ProMetic
Life Sciences Inc.
2007 Annual Report
Pathogen removal
from blood
Extraction & recovery
of plasma-derived
therapeutic proteins
Therapeutics to treat
anemia & neutropenia
Therapeutics to treat
rare bleeding disorders
PROMETIC LIFE SCIENCES INC.
FRONT COVER: THE BUSINESS OF PROMETIC IS PRIMARILY RELATED TO THE FUNDAMENTAL SUBSTANCE OF LIFE.
PROMETIC’S TECHNOLOGIES ARE USED TO REMOVE PATHOGENS FROM BLOOD, AND EXTRACT AND RECOVER VALUABLE
PROTEINS FROM PLASMA. PROMETIC DEVELOPS THERAPEUTICS TO TREAT BLOOD-RELATED DISORDERS. PROMETIC
IS A WORLD-LEADING TECHNOLOGY PROVIDER AND DRUG DEVELOPER IN THE FIELDS OF HEMATOLOGY, ONCOLOGY
AND NEPHROLOGY.
(we are
Innovators
ProMetic’s world-leading expertise in blood
fractionation and affinity separation is used by life
sciences companies of all sizes to facilitate their drug
development and manufacturing processes.
ProMetic Life Sciences Inc. • 1
Creators
ProMetic has originated first-in-class synthetic
compounds to address massive unmet medical
needs involving blood disorders and cancer.
Developers
ProMetic has steadily advanced PBI-1402,
its high-value candidate drug, through the
clinical trial process, while leveraging its
technologies and partnerships to deepen
and extend its product pipeline.
Contents • Signifi cant events Page 2 • Message to Shareholders Page 6 • Protein Technologies Page 14 •
Therapeutics Page 18 • Management’s Discussion & Analysis Page 21 • Consolidated Financial Statements Page 33
2 • ProMetic Life Sciences Inc. | AR 2007
Signifi cant Events
2007
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Licencing agreement with Tecpar of Brazil for biopharmaceutical
product - value to ProMetic of $11 M
Strategic alliance with Blue Blood of Taiwan for plasma-derived
therapeutics; primary markets are Taiwan and Southeast Asia
Development contract signed with a prominent European plasma
fractionation company for prion removal process in plasma -
transaction worth $1.7 M to ProMetic
Development contract with Darier of Mexico using ProMetic’s anti-
inflammatory compound, PBI-1308, in dermatological disorders
Launch of new Development and Technology Transfer Center
in Maryland for protein-based therapeutics
A Mimetic Ligand™ product was successfully implemented
in a large-scale manufacturing process
Key performance milestones achieved for new MAbsorbent™ ligands
targeting the purification of MAbs and Fabs
Positive pre-clinical data released for PBI-1402 in anemia related to
renal failure, demonstrating efficacy of PBI-1402 oral treatment with
minimal endogenous erythropoietin
PBI-1402 preliminary clinical data presented at the Annual Meeting
of the American Society of Hematology
Signifi cant Events | ProMetic Life Sciences Inc. • 3
2008
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Successful completion of two human clinical studies using
the P-Capt® prion reduction filter announced by MacoPharma
and ProMetic
Irish and UK National Blood Services initiate pre-adoption
clinical trials with P-Capt® filters
Scale-up commenced of prion binding and removal resin for use
in the manufacture of a new product by a major European plasma
fractionation company
In-licencing by Kedrion of ProMetic’s technology into
manufacturing process for Hepatitis B Hyperimmune -
value to ProMetic could exceed $30 M annually
Initial PBI-1402 CIA trial completed - continued favorable
top-line findings reported in third cohort
In-licencing by Wuhan Institute of Biological Products
of ProMetic’s yield improving technology for the initial
manufacturing of seven plasma-derived drugs for the Chinese
market - targeting 1.2 M liters of plasma at full scale
Strategic alliance with Sartorius has enabled two technology
transfer projects in Asia representing potential annual revenue
of $60 M for ProMetic when plasma fractionation companies
are fully operational
4 • ProMetic Life Sciences Inc. | AR 2007
Prion Capture Technology
• P-Capt® fi lters to remove infectious
prions from blood and blood components
• Prion capture affi nity resin scaled-up for
industrial process to remove prions from
plasma-derived products
• To enhance detection of “mad cow
disease” in cattle and vCJD in humans
h
e
m
atological
nephr
onc
Prion Capture
Technology
Human
Plasma-
Derived
Therapeutics
Human Plasma-derived
Therapeutics
• Hyperimmune Hepatitis B
• Hyperimmune CMV
• Plasminogen, Factor VIII
• Rare bleeding disorders
• Fibrinogen
• VIG, Alpha-1 antitrypsin
• Other proteins targeted for rare
disorders (Orphan Drugs)
Logical | ProMetic Life Sciences Inc. • 5
Orally active PBI-1402
Advancing in clinical trials for
the treatment of anemia:
• Chemotherapy-induced anemia
• Cancer related anemia
• Anemia associated with
Chronic Kidney Disease
Hematology –
New Chemical Entities (NCEs)
• Proprietary additions to PBI-1402
• Confi rmed erythropoietic activity in vivo
PBI-4050
PBI-4265
PBI-4283
PBI-4299
• Promising new lead compounds
for the treatment of neutropenia
PBI-1402
Hematology
and Oncology
NCEs
Oncology –
New Chemical Entities (NCEs)
• Confi rmed anti-cancer activity in vivo
• Most compounds orally active
• Could allow for lower doses of
chemotherapy, resulting in less side
effects like anemia / neutropenia
PBI-0110
PBI-1393
PBI-1522
PBI-1668
PBI-1737
6 • ProMetic Life Sciences Inc. | AR 2007
Pierre Laurin
Chairman of the Board and
Chief Executive Offi cer
Message to Shareholders | ProMetic Life Sciences Inc. • 7
Our logic
The achievements of ProMetic over the past year and early this
year emphasized precisely how far our Company has come and how
high it can now climb. Our steadily growing market penetration
with our proven products and licenced expertise, in combination with
the signifi cant advances in our clinical trial process, demonstrated the
value of our protein technologies and the immense potential of our
therapeutic pipeline.
The events of 2007 also drove widespread recognition of the fundamental inter-relationships and
synergies at work within ProMetic. ProMetic’s unifying principle and logic may be understood through
a single word – blood.
Blood holds centre stage at ProMetic. All of our divisions share this common denominator. While it
may appear that our activities focus on several objectives, in reality our core competencies, refl ected
in every aspect of our operations, revolve around the development of products that treat blood, derive
therapeutics from blood, or increase the production of cells within blood. The respective talents and
technologies of ProMetic’s units complement one another in this fi eld and serve to make us greater than
the sum of our parts.
Earlier this decade, we entered two joint ventures with the American Red Cross, and co-developed two
proven technology platforms for use in blood and in plasma which have since been internalized and
commercialized at ProMetic. The technologies entail the removal of pathogen agents from blood, and
the extraction of valuable therapeutic proteins from plasma.
The decisions we made in 2001 and 2003 to work with the American Red Cross are today paying major
dividends. The protein technology applications that resulted from these collaborations are driving our
growth in the area of protein technologies. At the same time, they are providing the Company with
high-value products, namely plasma-derived proteins to complement our drug development platforms,
and our prion capture technology.
As the DNA-reminiscent graphic on the cover of this Annual Report signifi es, most everything
we do at ProMetic interconnects with, involves, treats or tests the basic source of life, blood.
8 • ProMetic Life Sciences Inc. | AR 2007
In 2007 and in early 2008 ProMetic demonstrated its increasing
ability to earn signifi cant revenues in blood-related fi elds by
partnering and licencing our technology. In parallel to the positive
results demonstrated by PBI-1402 in the CIA clinical trial,
we entered into co-development agreements with Kedrion and
Blue Blood for plasma-derived therapeutics, thereby giving ProMetic
participation in the long-term potential of products that our
proprietary processes help to develop. We are thus effectively
leveraging our expertise to build a strong and diversifi ed product
portfolio in hematology, oncology and nephrology.
Consider:
•
Anemia and neutropenia are disorders of the blood.
−
ProMetic’s lead candidate drug PBI-1402, advancing through clinical trials, treats anemia. PBI-1402
has led to the discovery of a new platform to treat anemia and has generated several orally active
proprietary drug candidates offering the potential of multiple novel products to treat a complex and
widespread unmet medical condition.
−
Scientists at ProMetic have also discovered promising compounds to address neutropenia (a condition
characterized by a low white cell count and a common side effect associated with chemotherapy).
•
Blood contains proteins that can be developed into valuable therapeutics.
−
ProMetic’s unique world-leading plasma fractionation technology harvests these high-value proteins.
ProMetic and its partners are developing proteins for the treatment of bleeding disorders or infections
such as Hepatitis B.
•
Blood can save lives when transfused, but can also kill if it contains pathogens.
−
ProMetic provides the prion reduction technology for the P-Capt
proven and regulatory-approved device designed to remove prions from human blood collected
for transfusion. ProMetic has partnered with MacoPharma on this device.
® fi lter, which is the world’s only
•
Similarly the valuable therapeutic proteins derived from plasma can carry traces of infectivity.
−
Our prion capture technology for the purifi cation of proteins has been scaled-up for industrial use
in this regard.
•
Bovine Spongiform Encephalopathy (“BSE”), better known as “mad cow disease,” is blood-borne in cattle.
−
ProMetic is the developer of a diagnostic technology, known as BSafE, for enhanced BSE detection
in bovines.
Message to Shareholders | ProMetic Life Sciences Inc. • 9
In all of these areas, ProMetic moved notably forward in 2007. In many ways it was a break-out year,
a year that saw our underlying logic prevail – while continuing to gather momentum.
At the same time, as a corollary to our commercial and technological progress, the market’s
understanding of ProMetic has begun to crystallize. We are increasingly recognized for – and defi ned by –
our contributions and innovations in the blood-related fi elds of hematology, oncology, and nephrology.
This change in perception constitutes one of ProMetic’s most important achievements, which is to
become known principally as a company that develops and markets high-value products meeting unmet
medical needs.
The events of the past year served to bring about that transition.
Therapeutics
ProMetic’s environment constitutes a matrix in which the spirit of innovation fl ourishes and new applica-
tions readily fi nd wings. This leads us to the discovery of new chemical entities (“NCEs”) and analogues
that continually feed our ever-expanding pipeline of products. For example, ProMetic’s understanding of
the mechanism of action of PBI-1402 has led to the discovery of several other analogues and NCEs.
PBI-1402 and these additional compounds indicate a novel means by which anemia and neutropenia may
be treated. In this respect, PBI-1402 may be deemed the fi rst compound of a new therapeutic platform.
PBI-1402 targets anemia in patients with cancer and renal diseases by promoting the formation of red
blood cells from bone marrow through a mechanism of action distinct from that of erythropoietin
(“EPO”), the current standard treatment for anemia.
Hematology: Our Phase II clinical trial for PBI-1402, involving patients with chemotherapy-induced
anemia (“CIA”), provided us with tremendously encouraging data. Treatment of patients with our
PBI-1402 compound resulted in a signifi cant increase in red blood cell count and hemoglobin level,
while no signifi cant adverse events were observed. This positive data has leveraged the expansion of
PBI-1402’s clinical platform and we are now initiating a PBI-1402 clinical trial in patients suffering from
cancer related anemia (“CRA”). PBI-1402, its analogues and NCEs, as shown in the table on page 19
of this Report, point to a potential value for ProMetic that cannot be overstated.
Nephrology: There are approximately twenty million patients diagnosed with chronic kidney disease
(“CKD”) in the U.S. alone. Pre-clinical studies with PBI-1402 have demonstrated the compound’s ability
to treat anemia when kidneys fail to secrete suffi cient amounts of EPO to maintain normal levels of red
blood cells and hemoglobin. This was demonstrated in a 5/6 nephrectomized rat model, and supports
ProMetic’s expansion of the PBI-1402 clinical program into anemia in patients with CKD.
Oncology: Our scientists have, in addition to our progress in hematology, advanced several drug
candidates in the oncology platform. Most of our compounds in oncology share similar features in that
they are synthetic, orally active, and potentially less expensive to the healthcare system. Moreover, they
have demonstrated pre-clinical in vivo activity in gold standard models evidenced by tumor regression
and signifi cant extension of survival.
Autoimmune Disorders: ProMetic’s pipeline also includes anti-infl ammatory compounds that are very
promising for the treatment of autoimmune disorders, as evidenced with PBI-1308 which has been
partnered with Darier for further development in dermatological disorders.
Next Steps: With the expansion of PBI-1402’s clinical platform, and the achievement of promising
results in our pre-clinical work with various NCEs and analogues, ProMetic’s research and data have
attracted wide attention. Partnership discussions in reference to the continued development and
eventual marketing of PBI-1402 are underway.
10 • ProMetic Life Sciences Inc. | AR 2007
The year 2007 was a milestone year in a number of important
respects. It provided a meaningful demonstration of the fact that
ProMetic’s technologies have been proven and their performance
characteristics validated; validated from the scientifi c point of view
and from the regulatory point of view; validated in the marketplace
where they compete; and validated by the drug developers and
manufacturers who increasingly require and employ them.
Protein Technologies
Revenue Growth and High-Value Products: In 2007 we demonstrated to the market that the revenue
growth promised by our protein technologies is very persuasively being carried out. We have experienced
a critical mass of commercial events. In the year ahead, the steady progression of our activities in protein
technologies will continue, such that we expect to reach the EBITDA-positive milestone in 2008, while
generating substantial free cash fl ow to support the entire ProMetic group in 2009 and beyond.
ProMetic’s innovations in the area of protein technologies have created three distinct revenue paths
for the Company: (i) the purifi cation of biotech products; (ii) removal of pathogens in blood products; and
(iii) plasma-derived products.
Purifi cation of Biotech Products: ProMetic’s bioseparation technologies and affi nity products enable the
purifi cation of high-value drugs and assist in their effi cient manufacture. Twelve different ProMetic biosepa-
ration products have thus far been used by our clients and licencees, to produce biopharmaceutical and
medical products approved by the U.S. Food and Drug Administration (“FDA”) and the European Medicines
Agency (“EMEA”). These clients are among the most established companies in the pharmaceutical and
biopharmaceutical industries. As their manufacturing activities progress and result in further new approved
products, we expect signifi cant growth in the demand for our adsorbents, a demand which we are well
positioned to meet by virtue of the past investments we have made in our production facilities. This
evolution represents important organic growth and an established expanding revenue stream for ProMetic.
