ProMetic Life Sciences Inc. Annual Report 2002

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FY2002 Annual Report · ProMetic Life Sciences Inc.

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2002

Annual Report

Enabling a world
of better health

Corporate profile

Enabling a World of

Better Health for All

P roMetic is a leading biopharmaceutical company engaged in the

development, manufacture and commercialization of products for

the biopharmaceutical industry.
ProMetic’s goal is to enable further improvements to well-established therapies as
well as to create better and more efficient technologies for new drugs and disease
treatments. In so doing, ProMetic will be helping people in developed and developing
countries around the world lead healthier lives, while at the same time creating
ethical financial opportunities for shareholders.

ProMetic’s proprietary technology is key to the development and manufacture
of proteins. It has commercial applications in a wide range of areas, from proteomics
to industrial biopharmaceutical manufacturing, and from blood product safety to
diagnostics and therapeutics.

Pharmaceutical and biotechnology companies use ProMetic’s technology and
products,through licensing agreements,to develop and manufacture their own products.
ProMetic further leverages its core technologies and competencies by
developing proprietary, value-added therapeutics and medical devices. Clinical
development and marketing risks are shared through partnerships with
multinational companies.

Founded in 1994, ProMetic Life Sciences Inc. along with its subsidiaries has
102 employees with R & D facilities in Montreal (Canada) and Cambridge (UK),
manufacturing facilities in Canada and in the UK, and marketing presence in
Europe, USA and Japan.

Core Technologies

Chemical Combinatorial Library

Particle Technologies

Mimetic Ligand™

Purabead®
beads

Perfluorosorb™
beads (Teflon®)

Immobilize ligands onto particles

Synthetic compounds designed
to bind to a specific protein
(like antibody-antigen interaction)

Capture targeted protein

Detect
Screening
Diagnostic

Purify
Purification of
biopharmaceuticals
Proteomics

Remove
Biocontaminant
removal
• Prions
• Endotoxins
• Viruses

Table of contents

Highlights

Message to Shareholders

ProMetic
Enabling Biotechnologies

ProMetic and the American Red Cross
New Alliance to Recover Valuable Proteins from Plasma

ProMetic and the American Red Cross
Alliance to Remove Pathogens from the Blood Supply

Inflammation
Lead Compound in Clinical Trials

Cancer
ProMetic Enables More Effective Treatments

Management Discussion and Analysis of the
Operating Results and Financial Position

Consolidated Financial Statements

Notes to Consolidated Financial Statements

Enabling Applications—Collaboration Agreements

ProMetic is strategically well positioned to capture market share from multiple growth opportunities within the

expanding biotechnology industry.

Proteins/Products

Source

Partner

Market Value
Market Potential

Primary Use

ENABLING APPLICATIONS—COLLABORATION AGREEMENTS
Human Serum Albumin (hSA) Plasma

American Red Cross > US$ 1.5 B

Recombinant hSA

Transgenic hSA

Immunoglobulins (IVIG)

Yeast

Bovine

Plasma

~ US$ 3 B

Aventis

GTC-Fresenius

American Red Cross > US$ 2 B
> US$ 4 B

Monoclonal antibodies

Recombinant

MERCK

> US$ 7B
> US$ 20B

To restore plasma volume in
treatment of shock, trauma and
burns; also used as excipient for
trace proteins

To treat various immune
deficiency conditions

To treat various conditions
including cancer and
inflammation

Alpha 1-antitrypsin (AAT)

Plasma

> US$ 130 M
> US$ 1 B

To treat emphysema caused
by genetic deficiency

Antihemophilic Factor
(Factor VIII)
Recombinant Factor VII

Removal Devices

Plasma

American Red Cross

US$ 1 B

Mammalian Cells Novo Nordisk

US$ 400 M

American Red Cross > US$ 800 M

IN-HOUSE THERAPEUTICS
Recombinant
Alpha 1-antitrypsin (rAAT)

Yeast

Arriva-ProMetic

> US$ 1 B

PBI-1402

Synthetic

ProMetic

> US$ 2 B

Prophylaxis and treatment
of A hemophilia bleeding
episodes

Removal of pathogens from
blood products

To treat chronic inflammation
such as psoriasis, atopic
dermatitis and inflammatory
bowel diseases (IBD)

To protect and restore bone
marrow cells during
chemotherapy

PBI-1393

Synthetic

ProMetic

> US$ 750 M

Anti-cancer therapy

Highlights

PARTNERSHIPS WITH THE AMERICAN RED CROSS

Established a new joint venture company, Pathogen Removal and Diagnostic Technologies Inc.
(PRDT), to develop and commercialize detection and removal systems for the elimination of prions,
viruses and other pathogens both from the human blood supply and blood-derived products

Laid the foundation for a second strategic alliance for an improved process to recover a wide range
of life saving medicines from plasma, from which an agreement was finalized on February 5, 2003

THERAPEUTIC DRUG CANDIDATES PROGRESS TO CLINICAL STAGE

Received approval from the FDA and Health Canada to move recombinant Alpha 1-antitrypsin into
clinical trials for patients suffering from atopic dermatitis

Completed GMP synthesis and oral formulation work, preparing PBI-1402 for clinical trials

SIGNIFICANT PROGRESS IN ROBUST PIPELINE

Use of ProMetic’s Perfluorosorb™ beads in the manufacture of the DNA-based West Nile virus
vaccines developed by the Centre for Disease Control and Prevention (United States)

Completed final steps in the commercialization of Perfluorosorb™ beads for use in DNA purification

Achieved a milestone in the development of a purification process for Alkaline Phosphatase,
a therapeutic drug candidate for the treatment of sepsis and septic shock, with initiation of
Phase I clinical study by AM-Pharma

Achieved scaleable purification process for Amediplase, Menarini’s new thrombolytic agent for
the treatment of acute myocardial infarction currently in Phase III clinical trials

Developed a powerful platform for the purification of monoclonal antibodies (MAbs) that can
apply to most types of MAbs produced by different techniques achieving the required yield and
purity while improving process economics

STRENGTHENED FINANCIAL BASE

Successful equity financing raising $38.1 million, $26.2 million of which was obtained via a public
offering on June 17, 2002

Secured additional research analyst coverage

Among top performing stocks on TSX in 2002

2 0 0 2 A N N U A L R E P O R T

P R O M E T I C L I F E S C I E N C E S

I N C .

Message to Shareholders

Pierre Laurin
President and Chief Executive Officer

Two strategic agreements
with the American Red
Cross prove the value of
ProMetic’s technology.

E vents in 2002 have further

demonstrated ProMetic’s ability

to create value from its core

technology. Our solid growth engine

is capable of attracting strategic

partners and developing valuable

and proprietary products.

In 2002, ProMetic established two high-
profile alliances with the American
Red Cross. Although the impact of these
agreements on the Company’s bottom line
is not immediate, they will provide a
solid base to drive revenue growth. These
agreements further endorse the value of
ProMetic’s technology and the potential
annuity revenue it can generate from its
use worldwide.

The first alliance with the American
Red Cross resulted in the formation of a
joint venture company, Pathogen Removal
and Diagnostic Technologies Inc. (PRDT).
Established in April 2002 to develop and
commercialize products to detect and
eliminate pathogens, PRDT exemplifies
the Company’s ability to improve the
future for millions of patients, while
developing ethical and profitable
opportunities for our shareholders.

Management continues to apply its

technology towards the improvement
of established, marketed therapies.
The efficacy of this strategy is demon-
strated by the second and most recent
alliance with the American Red Cross for
the purification of therapeutic proteins
derived from plasma.

Biopharmaceuticals derived from

plasma represent annual sales of
US$ 7 billion. This market is underserved, as
worldwide demand significantly exceeds
supply. To illustrate this point, approximately
80% of hemophiliacs lack essential, plasma-
derived Factor VIII, while demand for
plasma-derived immunoglobulins (IVIG)
is more than seven times current
manufacturing capacity.

ProMetic and the American Red Cross

will combine their technologies and
resources to improve the extraction yield
and net recovery of valuable therapeutic
plasma proteins.

Focus on Improving Proven
Therapies
ProMetic licenses its enabling
manufacturing technology to
pharmaceutical and biotechnology
companies in return for milestone
payments and royalties on product sales.
Partners use our technology to enable or
improve the manufacturing of their own
therapeutics, both in terms of product
yield and safety. In the past year,
ProMetic’s partners have advanced their
programs considerably and many of these
programs will soon generate continuous,
long-term revenues.

In addition to improving the

manufacturing processes of established,
marketed products, ProMetic’s technology
has also been applied to the development
of second-generation, recombinant
therapeutic products. Successful
collaborations in this area include
Recombumin® (Aventis), monoclonal
antibodies as well as DNA-based therapies.
The Company will continue to collab-
orate with industry partners to accelerate
corporate growth and maximize the value
of its proprietary core technology.

P R O M E T I C L I F E S C I E N C E S

I N C .

2 0 0 2 A N N U A L R E P O R T

ProMetic’s In-House
Therapeutics Advance to
Clinical Phase

By leveraging its expertise in protein

therapeutics and medicinal chemistry,
ProMetic has accumulated an impressive
pipeline of therapeutic products. We strive
to develop drugs internally that target
unmet medical needs where standard
therapies are either in limited supply or
economically burdensome. This is
particularly true for ProMetic’s two lead
compounds, recombinant Alpha 1-
antitrypsin (rAAT) and PBI-1402.

In June 2002, ProMetic and Arriva
Pharmaceuticals announced that rAAT
had advanced to the clinical trial stage.
RAAT will be tested in atopic dermatitis
patients and additional indications will be
considered in 2003.

In November 2002, ProMetic

announced the successful manufacturing
scale-up of PBI-1402, an oncology drug
with impressive pre-clinical data and a
demonstrated ability to protect bone marrow
from the side effects of chemotherapy. We
expect PBI-1402 to enter clinical trials in
the second half of 2003.

ProMetic also in-licensed a promising

compound, PBI-1393, that increases the
activity of chemotherapy on cancer cells.
The Company anticipates that PBI-1393
could allow equivalent therapeutic effect
with lower dose chemotherapy when
PBI-1393 is added to the therapeutic
cocktail.

