Annual Report 2017 Contents
History .................................................................................................... 1
Message to Shareholders ..................................................................... 4
MD&A ...................................................................................................... 9
Financial statements ............................................................................ 52
Prometic, a Pharmaceutical
Company specialised in Rare
and Orphan Diseases
Prometic Corporate History
From enabling the manufacturing of biopharmaceuticals to developing its own drug pipeline.
Shire acquires BioChem
& close R&D (2000)
Scientists join Prometic
(2001–2006)
2 joint ventures
ACL / Spin off
U of Cambridge
(1988)
IPO – Toronto
Stock Exchange
(1998)
Affinity Chromatography
enabling the extraction/purification
(18 Products approved by FDA/EMA
with Prometic technology in their DMF)
Small Molecules
Discovery platform
(R&D Montreal &
Cambridge UK)
Plasma-Derived
Platform (PPPS™)
(R&D Rockville USA &
Montreal)
Auto-Immune / Oncology
PBI-1737
PBI-1393
(BioChem in-licensing)
Hematology/Fibrosis
PBI-1402
(Innovon in-licensing)
Fibrosis
PBI-4050
PBI-4547
PBI-4425
IVIG
(Immunoglobulins)
Interalpha inhibitor proteins
Alpha 1 antitrypsin
Fibrinogen
IVIG
PBI-4050
- Ph3 IPF
- Ph2/3 Alström
PBI-4547
PBI-4425
Plasminogen Sc
Wound healing
Better known up until a few years ago for its bioseparation and enabling of
manufacturing of biopharmaceuticals expertise, Prometic has during 2017, continued
its transition that has transformed the company into a biopharmaceutical
corporation with two drug discovery platforms focusing on rare and orphan
diseases representing significant and unmet medical needs.
1
Prometic Life Sciences Inc.History The first platform stems from the discovery of two receptors
the regulation of which is at the core of how we heal: tissue
regeneration and scar resolution as opposed to fibrosis. One
of the lead drug candidates emerging from this platform,
PBI-4050, is entering pivotal phase 3 clinical trials for the
treatment of IPF (Idiopathic Pulmonary Fibrosis). The
second drug development platform leverages Prometic’s
vast experience in bioseparation to isolate and purify
biopharmaceuticals from human plasma. Prometic’s primary
focus is to address unmet medical needs with therapeutic
proteins not currently commercialized, such as Ryplazim™
(plasminogen). It is also leveraging some more established
plasma-derived therapeutics with significant growth in
demand such as IVIG (Intravenous Immunoglobulin), to
ultimately contribute financially to the overall manufacturing
operations involved in the plasma collection and processing.
Finally, the Corporation will continue to provide access to
its proprietary bioseparation technologies to pharmaceutical
companies to enable their production of non-competing
biopharmaceuticals. Globally recognized as a bioseparation
expert, the Company derives revenue from this activity
through sales of affinity chromatography media which
contribute to offset its own R&D investments.
Prometic Corporate Vision – Expected Growth
From enabling the manufacturing of biopharmaceuticals to developing its own drug pipeline.
Drug
Candidate
Indication
Pre-clin
Ph 1
Ph 2
Ph 3
NDA/
BLA
Status / Anticipated milestones
over next 12 months
PBI-4050
IPF
PBI-4050
Alström Syndrome
Initiate Pivotal Phase 3 trial in USA, EU, Canada
Define clin-reg Pathway / expand to Pivotal trial
PBI-4547
NASH &/or orphan tba
Complete Phase 1, Initiate Phase 2 trial
PBI-4425
TBA
Ryplazim™ IV Congenital deficiency
Ryplazim™ IV
Acute deficiencies
Plasminogen Sc
DFU
Plasminogen Sc Tympanic Repair
IVIG
IaIp
PID
NEC
Initiate Phase 1 trial
Commercial launch USA & Canada
Initiate trials in the USA & Canada
Generate POC data
Generate POC data
File NDA/BLA in Canada and USA
File NDA/BLA in Canada and USA
History
2
Prometic Life Sciences Inc. 3
Prometic Life Sciences Inc. Message to Shareholdeers
Message to Shareholders
Creating value through our product pipeline
We have made important steps in our transition from a pure
R&D company to a commercially successful pharmaceutical
company. We demonstrated good performance against
our 2017 clinical and operational milestones and we have
continued to strengthen our pipeline of products while at the
same time becoming more focused.
We have prioritised investment in our two leading drug
candidates – PBI-4050 and Ryplazim™ (plasminogen) –
based on the clinical successes and data that have been
generated through our clinical development program. Both
have produced very encouraging efficacy data in their
respective indications whilst maintaining good safety and
tolerability profiles.
The priority of our clinical development program is to focus
on those indications representing large unmet medical needs
that can generate the greatest value for shareholders. We want
to get our products quickly into the hands of the people who
need it most.
The following is a summary of the most recent developments
and milestones achieved throughout 2017 and their respective
potential outcomes:
Dear Shareholders,
2017 witnessed Prometic making very significant progress
towards becoming a pharmaceutical company which
specialises in rare and orphan diseases. It was a year which
saw us put in place the foundations that we need to enable
significant growth of our business over coming years. I truly
believe we are approaching a key milestone in the history of
our business and we should look to the immediate future with
confidence and excitement.
Every single employee is motivated by the belief that we can
make a real difference to thousands of people throughout the
world in dire need of innovative therapeutic solutions. We are
now closer than ever before to commercialising products that
can heal people, many of whom have given up hope of ever
finding a cure. It is this desire to make a difference that has
enabled us to overcome many challenges together.
We have all the ingredients for success. Our passion for
innovation means that we have continued to build a deep and
rich R&D pipeline, which has been enabled through world-
class science.
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Prometic Life Sciences Inc. PBI-4050
Our small molecule lead drug candidate - PBI-4050 – has
continued to demonstrate a very strong performance.
Its potential was recently reported on by The American
journal of Pathology in a paper which became the most read
article ever published by that journal within two weeks of
publication. Its efficacy has been demonstrated in over 30
different preclinical models performed by Prometic and
universities or institutions such as University of Vanderbilt,
University of Ottawa and the Université de Montreal.
Highlights include:
•
•
•
Good safety and tolerability profiles in hundreds of
human subjects without any serious adverse events
resulting from the administration of the drug. This is a
key feature for any drug aiming to obtain commercial
approval. It is even more important for PBI-4050, as it is
targeted to enter the Idiopathic Pulmonary Fibrosis (IPF)
market, where the existing standard of care drugs have a
poor tolerability profile, leaving patients with challenging
side effects on top of the conditions associated with the
disease itself.
Strong results in patients with Idiopathic Pulmonary
Fibrosis (IPF). PBI-4050 was shown to stabilize the
lung function of IPF patients, whether used alone or
in combination with nintendanib after twelve weeks of
treatment.
Strong results in patients with Alström Syndrome.
PBI-4050 was administered for an average of 52 weeks
to patients with Alström Syndrome who experienced a
significant reduction of fibrosis measured by MRI in their
heart, and MRI and Fibroscan in their liver. There was
further evidence of clinical benefit measured in the liver,
kidney and fat tissue.
•
These two conditions affect more than 150,000 patients
in North America and we are positioning ourselves as a
provider of tangible medical solutions with PBI-4050.
•
Orphan Drug Designation provided by the U.S. Food and
Drug Administration (FDA) and the European Medicines
Agency (EMA) for both Alström Syndrome and for IPF,
and Promising Innovative Medicine (PIM) designation
by the United Kingdom (UK) Medicines and Healthcare
Products Regulatory Agency (MHRA) for both Alström
syndrome and as an add-on treatment to nintedanib in
patients with idiopathic pulmonary fibrosis (IPF).
PBI-4050 - Progress in 2018
This year, we have continued to make significant progress,
namely:
•
•
•
An agreement with the FDA on the design of the Phase
3 pivotal clinical trial for PBI-4050 in patients with IPF.
Based on recommendations from the FDA, we are now
set to undertake an ‘all comers study’ that will enroll
patients with mild-to-moderate IPF, regardless of whether
they are on background standard of care with nintedanib
(OFEV®) or not. The trial will provide efficacy data on
both PBI-4050 as a stand-alone agent, and as an add-on
to nintedanib, and will be part of the dataset to support a
simple, all-inclusive indication for the treatment of IPF.
