2004
2005
2006
2007
2008
2012
2018
2019
2021
without expiration date
Canada
Federal
$
Provincial
$
618,568
896,870
42,580
525,630
764,964
1,100,268
2,465,153
2,692,151
5,403,352
–
–
–
–
–
42,580
364,589
–
1,149,113
2,047,933
2,692,189
5,403,352
–
–
–
–
–
Other
countries
$
–
–
–
–
–
–
–
–
674,089
1,589,707
593,270
520,084
12,355,964
Share issue expenses
3,328,386
3,328,386
–
16,322,484
15,028,142
15,733,114
Unused tax credits:
Expiring:
2009
2011
53,757
80,718
134,475
–
–
–
–
–
–
ProMetic annual report 2001
43
ProMetic Life Sciences Inc.
Notes to Consolidated Financial Statements, page 17
Years ended December 31, 2001 and 2000
16. Net change in non-cash operating working capital items:
Increase in accounts receivable
Decrease in inventories
Increase in prepaid expenses
Increase (decrease) in accounts payable and accrued liabilities
2001
$
(400,026)
8,261
(55,434)
274,776
(172,423)
2000
$
(288,245)
219,003
(17,324)
(505,473)
(592,039)
17. Segmented information:
The Company operates in one reporting segment consisting in research, development, manufacturing and commercialization of a variety of
commercial applications from its platform technology.
Revenues(1) by geographic segment are as follows:
United States
United Kingdom
Europe (excluding United Kingdom)
Other
Canada
Intersegment sales
(1) Revenues are attributed to countries based on location of customer.
Net losses from the continuing operations by geographic segment are as follows:
Canada
United States
United Kingdom
44
ProMetic annual report 2001
2001
$
1,425,130
633,902
296,922
114,144
30,697
–
2,500,795
2001
$
3,357,232
393,763
4,664,090
8,415,085
2000
$
1,256,989
797,025
139,652
37,598
160,672
(172,907)
2,219,029
2000
$
1,590,788
299,817
3,277,035
5,167,640
ProMetic Life Sciences Inc.
Notes to Consolidated Financial Statements, page 18
Years ended December 31, 2001 and 2000
17. Segmented information (continued):
Assets by geographic segment are as follows:
Canada
United Kingdom
United States
Capital assets and intellectual property by geographic segment are as follows:
United Kingdom
Canada
United States
Capital and intellectual property expenditures by geographic segment are as follows:
United Kingdom
Canada
United States
18. Comparative figures:
2001
$
17,695,636
5,951,487
664,872
24,311,995
2001
$
2,422,118
2,800,958
22,460
5,245,536
2001
$
191,023
2,051,334
6,990
2,249,347
2000
$
8,010,094
5,543,422
633,921
14,187,437
2000
$
2,599,566
973,143
47,677
3,620,386
2000
$
660,163
181,059
3,687
844,909
Comparative figures have been reclassified in order to conform with the current year’s presentation.
ProMetic annual report 2001
45
Board of Directors
Sadok Besrour (1)
President, Placements
Sadobex Inc.
John Bienenstock
Professor of Medicine
and Pathology,
Health Sciences Faculty.
Physician, Scientist
and Consultant.
McMaster University,
Hamilton, Ontario.
Roger Garon (2)
Chairman of the Board,
Multivet Ltd
Pierre Laurin
Chairman of the Board,
President and
Chief Executive Officer,
ProMetic
Claude Lemire (1)
Claude Lemire
Consultant
Roger A. Perrault (2)
President, R.A. Perrault
Consultants Inc.
Barry Gibson
Consultant
Hans W. Schmid (2)
Chairman of the Board,
HPC Healthcare &
Pharma Consulting AG
Robert Lacroix (1)
Executive Vice-President,
CTI Capital Inc.
46
ProMetic annual report 2001
(1) Member of the Audit Committee
(2) Compensation Committee
Scientific Advisory Committee
The Company has an Advisory Committee comprised of scientists with expertise in the areas of
biotechnology, bioprocessing and biopharmaceuticals. The members of the Advisory Committee are
as follows:
Christopher Lowe, Ph.D.
Director, Institute of Biotechnology, University
of Cambridge (UK). A world authority on
molecular modeling for affinity purification
of therapeutic proteins.
Barry L. Haymore, MD., Ph.D.
Consultant, Microbe Inotech Laboratories Inc.,
St. Louis, MO, U.S.A. A Consultant, who is
known internationally for his work in separation
science and metal affinity chromatography.
John C. Curling, Ph.D.
Independent Consultant. A recognized expert in
plasma protein purification and known for his
work in biotechnology process development.
John Bienenstock, MB., MD., FRCPC
Professor of Medicine and Pathology,
Health Sciences Faculty.
Physician, Scientist and Consultant.
McMaster University, Hamilton, Ontario.