Enabling a World of Opportunity
ProMetic is well positioned to capture
market share from multiple growth
opportunities within the expanding
biotechnology industry. There are
hundreds of protein-derived and DNA-
based drugs in development, forming the
next wave of new therapies and referred to
as “biopharmaceuticals”. Each of these
products requires a cost-effective process
for commercial-scale isolation,
purification and manufacture. Our
collaborations with the American Red
Cross and large pharmaceutical
companies may soon position ProMetic
as the standard technology in this field.
Our business model and growth
strategies are clear: accumulate multiple,
long-term annuity revenues through
collaboration, while advancing our own
exciting therapeutic products towards
commercialization.

On behalf of our staff and Board of

Directors, I would like to express
appreciation to our investors, stockholders
and strategic partners for their ongoing
support for the Company and conviction in
our abilities. On a personal note, I would like
to thank the outstanding individuals who
by their actions define the achievements of
ProMetic, through their breakthrough
research and in securing key strategic
alliances that one by one build a validating
foundation below ProMetic’s technology.

Thank you,

Pierre Laurin

2 0 0 2 A N N U A L R E P O R T

P R O M E T I C L I F E S C I E N C E S

I N C .

ProMetic

Enabling Biotechnologies

Protein separation and
purification typically
represent over 50% of the
total manufacturing costs of
biopharmaceutical products.

A Strategy Optimizing
Opportunity
ProMetic’s strategy focuses on the
improvement of existing and established
biopharmaceuticals through yield, purity
or cost improvements. Business risk is
therefore lowered compared to a growth
strategy that would rely solely on the
discovery and development of new and
unproven therapeutic drug candidates.
ProMetic has a remarkable growth
engine capable of developing a wide range
of high value products. It has established a
solid base of technology out-licensed to
biopharmaceutical companies for their
own development programs, and formed
alliances with third parties to co-develop
high value biopharmaceuticals.

P roMetic is a leading biopharma-

ceutical company whose core

technology and competencies are,

step by step, contributing to a world

of better health.

The biopharmaceutical industry has
stemmed from advances in biotechnology,
a field which, within the life sciences area,
applies techniques of biochemistry, cellular
biology, biophysics and molecular biology
to understand and use the biological systems
of living organisms to develop new therapies
and medicines.

A natural starting point for the
biopharmaceutical industry to address
this issue is “proteins”, molecules
fundamental to the function and structure
of all living organisms such as animals,
plants and humans. Being able to
understand how proteins function and
techniques to derive proteins from
organisms is key to the development
of new medicines and therapies.

An example of a well-known protein is

insulin. The insulin found in the human
body can now be reproduced in a
fermentation broth via DNA techniques
and is available to people that are unable
to produce sufficient amounts of insulin,
resulting in diabetes.

Proteins, commonly referred to as
“biopharmaceuticals”, present tremendous
business opportunities and can improve the
lives of millions of people around the globe.
These products are derived from a
biological source, in contrast to traditional
pharmaceuticals which are chemically
synthesized.

Biopharmaceuticals also pose manu-
facturing challenges, as the separation and
purification of targeted therapeutic proteins
from their original biological source, a
process called “bioseparation”, is key to
their commercial viability.

Bioseparation presents unique

challenges owing to the variety of proteins/
biopharmaceuticals that need to be
recovered and purified, the varied nature
of possible contaminants and impurities,
and the quantity of product to be
separated from the biological source.

Conventional bioseparation technologies

generally involve a series of purification
steps for each given biopharmaceutical.
With every step, the yield decreases and
overall manufacturing costs increase.

ProMetic’s Core Technology
ProMetic’s core technology is based on
unique and proprietary synthetic organic
entities called Mimetic Ligands™. These
compounds can be compared to chemical
hooks that selectively recognize and bind
targeted proteins. Used in bioseparation
applications, they can maximize the level
of recovery.

Alternatively, a ligand can be designed to
bind impurities such as undesirable proteins
or toxins (biocontaminants), that must be
removed from the final therapeutic product.

P R O M E T I C L I F E S C I E N C E S

I N C .

2 0 0 2 A N N U A L R E P O R T

Bioseparation Process Overview

BIOLOGIC SOURCES

Plant

Transgenic

Cell Culture

Blood

Plant Extract

Milk

Fermented Broth

Plasma

Chromatography
Columns (filters)

Purify

• Purification of

biopharmaceuticals

• Proteomic

Filters containing ligands designed to target therapeutic proteins

Remove

Biocontaminant removal

Purification of

• Prions

• Endotoxins

• Viruses

Filters containing ligands designed to detect and remove pathogens

Purified Biopharmaceutical Product

ProMetic Technology Increases
Production Efficiency
ProMetic collaborates with pharma-
ceutical and biotechnology companies to
optimize manufacturing processes
involving the bioseparation or purification
of their products.

The resulting process improvements

help increase production efficiency,
thereby reducing manufacturing costs.
Moreover, the companies can use ProMetic’s
technology to strengthen their own
market position through product
improvements such as increased purity.

A good example is the recent strategic

alliance signed with the American Red
Cross for the co-development of a new
process to improve the recovery of
proteins from plasma fractionation.

ProMetic Derives Revenues
from these Partnerships in
Several Ways
• Funded development work
• Supplying bioseparation media needed
to recover biotherapeutics in a highly
purified form

• Royalties on the sales of therapeutic

proteins manufactured using ProMetic’s
technology depending on the type of
business relationship and the nature of
the products

In early 2003, ProMetic
signed a new strategic
alliance with the
American Red Cross to
develop more efficient
methods for recovering
proteins from plasma.

2 0 0 2 A N N U A L R E P O R T

P R O M E T I C L I F E S C I E N C E S

I N C .

ProMetic and the American Red Cross

New Alliance to Recover
Valuable Proteins from Plasma

Products Derived from Blood

Whole Blood

Each unit = screened, tested, filtered
at blood centers

Red Blood Cells

Platelets

Plasma

P lasma is the residual liquid that

remains once the red cells,

white cells and platelets have been

removed from whole blood. It is a

unique and important source of

multiple biopharmaceutical

products. Each litre contains about

60g of protein, some 57g of which

(given processing losses) are used

in the manufacture of over 20 thera-

peutic products.

The challenge with plasma as a biological
source of proteins is compounded by the
fact that there are several different
proteins to be recovered from the same
source material at the same time.

Extracting and purifying proteins
derived from blood involves a complex
series of steps.

Our alliances with the
American Red Cross
exemplify the many ways in
which ProMetic leverages its
technology and competence.

The First Step: Blood Collection
and Processing
Blood is collected by blood agencies such
as the American Red Cross, Canadian
Blood Services and Héma-Québec.

These institutions screen, test, filter,
and otherwise process each unit of blood
individually to prepare one unit of red blood
cell concentrate and one unit of platelets.
The white cells are discarded. The remaining
liquid is the protein-rich plasma.

Some 30 million units of whole blood

are processed in this fashion in North
America, Europe and Japan annually.

The plasma is then frozen and sent to

plasma fractionation facilities.

At the plasma fractionation facilities,
the plasma is pooled in batches varying
from 3,000 to 10,000 litres. It is then
processed to recover the many proteins
that constitute the key active ingredients
much in demand for use in research and
as therapeutic drugs.

Most of the plasma fractionation
facilities rely on precipitation techniques,
specifically the Cohn fractionation
technique to recover proteins from
plasma. This technique relies on the
progressive addition of alcohol (ethanol)
and cooling to trigger the precipitation of
different protein fractions.

Current Techniques Unable to
Meet World Demand
Plasma protein fractionation is by far the
largest global therapeutic protein industry.
It produces over 500 metric tons of human
serum albumin (hSA) annually and over
40 tons of immunoglobulins (IVIG) from
more than 26 million litres of source and
recovered plasma.

Many developed countries have
experienced shortages of plasma-derived
products in the past three years, mostly
owing to an increase in clinical demand as
well as a concurrent withdrawal of a
significant amount of products caused by
the theoretical risk of transmitting
infectious diseases such as Creutzfeldt-
Jacob Disease.

Eighty percent of haemophiliacs in the
world do not receive appropriate treatment,
either because of insufficient supply or
because they cannot afford the products.
In the coming years, the plasma
fractionation industry will be confronted
with the major challenge of increasing
the output and further enhancing the
safety of plasma-derived products.

P R O M E T I C L I F E S C I E N C E S

I N C .

2 0 0 2 A N N U A L R E P O R T

Plasma

92% Water
7% Proteins
1% Salt

57g of proteins per
litre of plasma

Plasma is sent to plasma fractionation
facilities to extract the proteins

Purified Biopharmaceutical Product

Key markets that do not
yet have their own plasma
fractionation facilities
include Canada, Latin
America, the Middle East,
India, Africa and several
East European and Far
Eastern countries.

The wide and increasing therapeutic
use of IVIG is placing immense demands
on plasma fractionators to increase output.
It has been calculated that, at a use-level of
62 mg/individual per year in the USA
alone, the global demand for IVIG would
be 379 tons annually. This is more than
7 times the current supply level, which at
the present time is just enough to
adequately treat populations of the USA
and Europe for approved indications.

26 million litres of plasma
are processed worldwide
annually. The five major
players are Alpha
Therapeutics, Aventis
Behring, Baxter BioScience,
Bayer Biological Products
and CSL/ZLB Bioplasma.

However, the fundamental changes in

world demand require more significant
process changes that can only be achieved
by the implementation of new, high-
yielding fractionation facilities.

Poised to Help Fill Global
Demand for Plasma Proteins
ProMetic’s biopurification steps can be
integrated into existing fractionation
processes to enable greater protein
recovery from the same amount of
starting plasma. This approach to process
improvement enables relatively quick
implementation and approval.

Developing New Facilities that
Use ProMetic’s Cascade
Approach
ProMetic and the American Red Cross are
scaling up an innovative ‘cascade’
approach, which leverages ProMetic’s
technology to selectively target a desired
protein directly from plasma. The effect
will be to reduce the significant losses
incurred using the more conventional
precipitation process. This cascade
approach will form the backbone of new
plasma fractionation facilities.

2 0 0 2 A N N U A L R E P O R T

P R O M E T I C L I F E S C I E N C E S

I N C .

ProMetic and the American Red Cross

Alliance to Remove Pathogens
from the Blood Supply

I n 2002, ProMetic concluded

a milestone agreement with the

American Red Cross in creating

the joint venture company,

Pathogen Removal and Diagnostic

Technologies Inc. (PRDT).

The alliance was formed to develop and
commercialize detection and removal
systems to eliminate prions, viruses and
other pathogens both from the human
blood supply and blood-derived products.

