ANNUAL REPORT 2013
We care about rare.
www.prometic.com
Table of Content
Executive Summary
ProMetic
Significant Events
Message to Shareholders
Proteins and Therapeutics
MD&A
Financial Statements
Management Team and
Board of Directors
Corporate Information
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2013 EXECUTIVE SUMMARY
2013 can best be summarized as
the year during which ProMetic
significantly progressed in its transition
towards becoming a vertically
integrated, specialty Biopharmaceutical
Corporation.
Accordingly, ProMetic via using its rich therapeutic product
pipeline, has positioned itself to pursue various commercial
opportunities in areas of unmet medical needs, including rare
diseases and orphan drug opportunities.
REVENUES
2
2
3
0
.
.
3
6
1
7
.
6
1
1
.
4
1
3
.
6
2013
2012
2011
2010
2009
1
0
.
2
8
.
4
2008
2007
2
.
6
2006
The decrease in total revenues reflects the
corporation’s decision to retain greater
portion of future value on some clinical assets,
rather than seeking to licence early.
The Corporation, on the back of its
strengthening market capitalization, took
the strategic decision to develop more
of its assets to an advanced stage prior
to partnering. This has allowed ProMetic
to retain a greater portion of the future
returns from those high-value products
and lucrative markets, thereby ultimately
increasing shareholder value.
This change to the commercialization
strategy, manifested itself, in the short
term, in lower than anticipated service
and licensing revenues from third par-
ties as well as an increase in spending.
Accordingly, ProMetic improved its finan-
cial position during 2013 by successfully
raising over $30 million in debt and equity
via two separate financial transactions
and through the receipt of the Hepalink
investment.
Early in the year, ProMetic announced
it had finalized a $10 million strategic
equity investment by Shenzhen Hepalink
Pharmaceutical Co., LTD. (“Hepalink”) at
a premium to market share price. Dur-
ing the third quarter, the Corporation
secured $10 million by way of a debt
transaction with Thomvest
financing
Seed Capital Inc. Lastly, during the last
quarter of 2013, the Corporation closed
a common share offering and issued a
total of 26,651,400 shares for total gross
proceeds of $23,986,260 as part of that
equity offering.
EBITDA
With this strengthened balance sheet,
ProMetic can now concentrate its atten-
tion on further progressing its key corpor-
ate initiatives necessary in building sub-
stantial value for shareholders.
2008
2007
2006
2013
2012
3
.
0
2011
2010
2009
(
0
.
5
)
1
(
8
.
7
)
(
6
.
6
)
(
7
.
6
8
.
7
)
ProMetic shall continue to generate
product and service revenues in the bio-
separation space as well as in the plas-
ma protein field by partnering some of
its products and assets in 2014 and the
coming years. However, the improved
financial situation as well as the coming
on-line of Prometic BioProduction Inc.
shall allow for such partnering to take
place at greater value. 2014 will also
be pivotal for ProMetic since we expect
some of the pipeline products to com-
mence entering clinical development
stages. ProMetic anticipates the filing
of at least 3 Investigational New Drug
applications (“IND”) in 2014, at least 2
of which should be for plasma-derived
products and one from its small molecule
therapeutics division. The filing of these
INDs followed by the beginning of clinical
trials in patients are normally recognized
as significant value creation events as they
mark a critical stage allowing the entering
into of the regulatory approval process.
(
1
3
.
9
)
(
1
7
.
4
)
(
2
0
.
3
)
The decrease in total EBITDA reflects the
decrease in contribution from the sale of
goods due to the timing of certain deliveries,
lower margin products, decrease in licensing
revenues and increase in non-rechargeable
research and development expenses due to
the commencement of activities at the Laval
production facility.
EBITDA is a non-GAAP measure, employed by the
Company to monitor its performance Therefore it is
unlikely to be comparable to similar measures presented
by other companies. The Company calculates its EBITDA
by subtracting from revenues, its cost of goods sold, its
research and development expenses rechargeable and non-
rechargeable as well as its administration and marketing
expenses and excluding amortization of capital assets and
licenses and patents.
PROMETIC LIFE SCIENCES INC.
1
PROMETIC
Transitioning into a vertically integrated
specialty Biopharmaceutical Corporation
Value
Plasma-derived Rx
+
Small molecules Rx
ProMetic has been historically known for
its world-class expertise in bioseparation,
specifically for large-scale purification of
biologics and the elimination of pathogens
to a growing base of industry leaders.
However, ProMetic has also leveraged its
own industry leading affinity technology
to develop a highly efficient extraction and
purification process of therapeutic proteins
from human plasma in order to develop
best-in-class
therapeutics and orphan
drugs targeting unmet medical conditions
and rare diseases.
With all the necessary elements to ac-
celerate the development of a strong and
deep product pipeline being concentrated
to a focal point, ProMetic is now success-
fully transitioning into a vertically integrat-
ed specialty biopharmaceutical corpora-
tion.
Leveraging of proven manufacturing
platform
At the core of this strategy resides the
bioseparation technologies and products
of the Corporation. The bioseparation
technologies enable the capture of mul-
tiple targeted proteins directly from source
products and provide for a highly efficient
and cost-effective process. ProMetic’s UK
based subsidiary, ProMetic BioSciences Ltd
(“PBL”), has been responsible for the de-
velopment and commercialization of these
unique and proprietary affinity adsorbents
and bioprocesses technologies.
More than a decade ago, ProMetic
started developing, in collaboration with
the American Red Cross (“ARC”), a multi-
product sequential purification process
2
PROMETIC LIFE SCIENCES INC.
Affinity Resin Sales
Services Revenue
Process & Product Development
2013
2018
This can be achieved with the execution of the current plan which balances activities generating
short term revenue, long term annuity revenue and Product Development activities which can
generate greater value to the shareholders. The business deals secured in the past and pursued
not only provide for some revenue in the short term but almost more importantly, they provide
a significant “off-balance sheet” contribution toward the execution of the plan.
employing powerful affinity separation
materials in a multi-step process to ex-
tract and purify commercially important
plasma proteins in high yields. The Plasma
Protein Purification System
(“PPPSTM”)
resulted from this great collaboration.
The process rapidly allowed for the
efficient
removal of
multiple high-value proteins from a single
plasma sample at unprecedented activ-
ity levels through the use of ProMetic’s
Mimetic™ Ligand adsorbent technology.
targeting and
- based
After years of refining the process,
ProMetic’s U.S.
subsidiary,
ProMetic BioTherapeutics Inc., had suc-
cessfully developed a robust and scalable
manufacturing process. ProMetic has now
implemented its own technology and
launched its plasma purification facility,
ProMetic BioProduction Inc. where it is now
starting to develop best-in-class plasma-
derived therapeutics to address unmet
medical conditions in both established and
emerging markets.
Small molecule therapeutics
ProMetic is also actively pursuing what
could very well turn out to be the ultim-
ate level of value creation within ProMetic
with its small molecule drug discovery
division, ProMetic BioSciences Inc. (“PBI”).
PBI scientists are focused on developing
orally active drugs with improved pharma-
co-economics and safety profiles. ProMetic
is focusing on targeting the following indi-
cations; fibrosis, inflammation and auto-
immune diseases, with a focus on treating
unmet medical needs in said indications.
As a result of positive data gener-
ated in 2012 and 2013 in some of the
most
stringent gold-standard animal
models, indicating favorable effects in
reducing the progression of fibrosis in
various key organs and the overall progress
achieved by the Corporation, ProMetic’s
lead drug candidate designated as
PBI-4050, entered the clinical program
stage in late 2013.
2013 SIGNIFICANT EVENTS
JANUARY
On January 8, 2013,
ProMetic announced it had
finalized a $10 million stra-
tegic equity investment by
Shenzhen Hepalink Pharma-
ceutical Co., LTD. in ProMetic
at a premium share price of
$0.204 per share (or 63%
over the October 15, 2012
closing share price). This
investment was concluded
to enable the execution of
various strategic initiatives,
including the operational
launch of ProMetic’s GMP
plasma facility dedicated to
the manufacturing of plasma
derived products.
MARCH
On March 14, 2013,
ProMetic’s US based subsidi-
ary, ProMetic BioTherapeu-
tics Inc. received an orphan
drug designation status for
its plasma purified human
plasminogen drug by the
American Food and Drug
Administration (“FDA”).
The orphan drug designa-
tion is for the treatment of
hypoplasminogenemia, or
type I plasminogen deficiency
(“T1PD”).
APRIL
On April 12, 2013, ProMetic’s
common shares commenced
trading on OTCQX Inter-
national under the symbol
PFSCF. OTCQX International
is a segment of the OTCQX
marketplace reserved for
high-quality non-U.S. com-
panies listed on a qualified
stock exchange in their home
country.
On April 30, 2013, ProMetic
expanded its existing stra-
tegic collaboration with Sar-
torius Stedim Biotech (“SSB”)
to include a contribution of
equipment to ProMetic’s
plasma purification facility
as well as an agreement for
the co-commercialization of
PPPSTM on a global basis.
JUNE
On June 20, 2013, ProMetic
received a $4.8 million
purchase order under its
ongoing supply agreement
with Octapharma, a leading,
Swiss based, independent
global plasma fractionation
company that specializes in
human proteins. This order
relates to the purchase of
PrioClear™, a proprietary
prion capture resin incor-
porated into Octapharma’s
manufacturing process for
its solvent/detergent treated
plasma product, Octaplas®.
JULY
On July 8, 2013, ProMetic
entered into a licensing and
long-term affinity resin sup-
ply agreement with one of
its existing clients, a global
leader in the biotherapeutics
industry. This agreement fol-
lowed the successful develop-
ment and scale-up of a new
affinity resin specifically
designed to enhance the
quality and purity of an
existing biopharmaceutical
product manufactured in
multi-ton quantities.
AUGUST
On August 14, 2013,
ProMetic selected Alpha1-
Antitrypsin (AAT) as its
second plasma-derived
therapeutic to address a
well-defined unmet medical
need affecting an estimated
100,000 people in the USA
alone with less than 10%
treated.
SEPTEMBER
On September 9, 2013,
ProMetic presented new
preclinical data at the 2013
European Respiratory Society
Annual Congress suggesting
that PBI-4050 offers a new
therapeutic approach to idio-
pathic pulmonary fibrosis. In
a gold standard animal model
proven to emulate pulmonary
fibrosis in humans, PBI-4050
performed favorably com-
pared to Pirfenidone.
On September 11, 2013,
ProMetic secured financing
from Thomvest Seed Capital
Inc. (“Thomvest”), the
Toronto-based investment
vehicle of Peter J. Thomson,
consisting of a long-term
loan in the principal amount
of $10 million. ProMetic has
used part of the proceeds
for the commissioning of its
GMP facility to enable the
manufacturing of plasma-
derived orphan drugs.
On September 26, 2013,
ProMetic successfully com-
pleted the required GLP toxi-
cology studies performed by
a certified contract research
organization confirming that
Prometic’s lead drug can-
didate, PBI-4050, was safe
to advance into clinical trial
stages.
NOVEMBER
On November 4, 2013,
ProMetic announced it had
presented new preclinical
data at the 2013 annual
meeting of the American
Association for the Study of
Liver Diseases (AASLD) held
in Washington on November
2-4 supporting the claims
that PBI-4050 anti-fibrotic
activity could also be used to
address various liver condi-
tions such as nonalcoholic
steatohepatitis (“NASH”), a
condition affecting 2% to
5% of Americans.
On November 6, 2013,
ProMetic announced it had
achieved a milestone related
to its strategic agreement
with Hematech Biotherapeut-
ics Inc. worth $1.5 million.
On November 7, 2013,
ProMetic closed a public
offering of common shares
in the capital of the Cor-
poration. The Offering was
conducted on a best efforts
basis by a syndicate of agents
led by Paradigm Capital Inc.
and including Beacon Secur-
ities Limited, D&D Securities
Inc. and Cormark Securities
Inc. The Corporation issued a
total of 26,651,400 Com-
mon Shares at a price of
$0.90 per Common Share
for total gross proceeds of
$23,986,260, which included
the issuance of 3,333,400
Common Shares issued pur-
suant to the exercise of the
over-allotment option.
On November 12, 2013,
ProMetic presented new
preclinical data at the 2013
American Society of Nephrol-
ogy (“ASN”) annual meeting
held in Atlanta on
November 7-10, 2013
demonstrating the ability of
PBI-4050 to reduce fibrosis
in the kidney and overall
improve the renal function in
various animal models.
On November 19, 2013,
ProMetic received a $5.1
million purchase order for the
supply of affinity resin from
an existing client, a global
leader in the biotherapeutics
industry.
DECEMBER
On December 11, 2013,
ProMetic achieved a major
corporate milestone by
successfully completing
the first commercial-scale
production run at its plasma
purification facility, ProMetic
BioProduction Inc., located in
Laval, Quebec. This produc-
tion run was completed on
schedule and generated bet-
ter than expected results.
PROMETIC LIFE SCIENCES INC.
3
MESSAGE TO SHAREHOLDERS
From day one, our goal was to leverage our unique
proprietary technologies and know-how to build
a company that would ultimately bring safer,
cost-effective and more convenient therapeutic
products to largely underserved patient populations
in both existing and emerging markets.
I am very pleased to report that
2013 has brought us closer
than ever to making this vision
a reality.
2013 was a year during which we suc-
cessfully progressed in our transition to-
wards becoming a vertically integrated
specialty biopharmaceutical
company
with a rich product pipeline targeting
unmet medical needs, conditions and rare
diseases opportunities.
In order to put ourselves within close
range of accomplishing this vision, the
strategic decision to develop more of our
own assets ourselves, to an advanced
stage prior to partnering was made.
We believed that this would allow us to
retain in the process a greater portion of
the high value/profile products and assets
we’re currently developing. By exercising
greater control and ownership over our
own technological platforms rather than
predominately enabling third parties with
it, we strongly believe that we will signifi-
cantly increase value creation for all our
shareholders.
The transition to developing the tech-
nology using our financial resources
rather than those of a partner, manifests
to the benefit of our shareholders, in the
reduction in our requirement to share fu-
ture commercial revenues with external
partners. This corporate strategy resulted
in lower than originally anticipated total
yearly revenues for 2013 as evidenced by
the lower level of associated licensing
revenues. We however expect this situa-
tion to be short lived and anticipate a
return to revenue growth in 2014 and
beyond.
To compensate for the diminishing
external monetary contribution resulting
from the voluntary decrease in external
partners funding, it became imperative for
ProMetic to significantly improve its over-
all financial position. As such, we were
successful in raising more than $30 mil-
lion in two separate financial transactions
during the year. Early in 2013, ProMetic
announced it had finalized a $10 million
strategic equity
investment by Shen-
zhen Hepalink Pharmaceutical Co., LTD.
(“Hepalink”) at a premium share price.
Later on during the third quarter, the Cor-
poration secured a $10 million loan and
issued warrants in a financing transaction
with Thomvest Seed Capital Inc. and final-
ly during the last quarter of 2013, the Cor-
poration closed a common share offering
and issued a total of 26,651,400 shares
for total gross proceeds of $23,986,260
as part of that equity offering.
Two specific corporate events clearly
demonstrated our success in advancing
our rare diseases franchise. The first event
relates to ProMetic’s US based subsidiary,
ProMetic Biotherapeutics Inc. receiving
an orphan drug designation status for
its plasma purified human plasminogen
drug by the American Food and Drug
Administration
(“FDA”). The orphan
drug designation is for the treatment of
hypoplasminogenemia, or Type 1 plas-
minogen deficiency. It is estimated that
4
PROMETIC LIFE SCIENCES INC.
2013 has proven to be the year during which
we were finally able to put together the last
missing pieces necessary to successfully undertake
the transition towards becoming a specialty
biopharmaceutical company.
approximately 10,000 patients suffer
from this medical condition on a global
scale. The second key event relates to the
selection of Alpha 1 – Antitrypsin (“AAT”)
as the second plasma derived therapeutic
to address a well-defined unmet medical
need following a confirmed recovery yield
vastly superior to the industry average. It
is estimated that approximately 100,000
people in the US alone are affected with
less than 10% treated.
(“PPPSTM”). To
Both products and the novel therapeutic
solutions they represent are enabled by
the successful scale-up of our propri-
etary plasma purification manufacturing
platform, the Plasma Protein Purification
System,
this effect,
ProMetic accomplished a major corpor-
ate milestone in late 2013 by complet-
ing the first commercial-scale produc-
tion run at its ProMetic BioProdution Inc.
plasma purification facility located in Laval,
Quebec. We are especially proud to have
completed that first commercial produc-
tion run on schedule while generating
better than expected results.
Our protein technologies segment was
not the only one to significantly advance
and progress in 2013. Our small molecule
therapeutics segment also saw its lead
compound PBI-4050 progress sufficiently
to enter clinical phase after completing
the required GLP toxicology studies per-
formed at a certified contract research
organization.
Furthermore, PBI-4050 continued to
deliver solid new preclinical data in some
of the most stringent fibrotic animal
models. The data was presented at many
prestigious
industry conferences. For
example, new data supporting the claims
that PBI-4050 anti-fibrotic activity could
also be used to address various liver condi-
tions such as nonalcoholic steatohepatatis
(“NASH”) was presented at the 2013
Annual Meeting of the American Associa-
tion for the Study of Liver Diseases held
in Washington. ProMetic also presented
new preclinical data at the 2013 American
Society of Nephrology annual meeting
held in Atlanta demonstrating the ability
of PBI-4050 to reduce fibrosis in the kid-
ney and overall improve the renal function
in various animal models.
Having now strengthened the balance
sheet, ProMetic will be able to con-
centrate its attention on further pro-
gressing its exciting product pipeline to
commercialization.
ProMetic anticipates to continue gen-
erating service revenues and partner-
ing some of its key products and assets
in 2014 and the coming years. However,
the improved financial situation should
now allow for partnering to take place
at greater value and more optimal
timing. 2014 should also be the year dur-
ing which some of the plasma-derived
pipeline therapeutics will start entering
clinical development stages. As such,
ProMetic anticipates the filing of at least
3
(“IND”)
applications to take place during the
coming year, 2 of which that are for al-
ready disclosed plasma-derived products
(plasminogen and Alpha-1 Antitrypsin)
and one from its small molecule therapeut-
ics segment (PBI-4050). The filing of such
Investigational New Drug
INDs followed by the beginning of clinical
trials in patients is normally recognized
as a significant value creation event since
it marks the beginning of the last stage
before entering the regulatory approval
process.
We also intend to fully utilize the oper-
ational benefits derived from the launch
of our plasma purification facility in
order to prepare additional plasma-
derived products for upcoming IND filings
to ensure a constant flow of movement
and progress in the development of our
product pipeline.
2013 has proven to be the year
during which we were finally able to put
together the last missing pieces necessary
to successfully undertake the transition
towards becoming a specialty biopharma-
ceutical company. None of this would
have been possible without the hard work
and dedication of our employees and col-
laborators, as well as the continued sup-
port and loyalty of all our shareholders.
For all of that, we thank all involved and
look forward to once again update them
on our ongoing progress and milestone
achievements.
Very best regards,
Pierre Laurin,
President and Chief Executive Officer
PROMETIC LIFE SCIENCES INC.
5
Rare diseases
are affecting more than
55 millions people in the U.S.
and E.U. combined, or
approximately 10% of all
people worldwide
Orphan dugs are
expected to account for
$
±127
billion of sales in 2018
representing almost 16%
of the entire worldwide
prescription market
6
PROMETIC LIFE SCIENCES INC.
Rare diseases is one of the most
rapidly expanding areas of
research and clinical development
at the moment.
Why plasma proteins?
A multitude of rare diseases and medical
conditions are known to be directly re-
lated to either missing, insufficient quan-
tities of or non-functional proteins. Pro-
Metic’s proprietary PPPSTM manufacturing
process allows for superior extraction and
recovery capabilities of such valuable pro-
teins.
PLASMA-DERIVED
PRODUCTS MARKET
Albumin
lgG Total
Albumine
lgG Total
Transferrin
Fibrinogen
lgA Total
Alpha-2-
Macroglobulin
lgM Total
Alpha-1-Antitrypsin
C3 Complement
Haptoglobin
Transferrine
Fibrinogène
lgA Total
Alpha-2-
Macroglobuline
lgM Total
Alpha-1-Antitrypsine
C3 Complément
Haptoglobine
10%
10%
Factor H
Ceruloplasmin
C4 Complement
Complement Factor 8
Prealbumin
C9 Complement
Facteur H
Ceruloplasmine
C4 Complément
Complément Facteur 8
Préalbumine
C9 Complément
- 75% of revenues are generated from
4 proteins only (Albumin, IgG, Factor
VIII and AAT)
C1q Complement
C8
Complement
1%
Apolipoprotein
A-1
C1q Complement
C8
Complément
1%
Apolipoprotéine
A-1
Apolipoprotein B
Alpha-1-acid Glycoprotein
Lipoprotein (a)
Apolipoprotéine B
Alpha-1-acid Glycoprotéine
Lipoprotéine (a)
- 74% of revenues come from only 16%
of the population (US – EU)
- Asia – Pacific region with more than
50% of the world population represent
less than 15% of usage
PROMETIC LIFE SCIENCES INC.
7
The market opportunities:
An orphan or rare disease is normally de-
fined by less than 200,000 patients in the
US, less than 250,000 patients in the EU
and less than 50,000 patients in Japan.
The commercial incentives granted for
such designation usually include 7 Years
of marketing exclusivity from approval in
the US and 10 Years of marketing exclu-
sivity from approval in the EU. There are
also other financial incentives via reduced
R&D costs, grants for phase I to phase III
clinical trials and waived user fees.
Rare diseases is one of the most rapidly
expanding areas of research and clinical
development at the moment. It is esti-
mated that:
- There are approximately 7,000 to 8,000
rare diseases world-wide already identi-
fied;
- ~ 250 new rare diseases are identified
annually;
- Rare diseases are affecting more than
25 million people in the US alone, more
than 55 million people in the US and EU
combined; or approximately 10% of all
people worldwide;
- Orphan drugs make up approximately
22% of total drug sales;
- Orphan drugs are expected to ac-
count for ~ $127B. of sales in 2018,
representing almost 16% of the entire
worldwide prescription market (exclud-
ing generics).
PBP will also serve in the future as a
blue print for other partners’ future
plants, as a technological showroom
and training center.
PROMETIC
B I O S C I E N C E S
P R O M E T I C
B I O T H E R A P E U T I C S I N C .
PROMETIC
BIOPRODUCTION
LAVAL
PROMETIC
BIOSCIENCES INC.
Plasma-derived Rx
Small molecules Rx
Enabling Production
of biopharmaceuticals
With improved
> Cost efficiency
> Purity
> Safety
Leveraging internal technologies
to build a product franchise &
significant value:
ProMetic already exploits a proprietary
platform derived from the use of its UK
based subsidiary (ProMetic BioSciences
Ltd.) affinity technology while ProMetic’s
US based subsidiary (ProMetic BioThera-
peutics Inc.) is responsible for the de-
velopment and commercialization of the
plasma purification process designated
as Plasma Protein Purification System
(“PPPSTM”).
ProMetic’s state of the art technologies
and products are already embedded into
a successfully scaled-up manufacturing
process for the development, manufac-
turing and commercialization of best in
class plasma-derived therapeutics. ProMetic’s
proprietary and proven affinity adsorb-
ents are incorporated in a downstream,
multi-sequential chromatographic pro-
cess to extract, isolate and purify high-
value proteins with superior yield and
efficiency from what is currently available
from the industry. The process also incor-
porates viral inactivation as well as prion
reduction that surpass the industry alco-
hol based extraction process. The gentle
process provides for significantly better
yield and economic benefits and is eas-
ily adaptable to different protein market
needs.