Meetings planned in the second half of this year with
both the European and the US regulatory authorities
to determine the clinical and regulatory pathway for
the Alström Syndrome condition and evaluate the
requirements to pursue it as a stand-alone clinical
indication.
Ongoing evaluation and realignment of our clinical
development strategy regarding analogs of PBI-4050
which share the same unique mechanism of action with
PBI-4050. We will continue to develop those analogs that
would enable us to target other fibrotic-related indications
and create further therapeutic products. This strategy is
designed to increase our options for on-going partnering
discussions. At the same time, we terminated the PBI-
4050 clinical trial in Cystic Fibrosis Related Diabetes
(‘CFR’) and will continue to evaluate the need to
continue other on-going clinical programs with PBI-4050
that may no longer contribute to the strategic priorities.
5
Prometic Life Sciences Inc. RyplazimTM
2017 saw us file our first BLA with the FDA. We were awarded
a Rare Pediatric Disease Designation for our plasminogen
(Ryplazim™) by the U.S. FDA for the treatment of patients
with congenital plasminogen deficiency. Plasminogen has
already been granted orphan drug designations by both the
US FDA and EU regulatory authorities.
The current BLA filing includes the clinical data for 10
patients with 12 weeks of data for an accelerated regulatory
pathway. Since filing the current BLA, Prometic has
accumulated additional clinical data involving over 3,200
infusions of RYPLAZIM™ (plasminogen) over treatment
periods exceeding 48 weeks during which similar clinical
activity and tolerability profiles, as previously reported, were
observed. The original guidance from with the FDA was
for Prometic to submit such long-term clinical data in a
supplemental BLA submission in order to secure full licensure
in 2019. Full licensure would provide for the long-term efficacy
and safety data to be included in the prescribing information
of RYPLAZIM™ (plasminogen) which would further support
Prometic’s claims of the strong health economics benefit
associated with the use of RYPLAZIM™ (plasminogen).
The FDA’s review raised no issues regarding the clinical
data for the accelerated approval. The FDA’s review has
however identified the need for Prometic to make a number
of changes in the Chemistry, Manufacturing and Controls
(CMC) section of its BLA. These changes require the
implementation and validation of additional analytical assays
and “in-process controls” in the manufacturing process of
RYPLAZIM™ (plasminogen). While Prometic is expecting to
complete said implementation and validation in April 2018,
it will be required to manufacture additional RYPLAZIM™
(plasminogen) lots to support the implementation and
validation of these process changes.
Prometic expects to complete the manufacturing of the
additional validation lots in the summer of 2018 and
anticipates being able to provide the FDA with such new
CMC data for its review in the fourth quarter of 2018, which
is beyond the Prescription Drug User Fee Act (PDUFA)
date of April 14, 2018. The FDA requested that such CMC
data be submitted as an amendment to the current BLA and
has invited Prometic to also submit the long-term (48-week)
clinical data at the same time instead of through the originally
agreed upon supplemental BLA process. This will allow the
FDA to consider granting full-licensure under the current
BLA. If granted, this is expected to allow a faster sales ramp-
up from launch than could have been achieved had provisional
licensure been obtained by the current PDUFA date. The
Company continues to interact with the FDA and will provide
a further update when it is in a position to disclose a new
PDUFA date.
The FDA indicated that the submission of the new CMC
data will not impact the previously granted designations,
including the Priority Review Status, the Orphan Drug
Designation and the Rare Pediatric Disease Designation for
RYPLAZIM™ (plasminogen) for the treatment of congenital
plasminogen deficiency.
Ongoing clinical trials
We believe Ryplazim™ (plasminogen) has the potential to
address unmet medical needs and fatalities associated with
‘acquired plasminogen deficiencies’ such as Acute Respiratory
Distress Syndrome (ARDS) or in diabetic patients with
uncontrolled and elevated blood glucose. ARDS affects
190,000 Americans every year with a 30%-40% mortality rate.
We plan to initiate clinical trials in the U.S. and Canada to
establish optimal protocols for the potential use of Ryplazim™
(plasminogen) for the treatment of acute exacerbations in
patients with ARDS or IPF and other types of acquired
plasminogen deficiencies.
Clinical trials in patients with Diabetic Foot Ulcers (DFU)
and in patients with chronic tympanic perforation are also
underway in Sweden. Wounds are known to be difficult to heal
in certain diabetic patients, and elevated blood sugar level has
been shown to greatly reduce the activity of plasminogen. We
have initiated clinical programs to determine its safety and
ability to enable the complete healing of otherwise hard-to-
treat wounds.
6
Prometic Life Sciences Inc.Message to Shareholders We remain committed to growing our product pipeline in
a focused way to provide hope for potentially millions of
patients with unmet medical needs and to maximise our
future revenue growth. In this way, the needs of our patients
and our shareholders are completely aligned.
Investing for long term growth
As you are aware, we have been in exploratory conversations
with a number of businesses regarding licensing activity. We
will continue to be open to exploring opportunities, but both
parties must feel confident that any agreement aligns with their
strategic priorities. As a leadership team, we are committed
to generating short-term revenue and maximising long-term
shareholder value. We will continue to assess each commercial
opportunity case by case, cognizant of the fact that every new
piece of data we gather, every new trial we run, is helping to
increase the value of what we have created together.
We operate in an ever moving and changing regulatory
environment. Following new legislation implemented
by Chinese SFDA to facilitate the approval of foreign
drugs in China late last year, the Chinese drug market
immediately became of strategic importance to many global
pharmaceutical companies with whom we are discussing
potential strategic partnerships. We therefore decided that it
was in Prometic’s best interest to regain all commercial rights
for China regarding our lead small molecule drug candidates.
In the meantime, we have started to build our commercial
footprint ahead of the planned launch of Ryplazim™ in the
USA and Canada by recruiting experienced Medical Science
Liaison (MSL) and Account managers. We intend to provide
a full ‘concierge’ service for congenital plasminogen deficient
patients who require lifelong home infusion of Ryplazim™.
Our strategy is focused on tier-1 hospitals that represent over
one hundred hospitals which deal with the vast majority of
severely ill patients who could benefit greatly from Ryplazim™.
There is a lot to celebrate in 2017. We are moving ever
closer to becoming a world class pharmaceutical company.
I would like to thank our employees, shareholders, external
collaborators and our Board of Directors for their passion and
commitment to harnessing the science that will provide real
hope to people around the world.
What we do today will change lives tomorrow.
Very best regards,
Pierre Laurin,
President and Chief Executive Officer
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Prometic Life Sciences Inc. 8
Prometic Life Sciences Inc. Management Discussion & Analysis
Management Discussion & Analysis
Prometic Life Sciences Inc.
For the quarter and the year ended December 31, 2017
MANAGEMENT’S DISCUSSION & ANALYSIS
This Management’s Discussion and Analysis (“MD&A”) is intended to help the reader to better understand
Prometic Life Sciences Inc.’s (“Prometic” or the “Corporation”) operations, financial performance and results
of operations, as well as the present and future business environment. This MD&A has been prepared as
of March 28, 2018, and should be read in conjunction with Prometic’s audited annual consolidated financial
statements for the year ended December 31, 2017. Additional information related to the Corporation,
including the Corporation’s Annual Information Form, is available on SEDAR at www.sedar.com. All
amounts in tables are in thousands of Canadian dollars, except where otherwise noted.
FORWARD-LOOKING STATEMENTS
This Management’s Discussion and Analysis of the results of operations and the financial condition may
contain forward-looking statements about Prometic’s objectives, strategies, financial condition, future
performance, results of operations and businesses as of the date of this MD&A.
These statements are “forward-looking” because they represent Prometic’s expectations, intentions, plans
and beliefs about the markets the Corporation operates in and on various estimates and assumptions based
on information available to its management at the time these statements are made. Without limiting the
generality of the foregoing, words such as “may”, “will”, “expect”, “believe”, “anticipate”, “intend”, “could”,
“would”, “estimate”, “continue”, “plan” or “pursue”, or the negative of these terms, other variations thereof
or comparable terminology, are intended to identify forward-looking statements although not all forward-
looking information contains these terms and phrases. Forward-looking information is provided for the
purposes of assisting the reader in understanding the Corporation and its business, operations, prospects
and risks at a point in time in the context of historical and possible future developments and therefore the
reader is cautioned that such information may not be appropriate for other purposes.