The PRDT Synergy:
ProMetic Technology Combined
with American Red Cross
Expertise
PRDT uses ProMetic’s proprietary
technology to develop systems for the
purification of blood and blood products,
for transfusion purposes, and for the large
scale manufacturing of biopharmaceuticals.
The American Red Cross shares its
extensive expertise in handling blood
products, provides skilled individuals,
fully equipped facilities and validated
models to test the efficacy of the systems
jointly developed.

Understanding the Threat of
Creutzfeldt-Jakob Disease
(CJD)
The first issue PRDT is addressing is
transmissible spongiform encephalopathies
(TSEs) which are caused by infectious
prion proteins leading to mad cow disease
or bovine spongiform encephalopathy
(BSE), also known as Creutzfeldt-Jakob
Disease (CJD) in humans.

Mad cow disease is believed to be
transmissible to people by ingestion of
contaminated bovine products and can
cause a fatal brain-wasting disease known
as variant Creutzfeldt-Jakob Disease (vCJD).
People with CJD or vCJD may not
know they are infected for many years. If
they donate blood, they can unwittingly
transmit it to others.

There are, at present, no adequate ante-

mortem methods for the sensitive
detection, inactivation or cure of TSEs.

The formation of PRDT
underscores ProMetic’s
leadership position in
biopurification technology,
diagnostic and pathogen
removal systems.

Four Classes of Products are
Urgently Required to Prevent the
Spread of TSEs
1. A sensitive post-mortem diagnostic test
for cows to eliminate contaminated food
before it enters the food chain.
2. An ante-mortem diagnostic test to

ensure that few or no infectious agents
enter the blood supply.

It has unfortunately been impossible

3. A method for removing infectious

to test the blood supplied by donors
potentially exposed to the disease in
European countries.

Creutzfeldt-Jakob Disease is 100%
fatal as there is no existing therapy. Most
victims of vCJD die within a period of
months following onset of clinical
symptoms. Recent known victims were
probably infected during the late 1980s
when mad cow disease was rampant in
the UK.

Due to inadequate methods for
diagnosing the presence and removal of
infectious prions, many potentially
infected animals could still be processed
for human consumption in Europe.

agents from food and pharmaceutical
preparations.

4. A therapeutic drug to inhibit the progres-
sion of disease in those already infected.

PRDT Products
Under Development
From its platform technology, PRDT will
be developing products addressing the
above-mentioned needs. The immediate
focus however is on developing devices
capable of reducing the risk of transmission
of TSEs by removing infectious prions
from blood, blood components and other
biopharmaceuticals.

P R O M E T I C L I F E S C I E N C E S

I N C .

2 0 0 2 A N N U A L R E P O R T

Inflammation

Lead Compound in Clinical Trials

Recombinant Alpha 1-Antitrypsin (rAAT)

Recombinant Alpha 1-Antitrypsin

(rAAT): Solving World Supply

Problems

Plasma-derived Alpha 1-antitrypsin
(AAT), a naturally occurring protein, has
been clinically proven to alleviate many
inflammatory skin conditions such as
Atopic Dermatitis and Psoriasis. However,
until now, a shortage in world supply has
prevented the development of many AAT-
based treatments.

The Arriva-ProMetic partnership has

developed a yeast-derived product,
recombinant Alpha 1-antitrypsin (rAAT).
This proprietary production system will
provide an abundant source of rAAT.

The current supply of the
natural plasma-derived
form of AAT is only
available in limited
quantities leaving, untreated,
a very large number of
patients who could benefit
from such therapy.

Investments in Arriva-ProMetic topical

rAAT formulations for skin conditions
allows us to develop formulations for
the treatment of other inflammatory
conditions such as Interstitial Cystitis and
Inflammatory Bowel Diseases (IBD).

DNA

Yeast

Yeast Harvested in Fermentor

Purification

Bulk Active

Final Formulations Containing rAAT

2 0 0 2 A N N U A L R E P O R T

P R O M E T I C L I F E S C I E N C E S

I N C .

Indications for Arriva-ProMetic
rAAT Formulations:

Atopic Dermatitis (AD)
A severe and chronic form of eczema, AD
is a skin disorder affecting an estimated

15 million individuals in the US alone
(6% of the general population) at
least once in a lifetime. Since
1970, the incidence of AD
has increased by 30%.

Psoriasis
Psoriasis, a chronic
skin condition, affects
1-3% of the world’s
population. In North
America alone,
approximately

10 million people suffer
from some form of psoriasis.

Inflammatory Bowel Diseases
(IBD)
A group of disorders such as Crohn’s
disease and ulcerative colitis.
IBD affects more than
2 million individuals
worldwide every year.

Interstitial
Cystitis (IC)
Far more common in
women than men, more
than 1 million North
Americans are estimated to have IC.

ProMetic intends to produce an
‘improved’ range of existing, branded
medications with new patent protection,

in partnership with their manufacturers.

Given that PBI-1101 is a

substance that has been
approved by health
authorities worldwide for
other uses, its clinical
development phases should
be accelerated.

ProMetic Discovers
Anti-Inflammatory Properties
of Well-Known Entity PBI-1101
Effective alone or in combination with
other anti-inflammatory drugs, ProMetic’s
proprietary use of PBI-1101 may have
promising new applications in the treatment
of dermatological, gastroenterological and
urogenital inflammations.

ProMetic develops drugs that
target unmet medical needs
where standard therapies are
either in limited supply or
economically burdensome.

Therapeutic Pipeline—Inflammation

Products

Research

Pre-Clinical
Proof of Concept

Manufacturing
Bulk Active

Toxicology

Clinicals
II
I

III

Market

rAAT
Dermatological
Gastro-Intestinal
Bladder

PBI-1101
Dermatological
Gastro-Intestinal
Bladder

P R O M E T I C L I F E S C I E N C E S

I N C .

2 0 0 2 A N N U A L R E P O R T

Cancer

ProMetic Enables More Effective Treatments

Devastating Side Effects of

Chemotherapy and Radiation

Therapy

Although other normal tissues may also
be adversely affected, bone marrow is
particularly sensitive to chemotherapy or
radiation therapy. Chemotherapy and
radiation therapy induce a myelosuppression
state, i.e. a severe reduction of blood cell
production in bone marrow (hematopoietic
cells) and reduces the self-renewal capacity
of stem cells.

The hematopoietic cells of the bone
marrow are responsible for the production
of important cells of the immune system,
oxygen transport and for blood clotting.
The reduction in these cells in turn leads
to a reduction of polymorphonuclear
neutrophils (the “neutrophils”), the first
line of defence against invading pathogens
responsible for the phagocytosis and
elimination of infectious agents.

The lack of neutrophils,
erythrocytes and platelets
leads to disorders such as
neutropenia, anemia and
thrombocytopenia,
contributing to the high
cost of cancer therapy, and
is a leading cause of
morbidity and mortality
following cancer treatments.

Bone

PBI-1402

Natural
killer cell

T lymphocytes

PBI-1402

Lymphoid
progenitor cell

B lymphocyte

Hematopoietic
stem cell

Neutrophil

Basophil

Eosinophil

Multipotential
stem cell

Myeoid
progenitor cell

Monocyte/macrophage

Bone
matrix

Blood
vessel

Pericyte

Osteoclast

Adipocyte

Red blood cell

Hematopoietic
supportive stroma

Stromal
stem cell

Skeletal muscle stem cell

Hepatocyte stem cell

Platelets

Hematopoietic
stem cell

Marrow
adipocyte

PBI-1402: Reduces the Toxic Effects
of Chemotherapy on Bone Marrow
Results to date demonstrate that PBI-1402
satisfies the need for protective and thera-
peutic agents as it stimulates the hemato-
poietic system and can treat the myelosup-
pressive effects of chemotherapy and
radiotherapy as well as other situations in
which the stimulation of the hematopoietic
system can be of therapeutic value.

Based on its pharmacological activity,

PBI-1402 may be classified as a chemo-

Effect of PBI-1402 and hGM-CSF on
human bone marrow proliferation
Figure 1

14,000

12,000

10,000

8,000

6,000

4,000

2,000

)

M
P
C
(

n
o
i
t
a
r
e
f
i
l

o
r
P

Control

PBI-1402

hGM-CSF hGM-CSF +

PBI-1402

protective drug and a hematopoietic
growth stimulant.

Growth factors such as Neupogen®
(rmethuG-CSF), Neulasta® (PEGrmethuG-
CSF), Leukine® (rhuGM-CSF) and
Granocyte® (rhuG-CSF) have been shown
to be safe and effective in accelerating the
recovery of neutrophil counts following a
variety of chemotherapy regimens.

The biological activity of PBI-1402
was compared to human Granulocyte
Macrophage-Colony Stimulating Factor
(hGM-CSF), a growth factor which
stimulates proliferation and differentiation
of hematopoietic progenitor cells from the
bone marrow.

As illustrated in Figure 1, PBI-1402 is
equipotent with hGM-CSF as regards its
ability to stimulate in vitro human
bone marrow cell proliferation. Also,
a synergistic enhancement is observed
when PBI-1402 and hGM-CSF constitute
the growth stimulants for human bone
marrow proliferation.

Furthermore, PBI-1402 reduces the

toxic effect of chemotherapy on bone
marrow cells so that recovery after each
dose of chemotherapy may be faster.
In fact, PBI-1402 rescues doxorubicin-
induced apoptosis (cell death) of neutrophils.
PBI-1402 enhances human neutrophil
survival by up to 90% (in a dose dependent

2 0 0 2 A N N U A L R E P O R T

P R O M E T I C L I F E S C I E N C E S

I N C .

Protective effect of PBI-1402 on
doxorubicin-(doxo-) induced
neutrophil apoptosis
Figure 2

a
v
i
v
r
u
s

l
i

h
p
o
r
t
u
e
N

Control

Doxo

Doxo +
PBI-1402
(24 mM)

Doxo +
PBI-1402
(12 mM)

Doxo +
PBI-1402
(6 mM)

addition, PBI-1393 stimulates the immune
system with few, if any, side effects.

The mechanism of action of PBI-1393
is linked to a potent activation of a white
blood cell subset, the cytotoxic
T lymphocytes (CTLs). CTLs play an
important role in controlling
micrometastatic tumors. The anti-cancer
evaluation of PBI-1393 was undertaken
with successful results published in peer
reviewed scientific journals. In vivo
studies indicate that PBI-1393 induces
a significant anti-tumor response.