Pete Gagnon, Ph.D.
President, Validated Biosystems Inc.
A world expert on downstream process
development, with particular emphasis on
monoclonal antibodies and managing
upstream contaminants.
Max Arella, Ph.D.
President, Sannica Biotech/Pharma, Professor
INRS-Institute Armand-Frappier (leave of
absence) and adjunct Professor University of
Montreal and P.E.I. University. A Virologist
member of various national and international
committees on infectious diseases and
expression of recombinant proteins.
David J. Stewart, Ph.D.
Director of Meetings, Cold Spring Harbor
Laboratory NY, U.S.A. An affinity
chromatography expert who was directly
involved in the development of synthetic
alternatives to Protein A and
Perfluorocarbon matrices.
David J. Hammond, Ph.D.
Director, Plasma Derivatives, American Red
Cross, Holland Laboratory. Expert in ligand
design technologies, viral binding/removal
and protein purification.
Steve J. Burton, Ph.D.
Research Director, ProMetic BioSciences Ltd.,
(UK). An acknowledged expert on downstream
processing purification procedures for thera-
peutic proteins.
Robert H. Painter, Ph.D.
Professor, University of Toronto, Department of
Biochemistry. Professor of biochemistry and a
recognized expert on blood plasma
fractionation and protein chemistry.
Roger A. Perrault, MD., Ph.D., FRCPC
President of R.A. Perrault Consultants Inc.
A world authority on blood plasma
fractionation and applications of
plasma derivatives.
ProMetic annual report 2001
47
Clinical Advisory Committee
(Arriva-ProMetic, Inc.)
The members of the Clinical Advisory Committee are as follows:
Roger A. Perrault, MD., Ph.D, FRCPC
Montreal, Quebec
President of R.A. Perrault Consultants Inc.
A world authority on blood plasma
fractionation and applications
of plasma derivatives.
David Gratton, MD., FRCPC
Montreal, Quebec
Professor, McGill University,
Health Science Centre
Past President Canadian Dermatology
Association. Authority in the field
of dermatology.
Dan Chalker, MD.
Clinical Professor, Medical College, Georgia.
Diplomat, American Board of Dermatology.
Fellow of American Academy of Dermatology.
Conducted pioneering clinical research
on alpha-1-antitrypsin use in the field
of dermatology.
Ernest Charlesworth, MD., FRCPC
Dermatologist, allergist and immunologist,
San Angelo, Texas. Known authority in
Dermatology. Working Group Member on
Atopic Dermatitis Practice Parameters.
Sheldon Spector, MD.
Clinical Professor of Medicine, UCLA Medical
Center. President, California Society of Allergy,
Asthma and Immunology. Internationally
known authority in the field of allergy and
immunology.
.
48
ProMetic annual report 2001
Additional investor information
Auditors
KPMG LLP
Chartered Accountants
2000 McGill College Avenue
Suite 1900
Montreal, Quebec
Canada H3A 3H8
Tel.: (514) 840-2100
www.kpmg.ca
Listings
Toronto Stock Exchange (PLI)
Tradable shares outstanding as at
December 31, 2001: 54,056,402
Transfer Agent and Registrar
National Bank Trust
1100 University Street
Suite 900
Montreal, Quebec
Canada H3B 2G7
Tel.: (514) 871-7200
Investor Relations
ProMetic Life Sciences Inc.
Pierre Laurin
Patrick C. Hofman
Montreal, Quebec
Tel.: (514) 673-1116
E-mail: p.hofman@qc.aira.com
Annual Meeting of Shareholders
Wednesday, May 15, 2002 (11:00 A.M.)
The Montreal Museum of Fine Arts
Auditorium Maxwell-Cummings
1380 Sherbrooke West
Montreal, Quebec
Canada H3G 1J5
Tel.: (514) 285-1600
ProMetic annual report 2001
49
Contact information
Noonan/Russo Communications, Inc.
New York, U.S.A.
New York, NY 10001
Tel.: (212) 696-4455
London, UK
London, UK EC2V 5BR
Tel.: 011-44-20-7726-4452
ProMetic Life Sciences Inc.
Montreal, Quebec
Tel.: (514) 496-2115
E-mail: info@prometic.com
ProMetic BioSciences Ltd.
Cambridge, UK
Tel.: 011-44-1223-420-300
ProMetic BioSciences (U.S.A.), Inc.
Burtonsville, MD
Tel.: (301) 421-0030
E-mail: prometic-usa@mindspring.com
50
ProMetic annual report 2001
Printed in Canada
Ce rapport annuel est également disponible en français
6100 Royalmount Avenue
Montreal, Quebec
Canada H4P 2R2
Tel.: (514) 496-2115
Fax: (514) 496-2079
info@prometic.com
www.prometic.com
annual report
2001
a company with its eye
on the present and the future