Actual events or results may differ materially from those anticipated in these forward-looking statements if
known or unknown risks affect our business, or if our estimates or assumptions turn out to be inaccurate.
Such risks and assumptions include, but are not limited to, Prometic's ability to develop, manufacture, and
successfully commercialize value-added pharmaceutical products, regulatory approvals, the availability of
funds and resources to pursue research and development (“R&D”) projects, the successful and timely
completion of clinical studies, our ability to take advantage of business opportunities in the pharmaceutical
industry, reliance on key personnel, collaborative partners and third parties, our patents and proprietary
technology, our ability to access capital, the use of certain hazardous materials, the availability and sources
of raw materials, currency fluctuations, the value of our intangible assets, negative operating cash flow,
legal proceedings, uncertainties related to the regulatory process, general changes in economic conditions
and other risks related to Prometic’s industry. More detailed assessment of the risks that could cause actual
events or results to materially differ from our current expectations can be found in the Annual Information
Form under the heading “Risks and Uncertainties Related to Prometic’s Business”.
Although Prometic has attempted to identify important factors that could cause actual actions, events or
results to differ materially from those described in forward-looking statements, there may be other factors
that cause actions, events or results not to be as anticipated, estimated or intended. Therefore, there can
be no assurance that forward-looking statements will prove to be accurate as actual results and future
events could differ materially from those anticipated in such statements. Accordingly, the reader should not
place undue reliance on forward-looking statements.
As a result, Prometic cannot guarantee that any forward-looking statement will materialize. Prometic
assumes no obligation to update any forward-looking statement even if new information becomes available,
as a result of future events or for any other reason, unless required by applicable securities laws and
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Prometic Life Sciences Inc.
regulations.
Prometic is a 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, more cost-effective and more convenient products to
both existing and emerging markets. Prometic is active in developing its own novel small molecule
fibrosis, autoimmune
therapeutic products
disease/inflammation and cancer. Prometic also offers its state of the art technologies for large-scale drug
purification of biologics, drug development, proteomics and the elimination of pathogens to several 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 and commercialize best-in-class plasma-
derived therapeutics. A number of both the plasma-derived and small molecule products are under
development for rare diseases and orphan drug indications.
targeting unmet medical needs
field of
the
in
Headquartered in Laval (Canada), Prometic has R&D facilities in the U.K., the U.S. and Canada,
manufacturing facilities in the Isle of Man and Canada and business development activities in Canada, the
U.S., Europe and Asia.
UPDATE ON BUSINESS SEGMENTS ACTIVITIES
Prometic’s operations are divided into three distinct business operating segments: the Small molecule
therapeutics segment, the Plasma-derived therapeutics segment and the Bioseparations segment.
Small molecule therapeutics segment
The Small molecule therapeutics segment is comprised of two operating subsidiaries. The principal
subsidiaries, which operated this segment for the financial year ended December 31, 2017 were:
•
•
Prometic Pharma SMT Limited (PSMT), based in Cambridge, UK, which operates the Small
Molecule Therapeutics Segment for the world (except Canada); and
Prometic Biosciences Inc. (PBI), based in Laval, Quebec, Canada, which operates the Small
Molecule Therapeutics Segment for Canada and performs research and development activities
on behalf of PSMT.
The business model for the Small molecule therapeutics segment is for Prometic to develop promising drug
candidates such as PBI-4050 and to independently pursue commercialization activities for rare or orphan
indications for the North American markets and possibly partner or out-license rights to commercialize same
in other territories. The Corporation plans to enter into partnerships for other larger medical indications and
or geographical regions requiring a much more substantial local commercial reach and resources. It is
generally not Prometic’s intention to independently undertake late-stage clinical trials (phase 3) in large
indications, such as Chronic Kidney Disease (“CKD”) or Diabetic Kidney Disease (“DKD”) without the
support of a strategic venture or big pharma partner.
The Corporation intends to:
• Develop, obtain regulatory approval and commercialize, directly, or in partnership PBI-4050 for
the treatment of Idiopathic Pulmonary Fibrosis (IPF).
• Develop, obtain regulatory approval and successfully commercialize PBI-4050 for the treatment
of Alström (“AS”), and use the evidence of clinical efficacy in AS patients to expand the use of
PBI-4050 and or its follow on analogues to treat other large unmet fibrotic diseases such as
cardiac pulmonary or kidney fibrosis, NASH or other types of liver fibrosis pulmonary
hypertension and scleroderma.
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Prometic Life Sciences Inc.Management Discussion & Analysis
Fibrosis and Mechanism of Action
The Small Molecule Therapeutics Segment is a small-molecule drug development business, with a
pipeline of product candidates leveraging the discovery of two receptors involved in the regulation of the
healing process. Following an injury, the body has the ability to heal and regenerate damaged tissues. If
an injury is overwhelming or chronic in nature, the tissue regeneration process will be taken over by the
fibrotic process or fibrosis. Fibrosis is characterized by the excessive accumulation of extracellular matrix
(ECM) in damaged or inflamed tissues and is the common pathological outcome of many inflammatory
and metabolic diseases. Numerous clinical conditions can lead to organ fibrosis and functional failure; in
many disorders, acute or persistent inflammation is crucial to trigger the fibrotic response. The production
of various profibrotic cytokines and growth factors by innate inflammatory cells results in the recruitment
and activation of ECM producing myofibroblasts. There is currently a great need for therapies that could
effectively target pathophysiological pathways involved in fibrosis. Notable examples of medical conditions
where fibrosis is at the core of organs losing functionality include: IPF, Chronic Kidney Disease, NASH
and AS.
Prometic has observed that the “up-regulation” of receptor GPR40 concomitant to the “down-regulation” of
receptor GPR84 which promotes the normal healing process as opposed to promoting the fibrotic process.
Prometic’s drug candidates are agonists (“stimulators”) of GPR40 and antagonists (“inhibitors”) of GPR84.
A significant number of manuscripts have been submitted for publication now that the Corporation has
determined it has filed sufficient patents to adequately protect its portfolio of drug candidates that targets
these two receptors. One of these manuscripts was published on February 16, 2018 in the American
Journal of Pathology, the official journal of the American Society of Investigational Pathology. The paper
entitled “A Newly Discovered Antifibrotic Pathway Regulated by Two Fatty Acid Receptors: GPR40 and
GPR84” documents the discovery of an antifibrotic pathway involving these two receptors and the activity
of our lead drug candidate PBI-4050. Said publication examines PBI-4050’s ligand affinity in vitro and in
vivo for the fatty acid receptors, GPR40 and GPR84. GPR40 and GPR84 are known to be involved in
diverse physiological processes related to metabolic regulation and to inflammation, but the fundamental
importance of these receptors in the fibrosis pathways had not been recognized until now. In this study, the
authors uncovered a novel antifibrotic pathway involving these receptors, showing that GPR40 is protective
and GPR84 is deleterious in fibrotic diseases. Importantly, this study also shows that PBI-4050 acts as an
agonist of GPR40 and an antagonist of GPR84. Through its binding to these receptors, PBI-4050
significantly attenuated fibrosis in many injury contexts, as evidenced by the global antifibrotic activity
observed in the kidney, liver, heart, lung, pancreas, or skin.
The activity of drug candidates such as PBI-4050 has been observed in over 30 different preclinical models
performed by the Corporation and by other universities or institutions in collaboration with the Corporation,
such as Vanderbilt University, University of Ottawa, Université de Montréal, McMaster University and the
Montreal Heart Institute. PBI-4050 was also successfully completed in three separate phase 2 clinical trials
supporting the translation of such results in the biologic activity in humans and helping pave the way for the
initiation of a pivotal phase 3 clinical trial for IPF in the USA. While the Small Molecule Therapeutics
Segment has several promising drug candidates, management has thus far focused its efforts on its anti-
fibrotic lead drug candidate PBI-4050. With observed signs of clinical efficacy and a favorable tolerability
profile in hundreds of human subjects, Prometic is bringing follow-on analogues of PBI-4050 to the clinical
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Prometic Life Sciences Inc.
programs. PBI-4547 and PBI-4425 are amongst such drug candidates earmarked by Prometic to
commence phase 1 clinical programs in 2018.
PBI-4050, Prometic’s Lead Compound and Clinical Programs
PBI-4050 is currently the lead clinical compound targeting indications including IPF and AS. PBI-4050 has
been granted Orphan Drug Designation by the FDA and the EMA for the treatment of AS as well as for
the treatment of IPF. PBI-4050 has also been granted the PIM (Promising Innovative Medicine)
designation by the MHRA for the treatment of IPF and AS.