Results published in the International

Journal of Immunopharmacology 22,
659-671 (2000) show that a significant
response can be obtained when PBI-1393
is given prophylactically, in combination
with low dose chemotherapy (cyclophos-
phamide, or CY). When administration of
PBI-1393 is stopped at day 22, tumor growth
starts again. A similar anti-tumor activity
was observed with PBI-1393 in combination
with different chemotherapy regimens.

fashion) (see Figure 2) as well as their
phagocytic activity (their ability to kill
bacteria or germs).

The preclinical program has generated
positive results, which confirm the in vitro
efficacy of PBI-1402 on human tissue. This
has subsequently led to the filing of several
patents and the expansion of the forth-
coming clinical program. To date, the
available data suggests that PBI-1402 is
a well-tolerated, orally active compound
with the potential of lowering the toxicity
associated with chemotherapy. This may
improve the quality of life for cancer
patients.

Of equal importance are the validation

of the synthesis of the bulk active
ingredient and the preparation of a solid
oral dosage form to bring PBI-1402 to
clinical readiness.

PBI-1393: Increases Chemotherapy
Benefits and Reduces Side Effects
PBI-1393 is an anti-cancer drug with the
potential to improve the efficacy of
current cancer treatment regimens. In

PBI-1393

100

Saline ip (n=10/10)

CY 100mg/kg iv (n=8/10)

PBI-1393 25mg/kg ip (n=10/10)

PBI-1393 50mg/kg ip (n=7/10)

CY 100mg/kg iv+PBI-1393 50mg/kg ip (n=3/10)

Therapeutic Pipeline—Cancer

Products

Research

Pre-Clinical
Proof of Concept

Manufacturing
Bulk Active

Toxicology

Clinicals
II
I

III

Market

PBI-1402
PBI-1393

P R O M E T I C L I F E S C I E N C E S

I N C .

2 0 0 2 A N N U A L R E P O R T

Management’s Discussion and Analysis of Operating Results

and Financial Position

Geneviève Poulin
Vice-President Finance and
Chief Financial Officer

As predicted in its 2000
annual report, the Company
reached its goal of
increasing shareholder
value in 2001.

T he following management’s

discussion and analysis should

be read in conjunction with the

Company’s consolidated financial

statements for the year ended

December 31, 2002 and the notes

related thereto. The financial

statements were prepared in

accordance with Canadian generally

accepted accounting principles.

Unless otherwise indicated, all figures

are expressed in Canadian dollars.

OVERVIEW
The partnership and joint venture
agreements concluded over the past few
years have enabled ProMetic Life Sciences
Inc. (“ProMetic” or the “Company”) to
position itself as a key player in the
biopharmaceutical purification market.
This strategy aims at maximizing the
Company’s value and mitigates inherent
development risks.

Year-end 2002 was marked by a
strategic alliance between ProMetic and
the American Red Cross announced on
April 8, 2002 for the creation of a joint
venture company, Pathogen Removal and
Diagnostic Technologies Inc. (PRDT). The
joint venture’s mission is to develop and
market diagnostic and removal systems
for pathogens that may be found, among
others, in blood and blood-derived
products. Although the financial impact of
this alliance on the Company’s bottom line
is not immediate, it provides a significant
endorsement of ProMetic’s bioseparation
technology and enhances its visibility at
the international level.

The growing affinity between ProMetic

and the ARC led to a second strategic
alliance announced last February 5, 2003,
pertaining to the purification of plasma-
derived proteins. Both alliances were
concluded within a year of each other.
They involve the patented purification
technology using Mimetic Ligands™.
These alliances serve as growth catalysts
for ProMetic, which is now well poised to
capture the multiple growth opportunities
in the biotechnology industry.

The initiation of a Phase Ib clinical
trial of recombinant Alpha 1-antitrypsin
(rAAT) through the Arriva-ProMetic Inc.
joint venture confirmed the significant
progress made by ProMetic’s therapeutic
division, since research and development
(R&D) program spending was accelerated
two years ago. RAAT is the first drug
compound of its product development
pipeline to advance to clinical trials.

Owing to additional discoveries made
regarding the activity of its lead compound
PBI-1402, the Company decided to revise
its original clinical development plan,
thereby incurring delays. The discoveries
led to the filing of new patents and PBI-1402
should enter clinical trials during the third
quarter of 2003.

ProMetic completed equity offerings
for net proceeds of $38.1 million (including
$9.1 million in subscriptions receivable as
at December 31, 2001), increasing its cash,
cash equivalents and short-term invest-
ments to $22.9 million at the end of 2002,
compared with $2.6 million at the end of
2001. Capitalization is adequate to advance
lead R&D programs and ensure a well-
balanced plan for future growth.

2 0 0 2 A N N U A L R E P O R T

P R O M E T I C L I F E S C I E N C E S

I N C .

Management Discussion and Analysis of Operating Results

and Financial Position

OPERATING RESULTS
A strengthened financial condition;
a drug candidate in Phase I; two
strategic alliances with the ARC

Revenues
Revenues in 2002 were $2.5 million,
remaining stable from 2001. ProMetic
expected to enter new partnerships and/or
licensing agreements that could have trig-
gered substantial revenues in the fourth
quarter. Since negotiations initiated
during 2002 are still currently ongoing,
the timing of these potential revenues has
been postponed to 2003. The Company
expects to finalize at least one of these
agreements in 2003.

ProMetic generates a significant part
of its revenues from collaboration agree-
ments involving R&D and the design of
bioseparation processes. Given their non-
recurrent nature, the Company believes
that the timing and scope of this type of
revenue is difficult to predict. Revenues
from the sale of commercially-available
products were less than 15% of total
revenues in 2002. High profile partners
will help generate future revenues by
accelerating the adoption of ProMetic’s
technology and products.

Operating Expenses
Accelerating R&D spending led
to marked advances in key
programs for rAAT and PBI-1402
and within PRDT

The Company maintains strict
management of its operating and capital
expenditures. During 2002, administration,
marketing and other expenses increased
to $5.7 million, from $3.5 million in 2001,
mainly owing to additional investments of
$0.6 million in corporate and business
development activities, to $0.3 million
from new hirings at the legal and
administrative level and to expenses of
$0.6 million associated with offerings
totalling $38.1 million completed during
the first half of 2002.

R&D expenses reached $10.2 million
in 2002, a $3.3 million increase from the
$6.9 million spent in the previous year.
Significant progress achieved in the
development of PBI-1402 as well as in the
PRDT joint venture created in 2002 drove
ProMetic’s R&D spending. The increase is
mainly owed to the impact of a full year of
spending in therapeutic programs, repre-
senting $1.6 million, since a majority of
scientists hired by this division joined the
Company between June and August 2001,
as well as to $1.3 million in expenses
incurred by PRDT to advance a first R&D
program on pathogens that may cause
transmissible spongiform encephalopathies.
These increased investments have allowed
the Company to move rAAT into Phase Ib
clinical trial and to prepare another lead
compound, PBI-1402, for clinical trial
initiation in 2003.

Research & Development Expenditures

Millions of dollars

10.2

6.9

3.8

2000

2001

2002

Net Results
ProMetic incurred a net loss of $14.1 million,
or $0.19 per share, in 2002, compared with
$8.4 million, or $0.14 per share, in 2001.
Explanations of the nature of this loss are
provided in the above section “Revenues
and Operating Expenses”.

BALANCE SHEET
Strengthened Capitalization
During 2002, the Company raised capital
to consolidate its position in the biophar-
maceutical purification market and to
accelerate the development of two programs,
rAAT and PBI-1402. Short-term assets
have increased to $25.9 million in 2002,
compared with $13.2 million in 2001,
mainly owed to the June 2002 offering.

Capital assets increased by $1.4 million,

after amortization of $0.7 million.
Laboratory equipment, computers and
application development software required
to advance current R&D programs explain
a major part of 2002 asset additions.

P R O M E T I C L I F E S C I E N C E S

I N C .

2 0 0 2 A N N U A L R E P O R T

Management Discussion and Analysis of Operating Results

and Financial Position

Cash, Cash Equivalents,
Short-Term Investments and
Subscriptions Receivable

Millions of dollars

22.9

11.8

4.3

2000

2001

2002

Shareholders’ Equity

Millions of dollars
40

34.5

21.0

12.3

2000

2001

2002

Intellectual property increased by
$1.0 million in 2002, $0.7 million of which
reflects the recognition of 50% of disburse-
ments made to the Arriva-ProMetic joint
venture during the year in consideration
for the granting, by Arriva Pharmaceuticals,
Inc., of a permanent and exclusive licence
to the Company, and an amount of
$0.4 million paid to acquire an exclusive
worldwide licence to exploit patents, pre-
clinical data and know-how in oncology.
Deferred development expenses were
$3.2 million in 2002, a $0.4 million decrease
explained by amortization for the year,
which was mainly related to technologies
used in the rAAT development program,
and to R&D tax credits received during
2002. Past investments made to initiate the
development of high potential opportunities
have been capitalized in the deferred devel-
opment expense balance.

The general increase in the Company’s
activity level drove current liabilities up to
$4.3 million in 2002, from the $3.3 million
balance in 2001.

LIQUIDITY AND CAPITAL
RESOURCES
In spite of the significant increase in invest-
ments and net loss in 2002, ProMetic’s finan-
cial condition has been greatly improved
by the issuance of Subordinate Voting
Shares for net proceeds of $38.1 million
after flotation costs of $2.8 million.
Operating cash outflows reached
$12.4 million in 2002, compared with
$7.6 million in 2001, mainly attributable
to the progress achieved in R&D programs.
The Company’s activities have generated
$10.8 million in cash and cash equivalents,
compared with $0.3 million during 2001.

André Bédard
Chief Operating Officer

OUTLOOK
Drug candidates rAAT and PBI-
1402 progressing through clinicals;
increased manufacturing capacity
to prepare for commercialization
ProMetic is pursuing its strategic plan to
maximize shareholder value while
maintaining rigorous management of its
operations. The Company’s value is closely
linked to progress realized in its lead R&D
programs as well as its ability to sign
collaboration agreements, partnerships
and/or strategic alliances. Management
expects to move rAAT to Phase II clinical
trials and to initiate the clinical development
of PBI-1402 over the next few quarters of
2003. These products have high revenue
potential, which drive the Company’s value.