Removal of Pathogens: ProMetic’s prion capture technology, which can selectively bind and remove prions
(the causative agent in TSE diseases) from blood and blood products, has been integrated into the revolu-
tionary P-Capt® fi lter for donated human blood. The fi lter, designed to reduce the risk of TSE disease
transmission through blood transfusions, has received European Regulatory Approval. We have
demonstrated that its use is effective in reducing the risk of transmission of variant Creutzfeldt-Jakob
disease (“vCJD”), the human form of mad cow disease, by blood transfusion, and that the fi lter has no
impact on the blood itself. The National Blood Services of Ireland and the United Kingdom are now
completing their clinical evaluation of the P-Capt® fi lter, and we very realistically expect those organiza-
tions to adopt the product in the coming year. Accordingly, ProMetic’s partner in the venture, MacoPharma,
has scaled-up for commercial manufacture of the product. ProMetic will earn royalties from MacoPharma
for our licenced technology, as well as revenues from our production and supply of the prion binding affi nity
resin used in the fi lter. Our prion capture platform has also been extended to the fractionation industry.
In 2007 ProMetic signed a development contract with a prominent European plasma fractionation company
allowing for the use of ProMetic’s prion-binding ligands to minimize the transmission risk of vCJD in
plasma derivatives.
Message to Shareholders | ProMetic Life Sciences Inc. • 11
Plasma-Derived Therapeutics: The power and benefi ts of ProMetic’s protein extraction technologies
are being increasingly recognized worldwide. ProMetic’s Plasma Protein Purifi cation System (“PPPS”),
typically sees manufacturers achieve higher yields of high-value drugs derived from plasma than with
the conventional Cohn process.
Moreover, we are using our technology not only to generate licencing sales, but to acquire rights to
high-value products. Our transaction with the Italian-based Kedrion, a leading biopharmaceutical
company specialized in plasma-derived products, exemplifi es the model. Initially we licenced the use
of our technology to Kedrion to assist in the development of drugs for rare diseases. In a follow-up
transaction, we licenced our yield-improving manufacturing technology to produce a new generation
of Hepatitis B vaccine and acquired the exclusive marketing rights for the Hepatitis B Hyperimmune product
in the North American market. This transaction brings about a shift in the market’s perspective vis-à-vis
ProMetic – not only does ProMetic provide technology, but it is now positioned to supply fi nished biophar-
maceuticals to the market. We effectively used our technology as a commodity to deepen our own
therapeutic pipeline.
Our strategic alliance with Sartorius in 2006 also yielded signifi cant opportunities for our two companies
to collaborate on technology transfer projects such as those for the Wuhan Institute of Biological
Products (“WIBP”) in China and for Blue Blood Biotech Corporation of Taiwan (“Blue Blood”).
WIBP is a subsidiary of the China National Biotec Group (“CNBG”) that markets multiple products
throughout China, including two dozen vaccines and plasma derivatives. As a result of our agreement,
WIBP will gain exclusive access to ProMetic’s PPPS technology for the Chinese market. The incorporation
of the PPPS technology will signifi cantly enable WIBP to improve its capability in the manufacturing of
plasma-derived products. The goal is to achieve a minimum capacity of more than 1.2 million liters of
plasma annually. CNBG retains more than 30 percent of the blood derivatives market in China. With this
agreement, ProMetic has expanded its base to include the plasma-derived industry in China and is now
a well established presence in the therapeutics market in Asia.
12 • ProMetic Life Sciences Inc. | AR 2007
ProMetic has demonstrated that the revenue growth promised
by our protein technologies is being carried out. In 2007,
the Company experienced a critical mass of commercial events
as well as promising results with its lead therapeutic candidate.
In the year ahead, the steady progression of our protein technologies
and therapeutic activities is expected to continue, such that
we will generate substantial free cash fl ow to support the entire
ProMetic group.
Blue Blood, a leading Asian fi rm specialized in plasma screening and hyperimmune product development,
will be using ProMetic’s proprietary manufacturing process to produce very high-value therapeutics from
plasma.
Through the continued development of ProMetic’s existing partnerships and the signing of new strategic
alliances and agreements, we now see an annual revenue opportunity in China, Taiwan and Southeast Asia
that exceeds $60 million annually for ProMetic.
Our strategy remains basic and clear-cut. It consists of: (i) concentrating on the execution of fundamentals;
(ii) ensuring that our technology drives a continually growing revenue stream; and (iii) stipulating that our
therapeutics attract optimal partnering transactions. Within a short time, I believe, as do the members of
our core team – the visionaries and innovators who lead our principal divisions and who have stayed the
course at ProMetic for a decade – that the culmination of these events will abolish the disparity that exists
between our share price as it stands and our share price as it should be.
I wish to take this opportunity to thank every member of the extended ProMetic family for their commitment
to our objectives and the daily hard work they perform that testifi es to the depth of their dedication.
Particular thanks go to you, our shareholders, for your support, your patience and confi dence.
Pierre Laurin
Chairman of the Board
President and Chief Executive Offi cer
14 • ProMetic Life Sciences Inc. | AR 2007
ProMetic’s Protein Technologies
The manufacture of protein-based therapeutics has become
a global growth industry, and the number of worldwide licencees
of ProMetic’s proprietary enabling technologies is continually
growing as well. Accordingly, we have expanded our ability
to collectively serve our current and forthcoming licencees.
ProMetic’s Development and Technology Transfer Center located
in Rockville, Maryland, opened in 2007. It provides high-value
implementation and training programs related to our technologies,
while acting as a profi t center for ProMetic. In addition to assisting
our licencees with the integration of our technologies, these new
facilities have enhanced our own development potential with
regard to novel plasma protein therapeutics. Meanwhile, our
R&D and manufacturing facilities located in the United Kingdom
have in recent years undergone extensive upgrade and expansion
allowing ProMetic to easily meet market demand for its current
and future range of affi nity products.
Protein Technologies | ProMetic Life Sciences Inc. • 15
Targeted proteins
ProMetic’s Mimetic Ligand™ is designed to bind a
specifi c protein. Mimetic Ligands™ are immobilized on
microscopic beads, the base matrix of fi lters.
Purifi cation of Biotech Products
• Revenue derived from various clients / licensees for recombinant proteins
Pathogen Removal
• MacoPharma / P-Capt®
• Ireland & UK initiated pre-adoption trials
• Prion reduction technology adopted by fractionators
• Prion capture technology scaled-up for industrial use
Plasma-derived Therapeutics
• Kedrion, Hyperimmune deal & expansion targeting high-value orphan drugs
• Blue Blood, Taiwan / Southeast Asia
• WIBP, China
• Additional partnering and licencing forthcoming
Actual
Market
$2.0B
$2.0B
$8.5B
16 • ProMetic Life Sciences Inc. | AR 2007
Drug Purification
ProMetic’s core bioseparation technologies, its proprietary affi nity adsorbents and its Mimetic Ligand™
purifi cation platform are used by numerous pharmaceutical and biopharmaceutical companies, and have
made ProMetic a key supplier to the global life sciences industry.
The chemical diversity of ProMetic’s ligand libraries allows for the selection of almost any target protein.
ProMetic’s technology allows for the capture of multiple targeted proteins directly from the source product,
and then for the separation of these nearly identical proteins to achieve greater yields with high levels of purity.
As a result, manufacturing clients using ProMetic’s bioseparation technologies experience signifi cant
reductions in costs associated to drug purifi cation. Furthermore, pharmaceutical and biomanufacturing
communities – seven of whose leading antibody producers participated in a performance testing of
ProMetic’s technology – are relentlessly pursuing improved process yields and effi ciencies.
ProMetic’s new MAbsorbent™ ligands targeting the purifi cation of monoclonal antibodies (“MAbs”) and
recombinant antibody fragments (“Fabs”), strongly position ProMetic to generate revenues from the
consistent growth in demand for antibody therapeutics. The market for MAbs currently exceeds $16 billion.
Moreover, ProMetic’s purifi cation bioprocess was once again validated using 800 liters of commercial
Mimetic Ligand™. This affi nity adsorbent was packed in a 1.8 meter diameter process chromatography
column for GMP manufacture of a biological product. End results confi rmed that the product performance
met all of our client’s specifi cations.
Currently, twelve of ProMetic’s proprietary affi nity products are used as part of the manufacturing process
or as a component of biopharmaceutical or biomedical products approved for sale in the U.S. and/or in
Europe. Several additional products being developed by pharmaceutical and biopharmaceutical companies
also rely upon ProMetic’s technology.
Plasma Fractionation
ProMetic’s Plasma Protein Purifi cation System (“PPPS”), originally developed in a co-venture with the
American Red Cross, applies ProMetic’s Mimetic Ligand™ technology to provide for total and highly effi cient
extraction of proteins from human plasma. This system employs powerful affi nity separation materials
in a multi-step process to extract and purify proteins at high yields.
In 2008, Kedrion, a specialist in plasma-derived products based in Italy, in-licenced ProMetic’s yield
improving technology for incorporation into its manufacturing process for the production of a Hepatitis B
Hyperimmune, a product for which ProMetic retains the marketing rights in North America. The estimated
value, expected to commence in 2011, is at minimum $30 million annually.
WIBP, a subsidiary of CNBG, signed a strategic alliance and licence with ProMetic to access its yield
improving manufacturing technology. The implementation of the product development plan, which is
underway, includes training, technology transfer, scale-up and the readying of WIBP’s clinical manufacturing
facility. Full scale commercial manufacturing will take place at WIBP initially, and could be readily
implemented by other affi liated companies within CNBG later. WIBP is expected to process in excess
of 1.2 million liters of plasma annually with ProMetic’s technology and commercialize seven plasma-derived
life saving drugs in China.
With its rapid economic growth, China is poised to become the world’s fourth largest domestic market for
pharmaceuticals. With more than 9,000 employees and revenues of US$421 M in 2006, CNBG is the largest
producer of vaccines and blood derivatives in China, having more than 80 and 30 percent market share
respectively.
This agreement, together with ProMetic’s contract with Blue Blood for Taiwan and South East Asian
markets, have provided the Company with a major foothold in one of the world’s fastest growing markets.
It is estimated that revenue to ProMetic from these agreements could exceed $60 million on an annual
basis once these licencees operate at commercial scale.
Protein Technologies | ProMetic Life Sciences Inc. • 17
Removal of Pathogens
ProMetic’s Pathogen Removal and Diagnostic Technologies (“PRDT”) is another technology that originated
from ProMetic’s collaboration with the American Red Cross.
The PRDT technology forms the basis of the revolutionary P-Capt® fi lter, a prion reduction device
developed with ProMetic’s commercialization partner MacoPharma. P-Capt® has received the CE mark
in Europe, and provides blood services agencies with the means of signifi cantly reducing the risk of
transmission through blood transfusion of vCJD, a fatal brain disease.
•
•
In 2007 The National Blood Transfusion Services of the United Kingdom and Ireland initiated their
pre-adoption evaluation procedures for the P-Capt® fi lter. As this Report goes to press, the evaluation
procedures are nearing completion in Ireland and adoption of the protective device is expected
imminently.
In 2007 ProMetic applied PRDT’s expertise and processes to commercially available post mortem
diagnostic tests for bovine spongiform encephalopathy (“BSE” or more commonly called “mad cow
disease”) and demonstrated that it could improve the sensitivity of the existing commercially
available tests by as much as 80-fold in an initiative to enhance the safety of the food chain.
•
In addition, ProMetic commenced scale-up of its prion binding and removal resin for use in the
manufacture of a new product by a major European plasma fractionation company.
As well, PRDT’s science has demonstrated its potential for additional uses in the purifi cation of donated
blood. It may in future be used to reduce or remove other pathogen agents from donated blood. Upwards
of forty million units of blood are collected in the world annually, affording ProMetic and its partner an
enormous market opportunity.
18 • ProMetic Life Sciences Inc. | AR 2007
Therapeutics
ProMetic’s lead candidate drug, PBI-1402, addresses substantial
unmet medical needs.
•
•
•
•
•
PBI-1402 is
treating anemia are injectables.
orally active, whereas most other drugs
PBI-1402 has shown
pre-clinical models.
anticancer activity in multiple
PBI-1402, all the while mimicking EPO’s biological activity,
has a distinct mechanism of action from EPO, as it does not
bind to the same cell surface receptor as EPO. It therefore
provides great promise of serving as a stand-alone therapeutic
in the treatment of patients with anemia.
affordable low molecular weight synthetic
PBI-1402 is an
candidate drug, relative to costly recombinant proteins,
such as EPO.
PBI-1402 addresses a
exceeds $15 billion.
worldwide marketplace that
Therapeutics | ProMetic Life Sciences Inc. • 19
EPO
produced in kidney
PBI-1402 and ProMetic’s
proprietary NCEs act on more
immature stem cells and on
different receptors than EPO.
Non-EPO
Receptor
EPO
Receptor
Reticulocytes
(Immature
Red Blood Cells)
Increased
Red Blood Cells
in peripheral circulation
Stem cells
Bone
marrow
Clinical Phase II
PBI-1402
CIA
CRA
CKD (initiating)
Pre-clinical proprietary Analogues and NCEs
PBI-4050
PBI-4265
PBI-4283
PBI-4299
in vivo erythropoiesis
20 • ProMetic Life Sciences Inc. | AR 2007
Anemia
The initial indication targeted by PBI-1402 is anemia in cancer patients undergoing chemotherapy. Upwards of two-
thirds of cancer patients treated with chemotherapy develop anemia. Treatment with EPO, the current drug of
choice for this indication, is active in only 50 to 60 percent of these patients.
•
positive clinical results in the chemotherapy-induced anemia trial and demonstrated
PBI-1402 has reported
excellent safety and tolerability, as well as an impressive effi cacy profi le. A Phase II trial of PBI-1402
demonstrated a signifi cant increase in the red blood cell count and the hemoglobin level in patients with
chemotherapy-induced anemia. In this open-label Phase II trial, patients each received PBI-1402 once
daily at doses ranging from 44mg/kg to 88mg/kg. Analysis of the compiled data from a total of 18 patients
showed an overall statistically signifi cant increase of the mean hematocrit values at weeks 4, 6 and 8.
At week 8, p values were 0.02 for hematocrit and hemoglobin. PBI-1402 was well tolerated, with no serious
adverse effects reported.
•
The encouraging positive results from the CIA clinical trial and the
models seem to indicate that PBI-1402 is well suited for the treatment of anemia in oncology, resulting in
the PBI-1402 clinical platform being extended to patients suffering from CRA.
anticancer effects reported in animal
Moreover, approximately twenty million patients in the U.S. alone are diagnosed with CKD. Patients diagnosed
at severe CKD stages (3 and 4) often develop anemia before they require hemodialysis. CKD patients still at
the pre-dialysis stage could greatly benefi t from an orally administered drug as a treatment for their anemia.