Summary Results of PBI-4050 Results in Three Completed Phase 2 Clinical Studies
Type 2 Diabetes with Metabolic Syndrome (T2DMS)
Some preclinical models used to demonstrate the pharmacological activity of PBI-4050 involve the
presence of diabetes, obesity, hypertension leading to an accelerated rate of fibrosis in the liver, kidney
and pancreas and premature death. Mice models such as the db/db eNOS-/- mouse model performed at
the University of Vanderbilt or db/db uni-nephrectomized mouse model performed at Prometic helped
demonstrate that the combined effect of PBI-4050 in reducing fibrosis and macrophage infiltration in fat
tissue, in the pancreas, the kidney and the liver not only improved the status of these organs and the
survival of the animals compared to control, but also significantly reduced blood glucose level. Given that
the demonstration of fibrosis reduction in humans requires trials with long term exposure, the Corporation
initiated a first phase 2 trial in patients who present symptoms like the ones described in the db/db eNOS-
/- mouse model: Type 2 diabetes with metabolic syndrome (T2DMS). While this is not a medical indication,
the Corporation necessarily seeks to ultimately target commercially, the purpose of this study was to quickly
ascertain whether the pharmacological activity observed in preclinical animal models translated to humans.
Particular attention was placed on the blood sugar levels in a phase 2 clinical trial given that this effect
should be measurable in a manner of 8 to 12 weeks.
This study met its primary and secondary endpoints. In addition to safety and tolerability, the study
evaluated the effects of PBI-4050 on metabolic syndrome parameters and on pro-inflammatory/fibrotic and
diabetic biomarkers in blood and urine. In this open label Phase 2 clinical trial, PBI-4050 (800 mg) was
administered once daily to 24 patients already being treated with “standard of care” drug regimens for a
period of 12 weeks. Twelve of these patients were enrolled in an additional 12 week extension throughout
which the efficacy and safety observed at 12 weeks was also maintained at 24 weeks PBI-4050 has been
well tolerated with no serious drug related adverse events.
The pharmacological activity of PBI-4050 was confirmed through the clinically significant reduction in
glycated hemoglobin concentration (“HbA1c”) between screening and Week 12. For instance, the 15
patients with a screening (HbA1c) ≥ 7.5 experienced a clinically significant mean decrease of – 0.75% (p =
0.0004) while the 9 patients with a screening HbA1c ≥ 8.0% experienced a mean decrease of – 0.9% (p =
0.007). The 12 patients who participated in the study’s 12-week extension had a mean HbA1c of 7.7 at
screening and experienced a reduction of – 0.8% at week 24.
This significant improvement in HbA1c was accompanied with a decrease in fasting insulin and C-peptide
levels (-19% (p=0.017) and -11% (p=0.028)) respectively, and an increase in adiponectin (+18%
(p=0.021)), indicating that the improvement in HbA1c may be, at least in part, explained by a reduction in
insulin resistance. This conclusion is further supported by the fact that the patients with the greatest
reductions in their HbA1c values had the highest increase in adiponectin levels; higher plasma adiponectin
levels are known to protect diabetic patients from vascular complications and to improve their insulin
sensitivity.
The study also showed how several biomarkers measured in blood or urine of patients (and associated
with a high incidence of cardiovascular complications and kidney injury when elevated in metabolic
syndrome) were significantly reduced by PBI-4050 after 24 weeks of PBI-4050 treatment.
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Prometic Life Sciences Inc.Management Discussion & Analysis
Alström Syndrome (AS)
Alström Syndrome is chronically debilitating due to permanent blindness, deafness, type 2 diabetes and
life-threatening due to progressive organ failure. To date, no satisfactory method of treatment has been
approved in the USA for patients affected by AS. Prometic is currently investigating the effects of PBI-4050
on multiple organs in AS patients in an ongoing, open label, phase 2, clinical study in the UK with plans to
expand the clinical program, both in the USA and elsewhere in Europe, once an optimal regulatory pathway
has been defined with the FDA and the European Medicines Agency, respectively.
The clinical trial in AS patients is a very challenging test of the efficacy of PBI-4050. AS is a rare inherited
autosomal recessive syndrome characterized by the onset of obesity in childhood or adolescence, type 2
diabetes with severe insulin resistance, dyslipidemia, hypertension and severe multi-organ fibrosis,
involving the liver, kidney and heart. AS is also characterized by a progressive loss of vision and hearing,
a form of heart disease that enlarges and weakens the heart muscle (dilated cardiomyopathy), and short
stature. This AS disorder can also cause serious or life-threatening medical problems involving the liver,
kidneys, bladder, and lungs.
The on-going AS study is an open-label, single-arm, phase 2 clinical trial in which the patients are treated
with PBI-4050 (800 mg) once daily. Each patient is evaluated against their respective baseline and against
their respective historical disease progression trend whenever available, given the severity of their medical
conditions. The clinical study has now enrolled 12 subjects. Given the evidence of clinical benefit and
continuing safety and tolerability, the Data Safety Monitoring Board (DSMB) and Medicines and Healthcare
products Regulatory Agency (MHRA) have allowed for two successive extensions of the duration of
treatment. The duration of treatment has been extended from the original 24 weeks for an additional 36
weeks, and then once more for a further 12 weeks (total of 72 weeks).
In addition to safety and tolerability endpoints key secondary endpoints in this study include the assessment
of the effect of PBI-4050 on liver stiffness using transient elastography (FibroScan®) as well as on the fat
content and fibrosis burden in the liver using MRI. In addition, the effect of PBI-4050 on glucose, insulin,
and lipid dynamics using the hyperinsulinemic-euglycemic clamp test, the histological appearances seen
in fat biopsies as well as the effect on additional pro-inflammatory and inflammatory, fibrotic, diabetic, and
obesity biomarkers in blood and urine are also evaluated. The Corporation is pursuing the collection of the
results of up to 10 years of prior investigations of particular relevance in documenting the disease course,
including MRIs of the heart and FibroScan® results of the liver.
To date, the 12 subjects have all received at least 24 weeks of treatment and 10 subjects have received
≥ 36 weeks, of which 3 subjects have received PBI-4050 for more than 72 weeks. PBI-4050’s safety and
tolerability has been confirmed over this extended period. A brief summary of the most significant findings
is presented below.
Fibroscan results from the 10 subjects who received at least 36 weeks of treatment showed a statistically
significant improvement in the measure of liver stiffness, from a mean of 10.2 kPa at baseline to a mean of
8.1 kPa at last measurement, an absolute decrease of 2 kPa (p = 0.0219, 95% CI -3.52, -0.46) (Figures 2
& 3). Fibroscan is a non-invasive technique for clinical assessment of liver fibrosis with a high degree of
accuracy and reproducibility, especially in patients with established fibrosis (≥ F2) (Cassinotto 2016).
FibroScan® measurements for all patients were carried out by a single, experienced operator. To ensure
test reliability, a minimum of 10 valid readings were taken per patient, with a required success rate of at
least 60% and an interquartile range of <=30% of the median value
Liver MRI data also indicated a mean reduction of -11% in the T1-corrected score between baseline and
last available measurement (p=0.0195, 95% CI: -92.3, -9.8), which supports an improvement of liver
fibrosis.
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In addition to the preliminary evidence of efficacy observed on liver fibrosis presented above, analysis of
the interim cardiac MRI data indicates a reduction of cardiac fibrosis in each patient after initiation of
treatment with PBI-4050 (p<0.001). The figure below illustrates the progression of cardiac fibrosis
expressed as a percent increase of the MRI score for each patient for whom three years or more of fibrosis
data were available, and the reversal of said progression when patients were treated with PBI-4050. The
length of the red dashed lines corresponds to the duration of fibrosis data and the length of the green
dashed lines to the duration of PBI-4050 treatment for each patient.
A major reduction of key urine biomarkers of ongoing kidney injury in the 12 subjects for whom Week 24
results are available was also observed. Finally, positive effects on other parameters of the liver and the fat
tissue have also been observed and will be presented at forthcoming scientific conferences.
Given the very encouraging clinical results in the AS patients observed to date, the Corporation plans to
meet with the FDA and EMA to discuss and agree on the possible regulatory path forward for such
indication, and therefore anticipates expanding its clinical program in AS patients in 2018 to include more
specialized centers in the USA and in Europe.