The PPPSTM manufacturing process
offers many significant benefits and ad-
vantages over more
tech-
nologies such as the largely used Cohn
traditional
8
PROMETIC LIFE SCIENCES INC.
precipitation techniques developed during the
2nd World War for the primary recovery of
Albumin from plasma for the treatment of
hypovolemic shock. The main advantages are:
> Orphan Drug opportunities through:
- The recovery of proteins with estab-
lished therapeutic value that cannot
be effectively extracted using more
conventional industry methods
- The Recovery of proteins that are
not the focus of large plasma frac-
tionators
> Improved economics over industry
averages through:
- Superior recovery yield
- Much smaller foot-print for same
manufacturing output
- Greatly reduced processing time
- More products from less plasma
> Improved purity
> Improved safety – pathogen removal
and viral inactivation
ProMetic’s proprietary
technologies
have allowed the Corporation to suc-
cessfully progress in its transition in
2013 from a simple provider of enabling
affinity resins used as components in its
clients’ drug manufacturing process to a
manufacturer and producer of bulk active
pharmaceutical ingredients by leveraging
its own affinity resin technology and pro-
prietary PPPSTM process. As a result of
this ongoing transition, ProMetic is now
also actively pursuing the commercializa-
tion of its own therapeutic products ad-
dressing unmet medical needs and rare
diseases opportunities.
PPPSTM OVERVIEW
Filtered Plasma
vWF/FVIII
flow-through
Plasminogen
flow-through
Fibrinogen
flow-through
Immunoglobulin
flow-through
A1AT impurities
or new products
from plasma
proteome
flow-through
vWF/FVIII
eluate
Plasminogen
eluate
Fibrinogen
eluate
Immunoglobulin
eluate
HSA eluate
AFFINITY CHROMATOGRAPHY
E
R
U
T
P
A
C
H
S
A
W
Y
R
E
V
O
C
E
R
Prometic BioProduction inc. (“PBP”) –
the last piece of the puzzle
The completed development of PPPSTM
as a manufacturing process, the num-
ber of licensees and improved finan-
cial situation have all contributed to the
implementation and operational launch
of ProMetic’s plasma purification facil-
ity located in Laval, Quebec, Canada.
ProMetic’s plasma purification facility will
be providing for the recovery of thera-
peutic proteins from plasma for amongst
others :
> cGMP clinical trial supplies
> Conformance lots post BLA
>
Initial commercial requirements
> Supply of bulk active proteins to
partners
PBP successfully completed in Decem-
ber 2013 the first commercial-scale pro-
duction run on schedule and generated
better than expected results confirming
at the same time the scalability and ro-
bustness of the process. The installation
of specialized process equipment is now
completed. A seasoned team of experts
has been hired and trained and they are
currently performing a series of trial pro-
duction batches. The operational launch
of the plasma facility represented a pivotal
point in the development history of Pro-
Metic as it was the last remaining piece of
puzzle left to put in place in order to move
forward with the goal of building an or-
phan drugs franchise. During the first half
of 2014, the PBP team will be focused on
performing the necessary manufacturing
activities to enable the upcoming filing of
previously disclosed INDs.
PBP will also serve in the future as
a blue print for other partners’ future
plants, as a technological showroom and
training center.
Building the pipeline:
From the multitude of rare diseases and
medical conditions known to be proteins
related, ProMetic has already identified
and successfully scaled-up the extraction
and recovery process using its propri-
etary PPPSTM manufacturing process for a
few of them. ProMetic also has a small-
molecule drug discovery business, with
a strong pipeline of products. ProMetic’s
scientists are focused on developing orally
active drugs that can emulate the activity
of proven biologics, and provide competi-
tive advantages including improved
pharmaco-economics and safety profiles.
Typically, these first-in-class therapeutics
are orally active, with efficacy and high
safety profiles confirmed in several in vivo
experiments and enjoy strong proprietary
positions. The unmet medical applications
targeted are fibrosis, inflammation, auto-
immune diseases, oncology and hemato-
poietic disorders.
ProMetic already possesses all the
necessary elements to build a rich and
deep product pipeline with best-in-class
therapeutics targeting large unmet med-
ical needs as well as various rare disease
opportunities affecting numerous key
organs.
PROMETIC LIFE SCIENCES INC.
9
PPPSTM
The PPPSTM manufacturing
process offers many
significant benefits
and advantages:
We are dedicated
to improve lives
of rare disease patients
> Orphan drug opportunities
> Improved economics
over industry averages
> Improved purity
> Improved safety
10 PROMETIC LIFE SCIENCES INC.
PLASMA-DERIVED ORPHAN DRUG OPPORTUNITIES
& SMALL MOLECULE DRUG CANDIDATES
THERAPEUTIC POSITIONING
PBI-4050 Fatty Liver Disease
Liver Steatosis
Liver fibrosis
Hyperimmunes – liver transplant
Albumin
PBI-1402 anemia
Plasminogen deficiency
Blood disorders
Plasma-derived therapeutics
Small molecules Therapeutics
PBI-4050 IPF – Idiopathic pulmonary
Fibrosis
AAT
Hereditary Emphysema
COPD
PBI-4050 Heart Fibrosis
PBI-4050 CKD - Chronic Kidney Disease
DKD – Diabetic Kidney Disease
ESRD – End Stage Renal Disease
PBI-4419 AKI – Acute Kidney Injury
PBI-1308 Autoimmune – glomerulonephritis
Orphan Rx kidney failure
A- PLASMA-DERIVED
THERAPEUTICS
1- Hypoplasminogenemia
(type 1 plasminogen deficiency):
ProMetic has already
received an
orphan drug designation status for its
plasma purified human plasminogen drug
by the American Food and Drug Adminis-
tration (“FDA”). The orphan drug desig-
nation is for the treatment of hypoplas-
minogenemia, or type I plasminogen
deficiency (“T1PD”).
Plasminogen is a naturally occurring
protein synthesized by the liver and circu-
lates in the blood. Plasminogen converts
into plasmin and is therefore a critical
protein involved in wound healing, cell
migra tion, tissue remodeling, angiogen-
esis and embryogenesis.
One of the most well-defined condi-
tions associated with plasminogen defi-
ciency is ligneous conjunctivitis, which is
characterized by thick, woody (ligneous)
growths on the conjunctiva of the eye,
and if left untreated, can lead to blind-
ness. Most affected cases are infants and
children. This is a Multisystem disease that
affect the ears, sinuses, tracheobronchial
tree, genitourinary tract, and gingiva.
The incidence of Type-1 plasmino-
gen deficiency is approximately 1.6 /
1,000,000 people, with roughly 10,000
patients worldwide and 2,500 patients in
developed markets.
ProMetic anticipates filing its Investiga-
tional New Drug (“IND”) application in
the second quarter of 2014 with the start
of its clinical trials in the second half of
2014 and hopes to be filing its Biological
License Application (“BLA”) early in 2015.
2- Alpha – 1 antitrypsin (“AAT”)
ProMetic has selected Alpha – 1 An ti trypsin
as its second plasma-derived therapeutic
to be developed targeting a well-defined
unmet medical need.
There is an estimated 100,000 people
affected by AAT deficiency in the USA
alone with less than 10% treated. Accor-
ding to the Alpha-1 Foundation, there
may be as many as 3% of the 20 million
patients suffering from Chronic Obstruct-
ive Pulmonary Disease (COPD) that may
also have an undetected AAT deficiency.
One of the key functions of AAT, which
is mainly produced in the liver, is to pro-
tect the lungs from inflammation caused
by infection and inhaled irritants such
as tobacco smoke. AAT Deficiency is a
genetic condition that leads to a lack of
AAT in the blood which can then result in
serious lung disease in adults and/or liver
disease at any age.
ProMetic anticipates filing its Inves-
tigational New Drug (“IND”) applica-
tion in the last quarter of 2014 with the
start of its clinical trials in the first half of
2015 and hopes to be filing its Biological
License Application (“BLA”) early in 2016.
3- More plasma-derived therapeutics:
Prometic also hopes to be filing addi-
tional INDs in the second half of 2014
and in 2015 and regularly thereon in the
following years with the objective of hav-
ing 1 new product reaching the regula-
tory approval stage every year starting in
2016.
B- SMALL MOLECULE THERAPEUTICS
1- PBI-4050
ProMetic has generated positive data
in 2013 in several gold-standard ani-
mal models clearly indicating favorable
effects in reducing the progression of
fibrosis in various key organs. The data
was presented at various prestigious
industry conferences throughout the year.
- 2013 American Society of
Nephrology annual meeting,
Atlanta, November 7-10, 2013.
Cardiovascular diseases, in their broad
spectrum, are collectively the major cause
of death in patients on dialysis. One of
the studies performed was to deter-
mine the effect of a permanent vascular
catheter on heart fibrosis and to inves-
tigate the potential protective effect of
PBI-4050 on the kidneys and the heart
of 5/6 nephrectomised rats. In this study,
the nephrectomised rats with a catheter
had 4 times more heart lesions (fibrosis,
necrosis and inflammation) compared
to those who did not have a catheter.
The rats with catheter and treated with
PROMETIC LIFE SCIENCES INC.
11
A multitude of
rare diseases
and medical conditions
are known to be protein
related.
ProMetic
has already identified and
successfully scaled-up the
extraction and recovery
process for certain proteins.
12 PROMETIC LIFE SCIENCES INC.
These results clearly indicates that
PBI-4050 anti-fibrotic activity is at the
core of the fibrosis regulation pathway
affecting multiple organs and tissues.
The study results presented at the ERS
annual conference demonstrated that the
oral administration of PBI-4050 whether
alone or in with Pirfenidone significantly
reduced:
- Histological lesions and scars in the
lungs
- Inflammatory/profibrotic cytokines
(TGF-ß1, CTGF, IL-23p 19 and IL-6)
- Fibrotic markers (collagen 1 and fibro-
nectin)
These
results clearly
that
PBI-4050 anti-fibrotic activity is at the
core of the fibrosis regulation pathway
affecting multiple organs and tissues.
indicate
- 2013 European Respiratory Society
- Remodeling markers (SPARC and
annual congress, Barcelona,
September 2013
MMP-2)
In a gold standard animal model proven
to emulate pulmonary fibrosis in humans,
PBI-4050 performed favorably compared
to Pirfenidone, the only commercially
approved product for such medical use.
PBI-4050 significantly reduced the tissue
scarring in the lungs otherwise observed
in the lungs of non-treated animals.
Moreover, the combination of PBI-4050
and Pirfenidone generated unprecedent-
ed reduction of fibrosis resulting in a sig-
nificant improvement of organ function.
PROMETIC LIFE SCIENCES INC.
13
PBI-4050 had a significant reduction
of heart lesions, fibrosis and collagen
compared to the non-treated animals.
The nephrectomised rats treated with
PBI-4050 also displayed a significant im-
pro vement of their renal function and a
significant reduction of inflammation and
fibrosis in their kidneys compared to the
non-treated rats.
In a second model, the liver fibrosis
is induced by chronic administration of
carbon tetrachloride (CCL4), a chem-
ical which at high chronic dose, causes
irreversible damage to the liver and the
kidney. Again animals treated with PBI-
4050 displayed a significant reduction of
liver lesions as evidenced by histology and
relevant biomarkers.
- 2013 American Association for the
Study of Liver Diseases (AASLD)
annual meeting, Washington, Nov-
ember 2-4, 2013
PBI-4050’s favorable effect in reducing
the progression of fibrosis in liver was
demonstrated in two different “gold-
standard” animal models. The first is
a diabetic mouse model in which the
animals develop liver steatosis. Similar
to what is observed in humans, the un-
treated animals accumulate fat in the
liver causing inflammation and leading to
permanent damage and scarring, and re-
ducing the ability for the liver to function
properly. Diabetic mice treated with PBI-
4050 had a significant reduction of liver
lesions and steatosis measured by histol-
ogy as well as a significant reduction in
key biomarkers such as including TGFß-1,
Collagen 1, MMP2 and TIMP-1.
MANAGEMENT’S DISCUSSION & ANALYSIS
This Management’s Discussion and Analysis of Operating Results and Financial Position, aims at helping the reader to better
understand the business of ProMetic Life Sciences Inc. [“ProMetic” or the “Corporation”] and the key elements of its financial
results. It explains the trends of the financial situation and the operating results of the Corporation for the 2013 financial year
compared to the financial situation and operating results for the 2012 financial year. It is intended to complement and supplement its
annual consolidated financial statements and other financial information found in the Annual Report and consequently it should
be read in conjunction with these and other public documents such as the Corporation’s Annual Information Form, which may
be found at www.sedar.com. All amounts in tables are in thousands of Canadian dollars, except where otherwise noted. This
Management’s Discussion and Analysis [“MD&A”] is current as at March 25, 2014, at which date 528,303,995 common shares,
12,496,350 options to purchase common shares and 69,974,711 warrants to purchase common shares were issued and outstanding.
Forward-looking statements
The information contained in Management’s Discussion and Analysis of Operating Results and Financial Position contains
statements regarding future financial 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 Corporation’s
ability to develop, and successfully manufacture pharmaceutical products, and to obtain contracts for its products and services and
commercial acceptance of advanced affinity separation technology. Additional information on risk factors can be found in the
Corporation’s Annual Information Form for the year ended December 31, 2013. 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.
ProMetic is a long-established, publicly traded (TSX symbol: PLI) (OTCQX symbol: PFSCF), biopharmaceutical Corporation with
globally recognized expertise in bioseparation, plasma-derived therapeutics and small-molecule drug development. ProMetic is
focused on bringing safer, cost-effective and more convenient products to both existing and emerging markets. ProMetic offers
its state of the art technologies for large-scale drug purification of biologics, drug development, proteomics and the elimination
of pathogens to a growing base of industry leaders and uses its own affinity technology that provides for highly efficient extraction and
purification of therapeutic proteins from human plasma in order to develop best-in-class therapeutics and orphan drugs. ProMetic
is also active in developing its own novel small molecule therapeutic products targeting unmet medical needs in the field of fibrosis,
neutropenia, cancer, and autoimmune disease/inflammation as well as certain nephropathies. A number of both the plasma-
derived and small molecule products are under development for orphan drug indications. Headquartered in Laval (Canada), Pro-
Metic has R&D facilities in the UK, the U.S. and Canada, manufacturing facilities in the UK and business development activities in
the U.S., Europe and Asia.
Business segments
The Protein Technologies segment comprises different operating subsidiaries. The principal subsidiaries are:
• ProMetic BioProduction Inc. (“PBP”), based in Laval, Quebec, Canada;
• ProMetic BioTherapeutics Inc (“PBT”), based in Rockville, MD, USA; and
• ProMetic BioSciences Ltd (“PBL”), based in the United Kingdom (Isle of Man and Cambridge).
ProMetic and its Protein Technologies segment has been historically known for its world-class expertise in bioseparation,
specifically for large-scale purification of biologics and the elimination of pathogens to a growing base of industry leaders. How-
ever, ProMetic has also leveraged its own industry leading affinity technology to develop a highly efficient extraction and purifica-
tion process of therapeutic proteins from human plasma in order to develop best-in-class therapeutics and orphan drugs targeting
unmet medical conditions and rare diseases.
With all the necessary elements to accelerate the development of a strong and deep product pipeline, ProMetic is now successfully
transitioning into a vertically integrated specialty biopharmaceutical corporation. At the core of this strategy resides the bioseparation
technologies and products of the Corporation. The bioseparation technologies enable the capture of multiple targeted proteins
directly from source products and provide for a highly efficient and cost-effective process.
14 PROMETIC LIFE SCIENCES INC.
Using its bioseparation technologies, ProMetic has developed a multi-product sequential purification process employing powerful
affinity separation materials in a multi-step process to extract and purify commercially important plasma proteins in high yields.
This purification process is known and referred to as the Plasma Protein Purification System (“PPPSTM”). ProMetic has now implemented
its own technology and launched its plasma purification facility, ProMetic BioProduction Inc. where it is now starting to develop
best-in-class plasma-derived therapeutics to address unmet medical conditions in both established and emerging markets.
The completed development of PPPSTM as a manufacturing process, the number of licensees and improved financial situation have
all contributed to the implementation and operational launch of ProMetic’s plasma purification facility.
PBP successfully completed in December 2013 the first commercial-scale production run on schedule and generated better than
expected results confirming at the same time the scalability and robustness of the process. The installation of specialized process
equipment is now completed. A seasoned team of experts has been hired and trained and they are currently performing a series
of trial production batches.
PBP will also serve in the future as a blue print for other partners’ future plants, as a technological showroom and training center.
The Therapeutics segment is a small molecule drug discovery business comprised of one entity:
• ProMetic BioSciences Inc. (“PBI”), based in Laval, Quebec, Canada
PBI is a small-molecule drug discovery business, with a strong pipeline of products. PBI scientists are focused on developing
orally active drugs that can emulate the activity of proven biologics, and provide competitive advantages including improved
pharmaco-economics and safety profiles. Typically, these first-in-class therapeutics are orally active, with efficacy and high safety
profiles
confirmed in several in vivo experiments and enjoy strong proprietary positions. The unmet medical applications targeted are fibrosis,
inflammation, autoimmune diseases, oncology and hematopoietic disorders.
The business model for this division is to partner promising drug candidates upon completion of in vivo proof of concept
studies. While the Therapeutics Unit has several of such promising drug candidates, Management has acted in the past two to
three years, to cut the burn-rate of this division such that only costs associated with the Investigational New Drug (“IND”) enabling
and partnering activities for its anti-fibrosis lead drug candidate PBI-4050 are incurred. As a result of positive data generated in
2012 and 2013 in several gold-standard animal models clearly indicating favorable effects in reducing the progression of fibrosis in
various key organs and overall progress achieved by the Corporation, PBI-4050 has now entered the clinical program stage in
September 2013. The positive data generated was also presented at some of the most prestigious industry conferences throughout
the year such as the 2013 American Society of Nephrology annual meeting, the 2013 American Association for the Study of Liver
Diseases (AASLD) annual meeting and the 2013 European Respiratory Society annual congress.
2013 in summary
2013 can best be summarized as the year during which ProMetic significantly progressed in its transition towards becoming a
vertically integrated, specialty Biopharmaceutical Corporation. Accordingly, ProMetic via using its rich therapeutic product pipeline,
has positioned itself to pursue various commercial opportunities in areas of unmet medical needs, including rare diseases and
orphan drug opportunities.
The Corporation, on the back of its strengthening market capitalization, took the strategic decision to develop more of its assets
to an advanced stage prior to partnering. This has allowed ProMetic to retain a greater portion of the future returns from those
high-value products and lucrative markets, thereby ultimately increasing shareholder value.
This change to the commercialization strategy, manifested itself, in the short term, in lower than anticipated service and licensing
revenues from third parties as well as an increase in spending. Accordingly, ProMetic improved its financial position during 2013
as a result of $40 million in cash received from a strategic equity investment by Shenzen Hepalink Pharmaceutical Co., LTD.
(“Hepalink”) and from two important financial transactions.
Early in the year, ProMetic received a $10 million strategic equity investment by Hepalink at a premium to market share price. Dur-
ing the third quarter, the Corporation secured $10 million by way of a debt financing transaction with Thomvest Seed Capital Inc.
Lastly, during the last quarter of 2013, the Corporation closed a common share offering and issued a total of 26,651,400 shares
for total gross proceeds of $24.0 million as part of that equity offering.
PROMETIC LIFE SCIENCES INC.
15
With this strengthened balance sheet, ProMetic can now concentrate its attention on further progressing its key corporate initiatives
necessary in building substantial value for shareholders.
ProMetic shall continue to generate product and service revenues in the bioseparation space as well as in the plasma protein field
by partnering some of its products and assets in 2014 and the coming years. However, the improved financial situation as well
as the commercialization of Prometic BioProduction Inc. shall allow for such partnering to take place at a greater value. 2014 will
also be pivotal for ProMetic since we expect some of the pipeline products to commence entering clinical development stages.
ProMetic anticipates the filing of at least 3 Investigational New Drug applications (“IND”) in 2014, at least 2 of which should be for
plasma-derived products and one from its small molecule therapeutics division. The filing of these INDs followed by the beginning
of clinical trials in patients are normally recognized as significant value creation events as they mark a critical stage allowing the
entering into of the regulatory approval process
2013 signiFicant events
• The Corporation received a $10 million strategic equity investment by Hepalink. in ProMetic at a premium share price of
$0.204 per share (or 63% over the October 15, 2012 closing share price);
• The Corporation US based subsidiary, ProMetic BioTherapeutics Inc. received an orphan drug designation status for its
plasma purified human plasminogen drug by the American Food and Drug Administration (“FDA”) for the treatment of
hypoplasminogenemia, or type I plasminogen deficiency (“T1PD”);
• The Corporation common shares commenced trading on OTCQX International under the symbol PFSCF;
• The Corporation expanded its existing strategic collaboration with Sartorius Stedim Biotech (“SSB”) to include a contribution
of equipment to ProMetic’s plasma purification facility as well as an agreement for the co-commercialization of PPPSTM on a
global basis;
• The Corporation received a $4.8 million purchase order under its ongoing supply agreement with Octapharma;
• The Corporation entered into a licensing and long-term affinity resin supply agreement with one of its existing clients, a global
leader in the biotherapeutics industry;
• The Corporation announced that the recovery yield for Alpha-1 Antitrypsin (“AAT”) achieved with its proprietary PPPS™
represents a 220% improvement over existing industry average and that it has selected AAT as its second plasma-derived
therapeutic to address a well-defined unmet medical need;
• The Corporation presented new pre-clinical data at the 2013 European Respiratory Society (“ERS”) annual congress held in
Barcelona, Spain, suggesting that PBI-4050 offers a new therapeutic approach to Idiopathic Pulmonary Fibrosis (“IPF”);
• The Corporation secured a $10.0 million loan and issued warrants in a financing transaction with Thomvest Seed Capital Inc.,
the Toronto-based investment vehicle of Peter J. Thomson. The Company will use part of the proceeds for the commissioning of
its GMP facility, which will enable the manufacturing of plasma-derived orphan drugs;
• The Corporation announced that it has successfully completed the required GLP toxicology studies performed by a certified
contract research organization confirming that its lead drug candidate, PBI-4050, is safe to advance into clinical trial stages;
• The Corporation achieved two milestones related to its strategic agreement with Hematech Biotherapeutics Inc. which resulted in
US $2.5 million of revenues;
• The Corporation closed a public offering of common shares in the capital of the Corporation issuing a total of 26,651,400
Common Shares at a price of $0.90 per Common Share for gross proceeds of $24.0 million. The net proceeds to the Corporation
from the Offering will be used for the advancement of the plasma-derived orphan drug and small molecule therapeutics clinical
programs and will also allow the Corporation to exercise greater control and ownership over its technology platforms rather
than solely enabling third parties;
16 PROMETIC LIFE SCIENCES INC.
• The Corporation received a $5.1 million purchase order for the supply of affinity resin from an existing client, a global leader in
the biotherapeutics industry; and
• The Corporation achieved a major corporate milestone by successfully completing the first commercial-scale production run at its
ProMetic BioProduction Inc. plasma purification facility located in Laval, Quebec. This production run was completed on schedule
and generated better than expected results.
Financial perFormance
Amounts in tables are expressed in thousands of Canadian dollars, except per share amounts.
Financial condition
The condensed consolidated statements of financial position at December 31, 2013 and 2012 are presented in the following table.