•
Recent experiments based on a 5/6 nephrectomized rat model have demonstrated the ability of PBI-1402
to correct anemia. This model simulates chronic renal failure in humans, a condition whereby the kidneys
fail to produce suffi cient EPO for the stimulation of red blood cell production. These results indicate
additional potential for PBI-1402.
•
A multi-centre placebo controlled clinical trial for anemia associated to CKD is scheduled to commence
momentarily.
Multi-indications / Multi-drug candidates
In addition to these indications (CIA, CRA or CKD) other potential applications for PBI-1402 could include the
treatment of anemia in the elderly, anemia from bone marrow stem cell transplants, and anemia caused by
the use of zidovudine in HIV patients.
Several NCEs identifi ed by ProMetic’s scientists offer numerous possibilities for additional indications and
market segments. Additionally, ProMetic’s drug discovery platform has led to the development of numerous
compounds for the treatment of cancer and autoimmune diseases. Compounds such as PBI-1393, PBI-0110,
PBI-1737, PBI-1668, and PBI-1522 have all demonstrated very impressive activity in various cancer models
and represent real drug candidate potential. Additionally, most of these compounds are orally active and pre-
clinical in vivo results seem to indicate that they could be used in combination with standard treatment
protocols, such as lowered dosages of chemotherapy, thus resulting in a reduction of associated side-effects
such as anemia and / or neutropenia. PBI-1393 and PBI-0110 are in position to enter clinical trials in 2008
subject to corporate strategy. Furthermore, PBI-1737 has evidenced strong results in several different
autoimmune and anti-infl ammatory models, including simulations of colitis (Irritable Bowel Syndrome,
Crohn’s disease) and Multiple Sclerosis. PBI-1308 is a synthetic compound that has been partnered with
Darier for further development in the fi elds of atopic dermatitis and psoriasis.
The continued development of the analogues of PBI-1402, and the NCEs signify a family of candidate
therapeutics. The implication is far-reaching. These compounds represent a complete, well defi ned platform
with the ability to produce high-value drugs. This will allow us to address unmet medical needs and extremely
complex medical conditions associated with certain diseases, for which the market potential is immense.
MD&A
The Management’s Discussion and Analysis of Operating
results and Financial Position, prepared February 21, 2008,
aims at helping the reader to better understand the business
of the Company and the key elements of its fi nancial results.
It explains the trends of the fi nancial situation and the
operating results of the Company for the 2007 fi nancial year
compared to the 2006 operating results. This management’s
discussion and analysis was prepared in accordance with
Regulation 51-102 respecting continuous disclosure obligations
and should be read in conjunction with the 2007 consolidated
fi nancial statements and the accompanying notes included
in this annual report. These fi nancial statements were prepared
in accordance with Canadian generally accepted accounting
principles (“Canadian GAAP”). Unless otherwise indicated,
all fi gures are expressed in Canadian dollars.
22 • ProMetic Life Sciences Inc. | AR 2007
ProMetic Life Sciences Inc. (“ProMetic”) is a world-
leading technology provider and drug developer in
the fi elds of hematology, oncology and nephrology.
ProMetic focuses these activities in two distinct fi elds:
therapeutics and protein technologies. ProMetic develops
therapeutics to treat blood-related disorders. ProMetic’s
protein technologies are used to remove pathogens
from blood and extract and recover valuable proteins
from plasma.
THERAPEUTICS
ProMetic’s therapeutic arm is based in Montreal, Quebec, Canada. ProMetic’s lead compound, PBI-1402, is
an orally active compound being developed to treat different types of anemia. The initial phase of the PBI-1402
chemotherapy-induced anemia (“CIA”) clinical trial has been completed and ProMetic reported that the analysis
of the compiled data from a total of 18 patients showed an overall statistically signifi cant increase of the mean
hematocrit values at weeks 4, 6 and 8, and of the hemoglobin values at week 8. At week 8, p values were 0.02 for
hematocrit and hemoglobin. PBI-1402 has a distinct mechanism of action and does not act through the EPO
receptor. ProMetic has recently expanded its clinical program for PBI-1402 into the treatment of anemia in
patients with cancer, including myelodysplastic syndrome (“MDS”), a condition often referred to as “pre-leukemia”
and is expected to initiate an additional trial in patients suffering from anemia related to chronic kidney disease
(“CKD”). Analogues of PBI-1402 and new chemical entities have been identifi ed in the therapeutic pipelines.
PBI-1308, a synthetic compound, has been partnered with Darier for further development in the fi elds of atopic
dermatitis and psoriasis. Other compounds, such as PBI-1393 and PBI-1668 have indicated, in pre-clinical
studies, potentially positive results in cancer models. Additionally, PBI-1737 has evidenced strong results in
several different pre-clinical models, for applications in cancer and autoimmune diseases fi elds.
PROTEIN TECHNOLOGIES
ProMetic unveiled its new Development and Technology Transfer Center for plasma-derived technologies
in Rockville, Maryland, U.S. This center offers plasma fractionation companies a unique, validated, state-
of-the-art technology, the Plasma Protein Purifi cation System (“PPPS”) for the manufacture of high-value
plasma-derived proteins. The system offers an alternative to the legacy manufacturing process (the Cohn
Process); it removes therapeutic proteins from plasma with a process that very signifi cantly enhances the
recovery yield. PPPS was originally developed in a co-venture between ProMetic and the American Red
Cross; ProMetic owns an exclusive licence to use the PPPS technology, as well as a licence to manufacture
and sell any products derived from the PPPS technology, and the right to sublicense to third parties those
same rights. Manufacturers of a wide range of blood-derived products, such as Kedrion and Blue Blood,
have signed agreements incorporating ProMetic’s technology into their manufacturing processes for the
development of therapeutic products.
Management’s Discussion and Analysis | ProMetic Life Sciences Inc. • 23
ProMetic’s purifi cation and pathogen removal technologies are managed through our R&D facilities in
Cambridge and manufacturing capacity on the Isle of Man, in the United Kingdom. Currently, twelve different
bioseparation materials based on ProMetic’s patented Mimetic Ligand™ technology have been adopted for
the manufacture of licensed biopharmaceuticals. Ten licensed products, incorporating ProMetic’s purifi cation
technology as part of their manufacture or function are now approved for sale by the FDA and/or the European
Medicines Agency (“EMEA”). ProMetic and its partner MacoPharma have joined forces in the development
of the P-Capt® fi lter, a prion reduction device for blood supply organizations which has earned European
regulatory approval (CE Mark). The prion reduction technology for the device was originally developed in a
co-venture between ProMetic and the American Red Cross under the name Pathogen Removal and Diagnostics
Technologies (“PRDT”).
Signifi cant Events
The following events took place during the calendar year 2007 and subsequent to year end until the date of the
writing of this MD&A:
CORPORATE
•
In September, ProMetic closed a fi nancing with gross proceeds of $6.6 million. 18,883,928 subordinate
voting shares at a price of C$0.35 per share were issued;
•
A senior management reorganization took place in October. Nominations were as follows:
−
−
−
−
Bruce Pritchard, V-P, Corporate Development;
Peter Edwardson, V-P, Medical Technologies;
Stephane Archambault, Chief Financial Offi cer;
Patrick Sartore, Corporate Secretary
•
•
ProMetic secured, in December, access to additional monetary resources on an “as-needed” basis for
up to $15.0 million through an equity drawdown facility provided by Nanuq Investments Ltd.;
On October 22, 2007, the Quebec Court of Appeal dismissed ProMetic’s appeal of the judgment issued
in December 2004 by the Superior Court of Quebec, in favor of the Bank of Montreal (“BMO”) against
ProMetic. Subsequently, ProMetic has entered into an agreement with BMO pursuant to which ProMetic
shall reimburse its total obligation of $3.5 million to BMO via installments spanning into the second
quarter of 2008;
•
In December, a private placement of $1.0 million was executed with InvHealth Holding Inc., a holding
company wholly-owned by Mr. Pierre Laurin, ProMetic’s President and Chief Executive Offi cer.
PROTEIN TECHNOLOGY
•
ProMetic and Instituto de Tecnologia do Parana (“Tecpar”) of Brazil signed a $19.0 million technology
transfer and licensing deal. This deal will allow Tecpar to acquire the manufacturing technology for the
production of biopharmaceuticals for Brazil and other South American markets;
•
A strategic alliance was signed with Kedrion S.p.A. The alliance aims at implementing ProMetic’s Plasma
Protein Purifi cation System (“PPPS”) technology to manufacture orphan drugs from plasma and partnering
for technology transfer opportunities in emerging markets;
24 • ProMetic Life Sciences Inc. | AR 2007
•
•
•
•
•
ProMetic and Blue Blood Biotech Corporation formed a strategic alliance to develop drugs derived from
human plasma utilizing ProMetic’s proprietary manufacturing process;
ProMetic signed a development contract with a prominent European plasma fractionator worth
$US1.7 million. The program will utilize proprietary prion-binding ligands developed by Pathogen Removal
and Diagnostic Technologies, Inc. (“PRDT”), a joint venture between ProMetic and the American Red Cross,
to minimize the risk of transmission by plasma-derived products of Variant Creutzfeldt-Jakob Disease
(vCJD), the human form of “mad cow disease.”
ProMetic unveiled its new human plasma technology transfer center in Maryland, U.S.A., for protein-based
therapeutics.
Key performance milestones were achieved for the new MAbsorbent
of monoclonal antibodies (“MAbs”) and recombinant antibody fragments (“Fabs”). The performance of
ProMetic’s new ligands against set targets was validated in collaboration with seven leading antibody
producer companies in the United States and Europe;
TM ligands targeted at the purifi cation
In collaboration with a biomanufacturing client, ProMetic successfully implemented a large-scale
purifi cation bioprocess using a ProMetic Mimetic Ligand™ affi nity adsorbent which has met all of its client’s
performance targets.
THERAPEUTICS
•
ProMetic and Laboratorios Dermatologicos Darier S.A. signed an agreement for ProMetic’s synthetic anti-
infl ammatory compound PBI-1308 in dermatological disorders;
•
•
Positive pre-clinical results for PBI-1402, the Company’s lead compound for treating anemia, were
disclosed by ProMetic in November. PBI-1402 was tested in the 5/6 nephrectomized rat model which
simulates chronic renal failure in humans resulting in loss of kidney functions and anemia subsequent
to a reduced level of erythropoietin (“EPO”) normally produced by the kidneys. The new pre-clinical
results indicate that a once a day oral administration of PBI-1402 increases circulating red blood cells
and hemoglobin level comparable to normal range values;
In December, ProMetic announced that the Phase II trial of its investigational compound PBI-1402, which
is being conducted in Eastern Europe under a US clinical research organization, induced a signifi cant
increase in red blood cell count and hemoglobin level in patients with chemotherapy-induced anemia.
Additionally, no signifi cant adverse events were observed. PBI-1402 is a novel, orally active low molecular
weight synthetic compound with erythropoiesis-stimulating activity via a mechanism of action distinct
from erythropoietin (“EPO”). These results were presented in a poster session at the American Society of
Hematology 49th Annual Meeting in Atlanta.
Management’s Discussion and Analysis | ProMetic Life Sciences Inc. • 25
Selected Annual Information
The following selected annual information is derived from the consolidated fi nancial information of the Company
for each of the three most recently completed fi nancial years. The fi nancial statements are prepared in
accordance with Canadian GAAP. More fi nancial information, including the Company’s Annual Information Form,
is available on SEDAR (www.sedar.com)
(in thousands of Canadian dollars, except for per share amounts)
December 31
Revenues
Net loss
Net loss per share (basic and diluted)
Total assets
Long-term debt
Convertible term notes
2007
2006
2005
8,436
22,342
0.09
19,387
6,499
–
2,647
30,459
0.20
40,727
11,577
–
8,052
22,932
0.20
29,796
412
4,014
No cash dividends were declared per-share on the Company’s subordinate voting shares during the fi nancial
year ended December 31, 2007.
Results of Operations
Year ended December 31, 2007 compared to year ended December 31, 2006
REVENUES
Total revenues for 2007, which were mostly derived from the protein technology unit, were $8.4 million compared
with $2.6 million in 2006. The signifi cant increases in revenues are largely the results of:
•
•
•
•
Large-scale use of ProMetic Affi nity Ligand Adsorbent in late stage clinical development program by a large
bio-manufacturing client. The revenues associated with this order were $3.9 million;
New revenue streams from the development of Prion Removal Resin in the plasma process applications;
Continued growth of sales of core products in the Affi nity Ligand adsorbent range;
Initiation of the development phase that will allow Instituto de Tecnologia do Parana (“Tecpar”) to
manufacture complex biopharmaceutical products for the Brazilian and South American markets;
•
Execution of the Kedrion development program related to the plasma purifi cation technology.
There were no signifi cant revenues associated with the Therapeutics unit.
26 • ProMetic Life Sciences Inc. | AR 2007
As at December 31st, 2007, deferred revenues were $1.6 million compared to $2.2 million as at December 31st,
2006. The 2007 deferred revenues consisted primarily of advance billing for the biogenerics and development of
prion removal resin programs.
The revenue outlook for 2008 is very encouraging as revenue streams associated with the following are expected
in 2008:
•
•
•
•
•
The
launch of the P-Capt® fi lter by our partner MacoPharma which is expected to happen in mid-2008;
The licensing of the plasma purifi cation technology to Kedrion;
The establishment of two joint ventures in Europe and North America with strategic partners for the plasma
purifi cation technology;
The continued growth of sales of core products in the Affi nity Ligand adsorbent range;
The continuation of the Tecpar development and plant validation programs which are expected to ramp up
throughout the year.
RESEARCH AND DEVELOPMENT EXPENSES AND COSTS OF GOODS SOLD
Research and development expenses and costs of good sold increased to $19.1 million for the year ended
December 31, 2007 from $15.3 million for the same period in 2006.
The variance is mainly attributable to the cost associated with:
•
•
•
The continuation of the Phase Ib/II clinical trials for the PBI-1402 program;
The development of new compounds for the hematology and cancer programs;
The PRDT prion fi lter program, co-developed with MacoPharma, for which the P-Capt® Prion Capture fi lter
obtained CE mark certifi cation in the second half of 2006;
•
The work related to the core products in the Affi nity Ligand adsorbent range.
Tax credits of $0.945 million available under provincial tax programs were recorded in 2007.
ADMINISTRATIVE AND MARKETING EXPENSES
Administrative and marketing expenses decreased signifi cantly to $6.6 million for the year ended December 31,
2007 from $7.6 million for the year ended December 31, 2006. This decrease was mainly due to:
•
The legal expenses related to the litigation with the potential buyer of Hemosol in September of 2006.