Executing new agreements will
contribute to enhance the value of its
technology and products. In most cases,
the Company signs manufacturing agree-
ments allowing it to earn a profit margin
on product manufacturing and to collect
royalties on finished product sales. For
certain targeted high potential markets,
the Company also takes an equity interest
in its partners’ share capital to optimize
medium and long-term shareholder value.
This is exemplified by the rAAT agree-
ment, where ProMetic will receive 50% of
revenues generated by the Arriva-ProMetic
joint venture in addition to its equity
interest in Arriva Pharmaceuticals, Inc.
This principle also applies to products
developed by PRDT.

2 0 0 2 A N N U A L R E P O R T

P R O M E T I C L I F E S C I E N C E S

I N C .

Management Discussion and Analysis of Operating Results

and Financial Position

decisions and timing of decisions made by
health regulatory agencies regarding
approval of our technology and products;
the competitive environment and impact
of technological change, and the continued
availability of capital to finance our activities.
Additional factors relating to the two
transactions with the ARC: the inability to
successfully integrate the ARC’s technology;
the inability to realize anticipated synergies,
improved yield and cost savings; the
inability to obtain assignment for licenses
with third parties; and difficulties or delays
in obtaining regulatory approvals to market
products and services resulting from the
combined companies development efforts.

Progress achieved in its lead therapeutic

These statements are not guarantees of

programs and the two ARC alliances
signal that the Company must prepare for
its next development stage. Anticipating
market demand for its development
products, the Company created the Chief
Operating Officer function to oversee the
planning and implementation of a capacity
expansion project for its manufacturing
plants. In 2002, management also undertook
to update the Company’s Corporate
Governance policy to ensure compliance
with upcoming new standards expected in
2003 and to continuously improve operations
management and shareholder value.

RISKS
The information set forth in the
management’s discussion and analysis
section of this annual report contains
certain statements regarding future
financial and operating results, benefits
and synergies of transactions with the
ARC, future opportunities based on such
transaction, discovery and development of
products, strategic alliances and intellectual
property, and other statements about our
future expectations, beliefs, goals and
plans, which should be considered to be
forward-looking statements.

future performance and are subject to
certain risks, uncertainties and other
factors, some of which are beyond ProMetic’s
control and difficult to predict. These risks
and uncertainties could cause actual results
to differ materially from those expressed
or implied in such statements and include:
general economic and business conditions;
the ability to attract and retain qualified
personnel; existing governmental
regulations and changes in, or the failure
to comply with, governmental regulations;
adverse results in drug discovery and
clinical development processes or failure
to complete the pre-clinical and clinical
development; the ability to obtain and
enforce timely patent and other intellectual
property protection for our technology
and products; patents liability and other
claims asserted against us; commercializa-
tion limitations imposed by patents owned
or controlled by third parties; dependence
upon strategic alliance partners to develop
and commercialize products and services
based on our work or technology; the
ability to complete and maintain such
corporate alliances; the requirement for
substantial funding to conduct R&D and
to expand commercialization activities;

Quarterly information

Fourth
Quarter
2002
$

Revenues
Net loss
Net loss per share

587,739
4,168,836
0.05

Third
Quarter
2002
$

745,293
3,201,709
0.04

Second
Quarter
2002
$

924,879
3,673,063
0.05

First
Quarter
2002
$

253,752
3,067,695
0.04

Fourth
Quarter
2001
$

565,454
1,728,203
0.04

Third
Quarter
2001
$

1,111,096
1,856,903
0.03

Second
Quarter
2001
$

446,752
2,158,067
0.04

First
Quarter
2001
$

377,493
1,671,912
0.03

P R O M E T I C L I F E S C I E N C E S

I N C .

2 0 0 2 A N N U A L R E P O R T

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 Canadian generally accepted 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

Geneviève Poulin
Vice-President Finance and
Chief Financial Officer

Montreal, Canada
April 7, 2003

Auditors’ Report to the Shareholders

We have audited the consolidated balance sheets of ProMetic Life Sciences (the “Company” or “ProMetic”) as at December 31, 2002 and
2001 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
presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the
Company as at December 31, 2002 and 2001 and the results of its operations and its cash flows for the years then ended in accordance
with Canadian generally accepted accounting principles.

Chartered Accountants

Montreal, Canada
April 7, 2003

2 0 0 2 A N N U A L R E P O R T

P R O M E T I C L I F E S C I E N C E S

I N C .

Consolidated Balance Sheets

December 31, 2002 and 2001

Assets
Current assets:

Cash and cash equivalents
Short-term investments (note 3)
Accounts receivable (note 4)
Subscriptions receivable (note 12 (e))
Inventories (note 5)
Prepaid expenses

Investment and interest in a joint venture (note 6)
Capital assets (note 7)
Intellectual property (note 8)
Deferred development costs (note 9)

Liabilities and Shareholders’ Equity
Current liabilities:

Accounts payable and accrued liabilities
Current portion of long-term debt (note 11)

Long-term debt (note 11)
Preferred shares, retractable at the holder’s option (note 6 (b))
Shareholders’ equity:

Share capital (note 12)
Deficit

Commitments (notes 8 and 13)
Contingencies (note 14)
Subsequent events (note 20)

See accompanying notes to consolidated financial statements.

On behalf of the Board:

2002
$

2001
$

13,390,259
9,508,610
1,741,001
–
527,508
686,188

25,853,566
2,663,603
3,381,220
4,349,822
3,209,004

39,457,215

4,200,622
150,034

4,350,656
200,046
382,358

112,919,390
(78,395,235)

34,524,155

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

24,311,995

3,271,521
–

3,271,521
–
–

83,500,266
(62,459,792)

21,040,474

39,457,215

24,311,995

Pierre Laurin, Director

Claude Lemire, Director

P R O M E T I C L I F E S C I E N C E S

I N C .

2 0 0 2 A N N U A L R E P O R T

Consolidated Statements of Operations and Deficit

Years ended December 31, 2002 and 2001

Revenues

Administration, marketing and other expenses excluding

the undernoted items

Research and development expenses (note 9)
Depreciation of capital assets
Amortization of intellectual property

Net interest income

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.

2002
$

2001
$

2,511,663

2,500,795

5,707,640
10,205,803
665,472
332,767

16,911,682
288,716

14,111,303
62,459,792
1,824,140

78,395,235

0.19

75,718

3,456,849
6,897,467
425,188
199,009

10,978,513
62,633

8,415,085
52,097,456
1,947,251

62,459,792

0.14

62,487

2 0 0 2 A N N U A L R E P O R T

P R O M E T I C L I F E S C I E N C E S

I N C .

Consolidated Statements of Cash Flows

Years ended December 31, 2002 and 2001

Cash flows from (used in) 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

Net change in operating assets and liabilities (note 18)

Cash flows from (used in) financing activities:

Proceeds from share issues
Share issue expenses
Repayment of long-term debt

Cash flows from (used in) investing activities:

Acquisition (disposal) of short-term investments
Additions to intellectual property
Deferred development costs (note 9)
Additions to capital assets

Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

Other cash flow information:

Interest paid
Interest earned
Non-cash transactions:

Unpaid additions to capital asset and intellectual property
Capital lease obligation
Excess of the interest in the joint venture Pathogen:

Removal and Diagnostic Technologies Inc. over the
proportionate share in the consolidated net assets

Preferred shares retractable at the holder’s option
Unpaid share issue expenses

See accompanying notes to consolidated financial statements.

2002
$

2001
$

(14,111,303)

(8,415,085)

665,472
240,333
332,767

(12,872,731)
508,139

(12,364,592)

38,119,124
(2,816,220)
(77,434)

35,225,470

(9,508,610)
(1,274,884)
134,494
(1,428,417)

(12,077,417)

10,783,461
2,606,798

13,390,259

9,131
222,404

1,043,353
427,514

382,358
382,358
–

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

P R O M E T I C L I F E S C I E N C E S

I N C .

2 0 0 2 A N N U A L R E P O R T

Notes to Consolidated Financial Statements

Years ended December 31, 2002 and 2001

P roMetic is an international biopharmaceutical company engaged in the research, development, manufacturing

and marketing of a variety of applications developed from its own exclusive technology platform. ProMetic owns

proprietary technology essential for use in the large-scale purification of drugs, genomics and proteomics products

as well as medical and therapeutic applications.

Significant accounting policies:

These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles.
Significant accounting policies are described below:

(a) Basis of consolidation:

The consolidated financial statements include the accounts of ProMetic Life Sciences Inc., of its subsidiaries, ProMetic
BioSciences Inc., ProMetic BioSciences (USA), Inc., ProMetic BioSciences Ltd., as well as those of the two joint ventures, Arriva-ProMetic
Inc. and Pathogen Removal and Diagnostic Technologies Inc., which are accounted for on a proportionate consolidation basis whereby
the Company’s proportionate share of its joint ventures’ revenues, expenses, assets and liabilities are consolidated. All significant
intercompany transactions and balances have been eliminated.

(b) Cash and cash equivalents and short-term investments:

Cash and cash equivalents are bank deposits and highly liquid investments purchased with maturity of three months or less.
Short-term investments are short-term debt instruments issued by the government of Canada and Canadian financial institutions
purchased with maturities of more than three months. Short-term investments are carried at the lower of cost and market value.
The carrying value of these investments approximates their fair value due to their near-term maturity.

Work in progress and finished goods are carried at the lower of cost and net realizable value, whereas raw materials are valued

at the lower of cost and replacement cost. Cost is determined on a first in, first out basis.

(d) Investment:

The investment is recorded at acquisition cost. When, in management’s opinion, there has been another than temporary decline
in value, the investment is written down to its estimated realizable value. In determining the estimated realizable value of its investment,
management relies on its judgment and knowledge of each investment as well as on assumptions about general business and economic
conditions that prevail or are expected to prevail. These assumptions are limited due to the uncertainty of projected future events.

(e) Capital assets:

Capital assets are recorded at cost. Depreciation is provided over the useful lives of capital assets using the following methods:

Asset

Leasehold improvements
Equipment and tools
Office equipment and furniture
Computer equipment

(f) Intellectual property:

Method

Straight-line
Declining balance
Declining balance
Declining balance

Rate/period

Lease term
10% to 30%
20%
30%

Intellectual property includes patents and vested rights as well as licensing fees for product manufacturing and marketing.
Amortization is provided over the useful lives of the intellectual property assets acquired using the straight-line method ranging up to
15 years. Management reviews the valuation and amortization of intellectual property on an ongoing basis, taking into consideration any
events and circumstances which may impair its value. The Company assesses impairment by determining whether the unamortized
balance may be recovered through undiscounted future cash flows to be derived from the intellectual property over its remaining life.
Any other than temporary decline in value is charged to income.