At December 31,
Total current assets
Other long term assets
Capital assets
Licenses and Patents
Total Assets
Total cash disbursing current liabilities
Non-cash disbursing liabilities
Deferred revenues
Warrant liability
Long-term liabilities
Total liabilities
Share capital
Contributed Surplus
Future investment rights
Accumulated other comprehensive income
Deficit
Equity attributable to owners of the parent
Non-controlling interests
Total equity
Total liabilities and equity
2013
$ 35,410
168
9,706
4,588
$ 49,872
2012
$ 17,318
294
1,127
4,252
$ 22,991
$ 14,498
$ 10,716
984
9,311
6,441
$ 31,234
263,320
15,206
6,542
122
(264,858 )
20,332
(1,694 )
18,638
$ 49,872
2,355
-
4,101
$ 17,172
234,563
11,762
6,542
207
(246,470 )
6,604
(785 )
5,819
$ 22,991
Current assets
Current assets increased by $18.1 million in 2013 compared to December 31, 2012. The increase is mainly due to an increase in
cash by $16.2 million due principally to the funds raised in September following the completion of a financing transaction with
Thomvest Capital Seed Inc. and in November following the successful completion of a share offering by prospectus. In the period
between the closing of these financing transactions and the year-end date, funds have been disbursed as described elsewhere in
the MD&A.
An increase in accounts receivable by $9.4 million, due to an increase in the amount outstanding with the entity’s associate and
the recognition of a loan receivable from Invhealth Capital Inc. in the amount of $3.0 million, also contributed to the increase in
current assets. These increases were mainly offset due to the fact that there was no amount outstanding for share subscriptions at
December 31, 2013 whereas a receivable in the amount of $9.8 million was recorded at December 31, 2012.
Capital assets
Capital assets increased by $8.6 million in 2013 compared to December 31, 2012 mainly due to the investment in PBP’s production
facility during the year.
PROMETIC LIFE SCIENCES INC.
17
Total cash disbursing current liabilities
The total cash disbursing current liabilities increased by $3.8 million in 2013 compared to December 31, 2012 mainly due to
an increase in trade payables relating to the investment in PBP’s production facility and to the classification of the advance on
revenues from a supply agreement from long-term liabilities to current liabilities. These increases were partially offset by
a reduction in bank and other loan and in the promissory notes and long-term debt provided by shareholders. Subsequent to
December 31, 2013, the Corporation and the supplier amended the advance agreement whereby the remainder of the advance
will be repayable on April 1, 2015, subject to continuing commercial negotiations which are currently ongoing.
Deferred revenues
Deferred revenues decreased by $1.4 million in 2013 compared to December 31, 2012 as a result of product shipments to which
those deferred revenues related, having been completed during the financial year. Also fewer new up-front payments were
received in 2013 compared to 2012.
Warrant liability
In September 2013, the Corporation completed a financing transaction with Thomvest Seed Capital Inc. in which the Corporation
issued long-term debt, warrants classified in equity and finally warrants that met the definition of a derivative liability under IFRS.
The details of this transaction and the accounting for it are provided in note 17 to the annual consolidated financial statements.
The warrants that are classified in the statement of financial position as a warrant liability, namely the “Second Warrants”, are
measured at their fair value at each reporting date. The variation in the fair value of the warrant liability between reporting periods
is recorded as a gain or a loss in the statement of operations. There is no future cash-disbursement associated with the recorded
liability on the balance sheet, however, if the warrants were to be exercised, the holder would have to pay the exercise price to the
Corporation, which would amount to $15.6 million.
Long-term liabilities
Long-term liabilities increased by $2.3 million in 2013 compared to December 31, 2012. The net increase is the result of an
increase in the long-term debt resulting from the financing transaction with Thomvest Seed Capital Inc. and the reclassification of
the portion of the advance on revenues from a supply agreement previously presented amongst the long-term liabilities at
December 31, 2012 to current liabilities at December 31, 2013.
Share capital
Share capital increased by $28.8 million in 2013 compared to December 31, 2012. The increase results amongst others from the
issuance of common shares following the exercise of warrants and stock options and the completion of renegotiations with
lenders to extend the maturity dates of loans. However, the main transaction contributing to the increase in 2013 was the
issuance of 26,651,400 common share following an offering by way of prospectus for gross proceeds of $24.0 million.
Contributed surplus
Contributed surplus increased by $3.4 million in 2013 compared to December 31, 2012 mainly due to the recognition of
share-based payment expense and the issuance of warrants in financing transactions including loan renegotiations. The increase
was partially offset by a decrease resulting from the exercise of warrants and stock options.
Deficit
The deficit increased as a result of the net loss and the recognition of share issuance expense incurred during the year.
Non-controlling interest
Non-controlling interest deficit increased during the year as the non-controlling members are attributed with their share of
the losses incurred in PBP and in PRDT during the year.
18 PROMETIC LIFE SCIENCES INC.
Results of operations
The condensed consolidated statements of operations for the quarter and the year ended December 31, 2013 compared
to the same periods in 2012 are presented in the following table.
Revenues
$
Quarter ended December 31,
2013
5,078
2012
8,323
$
Expenses
Cost of goods sold
Research and development expenses recharged
Research and development expenses non-rechargeable
Administration and marketing expenses
Loss (gain) on foreign exchange
Loss on disposal of capital assets, licenses and patents
Gain on recognition of loan receivable
Loss on extinguishment of debt
Finance costs
Fair value variation of warrant liability
Net loss (profit) in an associate
Net profit (loss) before income taxes
Income taxes - current
Net loss
Net (loss) income attributable to:
Owners of the parent
Non-controlling interests
Earnings (Loss) per share
Basic and diluted earnings (loss) per share attributable
to the owners of the parent
1,878
1,704
1,258
2,031
115
12
-
-
380
-
(69 )
1,014
-
1,014
1,925
(465 )
6,668
3,982
(212 )
25
(3,015 )
-
678
2,863
-
(7,371 )
131
$ (7,502 )
(7,010 )
(492 )
$ (7,502 )
$
$
Year ended December 31,
2012
2013
$ 23,321
20,644
$
6,594
4,888
13,672
8,581
(638 )
46
(3,015 )
423
1,806
5,485
69
(17,267 )
5,351
2,657
7,764
5,830
116
49
-
497
1,483
-
(2 )
(424 )
131
(17,398 )
$
-
(424 )
$
1,181
(167 )
1,014
(16,489 )
(909 )
(17,398 )
$
234
(658 )
(424 )
$
$
(0.01 )
$
0.00
$
(0.03 )
$
0.00
Revenues
Total revenues for 2013 were $20.6 million compared to $23.3 million for 2012, a decrease of $2.7 million. Total revenues for the
fourth quarter of 2013 were $5.1 million compared to $8.3 million in 2012 representing a decrease of $3.2 million. Revenues
are derived predominantly from product sales, development service revenues and licensing revenues. Revenues from each
source may vary significantly from period to period. The following table provides the breakdown of total revenues by source for
the quarter and the year ending December 31, 2013 and the comparative periods of 2012.
Revenues from the sale of goods
Revenues from the rendering of services
Licensing revenues
Quarter ended December 31,
2012
4,295
3,028
1,000
8,323
2013
$ 2,762
1,276
1,040
$ 5,078
$
$
Year ended December 31,
2013
9,531
8,538
2,575
20,644
$
$
2012
$ 11,548
5,343
6,430
$ 23,321
Revenues from the sale of goods were $9.5 million in 2013 compared to $11.5 million in 2012, representing a decrease of
$2.0 million. This decrease, attributable to the timing of deliveries associated with the Corporation’s bioseparation products
was partially offset by an increase in the conversion rate of the GBP to the Canadian dollar in 2013 which affects the conversion of
the results of a foreign subsidiary.
PROMETIC LIFE SCIENCES INC.
19
Service revenues were $8.5 million in 2013 compared to $5.3 million in 2012, representing an increase of $3.2 million. Service
revenues are derived mainly from to the services rendered to an associated company, NantPro, under an agreement concluded
in 2012 whereby the Corporation development efforts regarding a plasma derived biopharmaceutical product are billed to
Nantpro. The year over year increase is principally due to the fact that the development services under the agreement only started
in the third quarter of 2012 compared to a full year of services provided in 2013. This increase was partially offset by a decrease in
revenues in 2013 regarding the development of bioseparation products.
Licensing revenues were $2.6 million in 2013 compared to $6.4 million in 2012, representing a decrease of $3.9 million. The
current year licensing revenues relate to milestones achieved in the third and fourth quarters of 2013 with Hematech whereas in
2012 the licensing revenues were earned in relation to several license agreements including those with Hematech, Hepalink and
signed with the associated company, NantPro. This decrease reflects the Corporation’s decision to retain greater portion of future
value on some clinical assets, rather than seeking to licence early. It is important to state that licensing revenues, which usually en-
tail the attainment of specified milestones, are only recognized when the milestones are met while the research and development
expenses involved in attaining the milestones (presented as research and development expenses non-rechargeable) are recognized
in the period those costs are incurred which can be several reporting periods prior to the revenue recognition.
The above revenues all pertain to the Protein Technology segment. There were no significant revenues from the Therapeutics division.
Costs of goods sold
Costs of goods sold were $6.6 million in 2013 compared to $5.4 million in 2012, representing an increase of $1.2 million. Although
the revenues from the sale of products declined, the mix of product sold were more heavily weighted towards products with lower
gross margins in 2013 compared to the previous year. The increase in the conversion rate of GBP to CAD, used to convert the results
of a foreign subsidiary, also contributed to the increase in the cost of goods sold.
Recharged research and development expenses
Research and development (“R&D”) expenses recharged were $4.9 million in 2013 compared to $2.7 million in 2012,
representing an increase of $2.2 million. The increase results from a full year of development services to Nantpro compared to a
shorter period in 2012. Service revenues contribute a lower gross margin than product revenues as most of the services are billed
using a cost plus margin formula. During the quarter ended December 31, 2013, certain estimates affecting the allocation of
expenses between recharged and non-rechargeable research and development expense during the year were adjusted in the
fourth quarter leading to a decrease in R&D expenses recharged and an increase in R&D expenses non-rechargeable compared
to the third quarter of 2013.
Research and development expenses – non-rechargeable
Non-rechargeable research and development expenses were $13.7 million in 2013 compared to $7.8 million in 2012,
representing an increase of $5.9 million. The increase is mainly due to the higher level of research activities in the Therapeutics
segment, namely in regards to the PBI-4050 clinical program currently underway, as a result of more stable funding in 2013, and
an increase of expenses in the Protein Technology segment as a result of the costs associated with preparing the Laval plant for
launch which more specifically required the facility to operate with a significant number of staff in order to prepare for cGMP
validation.
Administrative and marketing expenses
Administrative and marketing expenses were $8.6 million in 2013 compared to $5.8 million in 2012 representing an increase of
$2.8 million. The increase is mainly attributable to the increase in compensation expense relating to share-based payments and
increased professional and legal fees.
20 PROMETIC LIFE SCIENCES INC.
Share-based payments
Share-based payments expense represents the expense recorded as a result of stock options and restricted stock units (“RSUs”)
issued to employees and board members. This expense as been recorded under cost of goods sold, research and development
and administration and marketing expenses as indicated in the following table:
Cost of goods sold
Research and development expenses recharged
Research and development expenses non-rechargeable
Administration and marketing expenses
$
Quarter ended December 31,
2013
61
92
616
2,177
$ 2,946
2012
-
$
3
24
72
$ 99
$
2012
$
Year ended December 31,
2013
76
109
692
2,534
$ 3,411
25
10
101
369
$ 505
Share-based payments increased by $2.8 million and $2.9 million during the fourth quarter and the year ended December 31, 2013,
respectively, compared to 2012. The increase is mainly due to a grant of RSUs to senior executives which was made in the fourth
quarter of 2013. The expense relating to stock options also increased mainly due to the increase in the grant date fair value
used as a basis to calculate the expense as a result of the increase in the price of the underlying common shares. The share-based
payments expense is a non-cash expense which is derived from the estimated fair value of the awards granted. The fair value
estimates are calculated using the Black Scholes Merton option valuation model, a model widely used by entities for this purpose.
Gain on recognition of loan receivable
During the fourth quarter of 2013, the Corporation recognized in the consolidated statement of financial position $3.0 million
representing the sums due to ProMetic under a loan to Invhealth Capital Inc. a corporation wholly-owned by the CEO of the
ProMetic.
The loan payments, made between 2008 and 2010 in relation to a loan guarantee provided by the Corporation, had originally been
expensed as “Charges related to a guarantee” since the collectability of the loan was not reasonably assured at the time. The loan
to Invhealth Capital Inc. in the amount of USD 2,011,000, bears interest at 10% per annum and is secured by a pledge in favour of
the Corporation by Invhealth Capital Inc. of all of its shares in Invhealth Holding Inc. and by a pledge in favor of the Corporation by
the CEO of the Corporation of all of his shares of Invhealth Capital Inc. As a result of these pledges, the loan is ultimately secured
by 9,500,000 shares of the Corporation. The loan was due for repayment on March 31, 2016 but was fully repaid in March 2014.
Fair value variation of warrant liability
In September 2013, the Corporation completed a financing transaction with Thomvest Seed Capital Inc. in which the Corporation
issued long-term debt, warrants classified in equity and finally warrants that met the definition of a liability under IFRS. The details
of this transaction and the accounting for it are provided in note 17 to the annual consolidated financial statements. The warrants
that are classified in the statement of financial position as a warrant liability, namely the “Second Warrants”, are measured at their
fair value at each reporting date. The variation in the fair value of the warrant liability between reporting periods is recorded as
a gain or a loss in the statement of operations. There is no future cash-disbursement associated with the recorded liability on the
balance sheet, however, if the warrants were to be exercised, the holder would have to pay the exercise price to the Corporation.
PROMETIC LIFE SCIENCES INC.
21
eBitda analysis
For the years ended December 31, 2013 and December 31, 2012
The EBITDA for each segment and for the total Corporation for the years ended December 31, 2013 and 2012 is presented in the
following tables.
Year ended December 31, 2013
Revenues
Costs of goods sold
R&D expenses recharged
R&D expenses non-rechargeable
Administration and marketing expenses
EBITDA
Year ended December 31, 2012
Revenues
Costs of goods sold
R&D expenses recharged
R&D expenses non-rechargeable
Administration and marketing expenses
EBITDA
Protein
Technologies
$ 20,630
(6,412 )
(4,779 )
(8,020 )
(608 )
811
$
Protein
Technologies
$ 23,290
(5,280 )
(2,647 )
(5,405 )
(556 )
9,402
$
Therapeutics
14
$
-
-
(4,113 )
-
$ (4,099 )
$
Corporate
-
-
-
-
(5,417 )
(5,417 )
$
Therapeutics
$
31
-
-
(1,539 )
-
(1,508 )
$
$
Corporate
-
-
-
-
(4,892 )
(4,892 )
$
Total
$ 20,644
(6,412 )
(4,779 )
(12,133 )
(6,025 )
$ (8,705 )
Total
$ 23,321
(5,280 )
(2,647 )
(6,944 )
(5,448 )
3,002
$
EBITDA is a non-GAAP measure, employed by the Corporation to monitor its performance. As a financial measure that is not
defined or standardized under IFRS, it is unlikely to be comparable to similar measures presented by other companies. The
Corporation calculates its EBITDA by subtracting from revenues, its cost of goods sold, its research and development expenses
recharged and non-rechargeable as well as its administration and marketing expenses and excluding depreciation of capital assets,
amortization of licenses and patents and share-based payments.
The total amounts presented in the EBITDA tables for Cost of goods sold, R&D recharged and non-recharged expenses, and for
administration and marketing expenses exclude depreciation, amortization and share-based payments. The following table
reconciles these amounts to those presented in the condensed consolidated statements of operations:
Totals per Depreciation and
amortization
EBITDA tables
Share-based
payments
Total per
statements of
operations
$ 20,644
(6,412 )
(4,779 )
(12,133 )
(6,025 )
$ (8,705 )
$ 23,321
(5,280 )
(2,647 )
(6,944 )
(5,448 )
$ 3,002
$
$
$
$
-
(106 )
-
(741 )
(22 )
(869 )
-
(46 )
-
(719 )
(14 )
(779 )
$
$
$
$
-
(76 )
(109 )
(692 )
(2,534 )
(3,411 )
-
(25 )
(10 )
(101 )
(369 )
(505 )
$ 20,644
(6,594 )
(4,888 )
(13,566 )
(8,581 )
$ (12,985 )
$ 23,321
(5,351 )
(2,657 )
(7,764 )
(5,830 )
1,718
$
Year ended December 31, 2013
Revenues
Costs of goods sold
R&D expenses recharged
R&D expenses non-rechargeable
Administration and marketing expenses
Year ended December 31, 2012
Revenues
Costs of goods sold
R&D expenses recharged
R&D expenses non-rechargeable
Administration and marketing expenses
22 PROMETIC LIFE SCIENCES INC.
Total EBITDA for the Corporation decreased by $11.7 million for the year ended December 31, 2013 compared to the
corresponding period in 2012 with all segments reporting lower EBITDA in 2013.
EBITDA for the Protein technologies decreased by $8.6 million resulting from a decrease in the contribution from the sale of goods
(revenues less cost of goods sold), due to the timing of certain deliveries and the sale of products more heavily weighted to products
generating lower margins, a decrease in licencing revenues and an increase in non-rechargeable research and development
expenses mainly due to the commencement of activities at the Laval production facility. More specifically, $2.1 million in expenses
have been included in non-rechargeable R&D in 2013 that pertain to the preparation of the plant for start-up and the work
performed towards cGMP validation. This was partially offset by an increase in the contribution from development services
(revenues from the rendering of services less research and development recharged) mainly attributable to the increase in development
services performed for Nantpro in 2013 compared to 2012.
EBITDA for the Therapeutics segment decreased by $2.6 million mainly due to the higher level of research activities, namely in regards
to the PBI-4050 clinical program currently underway, as a result of more stable funding in 2013.
The cost of the corporate activities increased by $0.5 million resulting mainly from an increase in employee benefits and an
increase in legal, professional and filing fees in 2013 compared to 2012.
For the quarters ended December 31, 2013 and December 31, 2012
The EBITDA for each segment and for the total Corporation for the quarters ended December 31, 2013 and 2012 presented in the
following tables.
Quarter ended December 31, 2013
Revenues
Costs of goods sold
R&D expenses recharged
R&D expenses non-rechargeable
Administration and marketing expenses
EBITDA
Quarter ended December 31, 2012
Revenues
Costs of goods sold
R&D expenses recharged
R&D expenses non-rechargeable
Administration and marketing expenses
EBITDA
Protein
Technologies
$ 5,074
(1,837 )
557
(3,892 )
(147 )
(245 )
$
Protein
Technologies
$ 8,315
(1,855 )
(1,701 )
(835 )
(159 )
$ 3,765
Therapeutics
4
$
-
-
(1,910 )
-
$ (1,906 )
Therapeutics
8
$
-
-
(271 )
-
(263 )
$
$
Corporate
-
-
-
-
(1,648 )
(1,648 )
$
$
Corporate
-
-
-
-
(1,798 )
(1,798 )
$
Total
$ 5,078
(1,837 )
557
(5,802 )
(1,795 )
$ (3,799)
Total
$ 8,323
(1,855 )
(1,701 )
(1,106 )
(1,957 )
$ 1,704
PROMETIC LIFE SCIENCES INC.
23
The following table reconciles these amounts to those presented in the condensed consolidated statements of operations:
Quarter ended December 31, 2013
Revenues
Costs of goods sold
R&D expenses recharged
R&D expenses non-rechargeable
Administration and marketing expenses
Quarter ended December 31, 2012
Revenues
Costs of goods sold
R&D expenses recharged
R&D expenses non-rechargeable
Administration and marketing expenses
Totals per Depreciation and
amortization
EBITDA tables
Share-based
payments
Total per
statements of
operations
$ 5,078
(1,837 )
557
(5,802 )
(1,795 )
$ (3,799 )
$ 8,323
(1,855 )
(1,701 )
(1,106 )
(1,957 )
$ 1,704
$
-
(27 )
-
(223 )
(10 )
$ (260 )
$
-
(23 )
-
(128 )
(2 )
$ (153 )
$
-
(61 )
(92 )
(616 )
(2,177 )
$ (2,946 )
$
$
-
-
(3 )
(24 )
(72 )
(99 )
$ 5,078
(1,925 )
465
(6,641 )
(3,982 )
$ (7,005)
$ 8,323
(1,878 )
(1,704 )
(1,258 )
(2,031 )
$ 1,452
Total EBITDA for the Corporation decreased by $5.5 million for the quarter ended December 31, 2013 compared to the
corresponding period in 2012.
EBITDA for the Protein technologies decreased by $4.0 million resulting from a decrease in the contribution from the sale of goods
(revenues less cost of goods sold) due to the timing of certain deliveries and the sale of products more heavily weighted to products
generating lower margins and an increase in non-rechargeable research and development expenses mainly due to the commencement
of activities at the Laval production facility. During the quarter ended December 31, 2013, certain estimates affecting the allocation
of expenses between the two R&D lines during the year were adjusted leading to a decrease in R&D expenses recharged and an
increase in R&D expenses non-rechargeable.
EBITDA for the Therapeutics segment decreased by $1.6 million mainly due to the higher level of research activities, namely
in regards to the PBI-4050 clinical program currently underway, as a result of more stable funding in 2013.
The cost of the corporate activities remained relatively consistent, decreasing slightly by $0.2 million.
cash flow analysis
The condensed consolidated statements of cash flows from the quarter and the year ending December 31, 2013 and the comparatives
periods in 2012 are presented below.
Cash used in operating activities
Cash from financing activities
Cash flows used in investing activities
Net increase in cash
Net effect of currency exchange rate on cash
Cash, beginning of the period
Cash, end of the period
Quarter ended December 31,
2012
$ 904
334
(538 )
2013
$ (7,705 )
21,201
(4,132 )
9,564
(193 )
8,025
$ 17,396
700
(53 )
558
$ 1,205
Year ended December 31,
2013
$ (17,073)
41,055
(7,550 )
16,432
(241 )
1,205
$ 17,396
2012
$ (2,133 )
3,694
(719 )
842
88
275
$ 1,205
24 PROMETIC LIFE SCIENCES INC.
Cash flow used in operating activities increased by $8.4 million and $14.9 million during the quarter and the year ended
December 31, 2013 compared to the same periods in 2012 respectively mainly due to the reduction in the EBITDA for the
Corporation in 2013 and an increase in non-cash working capital items. These increases are in line with the investment in the
clinical development program for PBI-4050, the investment in the Laval plant operations and as a result of lower cash generation
from operations when compared to the previous year. As a result of the Corporation’s ability to secure financing during the year, it
was able to increase its investment in its research projects.
Cash flows from financing activities increased by $20.9 million and $37.4 million during the quarter and the year ended
December 31, 2013 compared to the same periods in 2012 respectively mainly from the proceeds from share and warrant
issuances, notably the share offering by prospectus completed in November 2013. The Corporation also completed a $10 million
financing transaction in September 2013 whereby the Corporation issued debt and warrants. Some of the proceeds from
this transaction were used for the repayment of some shareholder debt.
Cash flows used in investing activities increased by $3.6 million and $6.8 million during the quarter and the year ended
December 31, 2013 compared to the same periods in 2012 respectively mainly due to the investment in capital assets relating to
the Laval production facility. The larger part of this investment occurred during the third and fourth quarters of 2013.
liquidity
As a result of the Corporation’s position in regards to total cash generating current assets, including cash, net of total cash disbursing
current liabilities of $20.0 million at December 31, 2013, the Corporation expects it will be able to meet its contractual obligations
over the next year and continue to fund its planned activities for 2014. As a result of the increase in the share price of the Corporation
during 2013 and in the beginning of 2014, all of the Corporation’s warrants, rights and stock options outstanding are in-the-money
as of the date of this MD&A, and although the timing of the exercise of the holders’ rights cannot predicted, the Corporation is
currently well positioned to obtain additional financing upon their exercise in the future.
contractual oBligations
The Corporation expects to discharge its financial obligations, off-balance sheet obligations such as operating leases, and other
commitments using its current cash and the cash inflows to be generated from the cash generating current assets.