The court rendered a favourable decision for the Company which removed all obstacles to Prometic
licensing hyperimmune products in North America and around the world. While the Company is hopeful
that the Companies’ creditors arrangement act (CCAA) proceedings will come to an end in 2008, there
are no guarantees that there will be no further litigation surrounding Hemosol and the License Agreement.
Related parties transactions were recorded as administrative and marketing expenses and amounted to
$0.4 million. Those expenses consisted of directors’ fees and consulting fees to one of the Company’s directors.
AMORTIZATION EXPENSES
Amortization expenses for the year ended December 31, 2007 were higher at $3.0 million compared to
$2.2 million in December 31, 2006. The slight increase is mostly due to the increased patent expenditures related
to the Company’s technology and compounds that have been incurred in the last years. In addition, accelerated
amortization pertaining to one compound is also contributing to the increase.
Management’s Discussion and Analysis | ProMetic Life Sciences Inc. • 27
NET RESULTS
The Company incurred a net loss of $22.3 million, or $0.09 per share (basic and diluted), for the year ended
December 31, 2007 as compared to a net loss of $30.5 million, or $0.20 per share (basic and diluted) for the
year ended December 31, 2006. This signifi cant decrease in net loss is the result of the considerable increase
in revenues. In addition, lower interest expenses contributed greatly to the improvement of the net results.
In 2006, the Company recorded an extraordinary interest expense related to the repayment of a convertible note.
Foreign exchange gain of $0.8 million for 2007 compared to a loss of $0.4 million is mainly caused by the
strengthening of the Canadian dollar vis-à-vis the US dollar and the British Pound. Since a majority of the
expenses are in US dollars, the company has signifi cantly benefi ted from the strong Canadian dollar.
Material events which occurred in previous years have not signifi cantly impacted the 2007 net results.
Liquidity and Financial Position
Current assets totalled $8.3 million as at December 31, 2007 compared to $26.0 million on December 31, 2006.
Additional details are provided under the heading Cash Flows.
Account receivables increased to $3.3 million for the year ended December 31, 2007 compared to $2.3 million
in the year ended December 31, 2006. Account receivables consist mostly of trade receivables related to the
Tecpar program, affi nity product sales, and development fees associated with a plasma program with a European
plasma fractionator.
The net capital assets decrease to $3.4 million in 2007, from $4.5 million in 2006, is mainly attributable to lower
capital expenditures in 2007.
Cash Flows
Cash fl ows used in operating activities amounted to $22.5 million for the year ended December 31, 2007,
compared with $22.8 million in 2006. The minor change in cash fl ows used for operating activities is mainly
attributed to net change in working capital which was offset by higher revenues.
Cash fl ows from fi nancing activities amounted to $5.9 million for the year ended December 31, 2007 compared
to $34.9 million in 2006. During 2007, the Company issued 29.1 million subordinate voting shares. The main
issuance of shares for 2007 was composed of a public offering with existing and new shareholders for 18.9 million
shares at $0.35 on September 11, 2007. In addition, the Company closed a private placement with its CEO on
December 12, 2007 for 1.7 million shares at $0.58. The cash fl ows from fi nancing were reduced by the repayment
of the long-term debt.
Cash fl ows used in investing activities amounted to $1.3 million compared with $1.8 million for 2006. The addition
to capital assets of $0.6 consisted mainly of equipment related to the shipment of signifi cant Affi nity Ligand
adsorbent products. The addition to licences and patents were mainly related to patent expenditures for the
PBI-1402 program.
For 2008, the Company intends to generate cash from its commercial activities and the issuance of additional
shares or debts.
28 • ProMetic Life Sciences Inc. | AR 2007
Off-balance sheet arrangements
In the normal course of business, the Company fi nances certain of its activities off-balance sheet through
leases. On an ongoing basis, we enter into operating leases for buildings and equipment. Minimum future rental
payments under these operating leases, determined as at December 31, 2007, are included in the contractual
obligations table below.
Contractual obligations
In the normal course of operations, the Company has entered into several contracts resulting in the following
payments over the next few years:
(in thousands of Canadian dollars)
Long-term debt
Operating leases
and obligations
Total contractual
obligations
Total
Less than 1 year
1–2 years
3–4 years
After 4 Years
Payments due by period
6,499
8,426
3,358
2,422
3,133
4,160
8
1,844
14,925
5,780
7,293
1,852
–
–
–
Besides operating leases, the company has no signifi cant R&D obligations.
Critical accounting estimates
The preparation of fi nancial statements in accordance with Canadian GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities, and the reported amounts
of revenues and expenses during the reporting periods. We have identifi ed the following accounting policies that
we believe require application of management’s subjective judgment, often requiring the need to make estimates
about the effect of matters that are inherently uncertain, and that may change in subsequent periods. Our actual
results could differ from these estimates and such difference could be material.
IMPAIRMENT OF LONG-LIVED ASSETS
Management reviews the valuation and amortization of licenses and patents on an ongoing basis, taking into
consideration any events and circumstances which may impair value. The Company assesses impairment in a two-
step process: fi rstly by determining when an impairment loss is recognized; and secondly by measuring that loss.
RESEARCH AND DEVELOPMENT AND TAX CREDITS
Research expenditures (net of related tax credits) are expensed as incurred and include reasonable allocation of
overhead expenses. Development expenditures (net of related tax credits) are deferred when they meet the criteria
for capitalization in accordance with Canadian GAAP, and the future benefi ts could be regarded as being reasonably
certain. Related tax credits are accounted for as a reduction to research and development expenditures on the
condition that the Company is reasonably certain that these credits will materialize. During 2007 and 2006, no
development costs were deferred.
Management’s Discussion and Analysis | ProMetic Life Sciences Inc. • 29
STOCK-BASED COMPENSATION AND WARRANTS
When the Company issues warrants and stock options (to its employees, directors and offi cers), a fair value is
derived using the Black-Scholes pricing model. The application of this pricing model requires management to
make assumptions regarding several variables, including the expected life of the options and warrants, the price
volatility of the Company’s stock over a relevant timeframe, the determination of a relevant risk-free interest
rate and an assumption regarding the Company’s dividend policy in the future. For the year ended December 31,
2007, the Company expensed $367,000 for stock-based compensation compared to $142,000 for the same period
in 2006. As for the warrants, nothing was expensed in 2007 compared to $2,320,000 for the same period in 2006.
Financial instruments
CREDIT RISK
The Company places its cash and cash equivalents in titles of high quality issued by government agencies and
fi nancial institutions and diversifi es its investment in order to limit its exposure to credit risk. The Company
never invested its cash and cash equivalent in asset backed securities (“ABS”).
The fi nancial instruments that potentially expose the Company to credit risk are primarily trade accounts
receivables. The Company reviews a new customer’s credit history before extending credit and conducts regular
reviews of its existing customers’ credit performance.
FOREIGN EXCHANGE RISK
The Company derives a substantial part of its revenues in sterling pounds and the majority of its expenses that
are not denominated in Canadian dollars are incurred in sterling pounds and in US dollars.
The Company does not possess nor issue fi nancial derivative instruments.
INTEREST RISK
The majority of the Company’s debt is at fi xed rate, there is limited exposure to interest rate risk.
Changes in accounting policies
The following future accounting changes will affect the company’s fi nancial results.
INVENTORIES
In June 2007, the Canadian Institute of Chartered Accountants published Section 3031, “Inventories”, which
replaces Section 3030 of the same title. The new section provides guidance on the determination of cost and
its subsequent recognition as an expense, including any write-down to net realizable value. It also provides
guidance on the cost formulas that are used to assign costs to inventories.
The changes to this section affect the following, in particular:
•
•
•
•
Certain costs, such as storage costs and general and administrative expenses that do not contribute to
bringing the inventories to their present location and condition, are precisely excluded from the cost of
inventories and expensed during the year in which they are incurred;
The reversal of the write-down to net realization value amounts when there is a subsequent increase in the
value of the inventories is now required;
The valuation of inventory at the lower of cost and replacement cost is no longer allowed;
The new standard also requires additional disclosures.
30 • ProMetic Life Sciences Inc. | AR 2007
This new standard is effective for fi nancial years beginning on or after January 1, 2008 and the Company
will implement it as of January 1, 2008. The Company’s management is not able to measure the impact that
application of this new standard will have on the fi nancial statements.
SECTION 3064, GOODWILL AND INTANGIBLE ASSETS
This new standard provides guidance over the recognition, measurement, presentation and disclosure of
goodwill and intangible assets. The standard is effective for fi nancial years beginning on or after October 1, 2008
and requires retrospective application to prior period fi nancial statements. The Company is presently evaluating
the impact of this new standard.
Capital Stock Information
AUTHORIZED
The authorized share capital of the Company consists of an unlimited number of subordinate voting shares,
twenty million (20,000,000) multiple voting shares, and an unlimited number of preferred shares that can be
issued in series.
ISSUED AND OUTSTANDING
The following details the issued and outstanding equity securities of the Company:
SUBORDINATED VOTING SHARES AND MULTIPLE VOTING SHARES
As at December 31, 2007 the capital stock issued and outstanding consisted of 263,821,962 participating
subordinate voting shares (234,670,814 as at December 31, 2006). The Company has no multiple voting shares
outstanding. All multiple voting shares were converted into subordinate voting shares in 2006.
As at February 21, 2008, the capital stock issued and outstanding consisted of 267,906,893 participating
subordinate voting shares.
SHARE PURCHASE WARRANTS
The following is a summary of the share purchase warrants outstanding as at December 31, 2007:
Issue Date
Expiry Date
Number outstanding
Exercise Price
December 2005
January 2006
December 2006
December 2010
January 2011
December 2009
19,612,618
2,999,394
1,686,187
US $0.300
US $0.300
$0.324
STOCK OPTIONS
As at December 31, 2007, the Company has 5,901,200 stock options outstanding with exercise prices ranging
from $0.31 to $3.00.
Management’s Discussion and Analysis | ProMetic Life Sciences Inc. • 31
Risks and Uncertainties
Until each of the units is independently fi nanced, the success of the Company is dependent on its ability to
support the development of its two operating units and its ability to bring its products to market, obtain the
necessary regulatory approvals, and achieve future profi table operations. This is dependent on the Company’s
ability to obtain adequate fi nancing through a combination of fi nancing activities and operations. It is not possible
to predict either the outcome of future research and development programs nor the Company’s ability, nor its
operating units’ ability, to fund these programs going forward.
Forward-Looking Statements
The information contained in Management’s Discussion and Analysis of Operating Results and Financial
Position contains statements regarding future fi nancial and operating results. It also contains forward-looking
statements with regards to partnerships, joint ventures and agreements and future opportunities based on
these. There are also statements related to the discovery and development of intellectual property as well as
other statements about future expectations, goals and plans. We have attempted to identify these statements
by use of words such as “expect”, “believe”, “anticipate”, “intend”, and other words that denote future events.
These forward-looking statements are subject to material risks and uncertainties that could cause actual results
to differ materially from those in the forward-looking statements. These risks and uncertainties include but are
not limited to the Company’s ability to develop, and successfully manufacture pharmaceutical products, and
to obtain contracts for its products and services and commercial acceptance of advanced affi nity separation
technology. Additional information on risk factors can be found in the Company’s Annual Information Form for
the year ended December 31st, 2007. Shareholders are cautioned that these statements are predictions and
these actual events or results may differ materially from those anticipated in these forward-looking statements.
Any forward-looking statements we may make as of the date hereof are based on assumptions that we believe
to be reasonable as of this date and we undertake no obligation to update these statements as a result of future
events or for any other reason, unless required by applicable securities laws and regulations.
Disclosure Controls and Procedures
Based on an evaluation of the effectiveness of ProMetic’s disclosure controls and procedures, the President and
Chief Executive Offi cer and the Chief Financial Offi cer have concluded that disclosure controls and procedures
were effective as of December 31, 2007 and that their design provides reasonable assurance that material
information relating to ProMetic, including its consolidated subsidiaries, is made known to them by others within
those entities, particularly during the period in which the annual fi lings are being prepared.
32 • ProMetic Life Sciences Inc. | AR 2007
Summary of Quarterly Results
The following unaudited quarterly information is presented in millions of Canadian dollars except for per share
amounts:
DECEMBER 31
SEPTEMBER 30
JUNE 30
1.7
5.8
0.02
0.7
7.0
0.03
3.0
4.8
0.02
2007
MARCH 31
3.0
4.7
0.02
DECEMBER 31
SEPTEMBER 30
JUNE 30
1.1
9.9
0.06
0.4
7.0
0.04
0.6
7.1
0.05
2006
MARCH 31
0.5
6.3
0.05
260
239
235
235
167
160
138
130
Revenues
Net loss
Net loss per share
Weighted average
number of
outstanding
shares
Fourth Quarter
The following information is a summary of selected unaudited consolidated fi nancial information of the Company
for the three-month periods ended December 31, 2007 and 2006.
(in thousands of Canadian dollars)
Revenues
Operating expenses
Operating loss
Payable related to a lawsuit
Recover/(Write-down) of investments
Loss on asset disposal
Net interest expenses
Net loss
2007
1,722
6,909
5,187
196
–
85
413
5,881
2006
1,105
7,649
6,544
43
(153)
–
3,514
9,948
Revenues are higher during the fourth quarter of 2007 compared to 2006. The increase is related to the fees
for the development phase of the Instituto de Tecnologia do Parana (Tecpar) and the execution of the Kedrion
program related to the plasma purifi cation technology.
Operating expenses are lower in the fourth quarter of 2007 compared to the same period in 2006. The variance is
caused by the lower expenditures related to the Pathogen Removal and Diagnostic Technologies (“PRDT”) in this
quarter. In the fourth quarter of 2006, PRDT initiated its clinical trials program which was successfully completed
in 2007.
The net loss decreased signifi cantly because of the interest charges related to the repayment of the convertible
note which was recorded in the fourth quarter of 2006 and the increase in revenues during the fourth quarter.
Cash outfl ows from operating activities were $5.6 million in the fourth compared to $9.6 million for the same
period in 2006. The decrease is mainly attributed to the fourth quarter 2006 interest expenses related to a
convertible note.
Cash infl ows from fi nancing activities of $1.2 million were lower in the fourth quarter of 2007 compared
to 2006 which were $24.4 million. This is mainly explained by the issuance of shares involving US and Canadian
institutional investors for gross proceeds of $17.1 million in December 2006.
Consolidated Financial Statements | ProMetic Life Sciences Inc. • 33
Consolidated
Financial
Statements
of ProMetic Life Sciences Inc.