Idiopathic pulmonary fibrosis (IPF)
Idiopathic pulmonary fibrosis is a chronic, devastating, and ultimately fatal disease characterized by a
progressive decline in lung function. It is a specific type of interstitial lung disease in which the small air
sacs of the lung, the "alveoli," gradually become replaced by fibrotic (scar) tissue and is the cause of
worsening dyspnea (shortness of breath). IPF is usually associated with a poor prognosis. The term
“idiopathic” is used because the cause of pulmonary fibrosis is still unknown. IPF usually occurs in adult
individuals of between 50 and 70 years of age, particularly those with a history of cigarette smoking, and
affects men more often than women. IPF affects about 130,000 people in the United States, with about
48,000 new cases diagnosed annually. Approximately 40,000 people with IPF die each year, a similar
number of deaths to those due to breast cancer. The 5-year mortality rate for patients with IPF is estimated
to range from 50% to 70% of those affected.
In Gold standard preclinical models designed to emulate lung fibrosis in humans, PBI-4050 demonstrated
a very significant anti-fibrotic activity. IPF is a very large orphan indication which remains an unmet medical
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Prometic Life Sciences Inc.Management Discussion & Analysis
need. While two drugs, nintedanib (OFEV® - Boehringer-Ingelheim) and pirfenidone (Esbriet® - Roche),
have been approved for the treatment of IPF, neither drugs have succeeded in stabilizing the patients’ lung
function. In addition, these two drugs are known to induce side effects which have limited the use in
significant proportion of IPF patients.
In addition to demonstrating that PBI-4050 (800 mg) administered once daily is safe and well tolerated in
patients suffering from IPF, the objective of this study was to provide early evidence of clinical benefits of
PBI-4050 treatment whether used alone or in addition to either of the current standard of care drugs,
nintedanib or pirfenidone. Forty (40) patients were enrolled in the study in six (6) sites across Canada. The
baseline characteristics of the subjects enrolled in this study were similar to those enrolled in prior IPF
randomized controlled studies conducted by other pharmaceutical companies, namely ASCEND and
INPULSIS.
Of a total of 40 subjects enrolled in the study, 9 subjects received PBI-4050 alone, 16 received PBI- 4050
& nintedanib and 15 received PBI-4050 & pirfenidone.
The results of the study showed that the mean change from baseline to Week 12 for Forced Vital Capacity
(“FVC”), the total amount of air exhaled during a forced breath, was either positive (+1.9 mL) or nearly
unchanged (-12.2 mL) for PBI-4050 + nintedanib and PBI-4050 alone, respectively, but was
reduced (102.0 mL) for PBI-4050 + pirfenidone. PBI-4050 pharmacokinetics were reduced for PBI-
4050/pirfenidone, suggesting a possible drug-drug interaction. PBI-4050’s concentration in plasma was
found to be sub-therapeutic at 50% of the expected level in patients that received the PBI-4050 and
pirfenidone combination. See figure below.
There were no serious adverse events requiring PBI-4050’s discontinuation. The most frequent adverse
event seen in all groups was diarrhea, but this was less significant in the subjects treated with PBI-4050
alone than in the groups receiving either of the currently approved drugs for the treatment of IPF, which are
well-known for their significant side effect profiles. This study has provided data to support the safety and
tolerability of PBI-4050 in IPF patients receiving currently standard of care.
Prometic received IND approval from the FDA to commence its PBI-4050 pivotal phase 3 clinical trial in
patients suffering from IPF and has reached an agreement on the design of the trial.
Based on recommendations from the FDA, Prometic now will undertake an “all comers study”. The
enrollment criteria will be greatly simplified so that the study will enroll patients with mild-to-moderate IPF,
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regardless of whether they are on background standard of care with nintedanib (OFEV®) or not. Therefore,
the study will provide efficacy data on both PBI-4050 as a stand-alone agent, and as an add-on to
nintedanib, and will be part of the dataset to support a simple, all-inclusive indication “for the treatment of
IPF”. Patients will be randomized to receive placebo, or one of two doses of PBI-4050 (800 mg or 1,200
mg) for a total of 52 weeks. An interim analysis will be conducted at 26 weeks. The primary endpoint is the
annual rate of decline in forced vital capacity (FVC), the total amount of air exhaled during a forced breath,
(expressed in mL) and measured over 52 weeks (mL/year). Patients taking pirfenidone will be excluded
because of a known drug-drug interaction between pirfenidone and PBI-4050. The Corporation expects to
initiate this placebo controlled, pivotal phase 3 IPF clinical trial in 2018. It has already identified the CRO
to manage the execution of the clinical trial as well as clinical sites across the USA and Canada.
There are several other clinical indications with unmet medical needs that the Corporation is considering
pursuing in due course. For instance, the positive clinical effect observed in the heart of AS patients bodes
well for clinical program targeting various cardiomyopathies. Similarly, positive clinical effects observed on
kidney and the liver of T2DMS and AS patients supports the potential expansion of the clinical program in
NASH or CKD. Such programs may be pursued with PBI-4050 and or with follow-on analogues such as
PBI-4547 and PBI-4425. These two drug candidates are amongst several analogues that have
demonstrated similar performance to PBI-4050 in preclinical models, and in some cases, even superior
performance. This portfolio of follow-on analogues provides Prometic with the opportunity to specifically
target specific indications with these two drug candidates, and expand commercial and partnering
opportunities. The manufacturing processes for both PBI-4547 and PBI-4425 have been scaled up to
enable the commencement of their respective clinical programs in 2018.
The Corporation intends to fund the development program for the above mentioned compounds through a
combination of avenues including: funds generated by the bioseparations division as well as plasma-
derived therapeutics business segments; funding achieved through strategic partnering with other
pharmaceutical companies; and funding through financial partnerships or equity or debt funding initiatives.
Prometic is working towards the development of its Small Molecule Therapeutics segment with a pipeline
of compounds in diverse medical indications, as summarized in the table below:
Prometic Compounds
PBI-4050
PBI-4050
PBI-4547
PBI-4425
Idiopathic pulmonary fibrosis (IPF)
Indications
o
o Alström Syndrome
o Other fibrosis-related diseases & rare diseases
o NASH or other liver fibrosis-related diseases
o Scleroderma or other fibrosis-related diseases
Small molecule segment business development update
In August 2017, the Corporation entered into a licensing agreement and partnership agreement with
Jiangsu Rongyu Pharmaceuticals Co, LTD (“JRP”) and Nanjing Rongyu Biothech Co., LTD, affiliates of
Shenzhen Royal Asset Management Co., LTD (collectively, “SRAM”), regarding the licensing of the
Chinese rights to its small molecules PBI-4050, PBI-4547 and PBI-4425 and, as a result, licensing revenues
of $19,724 consisting of a license fees and a milestone payments were recorded during the third quarter of
2017. Having not remitted the funds associated with the license fee and initial milestone payment within the
specified payment terms, SRAM was consequently in breach of the license agreement. As a result, the
Corporation was in a position to exercise its contractual rights and opted to terminate the licensing
agreement in March 2018, thereby resulting in the return of all the rights previously conferred under the
licensing agreement back to Prometic and making them available to be part of any subsequent licensing
transaction. The Corporation also notified SRAM of the termination of the partnership agreement with
SRAM. During the fourth quarter of 20187, the Corporation has written-off the accounts receivable that was
net of the withholding taxes, in the amount of $18,518 and has reversed the withholding taxes of $1,972
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expected to be paid on this transaction to bad debt expense. The difference between the amount of revenue
recognized and the bad debt amount is the withholding taxes that were recorded as a deduction of the
accounts receivable and the effect of the change in the CAD/GBP exchange rate on the accounts
receivable.
In October 2017, the Chinese government disclosed a series of regulatory measures favourable to foreign
companies seeking to commercialize therapeutics in China. These reflect the Chinese government’s aim
to change China from a copier to an originator philosophy of drug development and has now turned China
into a “strategic” and “vital” market for pharmaceutical companies. Such measures include changes in the
regulatory system allowing the use of clinical data generated outside of China, a faster review process, as
well as lower taxes on selected drugs.