Financial obligations
The financial obligations of the Corporation recognized in the consolidated statement of financial position at December 31, 2013,
by maturity date, are presented in the table below:
At December 31, 2013
Trade and other payables
Promissory notes from shareholders
Repayable government grant and finance leases
Long-term debt provided by shareholders
Advance on revenues from a supply agreement
Long-term debt
Carrying
amount
$ 7,877
10
4
3,026
3,447
6,217
$ 20,581
Payable
Contractual
Cash flows within 1 year
$ 7,877
10
4
3,550
3,550
-
$ 14,991
$ 7,877
10
4
3,550
3,550
15,605
$ 30,596
$
4 -5 years
-
-
-
-
-
15,605
$ 15,605
Total
$ 7,877
10
4
3,550
3,550
15,605
$ 30,596
Commitments
a) The Corporation has total commitments in the amount of $12,577 under various operating leases for the rental of offices,
production plant, and laboratory space and office equipment. The payments for the coming years and thereafter are as follows:
2014
2015
2016
2017
2018 and thereafter
$ 1,998
2,061
2,058
1,391
5,069
$ 12,577
PROMETIC LIFE SCIENCES INC.
25
b) In April 2006, the Corporation paid the American Red Cross an amount of US$1,000,000 for an exclusive license for access to
and use of intellectual property rights for the Plasma Protein Purification System (“PPPS”). ProMetic will collect revenues derived
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 revenues derived from sales of products to third parties. Also, every year, an
annual minimum royalty of US$30,000 is payable.
c) An officer of the Corporation is entitled to receive royalties based on the sales of certain products made available to ProMetic before
joining the Corporation. These royalties are 0.5% of net sales or 3% of revenues received by the Corporation. 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. To date, no royalties have been accrued or paid.
d) In the normal course of business, the Corporation enters into license agreements for the market launching or commercialization
of products. Under these licenses, including those mentioned above, the Corporation has committed to pay royalties ranging generally
between 0.5% and 10% of net sales from products it commercializes.
selected annual inFormation
The following table presents selected audited annual information for the years ended December 31, 2013, 2012 and 2011.
Revenues
Net profit (loss) attributable to owners
of the parent
Net profit (loss) per share attributable to
owners of the parent (basic and diluted)
Total assets
Total non-current financial liabilities
2013
2012
2011
$ 20,644
$ 23,321
$ 17,589
(16,489 )
234
(2,554 )
(0.03 )
49,872
6,217
$
0.00
22,991
3,875
$
(0.01 )
8,692
$ 5,264
The mix and the amounts generated from the three main sources of revenues of the Corporation, namely revenues from the sale
of goods, revenues from rendering services and licence revenues has changed significantly over the last three years. Revenues
from the sales of goods increased significantly from $5.2 million in 2011 to $11.5 million in 2012 to then decrease to $9.5 million
in 2013 while licensing revenues declined over the three-year period. The Corporation did not enter into new licensing agreements
reflecting its decision to retain a greater portion of the future value on some clinical assets. Revenues from rendering services increased
over the three year period as its development service agreement with Nantpro ramped up.
The net loss attributable to the owners of the parent improved in 2012 from 2011 mainly due to the stronger revenues and profits
generated on the sale of goods. In 2013, the net loss increase significantly due to several factors including the increase in share-
based payment expense as a result of RSU grants and vesting thereof, the loss recognized on the fair value variation of the warrant
liability and the important increase in non-rechargeable research and development as the Corporation increased its investment in
both the Protein technology segment and the Therapeutic segment. The net loss per share on a basic and diluted basis varied
consistently with the net loss.
The total assets increased from year to year as the Corporation continued investment in capital assets, especially in 2013. The
significant increase in 2013 is also the result of increases in accounts receivables, inventories and finally cash. The high level of cash
in 2013 is the result of successful financing transactions completed in the third and fourth quarters of 2013.
Non-current financial liabilities have remained relatively stable over the three years as new debts are issued and others are repaid
in cash or by the issuance of equity instruments.
26 PROMETIC LIFE SCIENCES INC.
summary oF quarterly results
Quarter ended
December 31, 2013
September 30, 2013
June 30, 2013
March 31, 2013
December 31, 2012
September 30, 2012
June 30, 2012
March 31, 2012
Net profit/ (loss) attributable
to owners of the parent
Per share basic
and diluted
$ (0.01 )
(0.01 )
(0.01 )
0.00
0.00
0.01
0.00
$ (0.01 )
Total
(7,010 )
(5,258 )
(2,450 )
(1,771 )
1,036
2,479
798
(4,206 )
$
$
Revenues
5,078
$
5,960
5,161
4,445
8,322
7,669
6,271
$ 1,059
Revenues from period to period vary significantly as these are affected by the timing of orders for goods and the shipment of the
orders, the achievement of milestones and depend on the timing and the level of service agreements. The timing of the recogni-
tion of these revenues and the timing of the recognized expense will cause significant variability in the results from quarter to
quarter.
In addition to the variability in the results mentioned above, the following elements have had an important impact on the results
in a given quarter. For the quarters ending in September and December 2013, the loss increased as a result of the loss on the fair
value variation of the warrant liability and the increase in investment in non-rechargeable R&D expenses, notably the investment
in the Laval plant and PBI-4050. In the quarter ending on December 31, 2013, the Corporation recorded a gain as the result of the
recognition of a loan receivable which partially offset the increase in share-based payment expenses recorded in that period.
transactions Between related parties
Loan to a Corporation, wholly-owned by an officer of the Corporation
During the fourth quarter of 2013, the Corporation recognized in the consolidated statement of financial position $3.0 million
representing the sums due to ProMetic under a loan to Invhealth Capital Inc. a corporation wholly-owned by the CEO of the
ProMetic.
The loan payments, made between 2008 and 2010 in relation to a loan guarantee provided by the Corporation, had originally
been expensed as “Charges related to a guarantee” since the collectability of the loan was not reasonably assured at the
time. The loan to Invhealth Capital Inc. in the amount of USD 2,011,000, bears interest at 10% per annum and is secured by a pledge
in favour of the Corporation by Invhealth Capital Inc. of all of its shares in Invhealth Holding Inc. and by a pledge in favour of the
Corporation by the CEO of the Corporation of all of his shares of Invhealth Capital Inc. As a result of these pledges, the loan is
ultimately secured by 9,500,000 shares of the Corporation. The loan was due for repayment on March 31, 2016 but was fully
repaid in March 2014.
Consulting agreement with a director of the Corporation
Following a consulting agreement entered into with a director of the Corporation, success fees of 5% of the relevant proceeds
received by the Corporation, for a total of $600, are payable to the director. As at December 31, 2013, $250 remained unpaid
($500 for the year ended December 31, 2012).
critical accounting estimates
The preparation of the consolidated financial statements requires the use of estimates and assumptions that affect the reported
amounts of revenues, expenses, assets and liabilities and the accompanying disclosures. The uncertainty that is often inherent in
estimates and assumptions could result in material adjustments to assets or liabilities affected in future periods. The critical accounting
estimates involved in the preparation of the consolidated financial statements are as follows:
PROMETIC LIFE SCIENCES INC.
27
Revenue recognition – The Corporation does at times enter into revenue agreements which provide, among other payments, for
upfront payments in exchange for licenses and other access to intellectual property. Management applies its judgment to assess whether
these payments were received in exchange for the provision of goods or services which have stand-alone value to the customer.
Expense recognition of restricted stock units – The expense recognized in regards to the restricted stock units for which the
performance conditions have not been met is based on an estimation of the probability of the successful achievement of a number
of performance conditions, as well as the timing of their achievement. The final expense is only determinable when the outcome
is known. For the year ending on December 31, 2013, the outcome of all the outstanding restricted stock units is known and the
expense in regards to all vested restricted stock units was recognized in the statement of operations. During the interim reporting
periods of 2013 and 2012, the outcome for certain awards was uncertain and the expense recognized in a given period was based
on the estimations described above.
Accounting for loan modifications – When the terms of a loan are modified, it is often accounted for as a de-recognition of
the carrying value of the pre-modified loan and the recognition of a new loan at fair value. In the determination of fair value of the new
loan, the Corporation uses a discounted cash flow technique which includes inputs that are not based on observable market data and
inputs that are derived from observable market data. In the case of its loan modifications, where available, the Corporation seeks
comparable interest rates. If unavailable, it uses those considered appropriate for the risk profile of a corporation in the industry.
Fair value of financial instruments – The individual fair values attributed to the different components of a financing transaction,
notably warrants and debts issued concurrently, are determined using valuation techniques. The Corporation uses judgment to
select the methods used to make certain assumptions and in performing the fair value calculations in order to determine 1) the values
attributed to each component of a transaction at the time of their issuance, 2) the fair value measurements for certain instruments
that require subsequent measurement at fair value on a recurring basis and 3) for disclosing the fair value of financial instruments
subsequently carried at amortized cost. These valuation estimates also require that management make estimates and applies its
judgment in determining certain assumptions. The fair value estimates could be significantly different because of the use of
judgment and the inherent uncertainty in estimating the fair value of these instruments that are not quoted in an active market.
Valuation of deferred income tax assets – To determine the extent to which deferred income tax assets can be recognized,
management estimates the amount of probable future taxable profits that will be available against which deductible temporary
differences and unused tax losses can be utilized. Management exercises judgment to determine the extent to which realization of
future taxable benefits is probable, considering the history of taxable profits, budgets and forecasts and availability of tax strategies.
changes in accounting policies
On January 1, 2013, a number of new accounting standards became effective for the Corporation. Information on the new
standards that are relevant to the Corporation is presented below:
IAS 1 Financial Statement Presentation – Presentation of Items of Other Comprehensive Income (OCI) (“IAS 1”)
The amendments to IAS 1 changes the grouping of items presented in OCI. Items that could be reclassified (or ‘recycled’) to profit
or loss at a future point in time (for example, upon derecognition or settlement) would be presented separately from items
that will never be reclassified. The amendment became effective for annual periods beginning on or after July 1, 2012 and it
applies retrospectively. The adoption of this standard did not have a significant impact on the corporation.
IFRS 10 Consolidated Financial Statements (“IFRS 10”)
IFRS 10 replaces the portion of IAS 27, “Consolidated and Separate Financial Statements”, that addresses the accounting for
consolidated financial statements. It also includes the issues raised in SIC-12, “Consolidation - Special Purpose Entities”. IFRS
10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by
IFRS 10 will require management to exercise significant judgment to determine which entities are controlled, and therefore, are
required to be consolidated by a parent, compared with the requirements that were in IAS 27. This standard became effective for
annual periods beginning on or after January 1, 2013 and is applied retrospectively. The adoption of this standard did not have a
significant impact on the corporation.
IFRS 12 Disclosure of Involvement with Other Entities (“IFRS 12”)
IFRS 12 includes all of the disclosures that were previously in IAS 27 related to consolidated financial statements, as well as all
of the disclosures that were previously included in IAS 31, “Interests in Joint Ventures” and IAS 28, “Investments in Associates”.
28 PROMETIC LIFE SCIENCES INC.
These disclosures relate to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. A number of
new disclosures are also required. This standard became effective for annual periods beginning on or after January 1, 2013. The
adoption of this standard has resulted in certain additional disclosures included in the consolidated financial statements.
IFRS 13 Fair Value Measurement (“IFRS 13”)
IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an
entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is
required or permitted. This standard became effective for annual periods beginning on or after January 1, 2013 and it
applies retrospectively. The adoption of this standard did not have a significant impact on the Corporation.
Financial instruments
Use of financial instruments
The financial instruments that are used by the Corporation result from its operating and investing activities, namely in the
form of accounts receivables and payables, and from its financing activities resulting usually in the issuance of long-term debt.
The Corporation does not use financial instruments for speculative purposes. The following table presents the carrying amounts
of the Corporation’s financial instruments at December 31, 2013 and 2012.
Financial assets
Cash
Restricted cash
Trade receivables, loan to a Corporation, advance to
an officer and other
Share purchase loan to an officer
Share subscription receivable
Convertible preferred shares of AM-Pharma
Financial liabilities
Warrant liability
Bank and other loan
Trade and other payables
Promissory notes from shareholders
Repayable government grant and finance leases
Long-term debt provided by shareholders
Advance on revenues from a supply agreement
Long-term debt
December 31,
2013
December 31,
2012
$ 17,396
139
11,709
450
-
29
9,311
-
7,877
10
4
3,026
3,447
6,217
$
$ 1,205
198
2,708
450
9,822
27
-
1,636
5,094
250
564
4,017
3,030
-
$
Warrant liability
In September 2013, the Corporation completed a financing transaction with Thomvest Seed Capital Inc. in which the Corporation
issued long-term debt, warrants classified in equity and finally warrants that met the definition of a derivative liability under
IFRS. The details of this transaction and the accounting for it are provided in note 17 to the annual consolidated financial
statements. The warrants that are classified in the statement of financial position as a warrant liability, namely the “Second
Warrants”, are measured at their fair value at each reporting date. The variation in the fair value of the warrant liability
between reporting periods is recorded as a gain or a loss under the caption Fair value variation of warrant liability in the
statement of operations. There is no future cash-disbursement associated with the recorded liability on the balance sheet,
however, if the warrants were to be exercised, the holder would have to pay the exercise price to the Corporation.
The fair value of the Second Warrants may change significantly from period to period mainly due to the underlying change in the
Corporation’s share price. If the conversion option is not exercised prior to maturity, the warrants’ fair value will be zero when it
expires. The fair value of these warrants is determined using in combination; i) a Monte Carlo simulation in order to take into
consideration the Market Capitalization Event barrier and ii) a binomial model to compute the warrant valuation for each path
obtained in the Monte Carlo simulation and arrive to an overall fair value for the warrants.
PROMETIC LIFE SCIENCES INC.
29
The fair value of the Second Warrants was estimated at $3,826 and $9,311 as of September 10, 2013 and December 31, 2013,
respectively. Consequently, the increase in the fair value of $5,485 over this period was recognized as a loss in the statement
of operations.
The following assumptions were used in determining the fair value of the warrants upon issuance and for the subsequent
measurement on December 31, 2013: volatility 62%, marketability discount 35%, risk-free interest rates ranging from 2.29% to
2.90% over the potential life period of the warrants and an expected dividend rate of nil. The actual figures for the number of
fully diluted shares outstanding was used as the estimated number of fully diluted of shares over the warrants life. The significant
unobservable inputs used in the fair value estimate are the volatility and the marketability discount.
Impact of financial instruments in the consolidated statements of operations
In addition to the fair value variation of the warrant liability discussed above, the following line items in the consolidated statement
of operations for the year ended December 31, 2013 include income, expense, gains and losses relating to financial instruments:
•
•
•
•
finance costs;
gain on recognition of loan receivable;
loss on extinguishment of debt
foreign exchange gains and losses.
Financial risk management
The Corporation has exposure to credit risk, liquidity risk and market risk. The Corporation’s Board of Directors has the overall respon-
sibility for the oversight of these risks and reviews the Corporation’s policies on an ongoing basis to ensure that these risks are
appropriately managed.
i) Credit risk:
Credit risk is the risk of financial loss to the Corporation if a customer, partner or counterparty to a financial instrument fails to
meet its contractual obligations, and arises principally from the Corporation’s cash, receivables and share subscription receivable
and share purchase loan to an officer. The carrying amount of the financial assets represents the maximum credit exposure.
The Corporation reviews a new customer’s credit history before extending credit and conducts regular reviews of its existing
customers’ credit performance.
The Corporation evaluates accounts receivable balances based on the age of the receivable, credit history of the customers
and past collection experience.
ii) Liquidity risk:
Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they come due. The Corporation
manages its liquidity risk by continuously monitoring forecasts and actual cash flows. To the extent that the Corporation
does need to raise additional funding in the future, management considers securing additional funds through equity, debt or
partnering transactions.
iii) Market risk:
Market risk is the risk that changes in market prices, such as interest rates and foreign exchange rates, will affect the Corporation’s
income or the value of its financial instruments.
a) Interest risk:
The majority of the Corporation’s debt is at a fixed rate, therefore there is limited exposure to changes in interest payments
as a result interest rate risk.
30 PROMETIC LIFE SCIENCES INC.
b) Foreign exchange risk:
The Corporation is exposed to the financial risk related to the fluctuation of foreign exchange rates. The Corporation operates in
the United Kingdom and in the United States and a portion of its expenses incurred and revenues generated are in U.S dollars and
in Great British Pounds (“GBP”). Financial instruments potentially exposing the Corporation to foreign exchange risk consist
principally of cash, receivables, share subscription receivable, bank loan, trade and other payables, repayable government grants,
and advance on revenues from a supply agreement. The Corporation manages foreign exchange risk by holding foreign
currencies to support forecasted cash outflows in foreign currencies. The majority of the Corporation’s revenues are in U.S. dollars
and in GBP which serve to mitigate a portion of the foreign exchange risk.
risk Factors
For a detailed discussion of risk factors which could impact the Corporation’s results of operations and financial position,
other than those risks pertaining to the financial instruments, please refer to the Corporation’s Annual Information Form filed
on www.sedar.com.
disclosure controls and procedures and internal controls over Financial reporting
Disclosure controls and procedures
The Corporation’s Chief Executive Officer and its Chief Financial Officer are responsible for establishing and maintaining the
Corporation’s disclosure controls and procedures. They are assisted in this responsibility by the other Officers of the Corporation.
This group requires that it be fully appraised of any material information affecting the Company so that it may evaluate and
discuss this information and determine the appropriateness and timing of public release.
The Chief Executive Officer and the Chief Financial Officer, after evaluating the effectiveness of the Corporation’s disclosure
controls and procedures as at December 31, 2013, have concluded that the Corporation’s disclosure controls and procedures are
adequate and effective to ensure that material information relating to the Company and its subsidiaries would have been known
to them.
Internal control over financial reporting
Internal control over financial reporting (“ICFRs”) are designed to provide reasonable assurance regarding the reliability of the
Corporation’s financial reporting and compliance with IFRS in its financial statements. The Corporation’s Chief Executive Officer
and Chief Financial Officer, together with other members of management have designed and evaluated the ICFRs to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with IFRS. This design evaluation included documentation activities, management inquiries and other
reviews as deemed appropriate by management in consideration of the size and the nature of the Corporation’s business. As at
December 31, 2013, management assessed the effectiveness of the Company’s ICFRs and, based on that assessment, concluded
that the Company’s ICFRs was effective and that there were no material weaknesses in our ICFRs.
PROMETIC LIFE SCIENCES INC.
31
ANNuAL CONSOLIDATED FINANCIAL STATEMENTS OF
PROMETIC LIFE SCIENCES INC.
For the years ended December 31, 2013 and 2012
INDEPENDENT AUDITORS’ REPORT
To the shareholders of ProMetic Life Sciences Inc.
We have audited the accompanying consolidated financial statements of ProMetic Life Sciences Inc. (the “Corporation”), which
comprise the consolidated statements of financial position as at December 31, 2013 and 2012, and the consolidated statements
of operations, comprehensive loss, changes in equity and cash flows for the years then ended, and a summary of significant
accounting policies and other explanatory information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with
International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the
preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our
audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical
requirements and plan and perform the audits to obtain reasonable assurance about whether the consolidated financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the
auditors consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements
in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies
used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of ProMetic Life
Sciences Inc. as at December 31, 2013 and 2012, and its financial performance and its cash flows for the years then ended in
accordance with International Financial Reporting Standards.
Montreal, Canada
March 25, 2014
1 CPA auditor, CA public accountancy permit no. A120254
PROMETIC LIFE SCIENCES INC.
33
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands of Canadian dollars)
At December 31
ASSETS (note 21)
Current assets
Cash (note 6)
Accounts receivable (note 7)
Share subscription receivable (note 22)
Inventories (note 8)
Total cash generating current assets
Prepaid expenses
Total current assets
Restricted cash (note 6)
Other investment (note 9)
Investment in an associate (note 10)
Capital assets (note 11)
Licenses and patents (note 12)
Total assets
LIABILITIES AND EQUITY
Current liabilities
Bank and other loan (note 13)
Trade and other payables (note 14)
Income tax payable
Promissory notes from shareholders (note 15)
Current portion of repayable government grant and finance lease obligations
Current portion of long-term debt provided by shareholders
Current portion of advance on revenues from a supply agreement
Total cash disbursing current liabilities
Deferred revenues (note 16)
Warrant liability (note 17)
Total curent liabilities
Long-term portion of lease inducement
Long-term portion of government grant and finance lease obligations (note 18)
Long-term debt provided by shareholders (note 19)
Advance on revenues from a supply agreement (note 20)
Long-term debt (note 21)
Total liabilities
EQUITY
Share capital issued and to be issued (note 22)
Contributed surplus
Future investment rights
Accumulated other comprehensive income
Deficit
Equity attributable to owners of the parent
Non-controlling interests (note 23)
Total equity
Total liabilities and equity
Commitments and contingencies (notes 32 and 33)
The accompanying notes are an integral part of the consolidated financial statements.
On behalf of the Board
Director
Director
34 PROMETIC LIFE SCIENCES INC.
2013
2012
$ 17,396
14,172
-
2,979
34,547
863
35,410
139
29
-
9,706
4,588
$ 49,872
$
-
7,877
134
10
4
3,026
3,447
14,498
984
9,311
24,793
224
-
-
-
6,217
$ 31,234
263,320
15,206
6,542
122
(264,858 )
20,332
(1,694 )
18,638
$ 49,872
$
1,205
4,750
9,822
1,238
17,015
303
17,318
198
27
69
1,127
4,252
$ 22,991
$
1,636
5,094
-
250
560
600
2,576
10,716
2,355
-
13,071
226
4
3,417
454
-
17,172
$
234,563
11,762
6,542
207
(246,470 )
6,604
(785 )
5,819
$ 22,991
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of Canadian dollars except for per share amounts)
Years ended December 31
Revenues (note 25)
Expenses (note 26)
Cost of goods sold
Research and development expenses recharged
Research and development expenses non-rechargeable
Administration and marketing expenses
Loss (gain) on foreign exchange
Loss on disposal of capital assets, licenses and patents
Gain on recognition of loan receivable (note 7)
Loss on extinguishment of debt (note 19)
Finance costs (note 26)
Fair value variation of warrant liability (note 17)
Net loss (profit) in an associate (note 10)
Net loss before income taxes
Income taxes - current (note 29)
Net loss
Net (loss) income attributable to:
Owners of the parent
Non-controlling interests (note 23)
Earnings (Loss) per share
Basic and diluted earnings (loss) per share attributable to the owners
of the parent
Weighted average number of outstanding shares (in thousands)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands of Canadian dollars)
Years ended December 31
Net loss
Other comprehensive income
Items that may be subsequently reclassified to profit and loss:
Change in unrealized exchange differences on translation of financial
statements of foreign subsidiaries
Total comprehensive loss
Total comprehensive (loss) income attributable to:
Owners of the parent
Non-controlling interests
The accompanying notes are an integral part of the consolidated financial statements.