Years ended December 31, 2007 and 2006
34 • ProMetic Life Sciences Inc. | AR 2007
Management Report
The accompanying consolidated fi nancial statements for ProMetic Life Sciences Inc. are management’s responsibility
and have been approved by the ProMetic Board of Directors. These fi nancial statements were prepared in accordance
with Canadian generally accepted accounting principles. They include some amounts that are based on estimates and
judgments. The fi nancial information contained elsewhere in the annual report is consistent with those obtained in the
fi nancial statements.
To ensure the accuracy and the objectivity of the information contained in the fi nancial 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 fi nancial documents are reliable and provide an adequate basis for the
fi nancial statements, and that the Company’s assets are properly accounted for and safe-guarded.
The Board of Directors upholds its responsibility for the fi nancial statements in this annual report primarily through
its audit committee. The audit committee is made up of independent directors who review the Company’s annual
consolidated fi nancial statements, as well as management’s discussion and analysis of operating results and fi nancial
position, and recommend their approval by the Board. Raymond Chabot Grant Thornton LLP, Chartered Accountants,
the external auditors designated by the shareholders, periodically meet with the audit committee to discuss auditing,
the reporting of fi nancial information and other related subjects.
Pierre Laurin
Chairman of the Board,
President and Chief Executive Offi cer
Stéphane Archambault
Stéphane Archambault
Chief Financial Offi cer
Montreal, Canada
February 21, 2008
Auditors’ Report
To the shareholders
We have audited the consolidated balance sheets of ProMetic Life Sciences Inc. as at December 31, 2007 and 2006
and the consolidated statements of operations and comprehensive income, defi cit, contributed surplus and cash
fl ows for the years then ended. These fi nancial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these fi nancial 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 fi nancial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the fi nancial statements. An audit also includes assessing the accounting principles used and
signifi cant estimates made by management, as well as evaluating the overall fi nancial statement presentation.
In our opinion, these consolidated fi nancial statements present fairly, in all material respects, the fi nancial position
of the Company as at December 31, 2007 and 2006, and the results of its operations and its cash fl ows for the years
then ended in accordance with Canadian generally accepted accounting principles.
Chartered accountants
Montreal, Canada
February 21, 2008
Consolidated Financial Statements | ProMetic Life Sciences Inc. • 35
Consolidated Balance Sheets
(In thousands of Canadian dollars)
December 31,
Assets
Current assets
Cash and cash equivalents
Accounts receivable (note 4)
Inventories (note 5)
Prepaid expenses
Investments (note 6)
Capital assets (note 7)
Licenses and patents (note 8)
Deferred fi nancing expenses
Liabilities
Current liabilities
Bank loan (note 9)
Accounts payable and accrued liabilities
Payable related to a lawsuit (note 10)
Deferred revenues
Current portion of long-term debt
Long-term debt (note 11)
Preferred shares, retractable at the holder's option (note 6b)
Shareholders' equity
Share capital (note 12)
Contributed surplus
Defi cit
The accompanying notes are an integral part of the consolidated fi nancial statements.
2007
2006
$ 2,163
3,349
2,233
578
8,323
2,682
3,425
4,957
–
$ 19,387
$
205
4,657
1,910
1,560
3,358
11,690
3,141
3,053
17,884
192,225
6,753
(197,475)
1,503
$ 19,387
$ 20,825
2,298
2,223
647
25,993
2,224
4,484
5,442
2,584
$ 40,727
$
–
5,696
3,084
2,199
2,678
13,657
8,899
2,916
25,472
181,412
8,022
(174,179)
15,255
$ 40,727
36 • ProMetic Life Sciences Inc. | AR 2007
Consolidated Statements of Operations
and Comprehensive Income
(In thousands of Canadian dollars except for per share amounts)
Years ended December 31,
Revenues
Sales and contract
Licensing
Other revenues
Charges
Research and development expenses and costs of good sold
Administration and marketing expenses
Loss (gain) on exchange rate
Amortization of capital assets
Amortization of license and patents and deferred development costs
Loss before the following items
Interests and penalties related to a lawsuit (note 10)
Loss on disposal of capital asset
Recovery of long-term investment
Net interest expenses
Net loss and comprehensive income
Net loss per share (basic and diluted)
Weighted average number of outstanding shares (in thousands)
For supplemental operations information see note 13
The accompanying notes are an integral part of the consolidated fi nancial statements.
Consolidated Statements of Defi cit
(In thousands of Canadian dollars)
Years ended December 31,
Defi cit, beginning of the year
Net Loss
Share issue expenses
Defi cit, end of year
The accompanying notes are an integral part of the consolidated fi nancial statements.
2007
2006
$ 8,204
138
94
8,436
19,092
6,606
(798)
1,607
1,385
27,892
(19,456)
(326)
(85)
–
(2,475)
$ (22,342)
(0.09)
242,321
$ 2,605
42
–
2,647
15,288
7,598
403
1,040
1,204
25,533
(22,886)
(163)
–
153
(7,563)
$ (30,459)
(0.20)
148,621
2007
2006
$ 174,179
22,342
954
$ 197,475
$ 142,773
30,459
947
$ 174,179
Consolidated Financial Statements | ProMetic Life Sciences Inc. • 37
Consolidated Statement of Contributed Surplus
(In thousands of Canadian dollars)
Years ended December 31, 2007 and 2006
Stock-based
compensation
Warrants
Other
Total
contributed
surplus
Contributed surplus, as at December 31, 2005
$
258
$ 3,166
$ 2,505
$ 5,929
Stock-based compensation
Term Notes
Issuance
Conversion
Issuance of warrants as fi nancing expenses
Contributed surplus, as at December 31, 2006
Stock-based compensation
Exercise of options
Exercise of warrants
Contributed surplus, as at December 31, 2007
142
–
–
–
400
367
(10)
–
757
$
$
–
–
142
401
–
1,919
$ 5,486
–
–
(1,626)
$ 3,860
429
(798)
–
$ 2,136
–
–
–
$ 2,136
830
(798)
1,919
$ 8,022
367
(10)
(1,626)
$ 6,753
The accompanying notes are an integral part of the consolidated fi nancial statements.
38 • ProMetic Life Sciences Inc. | AR 2007
Consolidated Statements of Cash Flows
(In thousands of Canadian dollars)
Years ended December 31,
Cash fl ows used in operating activities
Net loss and comprehensive income
Adjustments to reconcile net loss to cash fl ows used in operating activities
2007
2006
$ (22,342)
$ (30,459)
Charges paid with PRDT shares
Charges paid with shares
Interests on long-term debt
Interests on convertible term notes
Stock-based compensation
Unrealized loss (gain) on exchange rate
Amortization of capital assets
Amortization of deferred development costs
Amortization of licenses and patents
Amortization of deferred fi nancing expenses
Loss on disposal of capital asset
Change in working capital items (note 18)
Cash fl ows from fi nancing activities
Proceeds from share issues
Share issue expenses
Deferred fi nancing expenses
Issuance of convertible term notes
Repayment of convertible term notes
Bank loan
Repayment of bank loan
Long-term debt
Repayment of long-term debt
Cash fl ows used in investing activities
Acquisition of an investment
Additions to capital assets
Additions to licenses and patents
Net increase (decrease) in cash and cash equivalents
Net effect of currency exchange rate on cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
For supplemental cash fl ow information, see note 18
The accompanying notes are an integral part of the consolidated fi nancial statements.
–
139
1,215
–
367
(313)
1,607
–
1,385
–
85
(17,857)
(4,160)
(22,017)
9,037
(1,043)
–
–
–
650
(445)
22
(2,354)
5,867
(147)
(622)
(518)
(1,287)
(17,436)
(1,226)
20,825
$ 2,163
1,276
–
–
794
142
512
1,040
43
1,150
750
–
(24,752)
2,068
(22,684)
27,945
(949)
(62)
1,513
(3,640)
–
(1,029)
11,512
(348)
34,942
–
(267)
(1,582)
(1,849)
10,409
(109)
10,525
$ 20,825
Notes to Consolidated Financial Statements | ProMetic Life Sciences Inc. • 39
(In thousands of Canadian dollars except for number of shares or as otherwise specifi ed)
Years ended December 31, 2007 and 2006
Note 1.
GOVERNING STATUTES, NATURE OF OPERATIONS AND GOING CONCERN
ProMetic Life Sciences Inc.(“ProMetic” or the “Company”), incorporated under the Canada Business Corporations
Act, 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. The Company owns
proprietary technology essential for use in the large-scale purifi cation of drugs, genomics and proteomics products
as well as medical and therapeutic applications.
These fi nancial statements have been prepared on a going concern basis which assumes that the Company will
continue in operation for the foreseeable future and accordingly will be able to realize its assets and discharge
its liabilities in the normal course of operations. Since inception, the Company has concentrated its resources
on research and development. It has had no net earnings, minimal revenues, negative operating cash fl ows and
has fi nanced its activities through the issuance of shares. The Company’s ability to continue as a going concern
is dependent on obtaining additional investment capital and the achievement of profi table operations. There
can be no assurance that the Company will be successful in increasing revenue or raising additional investment
capital to generate suffi cient cash fl ows to continue as a going concern. These fi nancial statements do not refl ect
the adjustments that might be necessary to the carrying amount of reported assets, liabilities and revenues
and expenses and the balance sheet classifi cation used if the Company were unable to continue operations in
accordance with this assumption.
Note 2.
CHANGES IN ACCOUNTING POLICIES
a)
New accounting standards
Accounting change
On January 1, 2007, in accordance with the applicable transitional provisions, the Company applied the
recommendations of new Section 1506, “Accounting Changes”, of the Canadian Institute of Chartered
Accountants’ Handbook. This new section, effective for the years beginning on or after January 1, 2007,
prescribes the criteria for changing accounting policies, together with the accounting treatment and
disclosure of changes in accounting policies, changes in accounting estimates and corrections of errors.
Furthermore, the new standard requires the communication of the new primary sources of GAAP that are
issued but not yet effective or not yet adopted by the Company. The new standard has no impact on the
Company’s fi nancial results.
Financial instruments:
On January 1, 2007, in accordance with the applicable transitional provisions, the Company adopted the
new recommendations in Section 3855, “Financial Instruments – Recognition and Measurement”, 1530,
“Comprehensive Income”, 3861, “Financial Instruments – Disclosure and Presentation”, and 3251, “Equity”,
of the Canadian Institute of Chartered Accountants’ Handbook.
40 • ProMetic Life Sciences Inc. | AR 2007
Years ended December 31, 2007 and 2006
(In thousands of Canadian dollars except for number of shares or as otherwise specifi ed)
Note 2. Changes in accounting policies (cont.)
Sections 3855 and 3861 deal with the recognition, measurement, presentation and disclosure of fi nancial
instruments and non-fi nancial derivatives in the fi nancial statements. The transitional provisions of these
sections require that the Company remeasure the fi nancial assets and liabilities as appropriate at the
beginning of its fi nancial year. Any adjustment of the previous carrying amount is recognized as an adjustment
of the balance of retained earnings at the beginning of the fi nancial year of initial application or as an
adjustment of the opening balance of a separate component of accumulated other comprehensive income,
as appropriate. The fi nancial statements of prior fi nancial years are not restated.
Section 1530 establishes standards for reporting and display of comprehensive income. Section 3251
establishes standards for the presentation of equity and changes in equity during the reporting fi nancial year.
Pursuant to the transitional provisions of these sections, the Company’s fi nancial statements of prior years
are not restated.
Adoption of these new recommendations had the following impacts on the classifi cation and measurement
of the Company’s fi nancial instruments:
•
•
•
•
•
•
•
•
Cash and cash equivalents and cash subject to certain limitations are classifi ed as held-for-trading
fi nancial assets. They are measured at fair value and changes in fair value are recognized in consolidated
net earnings. This change had no signifi cant impact on the fi nancial statement as at December 31, 2007.
Accounts receivable are classifi ed as loans and receivables. They are measured at amortized cost, which
is generally the amount on initial recognition less an allowance for doubtful accounts. This change had
no signifi cant impact on the fi nancial statement as at December 31, 2007.
The guaranteed investment certifi cates are classifi ed as held-to-maturity since the Company has the
intention and the capacity to keep these assets until their expiration. These investments are measured at
amortized cost using the effective interest method. This change had no signifi cant impact on the fi nancial
statement as at December 31, 2007.
The convertible preferred shares of AM-Pharma Holding B.V., a private company, are classifi ed as
available-for-sale and they are measured at cost. This change had no signifi cant impact on the fi nancial
statement as at December 31, 2007.
The excess of interest in the joint venture Pathogen Removal and Diagnostic Technologies Inc. is
classifi ed as loans and receivables and is measured at amortized cost using the effective interest method.
This change had no signifi cant impact on the fi nancial statement as at December 31, 2007.
Bank loan, accounts payable and accrued liabilities are classifi ed as other fi nancial liabilities. They are
measured at amortized cost using the effective interest method. This change had no signifi cant impact
on the fi nancial statement as at December 31, 2007.
Long-term debt is classifi ed as other fi nancial liabilities. It is measured at amortized cost, using the
effective interest method. Financing costs are now applied against long-term debt. As at January 1, 2007
this change led to a decrease in deferred fi nancing costs of $2,584 and long-term debt of $2,584.
The preferred shares retractable at the holder’s option are classifi ed as other fi nancial liabilities and are
measured at amortized cost using the effective interest method. This change had no signifi cant impact
on the fi nancial statement as at December 31, 2007.
Notes to Consolidated Financial Statements | ProMetic Life Sciences Inc. • 41
(In thousands of Canadian dollars except for number of shares or as otherwise specifi ed)
Years ended December 31, 2007 and 2006
Note 2. Changes in accounting policies (cont.)
b)
Future accounting changes
Going Concern – Inclusion of guidelines in Section 1400, “General Standards of fi nancial
statement presentation"
In June 2007, the Canadian Institute of Chartered Accountants modifi ed Section 1400, “General Standards
of Financial Statement Presentation”, in order to require that management make an assessment of the
Company’s ability to continue as a going concern over a period which is at least, but is not limited to, twelve
months from the balance sheet date. These new requirements are effective for fi nancial years beginning on
or after January 1, 2008 and the Company will implement them as of January 1, 2008. The new requirements
only address disclosures and will have no impact on the Company’s fi nancial results.
Capital disclosures
In December 2006, the Canadian lnstitute of Chartered Accountants published new Section 1535, “Capital
Disclosures”. The new section establishes standards for disclosing information about an entity’s capital
and how it is managed. This new standard is effective for fi nancial years beginning on or after October 1,
2007 and the Company will implement it as of January 1, 2008. The new accounting standard only addresses
disclosures and will have no impact on the Company’s fi nancial results.