With the mounting strategic interest of the Chinese market expressed by several global pharma companies
with whom the Corporation is having discussions, and the fact that the Corporation believes that it would
be in a position to potentially advance IPF in China independently, Prometic decided to exercise its rights
to terminate the current license agreement and partnership agreement with SRAM. Prometic believes that
termination of the SRAM partnership and holding 100% of the rights for PBI-4050 and analogues for all
indications in China keeps all of Prometic’s strategic options open in order to maximise the value of its
assets in this important market.
Plasma-derived therapeutics segment
The Plasma-derived therapeutics segment comprises several operating subsidiaries the principal
subsidiaries being:
• Prometic Bioproduction Inc. (“PBP”), based in Laval, Quebec, Canada;
• Prometic Biotherapeutics Inc. (“PBT”), based in Rockville, Maryland, U.S.;
• Prometic Biotherapeutics Ltd. (“PBT Ltd”), based in the Cambridge, U.K.;
• NantPro Biosciences LLC (“NantPro”) based in Delaware, U.S.;
• Prometic Plasma Resources Inc. (“PPR”), the plasma collection center, based in Winnipeg,
Manitoba, Canada;
• Prometic Plasma Resources USA, Inc. (“PPR USA”), the plasma collection center, based in in
Delaware, U.S.; and
• Telesta Therapeutics Inc. (“Telesta”), the net assets and operating expenses related to the
production facilities located in Belleville, Ontario, Canada and Pointe-Claire, Québec, Canada.
The Plasma-derived Therapeutics Segment includes our plasma-derived therapeutics platform, which
enables the development of our pipeline of biopharmaceutical candidates. This is achieved by leveraging
our proprietary affinity technology, which enables a highly-efficient extraction and purification process of
therapeutic proteins from human plasma. The Corporation’s primary focus is to develop plasma-derived
therapeutics targeting unmet medical conditions and rare diseases in both established and emerging
markets.
The Corporation intends to:
• Develop and obtain regulatory approval and successfully commercialize RyplazimTM (plasminogen)
in North America independently for the treatment of congenital plasminogen deficiency, if approved.
• Develop and obtain regulatory approval and successfully commercialize RylazimTM (plasminogen)
for the treatment of other indications where the acute plasminogen deficiency is known to be the
source of medical complications (e.g. thrombosis, ALI/ARDS, IPF).
• Develop and obtain regulatory approval and successfully commercialize Plasminogen (sub-
cutaneous) for hard-to-treat wounds such as DFU and TMP.
• Advance our other plasma-derived drug candidates (e.g. IVIG) through clinical development and
leverage our plasma purification platform to discover and develop new drug candidates (e.g. IAIP).
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• Build a leading, fully integrated, commercialization organization with a specialized MSL and sales
force and focused team.
Invest in our plasma protein manufacturing and raw material sourcing capabilities.
•
• Create value through strategic collaborations and indication and/or geographic specific commercial
agreements.
Pipeline Overview
Lead Drug Product Candidate - Plasminogen
Ryplazim™ (plasminogen) is the first biopharmaceutical expected to be launched commercially pending
the review and approval of the BLA (Biologic License Application) submitted to the FDA for the treatment
of congenital plasminogen deficiency.
Plasminogen is a naturally occurring protein that is synthesized by the liver and circulates in the blood.
Activated plasminogen, plasmin, is a fundamental component of the fibrinolytic system and is the main
enzyme involved in the lysis of blood clots and clearance of extravasated fibrin. Plasminogen is therefore
vital in wound healing, cell migration, tissue remodeling, angiogenesis and embryogenesis.
The most common and visible lesion associated with plasminogen deficiency is ligneous conjunctivitis,
which is characterized by thick, woody (ligneous) growths on the conjunctiva of the eye, and if left untreated,
can lead to corneal damage and blindness. Ligneous growths tend to recur after surgical excision, thereby
requiring multiple surgeries. While ligneous conjunctivitis is the best characterized and visible lesion,
congenital plasminogen deficiency is a multi-systemic disease that can also affect the ears, sinuses,
tracheobronchial tree, genitourinary tract, and gingiva. Tracheobronchial lesions including hyper viscous
secretions can result in respiratory failure. Hydrocephalus has also been reported in children with severe
hypoplasminogenemia, apparently related to the deposition of fibrin in the cerebral ventricular system.
Patients may be born with the inability to produce sufficient plasminogen naturally, a condition referred to
as congenital plasminogen deficiency or suffer an acute or acquired deficiency following a trauma or an
illness. While our first priority is to provide the treatment of congenital plasminogen deficiency, the
Corporation intends to further expand the clinical uses of plasminogen as a priority over the coming years.;
Prometic has been working on pursuing new indications such as the treatment of wounds such as diabetic
foot ulcers and tympanic repair, acquired plasminogen deficiency in critical care such as severe burns and
acute lung injury (“ALI”). The expansion of the plasminogen development program enables the Corporation
to target multiple clinical indications with unmet medical needs and leverage the same proprietary Active
Pharmaceutical Ingredient (“API”) via different formulations and presentations. Combined with market
exclusivity and significant growth opportunity, plasminogen is prioritized over advancing certain previously
disclosed follow-on therapeutics with competitive landscapes such as C1 Esterase Inhibitor (“C1-INH”).
In a phase 2/3 clinical trial for the treatment of congenital plasminogen deficiency, Ryplazim™
(plasminogen) met its primary and secondary endpoints following the intravenous administration of
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Ryplazim™ (plasminogen) to patients. In addition to being well tolerated and without any drug related
serious adverse events, our Ryplazim™ (plasminogen) treatment achieved a 100% success rate of its
primary end point, namely, a targeted increase in the blood plasma concentration level of plasminogen as
a surrogate target. Moreover, all patients who had active visible lesions when enrolled in the trial had
complete healing of their lesions within weeks of treatment, a 100% patient response rate for this secondary
end point.
We disclosed new long term clinical data in July 2017 from its pivotal phase 2/3 trial of RyplazimTM
(plasminogen) regarding the additional 36 weeks treatment period. The new data demonstrated that its
plasminogen treatment prevented the recurrence of lesions in the 10 patients treated with Ryplazim TM
(plasminogen) for a total of 48 weeks. Since then and as of March 2018, over 3,200 Ryplazim™
(plasminogen) infusions have been performed with no safety or tolerability issues related to this longer-
term dosing and still no recurrence of lesions.
Ryplazim™ (plasminogen) for the treatment of congenital plasminogen deficiency has been granted rare
pediatric designation by the FDA which may make it eligible to receive a Priority Review Voucher (PRV)
upon regulatory approval by the FDA. Ryplazim™ (plasminogen) has also been granted Fast Track status
by the FDA and has been granted Orphan Drug designation by both the FDA and the EMA.
In anticipation of the commercial launch of Ryplazim™ (plasminogen) in the USA and Canada, the
Corporation has started to buildout its commercial foot print with the hiring of seasoned medical science
liaisons (MSLs) and a salesforce. In addition to providing a full “concierge” service for congenital
plasminogen deficient patients requiring lifetime home infusion of Ryplazim™ (plasminogen), if and when
granted marketing approval, the Corporation will also focus on sales thereof to tier-1 hospitals across the
USA and Canada. This represents an estimated 120 hospitals with over 500 beds, intensive care units and
trauma care units which deal with the majority of severely compromised patients with congenital
plasminogen deficiency.
On March 28, 2018, Prometic provided an update on the status of the U.S. Food and Drug Administration
(FDA) review of its Biologics License Application (BLA) for RYPLAZIM™ (plasminogen), an investigational
plasminogen replacement therapy for the treatment of congenital plasminogen deficiency.
The current BLA filing includes the clinical data on 10 patients with 12 weeks of data for an accelerated
regulatory pathway. Since filing the current BLA, Prometic has accumulated additional clinical data
encompassing more than 3,200 infusions of RYPLAZIM™ (plasminogen) over treatment periods exceeding
48 weeks during which similar clinical activity and tolerability profiles, as previously reported, were
observed. The original guidance from the FDA was for Prometic to submit such long-term clinical data in a
supplemental BLA in order to secure full licensure in 2019. Full licensure would provide for the long-term
efficacy and safety data to be included in the prescribing information of RYPLAZIM™ (plasminogen) which
would further support Prometic’s claims of the strong health economics benefit associated with the use of
RYPLAZIM™ (plasminogen).