2013
2012
$ 20,644
$ 23,321
6,594
4,888
13,672
8,581
(638 )
46
(3,015 )
423
1,806
5,485
69
(17,267 )
5,351
2,657
7,764
5,830
116
49
-
497
1,483
-
(2 )
(424 )
131
-
$ (17,398 )
$
(424 )
(16,489 )
(909 )
234
(658 )
$ (17,398)
$
(424 )
$
(0.03 )
493,236
$
0.00
421,073
2013
2012
$ (17,398 )
$
(424 )
(85)
48
$ (17,483 )
$
(376 )
(16,574 )
(909 )
282
(658 )
$ (17,483 )
$
(376 )
PROMETIC LIFE SCIENCES INC.
35
CONSOLIDATED STATEMENTS OF CHANGES IN EQuITY
(in thousands of Canadian dollars)
Contributed Surplus
Share
capital
Share-
based
payments Warrants
$
$
$
Foreign
currency
translation
reserve
$
Future
investment
rights
$
Non-
controlling
Total
equity
interets (deficiency )
$
$
Deficit
$
Total
$
220,777
Balance at January 1, 2012
-
Net Loss
-
Foreign currency translation reserve
Share issue expenses (note 22)
-
Share-based payments (note 22)
-
Exercise of warrants (note 22)
191
Issuance of shares (note 22)
3,773
Share capital to be issued (note 22) 9,822
Issuance of warrants (note 22)
-
2,711
-
-
-
505
-
-
-
-
7,421
-
-
-
-
(56 )
-
-
1,181
159
-
48
-
-
-
-
-
-
6,542
-
-
-
-
-
-
-
-
(246,051 )
234
-
(653 )
-
-
-
-
-
(8,441 )
234
48
(653 )
505
135
3,773
9,822
1,181
(127 )
(658 )
-
-
-
-
-
-
-
(8,568 )
(424 )
48
(653 )
505
135
3,773
9,822
1,181
Balance at December 31, 2012
234,563
3,216
8,546
207
6,542
(246,470 )
6,604
(785 )
5,819
Net loss
Foreign currency translation reserve
Share issue expenses (note 22)
Share-based payments (note 22)
Exercise of options (note 22)
Exercise of warrants (note 22)
Issuance of shares (note 22)
Issuance of warrants (note 22)
-
-
-
-
1,294
2,702
24,761
-
-
-
-
3,411
(308)
-
-
-
-
-
-
-
-
(784 )
-
1,125
-
(85 )
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(16,489 ) (16,489 )
(85 )
(1,899 )
3,411
986
1,918
24,761
1,125
-
(1,899 )
-
-
-
-
-
(909 )
-
-
-
-
-
-
-
(17,398 )
(85 )
(1,899 )
3,411
986
1,918
24,761
1,125
Balance at December 31, 2013 263,320
The accompanying notes are an integral part of the consolidated financial statements.
8,887
6,319
122
6,542
(264,858 ) 20,332
(1,694 )
18,638
36 PROMETIC LIFE SCIENCES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of Canadian dollars)
Years ended December 31
2013
2012
Cash flows used in operating activities
Net loss for the year
Adjustments to reconcile net loss to cash flows
used in operating activities:
Expenses paid with shares
Net loss in an associate
Finance costs
Licensing revenues
Loss on disposal of capital assets, licenses and patents
Fair value variation of warrant liability
Loss on extinguishment of debt
Share-based payments
Advance on revenues from a supply agreement
unrealized foreign exchange loss
Depreciation of capital assets
Amortization of license and patents
Change in non-cash working capital items
Cash flows from financing activities
Proceeds from share and warrant issuances
Exercise of options
Exercise of warrants
Share issue expenses
Interest paid
Promissory notes from shareholders
Issuance of bank and other loan
Issuance of long-term debt, warrants and
warrant liability, net of finance costs (note 17)
Repayment of promissory notes from shareholders
Repayment of a repayable government grant and finance leases
Repayment of long-term debt provided by shareholders
Repayment of bank loan and other loan
Repayment of the advance on revenues from a supply agreement
Cash flows used in investing activities
Interest received
Disposal of an investment
Additions to capital assets
Additions to licenses and patents
Net change in cash during the year
Net effect of currency exchange rate on cash
Cash, beginning of the year
Cash, end of the year
The accompanying notes are an integral part of the consolidated financial statements.
$
(17,398 )
$
(424 )
6
69
1,615
-
68
5,485
423
3,411
133
33
351
518
(5,286 )
(11,787 )
$ (17,073 )
33,894
986
1,918
(2,150 )
(153 )
-
-
9,892
(240 )
(556 )
(900 )
(1,636 )
-
41,055
23
68
(6,930 )
(711 )
(7,550 )
16,432
(241 )
1,205
17,396
$
$
$
45
(2 )
704
(474 )
51
-
497
505
133
2
301
478
1,816
(3,949 )
(2,133 )
3,270
-
-
(122 )
286
100
884
-
(260 )
(226 )
-
-
(238 )
3,694
-
35
(487 )
(267 )
( 719 )
842
88
275
1,205
$
$
$
$
PROMETIC LIFE SCIENCES INC.
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2013 and 2012
(In thousands of Canadian dollars, except share and
per share amounts or as otherwise specified)
1. Nature of operations
ProMetic Life Sciences Inc. (“ProMetic” or the “Corporation”), incorporated under the Canada Business Corporations Act, is a
long-established, publicly traded (TSX symbol: PLI) (OTCQX symbol: PFSCF), biopharmaceutical Corporation with globally
recognized expertise in bioseparations, plasma-derived therapeutics and small-molecule drug development. ProMetic is fo-
cused on bringing safer, cost-effective and more convenient products to both existing and emerging markets. ProMetic offers
its exclusive technology platform for large-scale drug purification of biologics, drug development, proteomics and the elimina-
tion of pathogens to a growing base of industry leaders and uses its own affinity technology that provides for efficient extrac-
tion and purification of therapeutic proteins from human plasma in order to develop therapeutics and orphan drugs. ProMetic
is also active in developing its own novel small molecule therapeutic products targeting unmet medical needs in the field of
fibrosis, neutropenia, cancer, and autoimmune disease/inflammation as well as certain nephropathies.
The Corporation’s head office is located at 440, Boul. Armand-Frappier, suite 300, Laval, Québec, Canada, H7V 4B4. ProMetic
has R&D facilities in the uK, the u.S. and Canada, manufacturing facilities in the uK and business development activities in the
u.S., Europe and Asia.
2. Significant Accounting Policies
a) Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards
(“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and were authorized for issue by the Board of
Directors on March 25, 2014.
b) Basis of measurement
The consolidated financial statements have been prepared on a historical cost basis, except for cash, restricted cash and
the warrant liability which have been measured at fair value.
c) Functional and presentation currency
The consolidated financial statements are presented in Canadian dollars, which is also the parent Corporation’s functional
currency.
d) Basis of consolidation
The consolidated financial statements include the accounts of ProMetic Life Sciences Inc., and those of its subsidiaries.
The Group’s material subsidiaries at the end of the year are as follows:
Name of subsidiary
Segment activity
Place of incorporation
and operation
ProMetic BioSciences Inc.
ProMetic BioProduction Inc.
ProMetic Biosciences (uSA), Inc.
ProMetic BioSciences Ltd
ProMetic BioTherapeutics Inc.
ProMetic BioTherapeutics Ltd.
ProMetic Manufacturing Inc.
Pathogen Removal and Diagnostic
Technologies Inc. (“PRDT”)
Therapeutics
Protein Technology
Protein Technology
Protein Technology
Protein Technology
Protein Technology
Protein Technology
Quebec, Canada
Quebec, Canada
Maryland, u.S.A
united Kingdom
Delaware, u.S.A
united Kingdom
Quebec, Canada
Proportion of ownership
interest held by the group
31/12/2012
100%
87%
100%
100%
100%
100%
100%
31/12/2013
100%
87%
100%
100%
100%
100%
100%
Protein Technology
Delaware, u.S.A
77%
77%
The Corporation consolidates investees when, based on the evaluation of the substance of the relationship with the
Corporation, it concludes that it controls the investees. The Corporation controls an investee when it is exposed, or has rights, to
variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
The financial statements of the subsidiaries are prepared for the same reporting period as the parent corporation, using consistent
accounting policies. All intra-group transactions, balances, income and expenses are eliminated in full upon consolidation.
38 PROMETIC LIFE SCIENCES INC.
e) Investment in an associate
The Corporation’s investment in its associate, NantPro BioSciences, LLC (“NantPro”) is accounted for using the equity method.
An associate is an entity in which the Corporation has significant influence. under the equity method, the investment in
the associate is carried on the consolidated statement of financial position at cost plus post acquisition changes in the
Corporation’s share of net assets of the associate.
The consolidated statement of operations reflect the Corporation’s share of the results of operations of the associate. When
there has been a change recognised directly in the equity of the associate, the Corporation recognises its share of any changes
and discloses this, when applicable, in the consolidated statement of changes in equity. Profits and losses resulting from trans-
actions between the Corporation and the associate are recognized in the Corporation’s consolidated financial statements only
to the extent of the unrelated investors’ interests in the associate.
If the Corporation’s share of cumulative losses of an associate equals or exceeds its interest in the associate, the Corporation
discontinues recognising its share of further losses. After the interest in an associate is reduced to zero, additional losses are
provided for, and a liability is recognised, only to the extent that the Corporation has incurred legal or constructive obligations
or made payments on behalf of the associate. If the associate subsequently reports profits, the Corporation resumes recognising
its share of those profits only after its share of the profits equals the share of losses not recognised.
After application of the equity method, the Corporation determines whether it is necessary to recognise an additional
impairment loss on its investment in its associate. The Corporation determines at each reporting date whether there is any
objective evidence that the investment in the associate is impaired. If this is the case, the Corporation calculates the amount
of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the
amount in the Net profit (loss) in an associate in the consolidated statement of operations.
upon loss of significant influence over the associate, the Corporation measures and recognises any retaining investment at its
fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of
the retained investment and proceeds from disposal is recognised in profit or loss.
f) Financial instruments
The classification and measurement of the Corporation’s financial instruments are as follows:
Financial assets and financial liabilities at fair value through profit and loss
Cash, restricted cash and the warrant liability are respectively classified at fair value through profit and loss. They are measured
at fair value and changes in fair value are recognized in the consolidated statements of operations. Directly related transaction
costs are recognized in the consolidated statements of operations.
Loans and receivables
Accounts receivable and share subscription receivable, excluding tax credits receivable and sales taxes receivable, are classified
as loans and receivables. They are initially recognized at fair value and subsequently carried at amortized cost using the effective
interest method.
Available-for-sale assets
The convertible preferred shares of AM-Pharma Holding B.V., a private corporation, are classified as available-for-sale and are
measured at cost since their fair value cannot be measured reliably.
Financial liabilities
Bank and other loans, trade and other payables, promissory notes from shareholders, repayable government grant, long-term
debt provided by shareholders, advance on revenues from a supply agreement and long-term debt are classified as other financial
liabilities. They are measured at amortized cost using the effective interest method.
PROMETIC LIFE SCIENCES INC.
39
Impairment of investments
When, in management’s opinion, there has been a significant or prolonged decline in value of an investment, 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.
g) Inventories
Inventories of raw materials, work in progress and finished goods are valued at the lower of cost and net realizable value.
Cost is determined on a first in, first out basis.
h) Capital assets
Capital assets are recorded at cost less any government assistance, accumulated depreciation and accumulated impairment losses, if any.
Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets, as described below.
Capital asset
Leasehold improvements
Equipment and tools
Office equipment and furniture
Computer equipment
Period
2.5 - 16 years
5 - 15 years
5 - 10 years
3 - 5 years
The estimated useful lives, residual values and depreciation method are reviewed annually with the effect of any changes
in estimates accounted for on a prospective basis.
The gain or loss arising on the disposal or retirement of a capital asset is determined as the difference between the sales
proceeds and its carrying amount and is recognized in profit or loss.
i) Government assistance
Government assistance programs, including investment tax credits on research and development expenses, are reflected as
reductions to the cost of the assets or to the expenses to which they relate and are recognized when there is reasonable
assurance that the assistance will be received and all attached conditions are complied with. Where government assistance
is received in the form of a repayable working capital grant, it is recorded as a liability.
j) Licenses and patents
Licenses and patents were acquired separately and include acquired rights as well as licensing fees for product manufacturing
and marketing. They are carried at cost less accumulated amortization. Amortization is calculated over the estimated useful
lives of the licenses and patents acquired using the straight-line method over a period not exceeding 20 years. Licenses and
patents are assessed for impairment at each reporting date when there are indicators of impairment present. The estimated
useful lives and amortization method are reviewed annually, with the effect of any changes in estimates being accounted for
on a prospective basis. The amortization expense is recognized in the consolidated statements of operations in the expense
category consistent with the function of the intangible assets.
Expenditure on research activities is recognized as an expense in the period during which it is incurred.
An internally generated intangible asset arising from development (or from the development phase of an internal project) is
recognized if, and only if, all of the following have been demonstrated:
• the technical feasibility of completing the intangible asset so that it will be available for use or sale;
• the intention to complete the intangible asset and use or sell it;
• the ability to use or sell the intangible asset;
• how the intangible asset will generate probable future economic benefits;
• the availability of adequate technical, financial and other resources to complete the development and to use or sell
the intangible asset; and
• the ability to measure reliably the expenditure attributable to the intangible asset during its development.
To date, the Corporation has not capitalized any development costs.
40 PROMETIC LIFE SCIENCES INC.
k) Impairment of tangible and intangible assets
At the end of each reporting period, the Corporation reviews the carrying amounts of its tangible and intangible assets to
determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. Where it is not
possible to estimate the recoverable amount of an individual asset, the Corporation estimates the recoverable amount of the
cash-generating unit (CGu) (i.e. the smallest identifiable group of assets that generates cash inflows that are largely independent
of the cash inflows from other assets, groups of assets or CGus) to which the asset belongs. Where a reasonable and consistent
basis of allocation can be identified, the corporate assets are also allocated to individual CGus, or otherwise they are allocated
to the smallest group of CGus for which a reasonable and consistent allocation basis can be identified.
The recoverable amount is the higher of the fair value less costs to sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been
adjusted.
An impairment loss is recognized when the carrying amount of an asset or a CGu exceeds its recoverable amount by the
amount of this excess. An impairment loss is recognized immediately in profit or loss in the period during which the loss is
incurred. Where an impairment loss subsequently reverses, the carrying amount of the asset or CGu is increased to the revised
estimate of its recoverable amount; on reversal of an impairment loss, the increased carrying amount does not exceed the
carrying amount that would have been determined had no impairment loss been recognized for the asset or CGu in prior
periods. A reversal of an impairment loss is recognized immediately in profit or loss.
l) Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer
returns and other similar allowances.
The Corporation earns revenues from research and development services, license fees and sale of goods, which may include
multiple elements. The individual elements of each agreement are divided into separate units of accounting, if certain criteria
are met. The applicable revenue recognition method is then applied to each unit. Otherwise, the applicable revenue recognition
criteria are applied to combined elements as a single unit of accounting.
Rendering of services
Revenues from research and development services are recognized using the proportional performance method. under this
method, revenues are recognized proportionally with the degree of completion of the services under the contract when it is
probable that the economic benefits will flow to the Corporation and revenue and costs associated with the transaction can
be measured reliably.
Licensing fees
Certain license fees are comprised of up-front fees and milestone payments. up-front fees are recognized over the estimated
term during which the Corporation maintains substantive obligations. Milestone payments are recognized as revenue when the
milestone is achieved, customer acceptance is obtained and the customer is obligated to make performance payments. Certain
license arrangements require no continuing involvement by the Corporation. Non-refundable license fees are recognized as
revenue when the Corporation has no further involvement or obligation to perform under the arrangement, the fee is fixed or
determinable and collection of the amount is reasonably assured.
Sale of goods
Revenue from the sale of goods is recognized when all the following conditions are satisfied:
• the Corporation has transferred to the buyer the significant risks and rewards of ownership of the goods;
• the Corporation retains neither continuing managerial involvement to the degree usually associated with ownership
nor effective control over the goods sold;
• the amount of revenue can be measured reliably;
• it is probable that the economic benefits associated with the transaction will flow to the entity; and;
• the costs incurred or to be incurred in respect of the transaction can be measured reliably.
PROMETIC LIFE SCIENCES INC.
41
Amounts received in advance of meeting the revenue recognition criteria are recorded as deferred revenue on the consolidated
statements of financial position.
m) Foreign currency translation
The Corporation’s consolidated financial statements are presented in Canadian dollars, which is also the parent corporation’s
functional currency.
i) Transactions and balances
Transactions in foreign currencies are initially recorded by the Corporation and its entities at their respective functional
currency rates prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies
are retranslated at the functional currency spot rate of exchange ruling at the reporting date. All differences are taken to the
consolidated statements of operations. Non-monetary items that are measured in terms of historical cost in a foreign currency
are translated using the exchange rates as at the dates of the initial transactions.
ii) Group companies
The assets and liabilities of foreign operations are translated into Canadian dollars at the rate of exchange prevailing at the
reporting date and their statements of operations are translated at exchange rates prevailing at the dates of the transactions.
The exchange differences arising on the translation are recognised in other comprehensive income (loss). On disposal of a
foreign operation, the component of other comprehensive income (loss) relating to that particular foreign operation is
recognised in the consolidated statement of operations and comprehensive loss.
n) Income taxes
The Corporation uses the liability method of accounting for income taxes. Deferred income tax assets and liabilities are
recognized in the consolidated statement of financial position for the future tax consequences attributable to differences
between the consolidated financial statements carrying values of existing assets and liabilities and their respective income tax
bases. Deferred income tax assets and liabilities are measured using income tax rates expected to apply when the assets are
realized or the liabilities are settled. The effect of a change in income tax rates is recognized in the year during which these
rates change. Deferred income tax assets are recognized to the extent that it is probable that future tax profits will allow the
future tax assets to be recovered.
o) Share-based payments
The Corporation has a stock option plan and a restricted share unit plan. The fair value of stock options granted is determined
at the grant date using the Black-Scholes option pricing model, and is expensed over the vesting period of the options. Awards
with graded vesting are considered to be multiple awards for fair value measurement. The fair value of restricted stock units is
determined using the market value of the Corporation’s shares on the grant date. In determining the expense to recognize over
the vesting period, the Corporation will, in the case of restricted share units and stock options for which vesting is dependent
on meeting performance targets, estimate the outcome of the performance targets and revise those estimates until the final
outcome is determined. An estimate of the number of awards that are expected to be forfeited is also made at the time of
grant and revised periodically if actual forfeitures differ from those estimates. The Corporation’s policy is to issue new shares
upon the exercise of stock options and when the shares earned under the restricted share unit plan are issued.
p) Earnings per share
The Corporation presents basic and diluted earnings per share (“EPS”) data for its common shares. Basic EPS is calculated
by dividing the profit or loss attributable to common shareholders of the Corporation by the weighted average number of
common shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to
common shareholders and the weighted average number of common shares outstanding, adjusted for the effects of all
dilutive potential common shares, which comprise warrants, stock options and restricted share units. For the years ending
on December 31, 2013 and 2012, all warrants, stock options and restricted share units were anti-dilutive since the
Corporation reported net losses.
q) Share issue expenses
The Corporation records share issue expenses as an increase to the deficit.
42 PROMETIC LIFE SCIENCES INC.
r) Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that takes a substantial period
of time to get ready for its intended use or sale are capitalized as part of the cost of the respective asset. All other borrowing
costs are recognized in profit or loss in the period during which they occur. Borrowing costs consist of interest and other costs
that an entity incurs in connection with the borrowing of funds. No borrowing costs have been capitalized by the Corporation
as there are no assets which take a substantial period of time to get ready for their intended use or sale.
s) Statement of financial position presentation
Following the issuance by the Corporation in September 2013, of a warrant liability, that entails no future cash disbursement
by the Corporation and is presented as a current liability, the Corporation decided that it is relevant to the understanding of
the entity’s financial position to sub-totals within current assets and current liabilities, representing the carrying value of those
items that will generate or require future cash flows. Management uses these measures, amongst others, in assessing its short-
term liquidity needs.
3. Significant accounting judgments and estimation uncertainty
The preparation of these consolidated financial statements requires the use of judgments, estimates and assumptions that
affect the reported amounts of revenues, expenses, assets and liabilities and the accompanying disclosures. The uncertainty
that is often inherent in estimates and assumptions could result in material adjustments to assets or liabilities affected in future
periods.
Significant judgments
Revenue recognition – The Corporation does at times enter into revenue agreements which provide, among other payments,
for upfront payments in exchange for licenses and other access to intellectual property. Management applies its judgment to
assess whether these payments were received in exchange for the provision of goods or services which have stand-alone value
to the customer.
Consolidated financial statements – In determining that the Corporation did not control, but had only significant influence
on an associated corporation described in note 10, consideration was given to the composition of the entity’s board of directors
and the manner in which key operating and financing decisions are made. A conclusion that the Corporation controlled the
investment would have required that its assets and liabilities and results of operations be consolidated with those of the Cor-
poration, along with the elimination of all inter-company transactions.
Functional currency – The functional currency of foreign subsidiaries is reviewed on an ongoing basis to assess if changes
in the underlying transactions, events and conditions have resulted in a change. During the year ended December 31, 2013,
no changes were deemed necessary. In addition, judgment is applied in order to determine whether the inter-company loans
denominated in foreign currencies form part of the parent Corporation’s net investment in the foreign subsidiary. Considering
such loans as part of the net investment in the foreign subsidiary results in foreign currency translation gains or losses resulting
from the translation of these loans being recorded in other comprehensive loss instead of the statement of operations.
Estimates and assumptions
Expense recognition of restricted stock units – The expense recognized in regards to the restricted stock units for which
the performance conditions have not been met is based on an estimation of the probability of the successful achievement of
a number of performance conditions, as well as the timing of their achievement. The final expense is only determinable when
the outcome is known. For the year ended on December 31, 2013, the outcome of all the outstanding restricted stock units is
known and the expense in regards to all vested restricted stock units was recognized in the consolidated statement of
operations.
PROMETIC LIFE SCIENCES INC.
43
Accounting for loan modifications – As described in note 19 (b), when the terms of a loan are modified, it is often
accounted for as a de-recognition of the carrying value of the pre-modified loan and the recognition of a new loan at the then
fair value. In the determination of fair value, the Corporation uses a discounted cash flow technique which includes inputs that
are not based on observable market data and inputs that are derived from observable market data. In the case of its loan
modifications, where available, the Corporation seeks comparable interest rates. If unavailable, it uses those considered
appropriate for the risk profile of a corporation in the industry.
Fair value of financial instruments – The individual fair values attributed to the different components of a financing
transaction, notably warrants and debts issued concurrently, are determined using valuation techniques. The Corporation
uses judgment to select the methods used to make certain assumptions and in performing the fair value calculations in order
to determine 1) the values attributed to each component of a transaction at the time of their issuance, 2) the fair value
measurements for certain instruments that require subsequent measurement at fair value on a recurring basis and 3) for
disclosing the fair value of financial instruments subsequently carried at amortized cost. These valuation estimates also
require that management make estimates and applies its judgment in determining certain assumptions. The fair value
estimates could be significantly different because of the use of judgment and the inherent uncertainty in estimating the
fair value of these instruments that are not quoted in an active market. The assumptions regarding the warrant liability and
the long-term debt issued during the year are disclosed in notes 17 and 21 respectively.
Valuation of deferred income tax assets – To determine the extent to which deferred income tax assets can be recognized,
management estimates the amount of probable future taxable profits that will be available against which deductible temporary
differences and unused tax losses can be utilized. Management exercises judgment to determine the extent to which realization
of future taxable benefits is probable, considering the history of taxable profits, budgets and forecasts and availability of tax
strategies.