Inventories
In June 2007, the Canadian Institute of Chartered Accountants published Section 3031, “Inventories”, which
replaces Section 3030 of the same title. The new section provides guidance on the determination of cost and
its subsequent recognition as an expense, including any write-down to net realizable value. It also provides
guidance on the cost formulas that are used to assign costs to inventories.
The changes to this section affect the following, in particular:
•
•
•
•
Certain costs, such as storage costs and general and administrative expenses that do not contribute to
bringing the inventories to their present location and condition, are precisely excluded from the cost of
inventories and expensed during the year in which they are incurred;
The reversal of the write-down to net realization value amounts when there is a subsequent increase in
the value of the inventories is now required;
The valuation of inventory at the lower of cost and replacement cost is no longer allowed;
The new standard also requires additional disclosures.
This new standard is effective for fi nancial years beginning on or after January 1, 2008 and the Company
will implement it as of January 1, 2008. The Company’s management is not able to measure the impact that
application of this new standard will have on the fi nancial statements.
Section 3862, Financial Instruments Disclosures, Section 3863, Financial Instruments Presentation
These sections will replace Section 3861, Financial Instruments Disclosure and Presentation, revising and
enhancing disclosure requirements while carrying forward its presentation requirements. These new sections
will place increased emphasis on disclosure about the nature and extent of risk arising from fi nancial
instruments and how the entity manages those risks. The mandatory effective date is for annual and interim
periods in fi nancial years beginning on or after October 1, 2007. The Company will begin application of these
sections effective January 1, 2008. It is not anticipated that the adoption of these new accounting standards
will impact the amounts reported in the Company’s consolidated fi nancial statements as they relate primarily
to disclosure.
Section 3064, Goodwill and intangible assets
This new standard provides guidance over the recognition, measurement, presentation and disclosure of
goodwill and intangible assets. The standard is effective for fi nancial years beginning on or after October 1,
2008 and requires retrospective application to prior period fi nancial statements. The Company is presently
evaluating the impact of this new standard.
42 • ProMetic Life Sciences Inc. | AR 2007
Years ended December 31, 2007 and 2006
(In thousands of Canadian dollars except for number of shares or as otherwise specifi ed)
Note 3.
SIGNIFICANT ACCOUNTING POLICIES
These consolidated fi nancial statements have been prepared in accordance with Canadian generally accepted
accounting principles (“GAAP”). Signifi cant accounting polices are described below.
a)
b)
c)
d)
e)
Use of estimates:
The preparation of fi nancial statements in accordance with Canadian GAAP 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 fi nancial statements and the reported amounts of revenues
and expenses during the year. Signifi cant items for which management must make estimates relate to the
valuation and assessment of recoverability of the investments, licenses and patents and tax credits and
calculation of stock-based compensation. Reported amounts and note disclosure refl ect 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.
Basis of consolidation:
The consolidated fi nancial statements include the accounts of ProMetic Life Sciences Inc., of its subsidiaries
ProMetic BioSciences Inc., ProMetic BioSciences (USA), Inc., ProMetic BioSciences Ltd., ProMetic
BioTherapeutics Inc., ProMetic Manufacturing Inc. as well as those of the two joint ventures Arriva-Prometic
Inc. and Pathogen Removal and Diagnostic Technologies Inc. (hereinafter referred to as “A-P” and “PRDT”),
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 signifi cant intercompany
transactions and balances have been eliminated.
Cash and cash equivalents:
Cash and cash equivalents are bank deposits and highly liquid investments purchased with a maturity of three
months or less.
Inventories:
Inventories of work in progress and fi nished goods are valued at the lower of cost and net realizable value,
whereas inventories of raw materials are valued at the lower of cost and replacement cost. Cost is determined
on a fi rst in, fi rst out basis.
Investments:
When, in management’s opinion, there has been a loss in value of an investment that is other than a
temporary decline, the investment is written down to recognize the loss. 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.
f)
Capital assets:
Capital assets are recorded at cost. Amortization is provided over the useful lives of capital assets using the
following method, annual rates and period:
Asset
Leasehold improvements
Equipment tools
Offi ce equipment and furniture
Computer equipment
Method
Straight-line
Declining balance
Declining balance
Declining balance
Rate/period
Lease term
20%
20%
30%
Notes to Consolidated Financial Statements | ProMetic Life Sciences Inc. • 43
(In thousands of Canadian dollars except for number of shares or as otherwise specifi ed)
Years ended December 31, 2007 and 2006
Note 3. Signifi cant accounting policies (cont.)
g)
h)
i)
j)
Government grants:
Government grants on capital expenditures are credited to capital assets and are amortized over the expected
life of the relevant assets. Grants receivable in connection with operating expenditures are credited to the
consolidated statement of operations in the period in which the expenditures take place.
Licenses and patents:
Licenses and patents include acquired rights as well as licensing fees for product manufacturing and
marketing. Amortization is provided over the useful lives of the licenses and patents acquired using the
straight-line method ranging up to 20 years. Management reviews the valuation and amortization of licenses
and patents on an ongoing basis, taking into consideration any events and circumstances which may
impair their value. The Company assesses impairment in a two-step process for fi rst determining when
an impairment loss is recognized and then measuring that loss.
Research and development:
Research expenditures (net of related tax credits) are expensed as incurred and include a reasonable
allocation of overhead expenses. Development expenditures (net of related tax credits) are deferred when
they meet the criteria for capitalization in accordance with Canadian GAAP, and the future benefi ts could
be regarded as being reasonably certain. Related tax credits are accounted for as a reduction to research
and development expenditures on condition that the company is reasonably certain that these credits will
materialize. During fi scal years ended December 31, 2007 and 2006, no development costs were deferred.
Revenue recognition:
The Company earns revenue from research and development collaboration services, licensing fees and
products sales. Payments received under collaborative research and development agreements, which are
non-refundable, are recorded as revenue as services are performed and the related expenditures incurred
pursuant to the terms of the agreement and provided collectibility is reasonably assured. Non-refundable
up-front license fees from collaborative licensing and development arrangements are recognized as the
Company fulfi lls its obligations related to the various elements within the agreements, in accordance with
the contractual arrangements with third parties and the term over which the underlying benefi t has been
conferred.
Revenues associated with multiple element arrangements are attributed to the various elements based on
their relative fair value. Any up-front license payments received under an agreement whereby the Company
also provides research and development services are recognized as revenue over the term of the research
and development period. Revenue earned under contractual arrangements upon the occurrence of specifi ed
milestones is recognized as the milestones are achieved and collection of payment is reasonably assured.
When the arrangements cannot be divided into separate units of accountings, the arrangements are
considered arrangements with a single deliverable. Revenue with arrangements with a single deliverable
are recognized using the percentage of completion method. Under this method, revenues and profi ts are
recognized proportionally with the degree of completion of the services under the contract.
Revenue from product sales is recognized when the following criteria are met: i) there is persuasive
evidence that an arrangement exists; ii) products are shipped; iii) the selling price is fi xed or determinable;
iv) collectibility is reasonably assured. Cash or other compensation received in advance of meeting the revenue
recognition criteria is recorded as deferred revenue on the consolidated balance sheet.
As at December 2007, all multiple element arrangements could not be divided into separate units of
accountings.
44 • ProMetic Life Sciences Inc. | AR 2007
Years ended December 31, 2007 and 2006
(In thousands of Canadian dollars except for number of shares or as otherwise specifi ed)
Note 3. Signifi cant accounting policies (cont.)
k)
l)
m)
n)
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 consolidated statement of operations.
Income taxes:
The Company uses the 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
fi nancial statement carrying values of existing assets and liabilities and their respective income tax bases.
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. Future income tax assets are recognized and a valuation allowance is
provided if realization is not considered “more likely than not”.
Stock-based compensation:
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 that have been awarded on or after
January 1, 2002. The stock-based compensation to employees is measured at the grant date based on the
fair value of the award and is recognized over the related service period.
Earnings per share:
Basic net loss per share is calculated using the weighted average number of common shares outstanding
during the year. Diluted net loss per share is calculated using the treasury stock method giving effect to
the exercise of options and warrants. The treasury stock method assumes that any proceeds that could be
obtained upon the exercise of options and warrants would be used to repurchase common shares at the
average market price during the year. The diluted net loss per share is equal to the basic loss per share due
to the anti-dilution effect of stock options and warrants described in Note 12, and convertible term notes
which were fully repaid or converted as at December 31, 2006.
o)
Share issue expenses:
The company records share issue expenses in the consolidated statement of defi cit.
Notes to Consolidated Financial Statements | ProMetic Life Sciences Inc. • 45
(In thousands of Canadian dollars except for number of shares or as otherwise specifi ed)
Years ended December 31, 2007 and 2006
Note 4.
ACCOUNTS RECEIVABLE
Trade*
Sales taxes receivable
Tax credits receivable (note 9)
Advance to an offi cer, without interest
Other
2007
2006
$ 1,715
162
1,056
36
380
$ 3,349
$ 1,143
201
710
6
238
$ 2,298
*
The trade accounts include amounts receivable from three customers, which represent approximately 65% (34%, 14% and 17% respectively)
of the Company’s total trade accounts receivable in 2007 and two customers representing approximately 53% (27% and 26% respectively)
of total trade receivable in 2006.
Note 5.
INVENTORIES
Raw materials
Work in progress and fi nished goods
2007
2006
$ 349
1,884
$ 2,233
$ 440
1,783
$ 2,223
46 • ProMetic Life Sciences Inc. | AR 2007
Years ended December 31, 2007 and 2006
(In thousands of Canadian dollars except for number of shares or as otherwise specifi ed)
Note 6.
INVESTMENTS
Cash subject to certain limitations
Guaranteed investment certifi cates, 3.5% and 4.4%, expiring in
June 2008, pledged as security of letters of credit to suppliers
expiring in November 2010 and October 2012
Convertible preferred shares of AM-Pharma Holding B.V.
Excess of interest in the joint venture PRDT over
proportionate share in consolidated net assets
2007
2006
$
76
$
83
329
358
200
358
1,920
$ 2,682
1,583
$ 2,224
The consolidated fi nancial statements include the Company’s proportionate share of the revenues, expenses,
assets and liabilities of PRDT and of A-P as follows:
Current assets
Long-term assets
Total liabilities
Total revenues
Total expenses
Net loss
Cash fl ows from:
Operations
Investing
PRDT (a)
A-P (note 8b)
2007
TOTAL
2006
Total
–
$
1,920
3,053 (b)
24
3,704
3,680
$
–
–
$ 1
-
4
-
914
914
$ (73)
9
1
$
1,920
3,057
24
4,618
4,594
$
(73)
9
2
$
2,480
2,920
346
3,878
3,532
$
(11)
34
a)
The Company has a 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 are
issued by PRDT to the Company and to the American Red Cross in consideration of their proportionate share
in direct and indirect costs. The shares received by the Company are presented as excess of the interest in the
joint venture PRDT over proportionate share in consolidated net assets.
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 suffi cient cash fl ows, 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 recognize 26% of the
shares issued to the American Red Cross as a debt to a third party.
Notes to Consolidated Financial Statements | ProMetic Life Sciences Inc. • 47
(In thousands of Canadian dollars except for number of shares or as otherwise specifi ed)
Years ended December 31, 2007 and 2006
Note 7.
CAPITAL ASSETS
Leasehold improvements
Equipment and tools
Offi ce equipment and furniture
Computer equipment
Accumulated amortization
Net book value
2007
ACCUMULATED
AMORTIZATION
COST
2006
Accumulated
amortization
Cost
$ 2,157
4,348
470
806
7,781
$
3,346
6,016
688
1,156
11,206
7,781
$ 3,425
$ 3,357
6,121
700
1,057
11,235
6,751
$ 4,484
$ 1,250
4,345
416
740
6,751
Deferred capital grants for a total of $191 in 2007 and of $67 in 2006 received from the Isle of Man government are
credited to the cost of capital assets (see note 20).
Note 8.
LICENSES AND PATENTS
Licenses
Patents
Accumulated amortization
Net book value
2007
ACCUMULATED
AMORTIZATION
COST
2006
Accumulated
amortization
Cost
$ 4,627
420
5,047
$ 7,268
2,736
10,004
5,047
4,957
$
$ 7,159
2,066
9,225
3,783
$ 5,442
$ 3,439
344
3,783
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 Cambridge University’s Institute of Biotechnology in consideration of the payment of continuing
royalties; the others having been developed by the Company.
48 • ProMetic Life Sciences Inc. | AR 2007
Years ended December 31, 2007 and 2006
(In thousands of Canadian dollars except for number of shares or as otherwise specifi ed)
Note 8. Licenses and patents (cont.)
b)
As of April 13, 1999, through its subsidiary, ProMetic Biosciences Inc., the Company entered into a
50-50 joint venture, Arriva-Prometic Inc., with Arriva Pharmaceuticals, Inc. (“Arriva”) for the development
of applications relating to serine protease inhibitors as a platform for various pharmaceutical products
for dermatological (eczema, psoriasis, genital herpes) and gastrointestinal (Crohn’s disease, irritable
bowel syndrome) treatments and urinary tract indications. The fi rst serine protease inhibitor pursued
is recombinant alpha 1-antitrypsin (“rAAT”), a compound produced in genetically-engineered yeast cells.
Arriva has granted 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™ purifi cation 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 $4,000,000 of which US $17,000 has been contributed in 2007 for a total of US $3,945,000 and
US $3,928,000 in 2006. The Company will progressively record 50% of its US $4,000,000 contribution as
intellectual property. In 2007, the Company recorded an amount of $9 as intellectual property, $34 in 2006
for a total of $2,733 in 2007 and of $2,724 in 2006.
On June 6, 2002, the Company acquired for $400 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.
The purpose of the strategic alliance between the Company and the American Red Cross signed in
January 2003 is to co-develop the Plasma Protein Purifi cation Scheme (“PPPS”) process and license to third
parties proprietary technology for the recovery and purifi cation of valuable therapeutic proteins from human
blood plasma. The PPPS process integrates novel technologies in a sequence that is expected to signifi cantly
improve both the yield and range of valuable proteins capable of being isolated from human plasma.
In April 2006, the Company paid the American Red Cross US $1,000,000 for an exclusive license for access to
and use of intellectual property rights for PPPS project. ProMetic will be collecting revenues deriving from any
licensing activities, such as royalties on net sales, lump sum amounts and/or milestone payments. ProMetic
will pay a royalty to the American Red Cross of 12% of all sales products to third parties. Also, every year, an
annual minimum royalty of US $30,000 is payable.
An offi cer is entitled to receive royalties based on the sales of certain products submitted to ProMetic before
joining the Company. These royalties are 0.5% of net sales or 3% of revenues received by the Company.
This employee also has the exclusive right to commercialize these products should ProMetic decide to stop
developing and (or) commercializing them, subject to mutually acceptable terms and conditions.