The FDA’s review of the BLA raised no issues regarding the clinical data for the accelerated approval. The
FDA has, however, identified the need for Prometic to make a number of changes in the Chemistry,
Manufacturing and Controls (CMC) section of its BLA. These changes require the implementation and
validation of additional analytical assays and “in-process controls” in the manufacturing process of
RYPLAZIM™ (plasminogen). While Prometic is expecting to complete said implementation and validation
in April 2018, it will be necessary to manufacture additional RYPLAZIM™ (plasminogen) lots to support the
implementation and validation of these process changes.
Prometic expects to complete the manufacturing of the additional validation lots in the summer of 2018 and
anticipates being able to provide the FDA with such new CMC data for its review in the fourth quarter of
2018, which is beyond the Prescription Drug User Fee Act (PDUFA) date of April 14, 2018. The FDA
requested that such CMC data be submitted as an amendment to the current BLA and has invited Prometic
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to also submit the long-term (48-week) clinical data at the same time instead of through the originally agreed
upon supplemental BLA process. This will allow the FDA to consider granting full-licensure under the
current BLA. If granted, this is expected to allow a faster sales ramp-up from launch than could have been
achieved had provisional licensure been obtained by the current PDUFA date. The Company continues to
interact with the FDA and will provide further updates, including when it receives a new PDUFA date.
The FDA indicated that the submission of the new CMC data will not impact the previously granted
designations, including the Priority Review Status, the Orphan Drug Designation and the Rare Pediatric
Disease Designation for RYPLAZIM™ (plasminogen) for the treatment of congenital plasminogen
deficiency.
Ryplazim™ (plasminogen) in critical care indications associated with acquired plasminogen deficiencies
The Corporation will initiate a series of additional clinical programs to demonstrate the potential efficacy of
Ryplazim’s™ (plasminogen) to address unmet medical needs and fatalities associated with “acquired
plasminogen deficiencies”. Such acquired plasminogen deficiencies occur in some medical conditions such
as ARDS or in diabetic patients with uncontrolled and elevated blood glucose. ARDS affects 190,000
Americans every year with a 30%-40% mortality rate, and it is documented in literature that one of the
complications in these patients is the accumulation of fibrin / fibrous material in the lungs. Preclinical models
have demonstrated that treatment with plasminogen helps overcome the accumulation of fibrin (as
indicated by the red arrow in the figure below).
In a gold-standard animal model proven to emulate pulmonary fibrosis in humans, Prometic’s Ryplazim™
(plasminogen) performed favorably compared to recently approved IPF drugs to treat this condition (see
figure below). Ryplazim™ (plasminogen) significantly reduced tissue scarring (% collagen) in the lungs that
was observed in non-treated animals, indicating the potential for providing clinically significant improvement
and stabilization in lung function.
The fibrinolytic systems play a central role in wound healing and tissue repair, a process believed to be
abnormal within the IPF affected lung. Animal models of pulmonary fibrosis have demonstrated an
imbalance between thrombosis and fibrinolysis within the alveolar compartment, a finding that is also
observed in IPF patients. Prometic plans to evaluate whether Ryplazim™ (plasminogen) can help lung
function of IPF patients during acute exacerbation episodes which would be both complementary to anti-
fibrotic chronic therapy and addressing an unmet medical need in the IPF patient population.
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Prometic Life Sciences Inc.Management Discussion & Analysis
Ryplazim™ (plasminogen) performed equally well in another preclinical model where this time an acute
lung injury was induced by the administration of L-Arginine. The administration of Ryplazim™
(plasminogen) brought the lung histology score to the same level as the control group.
The Corporation plans to initiate clinical programs in North America for the potential use of Ryplazim™
(plasminogen) for the treatment of acute exacerbations in patients with ARDS or IPF. Ryplazim™
(plasminogen) was granted Orphan Drug and Fast Track Designations by the FDA for the treatment of IPF.
The Corporation is initiating clinical trials to evaluate Plasminogen (sub-cutaneous) administration near
topical wounds to determine its safety and ability to facilitate the complete healing of otherwise hard-to-
treat wounds. Wounds are known to be difficult to heal in certain diabetic patients, and elevated blood sugar
level has been shown to greatly reduce the activity of plasminogen. Clinical trials in patients with diabetic
foot ulcers (DFUs) and in patients with tympanic membrane perforations (TMPs) are initiating in Sweden.
We received in the fourth quarter of 2017 from the Swedish Medical Products Agency (MPA) two CTA
approvals to commence the following two trials:
o a Phase 1b/2 clinical trial of its Plasminogen (sub-cutaneous) therapy in patients suffering from
DFUs; and
o a Phase 1b/2 clinical trial of its Plasminogen (sub-cutaneous) therapy in patients suffering from
chronic TMPs.
Plasminogen (sub-cutaneous) – DFUs: Diabetic foot ulcer is a major complication of diabetes mellitus,
and probably the major component of the diabetic foot. Wound healing is an innate mechanism of action
that works reliably most of the time. A key feature of wound healing is stepwise repair of lost extracellular
matrix (ECM) that forms the largest component of the dermal skin layer. But in some cases, certain
disorders or physiological insult disturbs the wound healing process. Diabetes mellitus is one such
metabolic disorder that impedes the normal steps of the wound healing process. Many studies show a
prolonged inflammatory phase in diabetic wounds, which causes a delay in the formation of
mature granulation tissue and a parallel reduction in wound tensile strength.
The Phase 1b/2 DFU clinical trial is a prospective, dose escalation study of the safety, feasibility and initial
efficacy of subcutaneous plasminogen for the treatment of DFU in 20 adult subjects. The study will be
conducted in one study center in Sweden, under the supervision of Dr. Jan Apelqvist, an expert in the field
of diabetic foot ulcers and hard to treat wounds from the Department of Endocrinology, Division of Clinical
Sciences at Skane University Hospital in Malmö, Sweden.
Plasminogen (sub-cutaneous) – TMPs: A tympanic membrane perforation is essentially a hole in the
eardrum, which can result from ear infections, injury, and previous surgery such as ventilation tube
placement. In addition to hearing loss, eardrum perforations can result in ear infection and drainage.
The chronic TMP clinical trial is a dose escalation, randomized, placebo-controlled study designed to
investigate the safety, feasibility and initial efficacy of local injections of a novel and proprietary plasminogen
formulation for the treatment of chronic tympanic membrane perforation. Up to 33 adult patients are
expected to be enrolled. The study will be conducted at a single center in Sweden, under the supervision
of Dr. Cecilia Engmér Berglin, MD, PhD from the Department of Otorhinolaryngology at Karolinska
University Hospital in Stockholm, Sweden. The Karolinska University Hospital is the second largest
ear/nose/throat center in the world.
IVIG for the treatment of Primary Immunodeficiencies Disorder (PIDD)
IVIG is the second biopharmaceutical arising from the plasma-derived therapeutics platform that is
expected to be launched commercially, if approved. Currently being studied in a non-inferiority pivotal phase
3 open label, single arm, two-cohort multicenter clinical trial that is investigating the safety, tolerability,
efficacy and pharmacokinetics of our plasma purified IVIG in a total of 75 patients suffering from PIDD,
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including 50 adults (cohort 1) and 25 children (cohort 2). The ongoing non-inferiority phase 3 clinical trial
for IVIG in adults is expected to be completed in Q1 of 2018 followed by the pediatric cohort completion in
Q1 2019.
Primary immunodeficiencies are disorders in which part of the body's immune system is missing or does
not function normally. To be considered a primary immunodeficiency, the cause of the immune deficiency
must not be secondary in nature (i.e., caused by other disease, drug treatment, or environmental exposure
to toxins). Most primary immunodeficiencies are genetic disorders; the majority are diagnosed
in children under the age of one, although milder forms may not be recognized until adulthood. While there
are over 100 recognized PIDDs, most are very rare. About 1 in 500 people in the United States are born
with a primary immunodeficiency1. Immune deficiencies can result in persistent or recurring infections,
autoinflammatory disorders, tumors, and disorders of various organs. There are currently no cures for these
conditions; treatment is palliative and consists of managing infections and boosting the immune system.
If the results are favorable, the Corporation plans to file a New Drug Submission (NDS) with Health Canada
and a BLA with the FDA. Once approved for sale, Prometic’s production of IVIG will be paired with the
production of plasminogen, thus contributing to a higher revenue per liter of plasma processed.