4. Adoption of new accounting standards
On January 1, 2013, a number of new accounting standards became effective for the Corporation. Information on the new
standards that are relevant to the Corporation is presented below:
IAS 1 Financial Statement Presentation – Presentation of Items of Other Comprehensive Income (OCI) (“IAS 1”)
The amendments to IAS 1 changes the grouping of items presented in OCI. Items that could be reclassified (or ‘recycled’) to
profit or loss at a future point in time (for example, upon derecognition or settlement) would be presented separately from
items that will never be reclassified. The amendment became effective for annual periods beginning on or after July 1, 2012
and it applies retrospectively. The adoption of this standard did not have a significant impact on the Corporation.
IFRS 10 Consolidated Financial Statements (“IFRS 10”)
IFRS 10 replaces the portion of IAS 27, “Consolidated and Separate Financial Statements”, that addresses the accounting for
consolidated financial statements. It also includes the issues raised in SIC-12, “Consolidation - Special Purpose Entities”. IFRS
10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by
IFRS 10 will require management to exercise significant judgment to determine which entities are controlled, and therefore, are
required to be consolidated by a parent, compared with the requirements that were in IAS 27. This standard became effective
for annual periods beginning on or after January 1, 2013 and is applied retrospectively. The adoption of this standard did not
have a significant impact on the Corporation.
IFRS 12 Disclosure of Involvement with Other Entities (“IFRS 12”)
IFRS 12 includes all of the disclosures that were previously in IAS 27 related to consolidated financial statements, as well as
all of the disclosures that were previously included in IAS 31, “Interests in Joint Ventures” and IAS 28, “Investments in
Associates”. These disclosures relate to an entity’s interests in subsidiaries, joint arrangements, associates and structured
entities. A number of new disclosures are also required. This standard became effective for annual periods beginning on or
after January 1, 2013. The adoption of this standard has resulted in certain additional disclosures included in the consolidated
financial statements.
44 PROMETIC LIFE SCIENCES INC.
IFRS 13 Fair Value Measurement (“IFRS 13”)
IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an
entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is
required or permitted. This standard became effective for annual periods beginning on or after January 1, 2013 and it applies
retrospectively. The adoption of this standard did not have a significant impact on the Corporation.
5. New standards and interpretations not yet adopted
Standards and interpretations issued but not yet effective up to the date of the Corporation’s consolidated financial statements
are listed below. This listing of standards and interpretations issued are those that the Corporation reasonably expects to have
an impact on disclosures, financial position or performance when applied at a future date. The Corporation intends to adopt
these standards when they become effective.
IFRS 9 Financial Instruments (“IFRS 9”)
The IASB aims to replace IAS 39 Financial Instruments: Recognition and Measurement in its entirety with IFRS 9. To date, the
sections dealing with recognition, classification, measurement and derecognition of financial assets and liabilities as well as the
section dealing with hedge accounting have been published but limited amendments are still being considered. The section
dealing with impairment methodology is still being developed. In November 2013, the IASB decided to defer to a date to be
announced the implementation of IFRS 9 however entities may choose to early implement certain sections of the standard.
The full impact of IFRS 9 on the Corporation will be evaluated after the remaining stages of the IASB ‘s project to replace
IAS 39 are finalized.
IFRIC 21 Levies
In May 2013, the IASB issued the IFRIC 21 Levies that sets out the accounting for an obligation to pay a levy that is not income tax.
The interpretation addresses what an obligating event is that gives rise to pay a levy and when should a liability be recognized. This
interpretation is effective for annual periods beginning on or after January 1, 2014, and is applied retroactively, with earlier adoption
permitted. The Corporation is currently assessing the impact of this interpretation on its consolidated financial statements.
6. Cash and restricted cash
Cash consists of cash balances with banks. Restricted cash is composed of a guaranteed investment certificate, bearing interest
at 0.35% per annum (one guaranteed investment certificate at December 31, 2012, bearing interest at 0.35%), pledged as
collateral for a letter of credit to a landlord in the amount of $130 as at December 31, 2013 and 2012), which automatically
renews until the end of the lease.
7. Accounts receivable
Trade
Loan to a Corporation, wholly-owned by
an officer of the Corporation
Tax credits receivable
Sales taxes receivable
Advance to an officer
Other
2013
$ 8,519
3,015
1,422
1,041
82
93
$ 14,172
2012
$ 2,622
-
1,893
149
-
86
$ 4,750
Loan to a Corporation, wholly-owned by an officer of the Corporation
During the fourth quarter of 2013, the Corporation recognized in the consolidated statement of financial position the loan to
a corporation wholly-owned by an officer of the Corporation. The loan payments, made between 2008 and 2010 in relation to
a loan guarantee provided by the Corporation, had originally been expensed as “Charges related to a guarantee” since the
collectability of the loan was not reasonably assured at the time. The principal of the loan in the amount of uSD 2,011,000, bears
interest at 10% per annum and is secured by a pledge in favor of the Corporation by Invhealth Capital Inc. (a wholly-owned
subsidiary of a senior officer of the Corporation) of all of its shares in Invhealth Holding Inc. and by a pledge in favor of the
Corporation by the senior officer of the Corporation of all of his shares of Invhealth Capital Inc. As a result of these pledges,
PROMETIC LIFE SCIENCES INC.
45
the loan is ultimately secured by 9,500,000 shares of the Corporation. The loan was originally due for repayment no later
than March 31, 2013 but the loan agreement was amended during the year and the reimbursement period was extended to
March 31, 2016. Furthermore, should certain stock price thresholds be reached, the Corporation may require the borrower
to pay the outstanding balance of the loan.
The loan principal as well as the accumulated interest earned as of December 31, 2013, for an aggregate amount of $3,015,
was recognized since the collectability of the loan was reasonably assured as a result of the increase in value of the assets
guaranteeing the loan and an equivalent gain on recognition of loan receivable has been recorded in the consolidated
statement of operations. In March 2014, the full amount of the loan was repaid to the Corporation.
8. Inventories
Raw materials
Work in progress and finished goods
2013
$ 1,971
1,008
$ 2,979
2012
$ 730
508
$ 1,238
During the year ended December 31, 2013, total inventories in the amount of $ 6,518 ($5,280 for the year ended December
31, 2012) were recognized as cost of goods sold.
9. Other investment
The investment is composed of convertible preferred shares of AM-Pharma Holding B.V., a private Corporation based in the
Netherlands.
10. Investment in an associate
On June 29, 2012, the Corporation and an unrelated partner established an entity, NantPro BioSciences, LLC for the purposes
of developing and commercialising a plasma-derived biopharmaceutical product for the uS market.
At inception, in exchange for 66.66% of the equity units in NantPro, the Corporation contributed a license to certain of its
intellectual property. The other investor in NantPro, NantWorks LLC (“NantWorks”), contributed $2,548 (uS$ 2,500,000) in
exchange for 33.33% of the equity units. The Corporation measured the initial cost of its investment in NantPro based on
the implied fair value of its contribution to the extent attributable to the other investor. Consequently, the initial cost of the
investment amounted to $1,699 (uS$1,667,000), with a corresponding recognition of licensing revenue. Concurrent with the
initial investment, the Corporation also granted access to a specific protein to NantPro (the “Technology Access Fee”) for a
non-refundable amount of $2,549 (uS$ 2,500,000). Of this sum, $102 (uS$100,000) has been deferred as at December 31,
2012. The Corporation recognized $815 (uS$ 800,160) as licensing revenue, which is based on the extent of the other
investor’s interest. The balance of $1,632 (uS$ 1,599,840) was recorded as a reduction in the carrying amount of the
investment.
As a result of the composition of Nantpro’s board membership, the manner and timing in which substantive financing and
operation decisions are made, and that NantWorks has the current right to make additional capital contributions that
could ultimately decrease the Corporation’s investment to 10 % of the equity units, the Corporation has determined that
it does not control the investment, but does have the ability to exercise significant influence and will therefore account for
it as an associate. The contributions will be used by NantPro to pay the Corporation to carry out the development and
manufacturing costs of a plasma-derived product, the additional capital contributions by NantWorks will result in dilution
gains or losses and corresponding adjustments in the carrying value of the investment.
During the year ended December 31, 2013, the Corporation provided development services to NantPro and recognized
revenues from the rendering of services of $6,978 ($1,549 – 2012). As at December 31, 2013, the Corporation had a balance
receivable NantPro of $3,894 ($1,275 at December 31, 2012).
46 PROMETIC LIFE SCIENCES INC.
The summarized financial information of NantPro (unaudited) and the Corporation’s share of the associate’s losses, the net loss
in the associate and the carrying amount of its investment in the associate at December 31, 2013 and 2012 and for the year
then ended are as follows:
Place of business
Percentage of interest
Current assets
Non-current assets
Current liabilities
Net assets of an associate
The Corporation’s net investment in an
associate - carrying amount
Loss and comprehensive loss of an associate
The Corporation’s share in the loss and
comprehensive loss of the associate
Dilution gain
Net profit (loss) in an associate
unrecorded portion of losses
Net profit (loss) in an associate recognized
in consolidated financial statements
2013
Delaware
$
30.47 %
106
6,886
3,894
$ 3,098
2012
Delaware
$
54.23 %
86
7,255
-
$ 7,341
$
-
$
69
$ (7,365)
$ (1,666 )
(2,865 )
1,314
$ (1,551)
1,482
(952 )
954
2
-
$
$
(69 )
$
2
During the year ended December 31, 2013, the Corporation’s net loss in an associate was recognized to the extent of the
carrying amount of its investment in an associate at December 31, 2012.
PROMETIC LIFE SCIENCES INC.
47
11. Capital assets
Leasehold
improvements
$
Equipment
and tools
$
Office
equipment
and furniture
$
Computer
equipment
$
Cost
Balance at January 1, 2012
Additions
Disposals
Effect of foreign exchange differences
Balance at December 31, 2012
Additions
Disposals
Effect of foreign exchange differences
Balance at December 31, 2013
Accumulated depreciation
Balance at January 1, 2012
Depreciation charge for the year
Disposals
Effect of foreign exchange differences
Balance at December 31, 2012
Depreciation charge for the year
Disposals
Effect of foreign exchange differences
Balance at December 31, 2013
Carrying amounts
At December 31, 2012
At December 31, 2013
2,399
-
(5 )
47
2,441
3,795
(480 )
190
5,946
2,152
62
(5 )
47
2,256
72
(480 )
138
1,986
185
3,960
3,230
461
-
43
3,734
4,493
(431 )
155
7,951
2,714
182
-
32
2,928
192
(409 )
120
2,831
806
5,120
566
6
-
4
576
189
(70 )
22
717
483
22
-
4
509
35
(70 )
18
492
67
225
Total
$
6,869
491
(32 )
99
7,427
8,858
(1,169 )
387
15,503
5,941
301
(30 )
88
6,300
351
(1,144 )
290
5,797
674
24
(27 )
5
676
381
(188 )
20
889
592
35
(25 )
5
607
52
(185 )
14
488
69
401
1,127
9,706
At December 31, 2013, the amount of expenditures recognized in the carrying amount of capital assets currently under
construction totalled $7,514 (nil as at December 31, 2012). Depreciation of these assets has not yet started. Certain
investments in equipment are eligible for reimbursable investment tax credits. The tax credit receivable is recorded in the
same period as the eligible addition and is credited against the capital assets addition. During the year ended December 31, 2013,
the Corporation recognized $380 (nil for 2012) in investment tax credits related to equipment purchases.
48 PROMETIC LIFE SCIENCES INC.
12. Licenses and Patents
Cost
Balance at January 1, 2012
Additions
Disposals
Effect of foreign exchange differences
Balance at December 31, 2012
Additions
Disposals
Effect of foreign exchange differences
Balance at December 31, 2013
Accumulated amortization
Balance at January 1, 2012
Amortization expense
Disposals
Effect of foreign exchange differences
Balance at December 31, 2012
Amortization expense
Disposals
Effect of foreign exchange differences
Balance at December 31, 2013
Carrying amounts
At December 31, 2012
At December 31, 2013
Licenses
Patents
Total
$ 3,840
-
-
10
3,850
-
-
40
$ 3,890
$
2,462
231
-
5
2,698
231
-
20
$ 2,949
$ 3,722
420
(63 )
44
4,123
745
(51 )
187
$ 5,004
$
780
247
(14 )
10
1,023
287
(7 )
54
$ 1,357
$ 7,562
420
(63 )
54
7,973
745
(51 )
227
$ 8,894
$ 3,242
478
(14 )
15
3,721
518
(7 )
74
$ 4,306
1,152
941
$
3,100
$ 3,647
4,252
$ 4,588
During the year ended December 31, 2013, $44 of patents were disposed ($49 for the year ended December 31, 2012) following
periodic reviews which were conducted in order to identify licenses and patents that are no longer used by the Corporation.
13. Bank and other loans
Bank loan for an authorized amount of $803 (500,000 GBP) bearing interest at 10 %
and repayable in equal monthly instalments of $67 (41,250 GBP) over a 12 month period.
The loan was repaid in September 2013.
Loan from Investissement Québec for an authorized amount of $833 in 2012 related to research and
development tax credits receivable of $1,893 as of December 31, 2012, collateralized by a hypothec
for that amount on all present and future research and development tax credits bearing interest
at prime plus 4 %. The loan is repayable upon receipt of the tax credits (1).
2013
2012
$
-
$
803
-
-
833
$ 1,636
$
(1) The loan from Investissement Québec was collateralized by a personal guarantee provided by an officer who is also a
director of the Corporation. The loan was repaid in full in February 2013 upon receipt of research and development tax credits.
PROMETIC LIFE SCIENCES INC.
49
14. Trade and other payables
Trade
Other payables
2013
$ 4,650
3,227
$ 7,877
2012
$ 2,353
2,741
$ 5,094
The other payables consist principally of accruals in relation to trade payables. Smaller amounts relating to salaries payable,
vacation payable and statutory benefit payable are also included.
15. Promissory notes from shareholders
During the year ended December 31, 2013, the Corporation reimbursed a total of $240 on the promissory notes to shareholders
leaving an unpaid balance of $10 to one shareholder at December 31, 2013. The promissory notes are payable on demand,
unsecured and bear interest at an annual rate of 12%.
16. Deferred revenues
Deferred service revenues
Deferred product sales
Deferred license fees
2013
228
756
-
984
$
$
$
2012
589
1,666
100
$ 2,355
17. Warrant liability
On September 10, 2013, the Corporation issued a secured loan and warrants (referred to as First Warrants and Second
Warrants) for an aggregate amount of $10,010. The different financial components in this financing transaction were
identified as a secured loan, accounted as a financial liability carried at amortized cost, the First Warrants, accounted for as
an equity instrument and the Second Warrants accounted for as a derivative financial liability carried at fair value. The total
proceeds were allocated initially to the financial liability instruments based on their fair values and the residual amount was
attributed to the equity instrument. Further details regarding the secured loan are provided in note 21, and for the First
Warrants are provided in note 22.
The Second Warrants give the holder the right to acquire common shares, the number of which is based on a formula,
in exchange for $15,605 paid either in cash or in consideration of the lender’s cancellation of the secured loan obligation
(principal and the interest due over the 5 year duration). The maximum number of shares that can be issued under the warrant
is 20,276,595 and consequently the effective exercise price cannot fall below $0.77 per share. The Second Warrants expire on
September 10, 2021, however the maturity period is shortened upon occurrence of a Market Capitalization Event whereby the
market capitalization of the Corporation is greater than $1.5 billion for 60 consecutive days. If such an event was to occur
before September 10, 2018, the Second Warrants would expire on September 10, 2018. If a Market Capitalization Event
occurred after September 10, 2018, the warrants would expire within 90 days after the said event.
Although the Second Warrants are legally equity instruments of the Corporation, they do not qualify as such, under IAS 32
Financial Instruments - Presentation, for accounting presentation because of the variability in the number of shares that could
be obtained upon exercise. As such, they are presented on the consolidated statement of financial position as a warrant liabil-
ity. Since this liability, a derivative financial liability, is required to be carried at fair value at each reporting date, the variations
in fair value are recorded in the statement of operations in the period they occur. There is no future cash-payment associated
with the recognized liability. However, if the warrants were to be exercised, the holder would have to pay the exercise price to
the Corporation.
The fair value of the Second Warrants may change significantly from period to period mainly due to the underlying change
in the Corporation’s share price. If the conversion option is not exercised prior to maturity, the Second Warrants’ fair value will
be zero when it expires. The fair value of these warrants is determined using in combination; i) a Monte Carlo simulation in
order to take into consideration the Market Capitalization Event barrier and ii) a binomial model to compute the warrant valuation
for each path obtained in the Monte Carlo simulation and arrive to an overall fair value for the warrants. This measurement is
considered a Level III fair value measurement. Assessment of the significance of a particular input of the fair value measurement
requires judgement and may affect the placement within the fair value hierarchy level.
50 PROMETIC LIFE SCIENCES INC.
The fair value of the Second Warrants was estimated at $3,826 and $9,311 as of September 10, 2013 and December 31, 2013
respectively. Consequently, the increase in the fair value of $5,485 over this period was recognized as a loss in the consolidated
statement of operations.
The following assumptions were used in determining the fair value of the warrants upon issuance and for the subsequent
measurement on December 31, 2013: volatility 62%, marketability discount 35%, risk-free interest rates ranging from 2.29%
to 2.90% over the potential life period of the warrants and an expected dividend rate of nil. The actual figures for the number
of fully diluted shares outstanding was used as the estimated number of fully diluted shares over the warrants’ life.
The effect of a change in the marketability discount and the volatility assumptions, which are significant unobservable inputs
used in the fair value estimate, by 10% would have the following effect on the consolidated financial statements:
Assumption changed
Volatility
Marketability discount
a 10% increase
623
(702 )
$
a 10% decrease
(738 )
596
$
a 10% increase
574
(590 )
$
a 10% decrease
(602 )
556
$
Increase (decrease) in fair value of the warrant liability resulting from
at December 31, 2013
at September 10, 2013
18. Repayable government grant and finance lease obligations
(a) Repayable government grant
The balance of the repayable government grant from the Isle of Man Government Department of Economic Development
of $551 (GBP 340,858) at December 31, 2012 and bearing interest at an annual rate of 5%, was paid in full in September 2013.
(b) Finance lease obligations
Obligations under finance leases of $4 bearing interest at 1.08% ($13 as at December 31, 2012), payable in monthly
installments of $0.7 and maturing in July 2014.
19. Long-term debt provided by shareholders
Loans from a director (a)
Other loans (b)
Less: current portion of long-term debt
$
2013
-
3,026
3,026
3,026
-
$
2012
600
3,417
4,017
600
3,417
$
$
(a) Loans from a director
The demand loan from a corporation controlled by a director of the Corporation bears interest at an annual rate of 15%.
During the year ended December 31, 2012, the principal amount of the loan was reduced by $150 to $100, and $34 in
accrued interest was reimbursed by the issuance of 1,373,572 shares of the Corporation. During the year ended December 31, 2013,
the principal amount of the loan was reduced by $50 to $50 and $9 in accrued interest was reimbursed by the issuance of
163,432 shares of the Corporation. In November 2013, the balance of the principal and accrued interest was repaid in cash.
The demand loan for an amount of $500 from a company controlled by a director bears interest at the rate of 12% per annum
and was subject to a $45 fee. During the year ended December 31, 2012, an amount of $100 representing the fees of $45
and $55 of interest due under the debt were reimbursed to the director by issuing 768,036 shares. During the year ended
December 31, 2013, the principal amount of the loan was reduced by $100 to $400 and $35 in accrued interest was reimbursed
by the issuance of 375,951 shares of the Corporation. The loan, principal and accrued interest, were repaid in cash in
November 2013.
The Corporation had granted a second rank hypothec on the universality of the movable property of the Corporation and a
subsidiary, to guarantee the above mentioned loans from a director.
PROMETIC LIFE SCIENCES INC.
51
(b) Other loans
1) Loan secured by hypothecs in the amount of $6,000 granted by the Corporation and a subsidiary on the universality of
their movable property (*).
On December 31, 2011, the Corporation and the lender signed a letter of intent to extend the maturity date of the unpaid
balance of the loan, in the amount of $1,000, from July 1, 2012 to July 1, 2013 for consideration to be mutually agreed upon
within 45 days of the signing of the letter of intent. On February 2, 2012, the repayment terms were formally renegotiated
and the Corporation agreed to issue to the lender 960,000 fully paid common shares and 714,285 warrants with an exercise
price of $0.14 per share, exercisable for a period of three years. As per the new agreement, no cash interest was charged to
the Corporation for this extension. The loan bears no stated interest (the effective interest rate, taking into account the shares
and warrants issued as consideration for the renegotiation, is 37.50%). The renegotiation was accounted for as a debt
extinguishment for accounting purposes in February 2012 and resulted in a loss of $124. The new loan was remeasured at
its fair value on the date of the modification. The fair value of $638 of the loan was estimated using discounted future cash
flows and the residual value between the principal amount of the loan and the fair value was allocated to the warrants and
shares in the amounts of $237 and $125, respectively.
On December 31, 2012, the Corporation and the lender signed a letter of intent to extend the maturity date of the loan from
July 1, 2013 to July 1, 2014 for consideration to be mutually agreed upon within 60 days of the signing of the letter of intent.
On February 20, 2013, the repayment terms were formally renegotiated and the Corporation agreed to issue to the lender
260,869 fully paid common shares and 188,679 warrants with an exercise price of $0.53 per share, exercisable for a period of
two years. As per the agreement, no cash interest was charged to the Corporation for this extension. The loan bears no stated
interest (the effective interest rate, taking into account the shares and warrants issued as consideration for the renegotiation, is
37.50%). The loan was therefore reclassified as a long-term liability as at December 31, 2012. The renegotiation was accounted
for as a debt extinguishment for accounting purposes in February 2013 and resulted in a loss on modification of debt of $105.
The new loan was remeasured at its fair value on the date of the modification with an effective interest rate of 37.5%. The fair value
of $649 of the loan was estimated using discounted future cash flows and the residual value between the principal amount of the
loan and the fair value was allocated to the warrants and shares in the amounts of $229 and $122, respectively. In September 2013,
the Corporation reimbursed $200 of the loan, reducing the principal balance to $800. The carrying value of the loan as at
December 31, 2013 was $682 ($854 as at December 31, 2012).
2) Loan secured by hypothecs of $1,000 granted by the Corporation and a subsidiary on the universality of their movable
property (*).
On December 31, 2011, the Corporation and the lender signed a letter of intent to extend the maturity date of the $500 loan
from July 1, 2012 to July 1, 2013 for consideration to be mutually agreed upon within 45 days of the signing of the letter of
intent. On February 2, 2012, the repayment terms were formally renegotiated and the Corporation agreed to issue to the
lender 480,000 fully paid common shares and 357,142 warrants with an exercise price of $0.14 per share, exercisable for a
period of three years. As per the new agreement, no cash interest was charged to the Corporation for this extension. The loan
bears no stated interest (the effective interest rate, taking into account the shares and warrants issued as consideration for the
renegotiation, is 37.50%). The renegotiation was treated as a debt extinguishment for accounting purposes. Consequently,
the loan was derecognized and a new loan recognized at fair value, creating a loss on extinguishment of debt in the amount
of $62. The fair value of $319 was estimated using discounted future cash flows and the difference between the principal
amount of the loan and the fair value was allocated to the warrants and shares in the amounts of $119 and $62, respectively.