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.
c)
d)
e)
f)
Notes to Consolidated Financial Statements | ProMetic Life Sciences Inc. • 49
(In thousands of Canadian dollars except for number of shares or as otherwise specifi ed)
Years ended December 31, 2007 and 2006
Note 9.
BANK LOAN
Bank loan for an authorized amount of $650 related to research and development
tax credits and secured by a hypothec in the amount of $750 on all present and futur
research and development tax credit bearing interests at prime plus 2% (8% as at
December 31, 2007) and repayable upon receipt of tax credits.(a)
$
205
$
–
(a) Subsequently to year-end, the bank loan was renegotiated to an authorized amount of $915
2007
2006
Note 10.
PAYABLE RELATED TO A LAWSUIT
On October 22, 2007, the Quebec Court of Appeal dismissed ProMetic’s appeal of the judgment issued in
December 2004 by the Superior Court of Quebec, in favor of the Bank of Montreal (“BMO”) against ProMetic.
Subsequently, ProMetic has entered into an agreement with BMO pursuant to which ProMetic shall reimburse
its total obligation of $3,500 to BMO via installments extending into the second quarter of 2008.
As at December 31, 2007, $1,500 has been paid.
ProMetic shall pay the totality of the payable related to a lawsuit to BMO 10 days following the reception of a public
offering superior to $6,000.
A legal hypothec in the amount of $2,762 (with interests and additional indemnity as provided for by law) resulting
from the December 2004 judgment, was registered on December 23, 2004 in favor of Bank of Montreal and
charging certain movable assets of ProMetic Life Sciences Inc. (“PLI”), including shares held by it in the share
capital of all its subsidiaries, as well as in PRDT, and any sums lent to such entities by PLI.
Further, on January 29, 2008, conventional hypothecs in the amount of $2,600 resulting from the above mentioned
agreement reached with BMO, were consented by each of PLI and Prometic Biosciences inc. (“PBI”) in favor of
Bank of Montreal and charging certain movable assets of PLI and PBI.
50 • ProMetic Life Sciences Inc. | AR 2007
Years ended December 31, 2007 and 2006
(In thousands of Canadian dollars except for number of shares or as otherwise specifi ed)
Note 11.
LONG-TERM DEBT
CURRENT
PORTION
2007
2006
Loans with a nominal value of US$ 10,000,000, and US$ 600,000
guaranteed by all assets of the Company, bearing interest at 15.034%
and 15% respectively (effective rate of 42.45% as at December 31,
2007; 32.75%), payable with monthly instalments of US$ 433,250
and US$ 27,730, maturing in August 2009.(a)
$ 3,348
$ 6,462
$ 11,512
Loan, 9.5%
–
–
43
Obligations under capital leases payable in
monthly instalments of $1, maturing in
December 2008 and December 2010.
Current portion of long term debt
The instalments on the long-term debt for the next years are as follows:
Year ending December 31:
2008
2009
2010
2011
2012
10
37
22
3,358
6,499
11,577
3,358
3,141
$
2,678
$ 8,899
Total
$ 3,358
3,123
10
4
4
In 2006, the Company issued convertible term notes with a principal amount of US$ 1,634,000 ($1.905) for a total cash
consideration of US$ 1,302,000 ($1.513). As of December 31, 2006 the term notes were fully repaid or converted.
The fair value of long-term debt, including the current portion thereof, is between US$ 6,829,000 and
(a)
US$ 7,029,000. To determine the range of amounts for fair value, the Company discounted expected future cash
fl ows in accordance with the loan contracts in effect using rates which the Company could use at the balance sheet
date for loans with similar terms and conditions and maturity dates.
Notes to Consolidated Financial Statements | ProMetic Life Sciences Inc. • 51
(In thousands of Canadian dollars except for number of shares or as otherwise specifi ed)
Years ended December 31, 2007 and 2006
Note 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.
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, redeemable for cash or convertible into
subordinate voting shares, 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 cash dividend of 12% per year, calculated monthly and payable quarterly.
950,000 preferred shares, series B, non-participating, non-voting, redeemable for cash or convertible into
subordinate voting shares, 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 cash dividend of 12% per year, calculated monthly and payable quarterly.
Issued and fully paid
Subordinate voting shares
Share purchase loan to an offi cer, without
interest and due no later than 2009
Balance at end of year
NUMBER
2007
AMOUNT
Number
2006
Amount
263,821,962
$ 192,675
234,670,814
$ 181,862
(450)
$ 192,225
(450)
$ 181,412
52 • ProMetic Life Sciences Inc. | AR 2007
Years ended December 31, 2007 and 2006
(In thousands of Canadian dollars except for number of shares or as otherwise specifi ed)
Note 12. Share capital (cont.)
a)
Share issue:
Changes in the issued and outstanding subordinate voting shares were as follows:
Balance, at beginning of year
234,670,814
$ 181,862
116,501,784
$ 149,584
NUMBER
2007
AMOUNT
Number
2006
Amount
Shares issued pursuant to:
Conversion of multiple
voting shares
Private offerings
Public offerings
Equity drawdown facility
Conversion of convertible
Notes
Exercise of warrants
Exercise of options
–
3,543,924
18,883,928
610,968
–
6,072,328
40,000
–
13,026,375
1,941
6,609
350
29,600,000
65,137,829
–
1,563
10,804
17,141
–
–
10,404,826
2,770
1,887
26
–
–
–
–
Balance, end of year
263,821,962
$ 192,675
234,670,814
$ 181,862
The private offerings resulted in a cash infl ow of $1,800 (including $1,000 from a company owned by a director)
and $141 in professional services. The public offerings resulted in a cash infl ow of $6,609. The total of the
equity drawdown facility provided a cash infl ow of $350 while the exercise of warrants contributed to $262 in
cash while $1,625 came from the contributed surplus. The exercise of options had a cash infl ow of $16 and the
balance of $10 was removed from the contributed surplus. Related party transactions were measured at the
exchange amount.
During the year 2006, the multiple voting shares were converted to subordinate voting shares on a ratio 1:1.
Also, convertible term notes were converted resulting in $1,972 being transferred from the convertible term
notes and $798 from the contributed surplus.
As at December 31, 2007, the following warrants were outstanding:
Warrants
1,686,187
19,612,618
2,999,394
Expiry date
Exercise price
December 2009
December 2010
January 2011
$0.324
US $0.300
US $0.300
b)
Stock options:
The Company has established a stock option plan for its directors, offi cers and employees or service providers.
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 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 (options vest 20% per annum, after one year following the date they were granted or immediately as they
are granted). The exercise price is based on the average strike price of the fi ve business days prior to the grant.
Notes to Consolidated Financial Statements | ProMetic Life Sciences Inc. • 53
(In thousands of Canadian dollars except for number of shares or as otherwise specifi ed)
Years ended December 31, 2007 and 2006
Note 12. Share capital (cont.)
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, 2005
2006 Granted
Forfeited
Expired
Number of options as at December 31, 2006
2007 Granted
Exercised
Forfeited
Expired
Number of options as at December 31, 2007
Weighted
average
exercise price
per share
OPTIONS
2,997,375
1,896,800
(355,675)
(607,000)
3,931,500
2,181,250
(40,000)
(171,550)
-
5,901,200
$ 1.43
0.34
1.52
1.33
0.91
0.61
0.41
0.88
-
$ 0.80
A compensation expense of $367 in 2007 and $142 in 2006 was recorded as a result of stock options granted to
directors, offi cers, employees and consultants.
The following tables summarize information about stock options outstanding as at December 31, 2007:
RANGE OF
EXERCISE PRICE
NUMBER
OUTSTANDING
0.31 – 0.46
0.50 – 0.64
1.00 – 1.50
1.60 – 2.00
2.70 – 3.00
2,258,250
1,328,750
1,817,500
256,500
240,200
5,901,200
WEIGHTED
AVERAGE
REMAINING
CONTRACTUAL LIFE
(IN YEARS)
3.10
4.68
2.28
1.20
0.97
WEIGHTED
AVERAGE
EXERCISE PRICE
NUMBER
EXERCISABLE
WEIGHTED
AVERAGE
EXERCISE PRICE
0.37
0.59
1.09
1.99
2.76
549,150
250,000
1,817,500
256,500
173,120
3,046,270
0.37
0.50
1.09
1.99
2.79
As at December 31, 2006, 2,156,190 stock options were exercisable.
Weighted average exercise price of the options having an exercise price:
Lower than the market price
Equal to the market price
Higher than the market price
Weighted average fair value of the options having an exercise price:
Lower than the market price
Equal to the market price
Higher than the market price
GRANT DATE
2007
2006
0.46
–
0.68
–
–
0.33
GRANT DATE
2007
2006
0.28
–
0.29
–
–
0.20
54 • ProMetic Life Sciences Inc. | AR 2007
Years ended December 31, 2007 and 2006
(In thousands of Canadian dollars except for number of shares or as otherwise specifi ed)
Note 12. Share capital (cont.)
c)
Stock-based compensation and other stock-based payments:
The Company uses the Black-Scholes option valuation model to calculate the fair value of options at the date
of grant, using the following assumptions:
Risk-free interest rate
Dividend yield
Expected volatility of share price
Expected life
2007
4.02%
0%
76.00%
5 years
2006
4.28%
0%
73.90%
5 years
The estimated fair value of options granted during the year ended December 31, 2007 is $0.29. In 2006, it was
$0.21.
d)
Equity drawdown facility
On December 7, 2007, the Company entered into a securities purchase agreement in respect of an equity
drawdown facility. The facility will terminate in December 2009, and it provides the Company with access to
fi nancing of up to $15,000 in return for the issuance of subordinate voting shares at a discount of 4 to 7 percent
to market price based upon the weighted average price of the subordinate voting shares.
Under the commitment, these resources may be drawn at Company’s sole discretion, with Company
determining the timing, minimum dollar amount and price per share of each draw under this facility, subject
to certain conditions including a market price greater than $0.45.
ProMetic is under no obligation to draw from this Facility and will remain at all times free to enter into other
fi nancing transactions.
As of December 31, 2007, the Company has drawn $350 in cash under the equity drawdown facility.
Note 13.
INFORMATION INCLUDED IN THE CONSOLIDATED STATEMENTS OF OPERATIONS
Amortization of capital assets
Amortization of deferred development costs
Amortization of licenses and patents
Gross research and development expenses
Research and development tax credits
Interest on long term debt and convertible term notes
Interest on bank loan
Interest income
2007
2006
$ 1,607
–
1,385
16,082
(945)
2,771
8
(304)
$ 1,040
43
1,150
15,325
(810)
7,766
92
(295)
Notes to Consolidated Financial Statements | ProMetic Life Sciences Inc. • 55
(In thousands of Canadian dollars except for number of shares or as otherwise specifi ed)
Years ended December 31, 2007 and 2006
Note 14.
COMMITMENTS
The Company has total commitments of $8,426 under various operating leases for the rental of offi ce and
laboratory space and offi ce equipment. The minimum annual payments for the coming years are as follows:
2008
2009
2010
2011
2012
Note 15.
PENSION PLAN
$ 2,422
2,219
1,941
1,141
703
$ 8,426
The Company contributes to a defi ned contribution pension plan for all of its permanent employees. The Company
matches employee contributions representing up to 3% of their annual salary. The Company’s contributions for the
year are $290 ($240 in 2006).
56 • ProMetic Life Sciences Inc. | AR 2007
Years ended December 31, 2007 and 2006
(In thousands of Canadian dollars except for number of shares or as otherwise specifi ed)
Note 16.
FINANCIAL INSTRUMENTS
a)
Fair value:
The carrying value of cash and cash equivalents, accounts receivable, guaranteed investment certifi cate,
cash subject to certain limitations, bank loan, accounts payable and accrued liabilities equals their fair value
because of the near-term maturity of these instruments.
The fair value of the investment AM-Pharma Holding B.V. was not readily determinable because it is a
private company.
The fair value of the excess of the interest in the joint venture PRDT over proportionate share in consolidated
net asset and 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 places its cash and cash equivalents in titles of high quality issued by government agencies
and fi nancial institutions and diversifi es its investment in order to limit its exposure to credit risk.
The fi nancial instruments that potentially expose the Company to credit risk are primarily trade accounts
receivables. The Company reviews a new customer’s credit history before extending credit and conducts
regular reviews of its existing customers’ credit performance.
c)
Foreign exchange risk:
The Company derives a substantial part of its revenues in sterling pounds and the majority of its expenses
that are not denominated in Canadian dollars are incurred in sterling pounds and in United States dollars.
Financial assets, consisting principally of cash and cash equivalents and accounts receivable, denominated
in sterling pounds totaled £405,276 in 2007 and £1,135,806 in 2006 and fi nancial liabilities denominated in
sterling pounds totaled £597,953 in 2007 and £659,538 in 2006.
Financial assets, consisting principally of cash and cash equivalents in United States dollars totaled
US $798,255 in 2007 and US $8,528,000 in 2006. Financial liabilities consisting principally of accounts payable,
accrued liabilities and long-term debt, denominated in United States dollars totaled US $8,216,321 in 2007
and US $10,676,000 in 2006.
The Company does not possess nor issue fi nancial derivative instruments.
d)
Interest risk:
The majority of the Company’s debt is at fi xed rate, there is limited exposure to interest rate risk.
Notes to Consolidated Financial Statements | ProMetic Life Sciences Inc. • 57
(In thousands of Canadian dollars except for number of shares or as otherwise specifi ed)
Years ended December 31, 2007 and 2006
Note 17.
INCOME TAXES
The following table reconciles the differences between the domestic statutory tax rate and the effective tax rate
used by the Company in the determination of the income tax expenses:
Net loss
Basic income tax rate
Computed income tax provision
Decrease (increase) in income taxes resulting from:
Unrecorded potential tax benefi t arising from current period losses
Effect of tax rate differences in foreign subsidiaries
Non–taxable items
Change in tax rate
2007
2006
$ (22,342)
$ (30,459)
32 %
(7,149)
32 %
(9,747)
6,057
1,118
(26)
–
–
$
5,866
3,671
209
1
–
$
Signifi cant components of the Company’s net future income tax balances are as follows:
Future income tax assets (a):
Losses carried forward
Share issue expenses
Unused research and development expenses
Accounts payable and accrued liabilities
Licenses and patents
Deferred revenues
Interest expenses carry forward
Capital assets
Less: valuation allowance
Net future income tax assets
Future income tax liabilities:
Capital assets
Licenses and patents
Net future income tax assets
2007
2006
$ 22,241
731
6,133
418
160
273
1,484
177
31,617
(31,551)
66
$ 13,931
800
5,550
951
–
–
–
141
21,373
(21,066)
307
(66)
–
–
(50)
(257)
–
$
$
In 2006, the income tax assets on cumulative losses for the Isle of Man were decreased to nil following a reduction
(a)
of the tax rate from 10% to 0%. Consequently, the valuation allowance was decreased by a similar amount.