2 0 0 2 A N N U A L R E P O R T

P R O M E T I C L I F E S C I E N C E S

I N C .

Notes to Consolidated Financial Statements

Years ended December 31, 2002 and 2001

Significant accounting policies (continued):

(g) 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 internal use of the new 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.

(h) 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 the sale of products upon product shipment.

(i) Scientific research and experimental development expenses:

Research and development expenses are charged to income in the year in which they are incurred, net of related tax credits.

(j) Foreign currency translation:

The Company’s foreign subsidiaries are considered as integrated foreign operations. Foreign denominated monetary assets and
liabilities of Canadian and foreign operations 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 rates on the transaction date or at average exchange rates prevailing during the year.
Exchange gains or losses are included in the statement of operations.

(k) Income taxes:

The Company uses the asset and liability method of accounting for income taxes. Future income tax assets and liabilities are
recognized in the balance sheet for the future tax consequences attributable to differences between the financial statement carrying values
of existing assets and liabilities and their respective income tax bases. As appropriate, a valuation allowance is recognized to write down
the value of income tax assets to an amount that is more likely than not to be realized. Future income tax assets and liabilities are
measured using income tax rates expected to apply when the assets are realized or the liabilities are settled. The effect of a change in
income tax rates is recognized in the year during which these rates change.

(l) Stock option plan:

The Company maintains a stock option plan, as described in note 12 (b). The Company uses the fair value method to account
for all stock-based payments to non-employees and to employees awards that are direct awards of stock that call for settlement in cash or
other assets, or that are stock appreciation rights that call for settlement by issuance of equity instruments, and that have been awarded
on or after January 1, 2002. No compensation cost has been recognized for all other employee stock-based compensation awards.
Any consideration paid by employees upon the exercise of stock options is credited to share capital.

(m) Use of estimates:

The preparation of financial statements in accordance 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, tax credits and deferred development costs. In addition, management is of the opinion that the Company will obtain
the resources required from its shareholders and external sources to complete all projects in progress as at December 31, 2002. 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.

P R O M E T I C L I F E S C I E N C E S

I N C .

2 0 0 2 A N N U A L R E P O R T

Notes to Consolidated Financial Statements

Years ended December 31, 2002 and 2001

Changes in accounting policies:

The Company has made certain changes in accounting policies to conform to new accounting standards.

(a) Stock-based compensation:

Effective January 1, 2002, the Company implemented the new recommendations issued by the Canadian Institute of Chartered
Accountants (“CICA”) on stock-based compensation and other stock-based payments. These new recommendations have been applied
prospectively to all stock-based payments to non-employees and to employee awards that are direct awards of stock that call for
settlement in cash or other assets, or that are stock appreciation rights that call for settlement by the issuance of equity instruments, and
that have been awarded on or after January 1, 2002.

(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”. Under Section 1581, business combinations initiated or completed after June 30, 2001 must be accounted for under the purchase
method. In accordance with Section 3062, goodwill and intangible assets with indefinite lives are not amortized while other identifiable
intangible assets are amortized. The Company has reviewed the implementation of these recommendations and determined that it did
not have any impact on the accounting policies used.

Short-term investments:

Discount note, 2.55%, maturing in April 2003
Banker’s acceptance, 2.45%, maturing in May 2003
Treasury bill, 2.72%, maturing in June 2003
Treasury bill, 2.68%, maturing in June 2003

Accounts receivable:

Trade
Sales taxes receivable
Government grants and tax credits receivable
Advance to officers (a)
Other

Cost
$

1,499,875
556,351
4,997,080
2,455,304

9,508,610

2002
$

754,387
337,982
37,771
480,000
130,861

1,741,001

2002
Market value
$

1,504,353
556,458
5,001,130
2,459,065

9,521,006

2001
$

414,965
150,060
177,510
70,000
111,624

924,159

(a) Includes a $450,000 note receivable issued upon the exercise of stock options of ProMetic Life Sciences Inc., bearing no interest and payable by December 31, 2003. As security for

the note, the Company holds 450,000 shares from its share capital issued to the beneficiary.

2 0 0 2 A N N U A L R E P O R T

P R O M E T I C L I F E S C I E N C E S

I N C .

Notes to Consolidated Financial Statements

Years ended December 31, 2002 and 2001

Inventories:

Raw materials
Work in progress and finished goods

Investment and interest in a joint venture:

Investment:

Investment in convertible preferred shares of share capital

of Arriva Pharmaceuticals, Inc.

Interest in a joint venture:

Excess of the interest in the joint venture Pathogen:
Removal and Diagnostic Technologies Inc. over

proportionate share in consolidated net assets

2002
$

253,292
274,216

527,508

2001
$

156,734
135,599

292,333

2002
$

2001
$

2,281,245

382,358

2,663,603

–

2,281,245

The consolidated financial statements include the Company's proportionate share of the revenues, expenses, assets and liabilities

of Pathogen Removal and Diagnostic Technologies Inc. (“PRDT”) and of Arriva-ProMetic Inc. (“AP”), as follows:

Current assets
Long-term assets
Total liabilities
Total expenses being net loss

Cash flows from:
Operations
Investing

PRDT (a)
$

4,103
382,358
382,358 (b)

1,250,098

(1,250,098)
–

AP (note 8 (c))

84,791
1,728,943
32,376
782,942

(721,761)
(733,321)

2002
Total
$

88,894
2,111,301
414,734
2,033,040

2001
AP
$

3,357
1,162,590
68,289
1,321,686

(1,971,859)
(733,321)

(1,206,315)
(1,209,672)

(a) On April 8, 2002, ProMetic announced the creation of a new joint venture with the American Red Cross and two other
partners under the legal name “Pathogen Removal and Diagnostic Technologies Inc.” (“PRDT”) in which the Company owns 26% of the
voting shares. PRDT is engaged in the research, development and commercialization of pathogen diagnostic and removal systems.

Under the terms of the joint venture agreement, ProMetic and the American Red Cross will each contribute intellectual property
and technical expertise to develop pathogen diagnostic and removal systems. They both equally assume the direct costs of the joint
venture. Preferred shares including a 14% cumulative dividend will be issued by PRDT to the Company in consideration of its
proportionate share in direct and indirect costs.

P R O M E T I C L I F E S C I E N C E S

I N C .

2 0 0 2 A N N U A L R E P O R T

Notes to Consolidated Financial Statements

Years ended December 31, 2002 and 2001

(b) The PRDT joint venture has issued preferred shares in consideration of the proportionate share of each partner in direct and
indirect costs. These preferred shares are retractable at the holder’s option, provided that PRDT has sufficient cash flows, and include a
14% cumulative dividend effective January 1, 2003. Since the shares issued by the joint venture are retractable at the holder’s option, they
are considered as debt rather than share capital. Thus, as part of the proportionate consolidation, the Company must acknowledge 26%
of the shares issued to the American Red Cross as a debt to a third party.

Capital assets:

Leasehold improvements
Equipment and tools
Office equipment and furniture
Computer equipment

Accumulated depreciation

Net book value

Cost
$

601,475
4,542,570
449,634
561,230

6,154,909
2,773,689

3,381,220

Intellectual property:

2002
Accumulated
depreciation
$

256,894
2,219,409
113,483
183,903

2,773,689

2002
Accumulated
amortization
$

819,110

Cost
$

5,168,932

Intellectual property

Cost
$

462,625
3 087,319
282,505
266,688

4,099,137
2,126,136

1,973,001

Cost
$

3,758,878

2001
Accumulated
depreciation
$

188,942
1,758,749
61,325
117,120

2,126,136

2001
Accumulated
amortization
$

486,343

(a) The Company owns the rights, title and interest in and to the know-how, information, technology and patents relating to its
Mimetic Ligands™ technology. A portion 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 having been developed by the Company.

(b) Effective November 9, 1995, the Company has the right to a patented technology permitting the link of the Mimetic Ligands™ to
a matrix of perfluorocarbon such as Perfluorosorb™ 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.on net sales with respect to any products covered by the patents.
(c) As of April 13, 1999, through its subsidiary, ProMetic Biosciences Inc., the Company entered into a 50-50 joint venture,
Arriva-ProMetic Inc. (“Arriva-ProMetic”), with Arriva Pharmaceuticals, Inc. (“Arriva”) for the development of applications relating to
serine protease inhibitors as a platform for various pharmaceutical products for dermatological (e.g.: eczema, psoriasis, genital herpes)
and gastrointestinal (e.g.: Crohn’s disease, irritable bowel syndrome) treatments and urinary tract indications. The first serine protease
inhibitor pursued is recombinant Alpha1-antitrypsin (“rAAT”), a 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 Ligands™
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$930,169 has been contributed in 2002 for a total of US$2,473,820 (2001:
US$1,543,651). The Company will progressively record 50% of its US$4 million contribution as intellectual property in consideration of
Arriva’s exclusive and perpetual license granted to the joint venture. In 2002, the Company recorded an amount of $733,321 as intellectual
property (2001: $1,209,672) for a total of $1,942,993.

2 0 0 2 A N N U A L R E P O R T

P R O M E T I C L I F E S C I E N C E S

I N C .

Notes to Consolidated Financial Statements

Years ended December 31, 2002 and 2001

Intellectual property (continued):

(d) On June 6, 2002, the Company acquired for $400,000 A worldwide exclusive license to patents, pre-clinical data and know-
how pertaining to three therapeutic compounds (immunomodulators and adjuvants) for human applications. The Company will make
further improvements to the compounds, and milestone payments are to be made if positive results are achieved upon completion of the
main development phases. Furthermore, the Company will pay royalties on the sales of compound-based products.

(e) As a member of the corporate intellectual property management program, an officer and some directors are entitled to
receive royalties based on the sales of certain products submitted to ProMetic before joining the Company. These royalties vary between
0.1% and 0.3% of net sales or between 1% and 3% of revenues received by the Company. These employees also have the exclusive right to
commercialize these products should ProMetic decide to stop developing and (or) commercializing them.

(f) In the normal course of business, the Company enters into license agreements for the market launching or
commercialization of intellectual property. Under these licenses, including those mentioned above, the Company has committed to pay
royalties ranging generally between 0.5% and 10% of net sales from products it commercializes or, as the case may be, on revenues
received under a sub-license, subject to the application of the contract conditions.