On December 31, 2012, the Corporation and the lender signed a new letter of intent to extend the maturity date of the loan
from July 1, 2013 to July 1, 2014 for consideration to be mutually agreed upon within 60 days of the signing of the letter of
intent. On February 20, 2013, the repayment terms were formally renegotiated and the Corporation agreed to issue to the
lender 130,434 fully paid common shares and 94,340 warrants with an exercise price of $0.53 per share, exercisable for a
period of two years. As per the agreement, no cash interest was charged to the Corporation for this extension. The loan
bears no stated interest (the effective interest rate, taking into account the shares and warrants issued as consideration for
the renegotiation, is 37.50%). The loan was therefore reclassified as a long-term liability as at December 31, 2012. The
renegotiation was also accounted for as a debt extinguishment in 2013. Consequently, the loan was derecognized and a new
loan recognized at fair value, resulting in a loss on extinguishment of debt of $53. The new loan was remeasured at its fair value
on the date of the modification with an effective interest rate of 37.5%. The fair value of $324 was estimated using discounted
future cash flows, and the difference between the fair value and the principal amount was allocated to the warrants and shares
52 PROMETIC LIFE SCIENCES INC.
in the amounts of $115 and $61, respectively. In October 2013, the Corporation repaid $125 of the loan, reducing the principal
balance to $375. The carrying value of the loan as at December 31, 2013 was $320 ($428 as at December 31, 2012).
3) Loan secured by hypothecs of $500 granted by the Corporation and a subsidiary on the universality of their movable
property (*).
On December 31, 2011, the Corporation and the lender signed a letter of intent to extend the maturity date of the $500 loan
from July 1, 2012 to July 1, 2013 for consideration to be mutually agreed upon within 45 days of the signing of the letter of
intent. On February 2, 2012, the repayment terms were formally renegotiated and the Corporation agreed to issue to the
lender 480,000 fully paid common shares and 357,142 warrants with an exercise price of $0.14 per share, exercisable for a period
of three years. As per the new agreement, no cash interest was charged to the Corporation for this extension. The loan bears no
stated interest (the effective interest rate, taking into account the shares and warrants issued as consideration for the renegotiation,
is 37.50%). The renegotiation was a debt extinguishment for accounting purposes. Consequently, the loan was derecognized and
a new loan recognized at fair value, creating a loss on extinguishment of debt in the amount of $62. The fair value of $319 was
estimated using discounted future cash flows and the difference between the principal amount of the loan and the fair value was
allocated to the warrants and shares in the amounts of $119 and $62, respectively.
On December 31, 2012, the Corporation and the lender signed a letter of intent to extend the maturity date of the debt from
July 1, 2013 to July 1, 2014 for consideration to be mutually agreed upon within 60 days of the signing of the letter of intent.
On February 20, 2013, the repayment terms were formally renegotiated and the Corporation agreed to issue to the lender
130,435 fully paid common shares and 94,339 warrants with an exercise price of $0.53 per share, exercisable for a period of
two years. As per the new agreement, no cash interest was charged to the Corporation for this extension. The loan bears no
stated interest (the effective interest rate, taking into account the shares and warrants issued as consideration for the renegotiation,
is 37.50%). The loan was therefore reclassified as a long-term liability as at December 31, 2012. The renegotiation was also
accounted for as a debt extinguishment in 2013. Consequently, the loan was derecognized and a new loan recognized at fair
value, resulting in a loss on extinguishment of debt of $53. The new loan was remeasured at its fair value on the date of the
modification with an effective interest rate of 37.5%. The fair value of $324 was estimated using discounted future cash flows,
and the difference between the fair value and the principal amount was allocated to the warrants and shares in the amounts
of $115 and $61, respectively. In October 2013, the Corporation repaid an amount of $125 of the loan reducing the principal
balance to $375. The carrying value of the loan as at December 31, 2013 was $320 ($428 as at December 31, 2012).
4) Loans secured by hypothecs of $2,720 granted by the Corporation and a subsidiary on the universality of their movable
property (*).
On December 31, 2011, the Corporation and the lender signed a letter of intent to extend the payment terms of the debt from
July 1, 2012 to July 1, 2013 for consideration to be mutually agreed upon within 45 days of the signing of the letter of intent.
On February 2, 2012, the repayment terms were formally renegotiated and the Corporation agreed to issue to the lender, for
both loans, a total of 1,920,000 fully paid common shares and 1,428,570 warrants with an exercise price of $0.14 per share,
exercisable for a period of three years. As per the new agreement, no cash interest was charged to the Corporation for this
extension. The loan bears no stated interest (the effective interest rate, taking into account the shares and warrants issued as
consideration for the renegotiation, is 37.50%). The renegotiation was treated as a debt extinguishment for accounting purposes.
Consequently, the loans were derecognized and new loans were recognized at fair value, creating a loss on extinguishment
of debt in the amount of $249. The fair values of the loans in the amount of $1,276 were estimated using discounted future
cash flows and the difference between the fair value and the principal amounts of the loans was allocated to the warrants and
shares in the amounts of $474 and $250, respectively.
On December 31, 2012, the Corporation and the lender signed a letter of intent to extend the payment terms of the loans
from July 1, 2013 to July 1, 2014 for consideration to be mutually agreed upon within 60 days of the signing of the letter of
intent. On February 20, 2013, the repayment terms were formally renegotiated and the Corporation agreed to issue to the
lender 521,738 fully paid common shares and 377,357 warrants with an exercise price of $0.53 per share, exercisable for
a period of two years. As per the new agreement, no cash interest was charged to the Corporation for this extension. The
loan bears no stated interest (the effective interest rate, taking into account the shares and warrants issued as consideration
for the renegotiation, is 37.50%). The loans were therefore reclassified as a long-term liability as at December 31, 2012. The
renegotiation was also accounted for as a debt extinguishment in 2013. Consequently, the loans were derecognized and new
PROMETIC LIFE SCIENCES INC.
53
loans were recognized at fair value, resulting in a loss on extinguishment of debt of $212. The new loan was remeasured at its
fair value on the date of the modification with an effective interest rate of 37.5%. The fair values of $1,298 were estimated
using discounted future cash flows, and the difference between the fair values and the principal amounts was allocated to the
warrants and shares in the amounts of $457 and $245, respectively. The carrying value of the loan as at December 31, 2013
was $1,705 ($1,709 as at December 31,2012).
(*) During 2013, the securities given under the above loans were modified from a first ranking hypothec on all moveable
property to second ranking hypothecs on all moveable property, excluding intellectual property.
As a result of the above loans being recorded at amounts which differs from the principal amounts of the loans, an interest
accretion expense is recognized over the duration of the loans in order that the carrying value of the loans at maturity equals
the principal amounts due.
20. Advance on revenues from a supply agreement
In 2009, the Corporation entered into a loan agreement with a customer whereby it received an advance on revenues relating
to a supply agreement between the parties amounting to $3,400 (GBP 2,000,000). The advance bears interest at a rate of 5%
per annum. The advance was being repaid as products were supplied and revenues received under the supply agreement, until
both parties agreed to a moratorium on repayments during the year ended December 31, 2012. The advance has a five-year
term and the unpaid balance is due at the maturity date in September 2014. During the year ended December 31, 2012, a net
reduction in the advance in the amount of $238 was made related to products supplied under the agreement. Since the
moratorium on the repayments, the balance owed under the agreement has increased as interest on the advance is cumulating.
In March 2014, the Corporation and the customer amended the loan agreement, extending the maturity date until April 1, 2015 as
discussed in note 36.
21. Long-term debt
On September 10, 2013, the Corporation issued a secured loan and warrants for a cash consideration (refer to note 17 for
details of the financing transaction). The $10,000 loan bears interest at a rate of 9% per annum, compounding monthly, to be
paid on maturity of the loan together with the principal on September 10, 2018. The Corporation may at its discretion, repay
the loan in its entirety or partially as of the fourth anniversary of the loan. The loan is secured by all the assets of the Corporation
excluding patents. The loan requires that certain covenants be respected including maintaining an adjusted working capital
ratio. As at December 31, 2013, the Corporation was in compliance with all of the debt covenants. The loan initially was
recorded at fair value less the associated transaction costs for a net amount of $5,851. The fair value of the callable loan
was determined using a discounted cash flow model for the debt instrument with a market interest rate of 19.23%.
22. Share capital issued and to be issued
Authorized and without par value:
unlimited number of common shares, participating, carrying one vote per share, entitled to dividends.
unlimited number of preferred shares, no par value, issuable in one or more series.
Issued and fully paid common shares
Share purchase loan to an officer (1)
Issued and fully paid common shares
Share capital to be issued
Balance - end of year
Number
523,168,666
-
523,168,666
-
523,168,666
2013
Amount
$ 263,770
(450 )
263,320
-
$ 263,320
2012
Number
432,531,873
-
432,531,873
-
432,531,873
Amount
$ 225,191
(450 )
224,741
9,822
$ 234,563
(1) The share purchase loan to an officer, bearing interest at prime plus 1%, was extended until March 31, 2016. The modification
to the terms of the loan were approved by the shareholders at the 2013 annual shareholders’ meeting.
54 PROMETIC LIFE SCIENCES INC.
a) Share capital
Changes in the issued and outstanding common shares were as follows:
Issued and fully paid shares
Balance - beginning of year
Issued for cash
Issued in relation to debt
renegotiation (note 19)
Reimbursement of loans from
a director (note 19)
Exercise of warrants
Exercise of options
Payment of expenses
Balance - end of year
2013
2013
2012
Number
432,531,873
74,798,453
Amount
$ 224,741
33,808
Number
396,193,349
28,499,996
Amount
$ 220,777
2,903
1,043,476
491
3,840,000
499
539,383
10,900,833
3,118,138
236,510
523,168,666
194
2,702
1,294
90
$ 263,320
2,141,608
1,125,000
-
731,920
432,531,873
284
191
-
87
$ 224,741
During the year ended December 31, 2013, the Corporation issued 48,147,053 common shares pursuant to a share subscription
for a private placement agreement with a strategic investor entered into on October 15, 2012, for net proceeds of $9,907 and
26,651,400 common shares following an offering by way of a prospectus, for net proceeds of $22,115 (net of share issuance
cost of $1,871). Also, 1,043,476 common shares were issued following the renegotiation with the lenders to extend the
maturity dates of the loans as described in note 19 (b).
The Corporation also issued 539,383 shares for the reimbursement of principal and interest related to loans from a director for
a total $194 (see note 19 (a)) and a total of 236,510 shares in payment of $90 of other expenses.
During the year ended December 31, 2013, 3,118,138 options were exercised resulting in cash proceeds of $986 and a transfer
from contributed surplus to share capital of $308. During the same period, 10,900,833 warrants were exercised resulting in
cash proceeds of $1,918 and a transfer from contributed surplus to share capital of $784.
2012
During the year ended December 31, 2012, the Corporation issued a total of 28,499,996 shares and 6,345,451 warrants for
private placements for a total consideration of $3,135. The warrants have an exercise price of $0.18 per share and are exercisable
for two years. The net proceeds were allocated to share capital and warrants (contributed surplus) based on their relative fair
values. The fair value of the warrants was estimated using the Black-Scholes option pricing model using a weighted average
volatility of 93%, an expected life of two years and a weighted average risk-free interest rate of 1.23%. As a result of these
issuances, share capital was increased by an amount of $2,903 and contributed surplus was increased by an amount of $232.
On October 15, 2012, the Corporation entered into a private placement agreement with a strategic investor to issue
48,147,053 common shares at an agreed price of $0.204 per common share, for gross proceeds of approximately $9,822.
As the share subscription was receivable at December 31, 2012, the shares were considered to be outstanding, including in
the computation of the earnings (loss) per share and the diluted earnings (loss) per share. The share subscription receivable
was received and the shares issued on January 7, 2013. The shares are not freely tradable before three years.
Share issue expenses related to the above were $653 and were recorded as an increase of the deficit.
In February 2012, the Corporation issued 3,840,000 common shares following the renegotiation with its lenders to extend
the payment terms of the loans as described in note 19 (b).
The Corporation also issued 2,141,608 shares for the reimbursement of principal, interest and fees related to loans from a
director for a total $284 (note 19 (a)). The Corporation issued 1,125,000 shares for the exercise of warrants. As a result of
this issuance, the share capital was increased by $191. During the year ended December 31, 2012, 1,125,000 warrants were
exercised resulting in cash proceeds of $135 and a transfer from contributed surplus to share capital of $56.
PROMETIC LIFE SCIENCES INC.
55
Finally, 731,920 shares were issued to suppliers for the payment of $87 of expenses.
b) Warrants and Rights
During the year ended December 31, 2013, 754,715 warrants with an estimated value of $915 were issued in relation to the
renegotiation of the loans. During the year ended December 31, 2012, 2,857,139 warrants with an estimated value of $949
were issued in relation to the renegotiation of the loans and 6,345,451 warrants with an estimated value of $232 were issued
in connection with private placements.
On September 10, 2013, the Corporation issued a secured loan and warrants for a cash consideration of $10,010 (refer to note
17 for details of the financing transaction). The Corporation issued 1,000,000 First Warrants, each one giving the right to the
holder to acquire one common share at an exercise price of $0.52. The warrants expire on September 10, 2021. The value
attributed to the warrants was $210. The Corporation also issued Second Warrants which are described in note 17 and are
presented as a current liability.
The following table summarizes the changes in the number of warrants outstanding:
Balance - beginning of year
Issued for cash
Issued in relation to debt
renegotiation (note 19)
Exercised
Expired
Balance - end of year
Number
62,487,763
1,000,000
754,715
(10,900,833 )
-
53,341,645
2013
Weighted
average
exercise price
0.38
0.52
$
2012
Weighted
average
Number exercise price
0.39
0.18
59,575,171
6,345,451
$
0.53
0.19
-
0.43
$
2,857,140
(1,125,000 )
(5,164,999 )
62,487,763
0.14
0.12
0.14
0.38
$
As at December 31, 2013, the following warrants and rights, classified as equity, to acquire shares were outstanding:
$
Number
1,428,570
709,733
1,254,545
545,454
2,857,140
754,715
14,495,452
30,296,036
January 2014
March 2014
April 2014
June 2014
February 2015
February 2015
February 2017
February 2017
1,000,000 September 2021
Expiry date Exercise price
0.14
0.18
0.18
0.18
0.14
0.53
0.47
0.47
0.52
0.43
53,341,645
$
c) Share-based payments
Stock options
The Corporation has established a stock option plan for its directors, officers and employees and service providers. The plan
provides that the aggregate number of shares reserved for issuance at any time under the plan may not exceed 24,336,349
(15,913,317 at December 31, 2012) common shares and the maximum number of common shares, which may be reserved for
issuance to any individual, may not exceed 5% of the outstanding common shares. The new options issued under the plan
may be exercised over a period not exceeding five years and one month from the date they were granted. The vesting per-
iod of the options varies from immediate vesting to vesting over a period not exceeding 5 years. In some circumstances, the
vesting of options is conditional to attaining performance conditions. The vesting conditions are established by the Board of
Directors on the grant date. The exercise price is based on the weighted average share price for the five business days prior to
the grant.
56 PROMETIC LIFE SCIENCES INC.
Changes in the number of stock options outstanding are as follows:
Balance - beginning of year
Granted
Forfeited
Exercised
Expired
Balance - end of year
2013
Weighted
average
Number exercise price
$ 0.19
0.38
0.25
0.32
-
$ 0.22
12,274,538
4,095,250
(507,250 )
(3,118,138 )
-
12,744,400
2012
Weighted
average
Number exercise price
$ 0.28
0.13
0.1 9
-
0.51
$ 0.1 9
11,054,051
3,957,000
(224,929 )
-
(2,511,584 )
12,274,538
The weighted average share price on the date of exercise of the options in 2013 was $0.58.
At December 31, 2013, options issued and outstanding by range of exercise price are as follows:
Range of
exercise price
$0.12 - $0.20
$0.31 - $0.40
$0.71 - $0.88
Number
outstanding
8,860,400
3,703,750
180,250
12,744,400
Weighted average
remaining
contractual life
(in years)
2.39
4.35
4.90
3.00
Weighted
average
exercise price
$ 0.15
0.36
0.88
$ 0.22
Number
exercisable
7,324,550
732,000
10,000
8,066,550
Weighted
average
exercise price
$ 0.15
0.34
0.88
$ 0.17
The Corporation uses the Black-Scholes option pricing model to calculate the fair value of options at the date of grant. The
weighted average inputs into the model and the resulting grant date fair values were as follows:
Expected dividend yield
Expected volatility of share price
Risk-free interest rate
Expected life in years
Weighted average grant date fair value
2013
-
88.55 %
1.31 %
5.0
$ 0.26
2012
-
88.52 %
1.32 %
5.0
$ 0.09
The expected volatility was mainly based on historical volatility of the common shares while the expected life was based on
the historical holding patterns. The fair value of the grants is expensed over the vesting period on the assumption that 5.6%
(5.67% in 2012) of the unvested options will be forfeited annually over the service period as employees leave the Corporation.
A compensation expense of $607 was recorded as a share-based payment for the year ended December 31, 2013 ($365 in
2012) as a result of stock options granted to directors, officers, employees and consultants.
Restricted share units
The Corporation has established an equity-settled restricted share units (“RSus”) plan for executive officers of the Corporation, as
part of its incentive program designed to align the interests of its executives with those of its shareholders, and in accordance
with its Long Term Incentive Plan (“LTIP”). The RSus only vest upon achievement of various important corporate and commercial
objectives that would create significant shareholder value. The vesting conditions are established by the Board of Directors on
the grant date and must generally be met within 3 years. In 2011 and in 2013, the Corporation granted 3,200,000 and 3,800,000
RSus respectively, of which 4,666,250 vested in 2013. The price of the shares on the grant dates were $0.175 and $0.83 in 2011
and 2013 respectively. All of the non-vested RSus were cancelled in December 2013. At December 31, 2013, there is a total of
4,666,250 outstanding RSus which have been earned for which the underlying common shares will be issued in 2014.
PROMETIC LIFE SCIENCES INC.
57
The expense for a given period is evaluated taking into consideration the probability of each objective being reached and the
estimated year during which it is expected that each objective will likely be reached.
A compensation expense of $2,804 for the year ended December 31, 2013 ($140 for the year ended December 31, 2012) was
recorded as share-based payments.
The total share-based payment expenses has been included in the consolidated statement of operations as indicated in the
following table:
Cost of goods sold
Research and development expenses recharged
Research and development expenses non-rechargeable
Administration and marketing expenses
2013
76
109
692
2,534
3,411
$
$
$
2012
25
10
101
369
505
$
In previous periods, the share-based payment expense was presented under administration and marketing expenses. Due to
the increase in share-based payments, particularly in the fourth quarter of 2013 with the vesting of the RSus, the Corporation
decided to allocate the expense to each function for both 2013 and 2012.
23. Non-controlling interests
The shares of two of the Corporation’s subsidiaries are partially held by non-controlling interests. These are ProMetic
BioProduction Inc. (“PBP”) and PRDT of which the Corporation holds 87% and 77% of the ownership interests respectively.
Summarized financial information for PBP, which is considered to have a material non-controlling interest, for the years ending
December 31, 2013 and 2012 is provided in the following tables. This information is based on amounts before inter-company
eliminations. The carrying amount of the interest of the non-controlling interest in PBP is also provided below.
Summarized statements of financial position.
Investment tax credits and other receivables (current)
Inventories and other current assets
Capital assets (non-current)
Trade and other payables (current)
Inter-company loans (non-current)
Total equity
Attributable to non-controlling interest
Summarized statement of operations
Revenues or services rendered to other members of the group
Research and development activities recharged
Research and development activities non-rechargeable
Other
Net loss and comprehensive loss
Attributable to non-controlling interest
58 PROMETIC LIFE SCIENCES INC.
2013
$ 1,221
680
7,208
(3,240 )
(9,471 )
$ (3,602 )
$
2012
18
1
78
(632 )
93
$ (442 )
$ 1,041
$ 1,378
$
2013
690
(281 )
(2,235 )
(1,335 )
$ (3,161 )
$ (337 )
$
2012
197
-
-
(1,083 )
$ (886 )
(95 )
$
Summarized cash flow information
Cash flows used in operating activities
Cash flows from financing activities
Cash flows used in investing activities
Net increase and (decrease) in cash during the year
2013
$ (2,037 )
9,564
(7,530 )
(3 )
$
2012
(699 )
699
-
-
$
$
The losses allocated to the non-controlling interests and the accumulated balances of the non-controllings interests per
subsidiary are as follows:
2013
2012
In the consolidated statements of financial position
PBP
PRDT
Total non-controlling interests
In the consolidated statements of operations
PBP
PRDT
Total non-controlling interests
24. Capital disclosures
Bank and other loan
Warrant liability
Promissory notes from shareholders
Repayable government grant and finance lease obligations
Long-term debt provided by shareholders
Long-term debt
Shareholder’s equity
Cash
$
1,041
(2,735 )
$ (1,694 )
$
1,378
(2,163 )
(785 )
$
$
$
(337 )
(572 )
(909 )
$
$
(95 )
(563 )
(658 )
$
2013
-
9,311
10
4
3,026
6,217
18,638
(17,396 )
$ 19,810
2012
$ 1,636
-
250
564
4,017
-
5,819
(1,205 )
$ 11,081
The Corporation’s objective in managing capital is to ensure sufficient liquidity to finance its research and development
activities, administration and marketing expenses, working capital and overall capital expenditures, including those
associated with patents and trademarks. The Corporation makes every effort to manage its liquidity to minimize dilution
to its shareholders, whenever possible. The Corporation is subject to one externally imposed capital requirement (refer to
note 21) and the Corporation’s overall strategy with respect to capital risk management remains unchanged from the year
ended December 31, 2012.
25. Revenues
Revenues from the sale of goods
Revenues from the rendering of services
Licensing revenues
2013
$ 9,531
8,538
2,575
$ 20,644
2012
$ 11,548
5,343
6,430
$ 23,321
PROMETIC LIFE SCIENCES INC.
59
26. Information included in the consolidated statements of operations
a) Government assistance included in net loss
Gross research and development expenses
Research and development tax credits
b) Finance costs
Interest on long-term debt
Interest on bank loan, other loan
and other interest expenses
Transaction costs and bank fees
Interest income
c) Wages and salaries
Wages and salaries
Employer’s benefits
Pension costs
Share-based payments
Total employee benefit expense
2013
2012
$ 19,520
(960 )
$ 18,560
$ 11,378
(957 )
$ 10,421
$ 1,683
$ 1,250
56
109
(42 )
$ 1,806
194
39
-
$ 1,483
$ 11,537
1,061
461
3,411
$ 16,470
$ 9,649
845
316
505
$ 11,315
27. Pension plan
The Corporation contributes to a defined contribution pension plan for all of its permanent employees. The Corporation
matches most employees’ contributions up to 5% (4% in 2012) of their annual salary. The Corporation’s contributions for
the year ended December 31, 2013 amounted to $461, ($316 in 2012).
28. Government assistance
The Corporation was approved for government grants from the Isle of Man Government in the amounts of $1,073 and $80 in
2005 and 2006 respectively. The grants relate to operating and capital expenditures to be incurred by the Corporation and are
disbursed to the Corporation when such expenditures are made.
The Isle of Man government reserves the right to reclaim in part or all of the grants received should the Corporation leave the
Isle of Man according to the following schedule – 100% repayment within five years of receipt, then a sliding scale after that
for the next 5 years – 6 years 80%, 7 years 60%, 8 years 40%, 9 years 20%, 10 years 0%.
The grants received amounted to $83 in 2013 and $93 in 2012 and were recorded as a reduction of the related capital assets.
No provision has been made in these consolidated financial statements for any future repayment relating to the above agreement.