58 • ProMetic Life Sciences Inc. | AR 2007
Years ended December 31, 2007 and 2006
(In thousands of Canadian dollars except for number of shares or as otherwise specifi ed)
Note 17. Income taxes (cont.)
As at December 31, 2007, the Company had available the following deductions, losses and credits:
Research and development expenses,without time limit
$ 16,934
$ 27,705
$
–
Losses carried forward expiring in:
Canada
Federal
Provincial
Foreign
countries
2008
2009
2010
2011
2014
2015
2017
2018
2020
2021
2023
2024
2025
2026
2027
Share issue expenses
Interest deduction carryover
3,976
5,332
5,666
–
2,472
1,128
–
–
–
–
–
–
–
6,458
5,942
2,718
–
$ 33,692
3,880
5,152
5,073
2,079
607
–
–
–
–
–
–
–
5,038
4,477
2,718
–
$ 29,024
–
–
–
228
–
–
986
368
12
503
795
1,171
792
5,672
6,832
–
1,484
$ 18,843
As at December 31, 2007, the Company also had unused federal tax credit available to reduce future Canadian
taxable income in the amount of $4,542 and expiring between 2010 and 2027. Those tax credits have not been
recorded and no future income tax liability has been recorded with respect to those tax credits.
Notes to Consolidated Financial Statements | ProMetic Life Sciences Inc. • 59
(In thousands of Canadian dollars except for number of shares or as otherwise specifi ed)
Years ended December 31, 2007 and 2006
Note 18.
ADDITIONAL INFORMATION ON THE CONSOLIDATED STATEMENT
OF CASH FLOWS:
a)
Change in working capital items:
Accounts receivable
Inventories
Prepaid expenses
Accounts payable and accrued liabilities
Payable related to a lawsuit
Deferred revenue
b) Non-cash transactions:
Unpaid additions to capital assets and licenses and patents
Excess of the interest in the joint venture PRDT over the
proportionate share in the consolidated net assets
Preferred shares retractable at the holder’s option
Unpaid share issue expenses
Unpaid deferred fi nancing expenses
Unpaid interest related to the long-term debt
c)
Other cash fl ow information:
Interest paid
Interest earned
2007
2006
$
$
(1,137)
(205)
13
(1,209)
(1,174)
(448)
(4,160)
$
$
520
(288)
(129)
(397)
163
2,199
2,068
429
337
137
116
–
1,215
3,638
313
37
2
2
204
789
–
6,172
295
60 • ProMetic Life Sciences Inc. | AR 2007
Years ended December 31, 2007 and 2006
(In thousands of Canadian dollars except for number of shares or as otherwise specifi ed)
Note 19.
SEGMENTED INFORMATION
The fi nancial information is now being presented in two different operating segments. This new presentation
refl ects fairly the activities and will help the reader of our fi nancial statement to better understand the nature
of our business.
The two operating segments are: Therapeutics and Protein Technology.
Therapeutics: This operating segment has two lead compounds, PBI-1402 and PBI-1393, in progressing clinical
trials, both of which address unmet needs of cancer patients undergoing chemotherapy.
Protein Technology: This operating segment contains the fi nancial information of these activities:
BioTherapeutics: It is the developer of a unique, validated, state-of-the-art solution for plasma fractionation,
the Plasma Protein Purifi cation System (PPPS).
Bioseparation: It develops and markets bioseparation products based on applications of its patented Mimetic
LigandTM technology.
Animal Care: The long term goal is to use the validated PRDT technology for prion reduction in the search for
a diagnostic that would certify live cattle as BSE-tested.
a)
Revenues and expenses by business segments:
For the year ended December 31, 2007
THERAPEUTICS
TECHNOLOGY
CORPORATE
PROTEIN
INTERSEGMENT
TRANSACTIONS
Revenues
5
8,431
Research and development
expenses and costs
of good sold
Administration and
marketing expenses
Amortization of capital assets
Amortization of licenses
and patents
Interest expenses
Interest revenues
Loss (gain) on exchange rate
Other expenses
Net loss
4,857
14,235
–
231
1,000
27
(16)
–
85
737
1,312
233
25
(31)
–
–
–
–
5,890
64
–
3,051
(255)
(792)
–
–
–
(21)
–
152
–
–
(6)
–
TOTAL
8,436
19,092
6,606
1,607
1,385
3,103
(302)
(798)
85
6,179
8,080
7,958
125
22,342
Notes to Consolidated Financial Statements | ProMetic Life Sciences Inc. • 61
(In thousands of Canadian dollars except for number of shares or as otherwise specifi ed)
Years ended December 31, 2007 and 2006
Note 19. Segmented information (cont.)
For the year ended December 31, 2006
THERAPEUTICS
TECHNOLOGY
CORPORATE
PROTEIN
INTERSEGMENT
TRANSACTIONS
Revenues
–
2,647
Research and development
expenses and costs of good
sold
Administration and marketing
expenses
Amortization of capital assets
Amortization of licenses and
patents
Interest expenses
Interest revenues
Loss (gain) on exchange rate
Other expenses
Net loss
b)
Revenues by geographic segment
(1):
Austria
United States
United Kingdom
Germany
Brazil
France
Sweden
Italy
Denmark
Netherlands
Canada
Other countries
–
–
7,066
61
–
–
(18)
–
TOTAL
2,647
15,288
7,598
1,040
(16)
152
1,204
7,778
(201)
402
–
–
–
–
–
8,022
(295)
402
(153)
4,214
11,074
–
255
791
85
(88)
–
–
550
724
277
159
(6)
–
(153)
5,257
9,978
15,090
134
30,459
2007
2006
$ 4,492
1,239
752
477
465
92
275
269
128
113
100
34
$ 8,436
$
1
926
547
4
–
414
519
131
64
18
–
4
$ 2,647
(1) Revenues are attributed to countries based on location of customer and not on location of subsidiaries.
The Company derives signifi cant revenue from certain customers. In 2007 there were two customers who
individually accounted for 44% and 9% of revenues respectively. In 2006, two customers represented 25%
and 22% respectively.
62 • ProMetic Life Sciences Inc. | AR 2007
Years ended December 31, 2007 and 2006
(In thousands of Canadian dollars except for number of shares or as otherwise specifi ed)
Note 19. Segmented information (cont.)
c)
Assets by business segments:
Therapeutics
Protein Technology
Corporate
Intersegment transactions
d)
Assets by geographic segment:
Canada
United States
United Kingdom
e)
Capital assets and licenses and patents by business segments:
Therapeutics
Protein Technology
Corporate
Intersegment transactions
f)
Capital assets and licenses and patents by geographic segment:
Canada
United States
United Kingdom
2007
2006
$ 4,077
9,975
4,408
927
$ 19,387
$ 3,304
12,608
22,904
1,911
$ 40,727
2007
2006
$ 9,673
2,577
7,137
$ 19,387
$ 28,329
2,583
9,815
$ 40,727
2007
2006
$ 2,475
4,797
183
927
$ 8,382
$ 2,087
5,733
196
1,910
$ 9,926
2007
2006
$ 2,894
1,229
4,259
$ 8,382
$ 3,407
1,201
5,318
$ 9,926
g)
Acquisition of capital assets and licenses and patents by business segments:
Therapeutics
Protein Technology
Corporate
2007
2006
$
865
699
49
$ 1,613
$
367
1,633
6
$ 2,006
h)
Acquisition of capital assets and licenses and patents by geographic segment:
Canada
United States
United Kingdom
2007
2006
$
918
169
526
$ 1,613
$
373
1,204
429
$ 2,006
Notes to Consolidated Financial Statements | ProMetic Life Sciences Inc. • 63
(In thousands of Canadian dollars except for number of shares or as otherwise specifi ed)
Years ended December 31, 2007 and 2006
Note 20.
GOVERNMENT GRANTS
The Company has received government grants from Isle of Man Government for operating and capital expenditures.
For grants received prior to 2004, the Isle of Man government reserves the right to reclaim $275 in part or all of the
grants should the Company leave the Isle of Man within fi ve year of receipt or should certain events occur within
fi ve years of receipt.
The terms for the grants received amounted to $191 in 2007 and $67 in 2006. They are fully repayable if ProMetic
BioSciences Ltd leaves the Isle of Man within fi ve years of receipt of the grant and thereafter repayable on a sliding
scale for up to a period of ten years.
No provision has been made in these fi nancial statements for any future repayment to the Isle of Man government
relating to the above agreement
Note 21.
CONTINGENCIES
Following the introduction in September 2000 of a claim for damages at the Superior Court by ProMetic Life
Sciences Inc. (“PLI”) and ProMetic BioSciences Inc. (“PBI”), a subsidiary of PLI, against a supplier for an amount
of $7,726 the supplier has introduced in April 2004 a cross demand against PLI and PBI claiming for payment as
damages of all profi ts realized from the sale of Agarose Beads between October 18, 1999 and October 18, 2004.
After obtaining representation from their legal advisers, management is of the opinion that it has valid grounds
for defense and no provision related to this matter has been recorded in these consolidated fi nancial statements
in that respect. Settlements, if any, will be charged to the statement of operations in the period in which the
settlements occur.
Note 22.
COMPARATIVE FIGURES
Certain 2006 comparative fi gures have been reclassifi ed to conform to the fi nancial statement presentation
adopted for 2007.
64 • ProMetic Life Sciences Inc. | AR 2007
Board of Directors
G.F. Kym Anthony
Chair
DFG Investment Advisors and
President
Top Meadow Farms
John Bienenstock(3)
Distinguished University Professor
McMaster University and
Director, Brain-Body Institute
St. Joseph’s Healthcare Hamilton
Roger Garon(2)
Chairman of the Board
Multivet International Inc.
Barry H. Gibson
Owner
Aroma-Tec Industries Inc.
Positions – Committees:
(1) Audit Committee
Robert Lacroix (Chairman), Ronald D. Guttmann, Benjamin Wygodny
(2) Compensation Committee
Benjamin Wygodny (Chairman), Roger Garon, Ronald D. Guttmann
(3) Corporate Governance Committee
Robert Lacroix (Chairman), John Bienenstock, Benjamin Wygodny
Ronald D. Guttmann(1) (2)
Executive Vice-President,
Clinical and International Development
BioMosaics Inc.
Robert Lacroix(1) (3)
Senior Vice-President
CTI Capital Securities Inc.
Pierre Laurin
Chairman of the Board,
President and Chief Executive Offi cer
ProMetic Life Sciences Inc.
Benjamin Wygodny(1) (2) (3)
President
Angus Partnership Inc.
Management Team
Pierre Laurin
Chairman of the Board,
President and Chief Executive Offi cer
ProMetic Life Sciences Inc.
Stéphane Archambault
Chief Financial Offi cer
ProMetic Life Sciences Inc.
Christopher Bryant
Executive Vice President and
Chief Operating Offi cer
ProMetic BioTherapeutics, Inc.
Steven J. Burton
Chief Executive Offi cer
ProMetic BioSciences Ltd
Peter Edwardson
Vice-President, Medical Technologies
ProMetic BioSciences Ltd
Lucie Morin
Vice-President, Human Resources
ProMetic Life Sciences Inc.
Christopher L. Penney
Vice-President, R&D and
Chief Scientifi c Offi cer, Therapeutics
ProMetic BioSciences Inc.
Bruce Pritchard
Chief Financial Offi cer
ProMetic BioSciences Ltd
Vice-President, Corporate Development
ProMetic Life Sciences Inc.
Patrick Sartore
Senior Legal Counsel, IP and
Corporate Secretary
ProMetic Life Sciences Inc.
Corporate Information | ProMetic Life Sciences Inc. • 65
Corporate Information
Headquarters
Protein Technologies
ProMetic Life Sciences Inc. (Canada)
8168 Montview Road
Mount-Royal, Quebec H4P 2L7
Canada
Tel:
Fax:
Email:
Web:
+1.514.341.2115
+1.514.341.6227
info@prometic.com
www.prometic.com
Investor Relations
Tel:
Email:
+1.514.341.2115
investor@prometic.com
On peut se procurer la version française du présent
rapport annuel en s’adressant au service des relations
avec les investisseurs de ProMetic Sciences de la Vie
inc. (coordonnés ci-dessus) ou sur notre site internet
à l’adresse www.prometic.com.
Therapeutics
ProMetic BioSciences Inc. (Canada)
500 Cartier Blvd. West, Suite 150
Laval, Quebec H7V 5B7
Canada
Tel:
Fax:
Email:
+1.450.781.1394
+1.450.781.1403
info@prometic.com
ProMetic BioSciences Ltd (United Kingdom)
R&D
211 Cambridge Science Park
Milton Road
Cambridge CB4 0WA
United Kingdom
Tel:
Fax:
Email:
+44.1223.420.300
+44.1223.420.270
enquiries@prometicbiosciences.com
North American Sales Offi ce
Tel:
Fax:
Email:
+1.973.812.9880
+1.973.812.9881
enquiries@prometicbiosciences.com
Manufacturing
Freeport
Ballasalla, Isle of Man
IM9 2AP
United Kingdom
Tel:
Fax:
Email:
+44.16.2482.1450
+44.16.2482.1451
enquiries@prometicbiosciences.com
BSafE
Tel:
Email:
+44.79735.00286
infobsafe@prometic.com
ProMetic BioTherapeutics, Inc. (United States)
9800 Medical Center Drive
Suite C-110
Rockville, Maryland 20850
USA
Tel:
Fax:
Email:
+301.917.6320
+301.838.9023
info@prometic.us
66 • ProMetic Life Sciences Inc. | AR 2007
Auditors
Raymond Chabot Grant Thornton
600 de la Gauchetière Street West, Suite 1900
Montreal, Quebec H3B 4L8
Canada
Transfer Agent and Registrar
Computershare Trust Company of Canada
1500 University Street, Suite 700
Montreal, Quebec H3A 3S8
Canada
Listing: Toronto Stock Exchange
Symbol: PLI
Outstanding shares as of December 31, 2007: 263,821,962
Annual Meeting of Shareholders
Wednesday, May 7, 2008 at 10:30 a.m. (EDT)
Montreal Museum of Fine Arts
1379 Sherbrooke Street West
Montreal, Quebec H3G 2T9
Canada
Annual Information Form
The 2007 Annual Information Form of ProMetic Life
Sciences Inc. is available upon request from the
Company’s Head Offi ce or by accessing the SEDAR
(System for Electronic Document Analysis and Retrieval)
site, www.sedar.com.
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