Deferred development costs:

Research and development expenses:
Amounts incurred during the year
Amounts capitalized
Tax credits

Amortization of deferred development costs
Write-off for the year

Expense for the year

Deferred development costs:

Deferred development costs, beginning of year
Deferred development costs for the year
Amortization of deferred development costs
Research and development tax credit
Write-off for the year

Deferred development costs, end of year

10.

Credit facility:

2002
$

10,138,540
–
(173,070)

9,965,470
240,333
–

10,205,803

2002
$

3,583,831
–
(240,333)
(134,494)
–

3,209,004

2001
$

7,640,704
(907,057)
(177,510)

6,556,137
232,331
108,999

6,897,467

2001
$

3,018,104
907,057
(232,331)
–
(108,999)

3,583,831

One of the Company’s subsidiaries,ProMetic BioSciences Inc.,has a credit facility of which an amount of approximately $800,000 can be used
for general purposes and an amount of approximately $1,500,000 can be used for the purchase of equipment. This credit is guaranteed by
the Company and bears interest at a fixed interest rate based on market conditions during the year.As at December 31, 2002, this facility was
not used,is available until December 2003 and is repayable over a period of 42 months from the date it is contracted.This credit is guaranteed
by a first mortgage on the subsidiary’s capital assets as well as on new equipment purchased through this financing mechanism.

P R O M E T I C L I F E S C I E N C E S

I N C .

2 0 0 2 A N N U A L R E P O R T

Notes to Consolidated Financial Statements

Years ended December 31, 2002 and 2001

11.

Long-term debt:

The Company’s capital lease obligation is payable in monthly installments of $12,503, bearing interest at a rate of 9.4% and expiring in 2005.

12.

Share capital:

Authorized and without par value:

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 on the
Toronto Stock Exchange during the 20 business days prior to 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
on the Toronto Stock Exchange during the 20 business days prior to the conversion, preferential cumulative dividend of 12% per year,
payable quarterly.

The total authorized preferred shares, series A and B, were all issued during 2000.

Issued and fully paid:

Subordinate voting shares
Multiple voting shares
Preferred shares, series A
Preferred shares, series B
Subscriptions (note 12 e))

Balance, at end of year

Number

72,743,722
13,026,375
550,000
150,000

2002
Amount
$

110,656,225
1,563,165
550,000
150,000

112,919,390

Number

54,056,402
13,261,586
900,000
950,000

Cumulative dividends on preferred shares amounted to $281,184 as at December 31, 2002 ($414,885 in 2001).

(a) Share issue:

Changes in the issued and outstanding subordinate voting shares were as follows:

Balance, at beginning of year:
Shares issued pursuant to:
Private placements
Public offerings
Exercise of warrants and options
Conversion of preferred shares
Conversion of multiple voting shares

Number

54,056,402

5,619,370
9,340,000
1,205,200
2,287,539
235,211

2002
Amount

70,908,876

11,831,332
25,218,000
1,519,792
1,150,000
28,225

Number

46,254,045

2,094,433
3,300,500
1,650,700
315,113
441,611

2001
Amount
$

70,908,876
1,591,390
900,000
950,000
9,150,000

83,500,266

2001
Amount

$60,787,994

3,141,650
4,950,750
1,825,487
150,000
52,995

Balance, end of year

72,743,722

110,656,225

54,056,402

70,908,876

2 0 0 2 A N N U A L R E P O R T

P R O M E T I C L I F E S C I E N C E S

I N C .

Notes to Consolidated Financial Statements

Years ended December 31, 2002 and 2001

12.

Share capital (continued):

Except for shares issued pursuant to the conversion of multiple voting shares and preferred shares, as well as shares issued to an
officer for which the Company has received a note receivable (note 4), all subordinate voting shares were issued for a cash consideration.
During fiscal 2002, 235,211 multiple voting shares (2001: 441,611), 350,000 Class A preferred shares (2001: 150,000) and 800,000
Class B preferred shares were converted into 235,211 (2001: 441,611) and 777,438 (2001: 315,113) and 1,510,101 subordinate voting
shares, respectively.

(b) Stock options:

The Company has 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 (2001: 6,000,000) subordinate voting shares. Some options may be exercised in a period not exceeding 10 years from the date
they were granted. Since September 10, 2001, the new options issued may be exercised over a period not exceeding 5 years and 1 month
from the date they were granted.

Year of grant

1997
1998
1999
2000
2001
2002

Exercise price
$

1.49 to 1.75
2.00 to 3.00
1.00 to 2.00
1.35
1.00 to 2.00
2.50 to 2.70

Number of options outstanding
2001
2002

165,502
64,000
1,639,900
300,000
1,824,000
264,000

4,257,402

165,502
65,500
2,195,000
300,000
2,196,833
–

4,922,835

The following table summarizes the changes in the number of stock options outstanding over the last two years:

Number of options as at December 31, 2000

Granted
Exercised
Cancelled

Number of options as at December 31, 2001

Granted
Exercised
Cancelled

Number of options as at December 31, 2002

Weighted average
exercise price
per share
$

1.21
1.62
1.00
1.08

1.40
2.55
1.00
1.76

1.49

Options

2,796,002
2,206,833
(3,000)
(77,000)

4,922,835
338,000
(493,900)
(509,533)

4,257,402

P R O M E T I C L I F E S C I E N C E S

I N C .

2 0 0 2 A N N U A L R E P O R T

Notes to Consolidated Financial Statements

Years ended December 31, 2002 and 2001

The following table summarizes information about stock options outstanding as at December 31, 2002:

Range of
exercise prices
$

1.00 to 1.49
1.50 to 1.75
2.00 to 3.00

Number
outstanding

1,968,502
1,507,000
781,900

4,257,402

Weighted
average
remaining
contractual
life (in years)

6.60
3.97
5.00

Weighted
average
exercise
price
$

1.10
1.59
2.25

Weighted
average
exercise
price
$

1.07
1.58
2.16

Number
exercisable

1,272,102
219,800
253,540

1,745,442

The Company applies the settlement method of accounting for stock options granted to employees. Had the compensation cost
for the Company’s stock option plan been determined based on the fair value at the grant date, the company’s net loss would have been
adjusted to the pro forma amount indicated below for the year ended December 31, 2002.

Net loss reported
Pro forma compensation cost

Pro forma net loss

Pro forma net loss per share

14,111,303
79,104

14,190,407

0.19

The fair value of each option granted was estimated on the grant date using the Black-Scholes option price model using the

following assumptions:

Risk-free interest rate
Dividend yield
Expected volatility of share market price
Expected life

(d) Warrants and other options:

4.23%
0%
76.05%
5 years

Regarding subordinate voting shares issued pursuant to public and private offerings, the Company also granted warrants for the

purchase of subordinate voting shares.

As at December 31, 2002, the following warrants and other options were outstanding:

Warrants/options

582,622
430,050

Expiry date

June 2003
September 2003

Exercise price
$

3.00
1.80

In 2002, upon exercise of warrants, the Company issued 711,300 subordinate voting shares at a price of $1.44 per share, for a

total gross proceeds of $1,024,272.

2 0 0 2 A N N U A L R E P O R T

P R O M E T I C L I F E S C I E N C E S

I N C .

Notes to Consolidated Financial Statements

Years ended December 31, 2002 and 2001

12.

Share capital (continued):

(e) Subscriptions receivable:

As at December 31, 2001, the Company accepted subscriptions amounting to $9,150,000 (4,575,000 subordinate voting shares

at a price of $2.00 per share).

13.

Commitments:

The Company has commitments under various operating leases for the rental of office space and laboratories. The minimum annual
payments over the next few years are as follows:

2003
2004
2005
2006
2007
2008 and thereafter

872,983
689,259
595,736
588,238
588,238
1,927,315

5,261,769

14.

Contingencies:

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 entered into between this creditor and Pharma. The claim commenced on June 29, 2000.

– Another Pharma creditor instituted a claim against the Company for the recovery of certain amounts due totaling $305,104.
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 income in the period in which the settlement occurs.

15.

Financial instruments:

(a) Fair value:

The carrying value of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued
liabilities approximates their fair value because of the near-term maturity of these instruments. The carrying value of the long-term debt
approximates its fair value because the implicit interest rate approximates market rates available for similar instruments.

The fair value of preferred shares retractable at the holder’s option cannot be determined because these are shares of a private joint
venture company at the pre-commercial stage and because it is not possible to determine in which period these shares may be redeemed.

(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.

The Company derives a substantial part of its revenues in pounds sterling and the majority of its expenses that are not
denominated in Canadian dollars are incurred in pounds sterling and in US dollars. The Company does not possess nor issue financial
instruments for hedging or trading purposes.

P R O M E T I C L I F E S C I E N C E S

I N C .

2 0 0 2 A N N U A L R E P O R T

Notes to Consolidated Financial Statements

Years ended December 31, 2002 and 2001

16.

Related party transactions:

The Company entered into the following transaction with related parties:

Fees paid to directors

17.

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 arising from 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:
Losses carried forward
Share issue expenses
Unused research and development expenses
Unused tax credits, net of related taxes
Accounts payable and accrued liabilities
Inventories
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

2002
$

8,742,837
1,093,362
881,001
119,760
236,430
23,757
6,379

11,103,526
(9,758,421)

1,345,105

(265,513)
(700,786)
(378,806)

–

2002
$

245,741

2001
$

248,540

2002
$

(14,111,303)
35%

(4,938,956)

3,815,486
1,044,983
78,487

–

2001
$

(8,415,085)
37%

(3,113,581)

1,895,779
1,182,151
35,651

–

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)

–

2 0 0 2 A N N U A L R E P O R T

P R O M E T I C L I F E S C I E N C E S

I N C .

Notes to Consolidated Financial Statements

Years ended December 31, 2002 and 2001

17.

Income taxes (continued):

In assessing the realization of future income tax assets, management considers whether it is more likely than not that a portion
or all of the future income tax assets will be realized. Their realization is dependent upon the generation of future taxable income and tax
planning strategies in making this assessment.