60 PROMETIC LIFE SCIENCES INC.
29. Income taxes
Net loss
Combined Canadian statutory income tax rate
Income tax at combined income tax rate
Decrease (increase) in income taxes resulting from:
unrecorded potential tax benefit arising from current-period losses
and other deductible temporary differences
Effect of tax rate differences in foreign subsidiaries
Non-deductible items
Other
Available temporary differences not recognized at the reporting date are as follows:
Tax losses (non capital)
Tax losses (capital)
unused research and development expenses
unrealized loss on exchange rate
Share issue expenses
Interest expenses carried forward
Trade and other payables
Capital assets
Licenses and patents
Start-up expense
2013
$ (17,267 )
26.9 %
(4,645 )
$
2012
(424 )
26.9 %
(114 )
1,414
(24 )
3,398
3
131
$
(292 )
(1,009 )
(1,415 )
-
-
$
2013
$ 111,624
37,203
28,128
45
2,229
5,391
97
292
1,852
9,112
$ 195,973
2012
$ 102,544
37,924
19,243
2,585
634
2,624
2,066
775
1,662
6,399
$ 176,456
At December 31, 2013, the Corporation and its subsidiaries have non-capital losses of $111,911 available to reduce future
taxable income for which the benefits have not been recognized. These losses expire at various dates to 2033.
At December 31, 2013, the Corporation also had unused federal tax credits available to reduce future income tax in the
amount of $6,694 expiring between 2020 and 2033. Those tax credits have not been recorded and no deferred income tax
assets have been recorded in respect to those tax credits.
If the Corporation were to recognize all deferred tax assets, profit would increase by $52,374.
PROMETIC LIFE SCIENCES INC.
61
At December 31, 2013
Deductions:
Research and development expenses, without time limit
Share issue expenses
Interest deductions carryover
Losses carried forward expiring in:
Canada
Federal
Provincial
$ 23,109
2,229
-
$ 25,338
$ 1,775
521
-
-
-
-
6,455
6,164
8,245
3,151
3,681
4,547
4,139
7,993
$ 46,671
$ 34,454
448
-
$ 34,902
$ 1,382
-
-
-
-
-
5,008
4,864
6,918
2,099
2,511
4,393
3,102
7,919
$ 38,196
Foreign
Countries
$
-
-
5,391
$ 5,391
$
-
-
1,457
2,368
3,184
2,488
2,516
8,677
8,840
3,472
8,231
7,927
1,425
391
$ 50,976
2014
2015
2021
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
The Corporation has tax losses which arose in the united Kingdom of $13,978 that are available indefinitely for offsetting
against future taxable profits of the subsidiaries in which the losses arose.
30. Segmented information
The financial information is presented in two different operating segments, which are Therapeutics and Protein Technology.
In-house Therapeutics: This operating segment has lead compounds, namely PBI-4050 which target unmet medical needs
such as the treatment of fibrosis in patients with chronic kidney diseases and certain cancers, and the side effects associated
with chemotherapy.
Protein Technology: This operating segment contains the financial information of the following activities:
BioTherapeutics: The developer of a unique, validated, state-of-the-art solution for plasma fractionation, the Plasma Protein
Purification System (PPPSTM).
Bioseparation: Develops and markets bioseparation products based on applications of its patented Mimetic LigandTM
technology.
Prion Capture/Pathogen Removal: Provides a technology platform that improves the safety profile of blood products and
blood-derived therapeutics.
The accounting policies for the operating segments are the same as those outlined in note 2.
62 PROMETIC LIFE SCIENCES INC.
a) Revenues and expenses by operating segments:
For the year ended December 31, 2013
Therapeutics
Protein
Technology
Corporate
Total
Revenues
$
14
$ 20,630
$
Cost of goods sold
Research and development expenses recharged
Research and development expenses
non-rechargeable
Administration and marketing expenses
Gain on foreign exchange
Loss on disposal of capital assets, licenses and patents
Gain on recognition of loan receivable
Loss on extinguishment of debt
Finance costs
Fair value variation of warrant liability
Net loss in an associate
Net loss before income taxes
-
-
4,748
-
-
-
-
-
-
-
-
$ (4,734 )
For the year ended December 31, 2012
Therapeutics
6,594
4,888
8,924
608
-
46
-
-
233
-
-
(663 )
$
Protein
Technology
Revenues
$
31
$ 23,290
$
Cost of goods sold
Research and development expenses recharged
Research and development expenses
non-rechargeable
Administration and marketing expenses
Loss on foreign exchange
Loss on disposal of capital assets, licenses and patents
Loss on extinguishment of debt
Finance costs
Net profit in an associate
Net profit (loss) before income taxes
Segmented information by operating segment
b) Total assets by operating segment
-
-
1,781
-
-
37
-
68
-
$ (1,855 )
5,351
2,657
5,983
556
-
10
-
269
-
$ 8,464
At December 31
Therapeutics
Protein Technology
Corporate
The investment in an associate is included in the corporate operating segment.
-
-
-
$ 20,644
6,594
4,888
-
7,973
(638 )
-
(3,015 )
423
1,573
5,485
69
$ (11,870 )
13,672
8,581
(638 )
46
(3,015 )
423
1,806
5,485
69
$ (17,267 )
Corporate
Total
-
-
-
-
5,274
116
2
497
1,146
(2 )
$ (7,033 )
$ 23,321
5,351
2,657
7,764
5,830
116
49
497
1,483
(2 )
(424 )
$
$
2013
3,157
28,757
17,958
$ 49,872
2012
$ 3,675
8,790
10,526
$ 22,991
PROMETIC LIFE SCIENCES INC.
63
c) Capital assets, licences and patents by operating segment
At December 31
Therapeutics
Protein Technology
Corporate
d) Acquisition of capital assets, licences and patents by operating segment
At December 31
Therapeutics
Protein Technology
Corporate
e) Total liabilities by operating segment
At December 31
Therapeutics
Protein Technology
Corporate
Information by geographic area
f) Total assets by geographic area
At December 31
Canada
united States
united Kingdom
g) Capital assets, licenses and patents by geographic area
At December 31
Canada
united States
united Kingdom
h) Acquisition of capital assets, licenses and patents by geographic area
At December 31
Canada
united States
united Kingdom
64 PROMETIC LIFE SCIENCES INC.
2013
$ 2,160
11,941
193
$ 14,294
2012
$ 1,828
3,520
31
$ 5,379
$
2013
549
8,870
184
$ 9,603
2012
$ 204
702
5
911
$
$
2013
597
10,551
20,086
$ 31,234
2012
$ 1,315
9,739
6,118
$ 17,172
2013
$ 30,491
8,829
10,552
$ 49,872
2012
$ 14,420
2,968
5,603
$ 22,991
2013
$ 9,652
2,312
2,330
$ 14,294
2012
$ 1,978
1,569
1,832
$ 5,379
2013
$ 7,943
944
716
$ 9,603
2012
$ 209
169
533
911
$
i) Revenues by location
united States
Austria
Taiwan
Switzerland
united Kingdom
Netherlands
China
India
Iceland
Germany
Other countries
2013
$ 8,594
7,663
2,575
1,013
490
142
59
32
27
20
29
$ 20,644
2012
$ 12,642
3,239
2,000
2,407
135
-
2,188
-
-
594
16
$ 23,321
Revenues are attributed to countries based on the location of customers and not the location of the subsidiaries.
The Corporation derives significant revenues from certain customers. During the year ended December 31, 2013, there were
three customers who accounted for 83% (37%, 34% and 12% respectively) of total revenues in the protein technologies
segment. In 2012, there were three customers who accounted for 47% (18%, 15% and 14% respectively) of total revenues,
also in the protein technologies segment.
31. Related party transactions
Balances and transactions between the Corporation and its subsidiaries, which are related parties of the Corporation, have
been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Corporation and
other related parties are disclosed below, and in other notes accordingly.
As at December 31, 2012, an amount of $46 (Nil-December 31, 2013) due to an officer of the Corporation was included in
trade and other payables.
Following a consulting agreement entered into with a director of the Corporation in 2012, success fees of 5% of the relevant
proceeds received by the Corporation, for a total of $600, were payable to the director. As at December 31, 2013, $250
remained unpaid ($500 at December 31, 2012).
Compensation of key management personnel
The remuneration of directors and other members of key management personnel during the years ended December 31, 2013
and 2012 was as follows:
Short-term employee benefits (1)
Pension costs
Share-based payments
2013
$ 2,650
95
3,092
$ 5,837
2012
$ 2,983
98
366
$ 3,447
(1) Short-term employee benefits include all fees paid to directors and to certain senior management employees such as
salaries, bonuses and the cost of other employee benefits.
PROMETIC LIFE SCIENCES INC.
65
32. Contingent liabilities
During the year ended December 31, 2012, the Corporation was served with a lawsuit in the Federal Court of Canada (Court)
relating to a claim for infringement of two patents held by a third party plaintiff. The Corporation instructed outside legal
counsel to prepare, serve and file a statement of defence on the infringement claims, in addition to a counterclaim requesting
that the Court declare both patents invalid and unenforceable. Since the plaintiff has claimed unspecified damages and none
of the allegations in the claim provide any information as to the basis upon which the plaintiff would be claiming monetary
compensation and on the basis that the Corporation does not believe that this claim will be successful, the Corporation has
not taken a provision in the consolidated financial statements.
33. Commitments
a) The Corporation has total commitments in the amount of $12,577 under various operating leases for the rental of offices,
production plant, and laboratory space and office equipment. The payments for the coming years and thereafter are as
follows:
2014
2015
2016
2017
2018 and thereafter
$ 1,998
2,061
2,058
1,391
5,069
$ 12,577
The total rental expenses for the year ended December 31, 2013 amounted to $1,590 ($1,835 for the year ended
December 31, 2012).
b) In April 2006, the Corporation paid the American Red Cross an amount of uS$1,000,000 for an exclusive license for access
to and use of intellectual property rights for the Plasma Protein Purification System (“PPPS”). ProMetic will collect revenues
derived 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 revenues derived from sales of products to third
parties. Also, every year, an annual minimum royalty of uS$30,000 is payable.
c) An officer of the Corporation is entitled to receive royalties based on the sales of certain products made available to
ProMetic before joining the Corporation. These royalties are 0.5% of net sales or 3% of revenues received by the
Corporation. 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. To date, no
royalties have been accrued or paid.
d) In the normal course of business, the Corporation enters into license agreements for the market launching or
commercialization of products. under these licenses, including those mentioned above, the Corporation has
committed to pay royalties ranging generally between 0.5% and 10% of net sales from products it commercializes.
66 PROMETIC LIFE SCIENCES INC.
34. Financial instruments and financial risk management
a) Fair value
The fair values of financial assets and financial liabilities for which fair value disclosure is required, together with the carrying
amounts included in the statement of financial position, are as follows:
Financial assets
Cash
Restricted cash
Convertible preferred shares of AM-Pharma
Financial liabilities
Warrant liability
Long-term debt
December 31, 2013
December 31, 2012
Carrying
amount
$ 17,396
139
29
Fair
value
Carrying
amount
Fair
value
$ 17,396
139
29
$ 1,205
198
27
$ 1,205
198
27
9,311
6,217
$
9,311
6,829
$
-
-
$
-
-
$
The fair value of the convertible preferred shares cannot be measured reliably since these are shares of a private corporation. In
the table above, the cost amount has been used as an indication of fair value.
The warrant liability is carried at fair value and the methodology used is discussed in note 17. The fair value of the long-term
debt at December 31, 2013 is $6,829 and was calculated using the same methodology as disclosed in note 21 and a market
interest rate of 17.2%. This amount differs from the carrying value of the long-term debt of $6,217 which is carried at
amortized cost.
Fair value hierarchy
Financial instruments recorded at fair value on the consolidated statements of financial position are classified using a fair value
hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the
following levels:
Level 1 – valuation based on quoted prices observed in active markets for identical assets or liabilities.
Level 2 – valuation techniques based on inputs that are quoted prices of similar instruments in active markets; quoted prices for
identical or similar instruments in markets that are not active; inputs other than quoted prices used in a valuation model that
are observable for that instrument; and inputs that are derived principally from or corroborated by observable market data by
correlation or other means.
Level 3 – valuation techniques with significant unobservable market inputs.
A financial instrument is classified to the lowest level of the hierarchy for which a significant input has been considered in
measuring fair value. Cash and restricted cash are considered to be level 1 fair value measurements, the long-term debt a
level 2 measurement whereas the warrant liability is considered a level 3 measurement.
PROMETIC LIFE SCIENCES INC.
67
b) Financial risk management
The Corporation has exposure to credit risk, liquidity risk and market risk.
The Corporation’s Board of Directors has the overall responsibility for the oversight of these risks and reviews the Corporation’s
policies on an ongoing basis to ensure that these risks are appropriately managed.
i) Credit risk:
Credit risk is the risk of financial loss to the Corporation if a customer, partner or counterparty to a financial instrument fails
to meet its contractual obligations, and arises principally from the Corporation’s cash, investments, receivables and share
subscription receivable and share purchase loan to an officer. The carrying amount of the financial assets represents the
maximum credit exposure.
The Corporation reviews a new customer’s credit history before extending credit and conducts regular reviews of its existing
customers’ credit performance.
The Corporation evaluates accounts receivable balances based on the age of the receivable, credit history of the customers and
past collection experience. As at December 31, 2013, there were doubtful amounts related to past due accounts as indicated
in the following table:
Trade receivables
Current and not impaired
Past due in the following periods:
31 to 60 days
61 to 90 days
Over 90 days
Allowance for doubtful accounts - over 90 days
2013
2012
$ 3,410
$ 1,308
293
2,177
2,899
(260 )
$ 8,519
1,298
10
266
(260 )
$ 2,622
Trade receivables included amounts from three customers which represent approximately 93% (16%, 31%, 46%,
respectively) of the Corporation’s total trade accounts receivable as at December 31, 2013 and three customers which
represent approximately 90% (17%, 32% and 42%, respectively) of total trade receivables as at December 31, 2012.
ii) Liquidity risk:
Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they come due.
The Corporation manages its liquidity risk by continuously monitoring forecasts and actual cash flows.
68 PROMETIC LIFE SCIENCES INC.
The following table presents the contractual maturities of the financial liabilities, excluding operating leases (see note 33) as of
December 31, 2013.
Carrying
amount
7,877
10
$
At December 31, 2013
Trade and other payables
Promissory notes from shareholders
Repayable government grant and
finance leases
Long-term debt provided by shareholders
4
3,026
Advance on revenues from a supply agreement 3,447
6,217
$ 20,581
Long-term debt
Payable
Contractual
Cash flows within 1 year
7,877
10
7,877
10
$
$
4
3,550
3,550
15,605
$ 30,596
4
3,550
3,550
-
$ 14,991
4 -5 years
$
-
-
$
Total
7,877
10
-
-
-
15,605
$ 15,605
4
3,550
3,550
15,605
$ 30,596
This table only covers liabilities and obligations, and does not anticipate any of the income associated with assets or rights.
iii) Market risk:
Market risk is the risk that changes in market prices, such as interest rates and foreign exchange rates, will affect the
Corporation’s income or the value of its financial instruments.
a) Interest risk
The majority of the Corporation’s debt is at a fixed rate, therefore there is limited exposure to changes in interest payments as
a result of interest rate risk.
b) Foreign exchange risk:
The Corporation is exposed to the financial risk related to the fluctuation of foreign exchange rates. The Corporation operates
in the united Kingdom and in the united States and a portion of its expenses incurred and revenues generated are in u.S dollars
and in Great British Pounds (“GBP”). Financial instruments potentially exposing the Corporation to foreign exchange risk
consist principally of cash, receivables, share subscription receivable, bank loan, trade and other payables, repayable government
grant, and advance on revenues from a supply agreement. The Corporation manages foreign exchange risk by holding foreign
currencies to support forecasted cash outflows in foreign currencies. The majority of the Corporation’s revenues are in u.S.
dollars and in GBP which serve to mitigate a portion of the foreign exchange risk.
As at December 31, 2013, the Corporation is exposed to currency risk through the following assets and liabilities denominated
respectively in u.S. dollars and GBP.
Exposure in uS dollars
Cash
Accounts receivable
Trade and other payables
December 31, 2013
December 31, 2012
Amount due
in US dollar
Equivalent in
full CDN dollar
Amount due Equivalent in
in uS dollar full CDN dollar
54,198
8,222,171
(1,622,841 )
57,644
8,745,102
(1,726,054 )
326,720
1,357,670
(2,365,801 )
325,053
1,350,746
(2,353,736 )
Net exposure
6,653,528
7,076,692
(681,411 )
(677,937 )
PROMETIC LIFE SCIENCES INC.
69
Exposure in GBP
Cash
Accounts receivable
Bank loan
Trade and other payables
Repayable government grant
Advance on revenues from a supply agreement
Net exposure
December 31, 2013
December 31, 2012
Amount due
Equivalent in
in GBP full CDN dollar
Amount due Equivalent in
in GBP full CDN dollar
450,725
1,082,650
-
(806,450 )
-
(1,955,527 )
(1,228,602 )
794,492
1,908,388
-
(1,421,530 )
-
(3,447,007 )
(2,165,657 )
522,549
853,444
(496,102 )
(299,388 )
(340,858 )
(1,872,861 )
(1,633,216 )
845,380
1,380,702
(802,595 )
(484,351 )
(551,440 )
(3,029,915 )
(2,642,219 )
Based on the above net exposures as at December 31, 2013, and assuming that all other variables remain constant, a 10 %
depreciation or appreciation of the Canadian dollar against the u.S. dollar would result in a decrease or an increase of the
consolidated net loss of approximately $708.
A 10 % depreciation or appreciation of the Canadian dollar against the GBP would result in a decrease or an increase of
the accumulated other comprehensive loss of approximately $217. The Corporation has not hedged its exposure to currency
fluctuations.
35. Comparative information
Certain of the December 31, 2012 figures have been reclassified to conform to the current period’s presentation.
36. Subsequent event
During March 2014, the Corporation and a supplier with whom the Corporation has a liability in the form of an advance on
revenues (refer to note 20 for additional details) agreed to extend the maturity date of the advance in the amount of $3,447
which was scheduled to mature in September 2014 to April 1, 2015 subject to continuing commercial negotiations which are
currently ongoing.
70 PROMETIC LIFE SCIENCES INC.
MANAGEMENT TEAM
BOARD OF DIRECTORS
Pierre Laurin
President and
Chief Executive Officer
ProMetic Life Sciences Inc.
Steven Burton
Chief Executive Officer
ProMetic BioSciences Ltd
Bruce Pritchard
Chief Financial Officer
ProMetic Life Sciences Inc.
Patrick Sartore
General Counsel,
IP and Corporate Secretary
ProMetic Life Sciences Inc.
Tom Chen
Senior Vice-President,
Product and Asia/Pacific
Development
ProMetic BioTherapeutics, Inc.
Timothy Hayes
Vice-President,
Product Development,
Quality and Regulatory Affairs
ProMetic BioTherapeutics, Inc.
John Moran
Chief Medical Officer,
ProMetic Life Sciences Inc.
Frédéric Dumais
Director, Communications
and Investor relations
ProMetic Life Sciences Inc.
G.F. Kym Anthony (1) (2) (3)
Chairman of the Board
ProMetic Life Sciences Inc.
Executive Chairman
Hybrid Partners Ltd.
Raymond M. Hakim
Attending Physician
Vanderbilt university
Medical Center
Charles Kenworthy
executive Vice-President
Corporate Strategy
Nant Works
Robert Lacroix (1)
Retired
Pierre Laurin
President and
Chief Executive Officer
ProMetic Life Sciences Inc.
Louise Ménard (2) (3)
President
Groupe Méfor inc. and
Corporate Director
Paul Mesburis (1)
Chartered Accountant
John Moran (2)
Chief Medical Officer
ProMetic Life Sciences Inc.
Nancy Orr (1) (2)
Consultant in the energy and
recycling sectors
Bruce Wendel (3)
Consultant in Pharmaceutical
Industry
Benjamin Wygodny (3)
President
Angus Partnership and
3188795 Canada Inc.
Positions – Committees
(1) Audit & Risk Committee
Paul Mesburis (Chairman)
G.F. Kim Anthony
Robert Lacroix
Nancy Orr
(2) Compensation & HR Committee
Nancy Orr (Chairman)
G.F. Kim Anthony
Louise Ménard
John Moran
(3) Corporate Governance Committee
Louise Ménard (Chairman)
G.F. Kim Anthony
Bruce Wendel
Benjamin Wygodny
PROMETIC LIFE SCIENCES INC.
71
Listing: Toronto Stock Exchange
Symbol: PLI
Outstanding shares as of December 31,
2013: 523,168,666
Annual Meeting of Shareholders
Wednesday, May 14, 2014 at 10:30 (AM)
Le Centre Sheraton Montreal
1201 boul. René-Lévesque West
Montreal, Quebec H3B 2L7
Canada
Annual Information Form
The 2013 Annual Information Form
of ProMetic Life Sciences Inc. is avail-
able upon request from the Company’s
Head Office or by accessing the SEDAR
(System for Electronic Document
Analysis and Retrieval) site,
www.sedar.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. ou sur notre site
internet à l’adresse www.prometic.com.
CORPORATE INFORMATION
HEADQUARTERS
ProMetic Life Sciences Inc.
(Canada)
440 Boul. Armand-Frappier, Suite 300
Laval, Quebec H7V 4B4
Canada
Tel:
+450.781.0115
Fax:
+450.781.4477
info@prometic.com
Email:
Web: www.prometic.com
Investor Relations
Frédéric Dumais, B. Comm., L.L.B.
+450.781.0115 ext. 2234
Tel:
f.dumais@prometic.com
Email:
investor@prometic.com
Email:
THERAPEUTICS
ProMetic BioSciences Inc.
(Canada)
500 Cartier Blvd. West, Suite 150
Laval, Quebec H7V 5B7
Canada
Tel:
Fax:
Email:
+450.781.0115
+450.781.1403
info@prometic.com
BIOSEPARATION TECHNOLOGIES AND
PLASMA-DERIVED THERAPEUTICS
(BIOLOGICALS)
ProMetic BioSciences Ltd
(United Kingdom)
R&D
Horizon Park
Barton Road, Comberton
Cambridge CB23 7AJ
United Kingdom
Tel:
Fax:
Email:
+44(0)1223.420.300
+44(0)1223.420.270
sales-pbl@prometic.com
Manufacturing
(United Kingdom)
Freeport
Ballasalla, Isle of Man
IM9 2AP
British Isles
Tel:
Fax:
Email:
+44(0)1624.821.450
+44(0)1624.821.451
sales-pbl@prometic.com
North American Sales Office
Tel:
Fax:
Email:
+301.251.8821
+301.251.8826
sales-pbl@prometic.com
Manufacturing
(Canada)
531 Boulevard des Prairies, Bldg. 15
Laval, Quebec H7V 1B7
Canada
+450.781.0115
Tel:
+450.781.4477
Fax:
Email: sales-pbl@prometic.com
ProMetic BioTherapeutics, Inc.
(United States)
1330 Piccard Drive, Suite 201
Rockville, Maryland 20850
USA
Tel:
Fax:
Email:
+301.917.6320
+301.838.9023
info@prometic.com
Auditors
Ernst & Young LLP
800 René-Lévesque Blvd. W., Suite 1900
Montreal, Quebec H3B 1X9
Canada
Transfer Agent and Registrar
Computershare Trust Company
of Canada
1500 University Street, Suite 700
Montreal, Quebec H3A 3S8
Canada
72 PROMETIC LIFE SCIENCES INC.
Table of Content
Executive Summary
ProMetic
Significant Events
Message to Shareholders
Proteins and Therapeutics
MD&A
Financial Statements
Management Team and
Board of Directors
Corporate Information
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ANNUAL REPORT 2013
We care about rare.
www.prometic.com