As at December 31, 2002, the Company had available the following deductions, losses and credits:

Research and development expenses, without time limit

Losses carried forward expiring in:

2003
2004
2005
2006
2007
2008
2009
2012
2018
2019
Without expiry date
Share issue expenses

Unused tax credits expiring in:

2009
2010
2011
2012

Federal
$

2,526,470

161,041
705,536
1,100,268
2,465,153
2,332,587
4,175,444
7,167,262
–
–
–
–
3,524,703

Canada

Provincial
$

3,619,616

–
–
1,089,685
2,465,153
2,332,625
4,175,444
7,167,262
–
–
–
–
3,524,703

21,631,994

20,754,872

53,757
188,640
228,878
162,423

633,698

–
–
–
–

–

2002
$

(366,842)
(235,175)
(458,095)
1,568,251

508,139

Foreign
countries
$

–

–
–
–
–
–
–

667,659
1,574,536
588,814
21,013,417
–

23,844,426

–
–
–
–

–

2001
$

(400,026)
8,261
(55,434)
274,776

(172,423)

18.

Net change in operating assets and liabilities:

Increase in accounts receivable
(Decrease) increase in inventories
Increase in prepaid expenses
Increase in accounts payable and accrued liabilities

P R O M E T I C L I F E S C I E N C E S

I N C .

2 0 0 2 A N N U A L R E P O R T

Notes to Consolidated Financial Statements

Years ended December 31, 2002 and 2001

19.

Segmented information:

The Company operates in one reporting segment consisting in research, development, manufacturing and commercialization of a variety
of commercial applications from its technology platform.

Revenues (1) by geographic segment are as follows:

United States
United Kingdom
Europe (excluding United Kingdom)
Other countries

(1) Revenues are attributed to countries based on location of customer.
Net losses by geographic segment are as follows:

Canada
United States
United Kingdom

The assets by geographic segment are as follows:

Canada
United States
United Kingdom

The capital assets and intellectual property by geographic segment are as follows:

Canada
United States
United Kingdom

2002
$

332,336
1,291,465
838,533
49,329

2,511,663

2002
$

7,259,036
13,715
6,838,552

14,111,303

2002
$

31,460,699
712,781
7,283,735

39,457,215

2002
$

4,492,398
24,079
3,214,565

7,731,042

2001
$

1,425,130
633,902
296,922
144,841

2,500,795

2001
$

3,357,232
393,763
4,664,090

8,415,085

2001
$

17,695,636
664,872
5,951,487

24,311,995

2001
$

2,800,958
22,460
2,422,118

5,245,536

2 0 0 2 A N N U A L R E P O R T

P R O M E T I C L I F E S C I E N C E S

I N C .

Notes to Consolidated Financial Statements

Years ended December 31, 2002 and 2001

19.

Segmented information (continued):

Additions to capital assets and intellectual property by geographic segment are as follows:

Canada
United States
United Kingdom

2002
$

2,395,209
6,324
1,082,212

3,483,745

2001
$

2,051,334
6,990
191,023

2,249,347

20.

Subsequent events:

Subsequent to year-end, the remaining Class A and B preferred shares, including cumulative dividends, were converted in accordance with
the terms described in note 12. Therefore, the Company issued 277,661 and 1,201,988 subordinate voting shares respectively in
consideration of Class A and B preferred shares.

21.

Comparative figures:

Certain 2001 comparative figures have been reclassified to conform with the financial statement presentation adopted for 2002.

P R O M E T I C L I F E S C I E N C E S

I N C .

2 0 0 2 A N N U A L R E P O R T

Board of Directors

Sadok Besrour (1)
President,
Placements Sadobex Inc.

John Bienenstock
University Professor, McMaster University
Director, Brain-Body Institute
St. Joseph’s Healthcare Hamilton

Pierre Laurin
Chairman of the Board,
President and
Chief Executive Officer,
ProMetic

Claude Lemire (1)
Claude Lemire
Consultant

Roger Garon (2)
Chairman of the Board,
Multivet Ltd.

Barry Gibson
Consultant

Robert Lacroix (1) (3)
Executive Vice-President,
CTI Capital Inc.

Roger A. Perrault (2) (3)
President,
R.A. Perrault Consultants Inc.

Hans W. Schmid (2)
Chairman,
ASAT AG Applied Science and Technology

(1) Member of the Audit Committee

(2) Compensation Committee

(3) Governance Committee

2 0 0 2 A N N U A L R E P O R T

P R O M E T I C L I F E S C I E N C E S

I N C .

Advisory Committees

The Company has Committees comprised of scientists with expertise in different areas such as
biotechnology, bioprocessing and biopharmaceuticals. The members of these committees are as follows:

Max Arella, PH.D. (2) (3)
Professor INRS-Institute Armand-Frappier
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.

John Bienenstock,
CM, MD (HON), FRCP, FRCPC, FRSC (2)
University Professor, McMaster University
Director, Brain-Body Institute
St. Joseph’s Healthcare Hamilton.

Steve J. Burton, PH.D. (3) (4)
Research Director,
ProMetic BioSciences Ltd., (UK)
An acknowledged expert on downstream
processing purification procedures for
therapeutic proteins.

Dr. Ruben G. Carbonnel (4)
Director of the William R. Kenan Junior
Institute for Engineering Technology and
Science at North Carolina University.
Expert in affinity interactions, combinatorial
screening methods and is pioneering the use
of supercritical fluids in chemical and
material processing.

Dan Chalker, MD., (1)
Clinical Professor, Medical College, Georgia.
Diplomat, American Board of Dermatology.
Fellow of American Academy of Dermatology.
Conducted pioneering clinical research on
alpha 1-antitrypsine used in the field of
dermatology.

Ernest Charlesworth, MD., FRCPC (1)
Dermatologist, allergist and immunologist,
San Antonio, Texas. Known authority in
Dermatology. Working Group Member on
Atopic Dermatitis Practice Parameters.

John C. Curling, PH.D. (3)
Independent Consultant. A recognized expert
in plasma protein purification and known
for his work in biotechnology process
development.

Jean-Marie Dupuy, MD., PH.D. (2) (3)
Past Medical Director and Research Director,
Immunology, Pasteur Mérieux Connaught,
France. International authority in the field of
immunology.

Pete Gagnon, PH.D. (3)
President, Validated Biosystems Inc.
A world expert on downstream process
development, with particular emphasis on
monoclonal antibodies and managing
upstream contaminants.

David Gratton, MD., FRCPC (1)
Professor, McGill University
Health Science Centre
Past President Canadian Dermatology
Association. Authority in the field of
dermatology.

David J. Hammond, PH.D. (4)
Director, Plasma Derivatives, American Red
Cross, Holland Laboratory
Expert in ligand design technologies, viral
binding/removal and protein purification.

Barry L. Haymore, MD., PH.D. (3)
Consultant, Microbe Inotech Laboratories
Inc., St. Louis, MO, U.S.A. A consultant, who is
known internationally for his work in separa-
tion science and metal affinity chromatography.

Volker Helfrich, PH.D. (2) (3)
Registered Pharmacist, CEO of ASAT AG
Applied Science & Technology, Zug,
Switzerland. Expert in European and
International drug regulatory affairs.

Roger A. Perrault,
MD., PH.D. FRCPC (1) (2) (3)
President of R.A. Perrault Consultants Inc.
A world authority on blood plasma fraction-
ation and applications of plasma derivatives.

Dr. Robert G. Rohwer, PH.D. (4)
Internationally recognized as one of the most
perceptive and independent thinkers in the
field of the TSE’s. Dr. Rohwer consults on the
management of TSE risks for the World Health
Organisation, the FDA, the American Red
Cross, Health Canada, the U.S. Department of
Agriculture and the European Commission.

Denis-Claude Roy, MD., (2)
Haematologist expert affiliated with the
Maisonneuve-Rosemont hospital and the
University of Montreal. Well-know authority
in the field of immunobiology/molecular
biology and lymphoma, allogeneic and auto-
logous stem cell transplantation, engineering
of haematopoietic cell grafts, immunotherapy
and Graft-versus-Leukemia effect.

Hans. W. Schmid, PH.D. (2) (3)
Registered Pharmacist, Founder and
Chairman of the Board of ASAT AG Applied
Science & Technology, Zug, Switzerland.
Former Managing Director of Cilag and Vice-
President of Johnson & Johnson International
and lecturer at the Swiss Federal Institute of
Technology Zurich (ETHZ).

Sheldon Spector, MD., (1)
Clinical Professor of Medicine
UCLA Medical Centre, President, California
Society of Allergy, Asthma and immunology.
Internationally known authority in the field
of allergy and immunology.

David J. Stewart, PH.D. (3)
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.

(1) Clinical Advisory Committee—rAAT

(2) Clinical Advisory Committee—Others

(3) Scientific Advisory Committee—Bioseparation

(4) Scientific Advisory Committee—PRDT

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P R O M E T I C L I F E S C I E N C E S

I N C .

2 0 0 2 A N N U A L R E P O R T

Additional 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, 2002: 72,743,722

ProMetic Life Sciences Inc.
ProMetic BioSciences Inc.
Montreal, Quebec
Tel.: (514) 341-2115
E-mail: info@prometic.com
www.prometic.com

ProMetic BioSciences Ltd.
Isle of Man (British Isles)
(Scale-up and manufacturing)
Tel.: 44-16-2482-3519

Cambridge, UK
(R&D Group)
Tel.: 44-1223-420-300

ProMetic BioSciences
(U.S.A.), Inc.
Burtonsville, MD
(Marketing)
Tel.: (301) 421-0030
E-mail: prometic-usa@mindspring.com

Transfer Agent and Registrar
National Bank Trust
1100 University Street
Suite 900
Montreal, Quebec
Canada H3B 2G7
Tel.: (514) 871-7200

Investor Relations
Hofman Communications
Patrick C. Hofman
E-mail: p.hofman@qc.aira.com
ProMetic Life Sciences Inc.
Sofie St. Laurent
800 René-Lévesque Blvd West
Suite 1550
Montreal, Quebec
Canada H3B 1X9
Tel.: (514) 673-1116
Fax: (514) 673-1117
E-mail: investor@prometic.com

Annual Meeting of Shareholders
Wednesday, May 28, 2003 (11:00 a.m.)
The Montreal Museum of Fine Arts
Auditorium Maxwell-Cummings
1380 Sherbrooke Street West
Montreal, Quebec
Canada H3G 1J5
Tel.: (514) 285-1600

ProMetic Life Sciences Inc.
6100 Royalmount Avenue
Montreal, Quebec, Canada H4P 2R2
Tel.: (514) 341-2115
Fax: (514) 341-6227

info@prometic.com
www.prometic.com

Le rapport annuel est
aussi disponible en français.

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