NantPro, a subsidiary of the Corporation, is the entity responsible to commercialize IVIG for treatment of
primary immunodeficiency diseases in the USA. These exclusive commercialization rights for IVIG for PIDD
in the USA were granted pursuant to a license agreement entered between NantPro and its sister company,
PBT, in 2012. PBT has also since then been providing development services for NantPro consisting of pre-
clinical and regulatory activities, such as filing of the IND for IVIG for treatment of PIDD as well as preparing
for and overseeing the on-going phase 3 clinical trial. NantPro and PBT also entered in an exclusive
manufacturing and supply agreement in 2012 whereby NantPro would obtain 100% of its IVIG supply by
PBY or an affiliate thereof on its behalf.
Inter Alpha-One Inhibitor proteins (IAIP) for the treatment of Necrotising Enterocolitis in Neonates (NEC):
Inter Alpha-One Inhibitor proteins (IAIP) is the third biopharmaceutical arising from the plasma-derived
therapeutics platform that is expected to be launched commercially, if approved. It is currently in the pre-
clinical development phase and the corporation’s intent is to file an IND with the FDA in 2019.
Necrotizing enterocolitis (NEC) is a devastating inflammatory bowel condition that affects predominantly
premature infants. NEC can ultimately destroy the wall of the bowel (intestine) and lead to perforation of
the intestine and spillage of stool into the infant’s abdomen, which can result in an overwhelming infection
and death. The cause of NEC is not well understood but appears to involve bacteria, injury to the bowel
lining, inadequate oxygen supply to the bowel, and an abnormal immune response. Overall, NEC affects
an estimated 8,000-12,000 live births each year in the USA. The disease has been reported to affect about
11 percent of very low birthweight infants born before 29 weeks of age. Mortality rates are high and range
from about 15% to 30%.
NEC is the most commonly acquired gastrointestinal disease diagnosed in premature neonates and is one
of the leading causes of death in neonatal intensive care units. The economic cost of NEC is high,
accounting for approximately 19% of neonatal expenditures and an estimated $5 billion per year for
hospitalizations in the United States alone. Even when surgery can be avoided, the average cost of
hospitalization has been estimated at around $73,000, with a length of stay exceeding 22 days longer than
that for other premature infants. However, if surgical care is required, there is an average additional cost of
approximately $186,000, and infants require a length of stay 60 days longer than other premature infants.
Prometic’s IAIP for the treatment of NEC has been granted rare pediatric designation by the FDA which
may make it eligible to receive a Priority Review Voucher (PRV) upon regulatory approval by the FDA. IAIP
1 Lim MS, Elenitoba-Johnson KS (2004). "The Molecular Pathology of Primary Immunodeficiencies". The Journal of molecular
diagnostics : JMD. 6 (2): 59–83. doi:10.1016/S1525-1578(10)60493-X. PMC 1867474 PMID 15096561.
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Prometic Life Sciences Inc.Management Discussion & Analysis
for the treatment of NEC has also been granted Fast Track status by the FDA and has been granted Orphan
Drug designation by the FDA.
Other Plasma-Derived Therapeutics
Prometic has developed processes to recover and purify several other proteins from plasma including
fibrinogen, Alpha1 antitrypsin, albumin and C1 esterase Inhibitors. Several of these proteins and others
for which their respective bioseparation process are under development, will eventually be advanced for
clinical development. The Corporation has however elected to prioritize the advancement of multiple
indications for its first anticipated plasma-derived product, Ryplazim™ (plasminogen) and its Plasminogen
(sub-cutaneous) as a means to accelerate revenue growth generated by the anticipated commercial
launch of Ryplazim™ (plasminogen) and IVIG, if these products receive their respective regulatory
approvals.
Bioseparations segment
The Bioseparations segment comprises several operating subsidiaries the main one being Prometic
Bioseparations Ltd. (“PBL”), based in the United Kingdom (Isle of Man and Cambridge).
Prometic’s Bioseparations segment is known for its world-class expertise in bioseparation, specifically for
large-scale purification of biologics and the elimination of pathogens. These technologies are being used
by several industry leaders. 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. The Bioseparations segment supplies the affinity resins to the
Plasma-derived therapeutics segment and also to our licensees.
OTHER RECENT BUSINESS DEVELOPMENTS
On November 30, 2017, the Corporation entered into a non-revolving credit facility agreement with
Structured Alpha (“SALP”), bearing interest of 8.5% per annum which expires November 30, 2019. The
credit facility comprises two tranches of US$40 million which become available to draw upon once certain
conditions are met. The drawdowns on the available tranches are limited to US$10 million per month.
As part of the agreement, the Corporation issued 54 million warrants with an exercise price of $1.70 (the
“Seventh Warrants”) to SALP in consideration for the non-revolving credit facility. The Seventh warrants
become exercisable as follows: 10 million warrants as of the date of the agreement and the remaining
44 million warrants become exercisable as and if the Corporation draws upon the credit facility in
increments of US$10 million; five million warrants become exercisable for each US$10 million drawn on the
first US$40 million tranche of the credit facility and six million warrants become exercisable for each
US$10 million drawn on the second US$40 million tranche of the credit facility. The warrants expire on
June 30, 2026. Although the warrants are issued and outstanding, for accounting purposes, these warrants
will be recognized and measured at the time they become exercisable. At each drawdown, the value of the
proceeds drawn are allocated to the debt and equity based on their fair value.
The amount of each US$10,000,000 drawdown on the non-revolving credit facility is allocated to the debt
and the warrants based on their fair value at the time of the drawdown. The initial 10 million warrants
exercisable upon signature of the agreement were valued at $5,214 and were recognized as a deferred
financing costs with the offsetting entry in equity. The Corporation drew on the facility on November 30,
2017 and on December 14, 2017 and the value of the proceeds attributed to the warrants were $2,363 and
$2,245 respectively was recorded in equity. Issuance cost related to the issuance of the Seventh Warrants,
in the amount of $125, have been recorded against the deficit.
16 of 43
23
Prometic Life Sciences Inc.
The Corporation drew US$20 million on the credit facility by December 31, 2017 and has drawn another
US$20 million in 2018. The total proceeds value allocated to the debt upon the draws in 2017 was $21,098.
The fair value of the debt was determined using a discounted cash flow model for the debt instrument with
a market interest rate of 16.4%. The fees incurred in regards of the credit facility, which comprise legal fees
and also the 10,000,000 warrants issued upon signature of the credit facility, for a total of $5,473 have been
recorded in the consolidated statement of financial position as deferred financing fees under other long-
term assets and will be amortized and recognized into the consolidated statement of operations over the
term of the credit facility.
FINANCIAL PERFORMANCE
Amounts in tables are expressed in thousands of Canadian dollars, except per share amounts.
Results of operations
The consolidated statement of operations for the quarter and year ended December 31, 2017 compared to
the same periods in 2016 are presented in the following table.
Revenues
$
6,596
$
4,111
$
39,115
$
16,392
Quarter ended December 31,
2016
2017
Year ended December 31,
2017
2016
Expenses
Cost of sales and production
Research and development expenses
Administration, selling and marketing expenses
Bad debt expense
Loss (gain) on foreign exchange
Finance costs
Loss on extinguishment of liabilities
Net loss before income taxes
Income tax recovery:
Current
Deferred
Net loss
Net loss attributable to:
Owners of the parent
Non-controlling interests
Loss per share
Attributable to the owners of the parent
Basic and diluted
Weighted average number of
outstanding shares (in thousands)
$
$
$
$
2,428
28,202
8,781
20,491
(1,427)
2,639
-
2,416
27,995
11,986
837
(228)
1,349
1,609
10,149
100,392
31,441
20,491
(726)
7,965
4,191
7,632
87,615
28,471
837
423
4,527
4,194
(54,518)
$
(41,853)
$
(134,788)
$
(117,307)
(4,913)
(7,959)
(12,872)
(209)
(1,540)
(1,749)
(3,165)
(11,587)
(14,752)
(418)
(6,220)
(6,638)
(41,646)
$
(40,104)
$
(120,036)
$
(110,669)
(38,279)
(3,367)
(37,308)
(2,796)
(109,731)
(10,305)
(41,646)
$
(40,104)
$
(120,036)
$
(100,807)
(9,862)
(110,669)
(0.05)
$
(0.06)
$
(0.16)
$
(0.17)
709,928
616,081
683,954
598,393
24
17 of 43
Prometic Life Sciences Inc.Management Discussion & Analysis
Revenues
Total revenues for the year ended December 31, 2017 were $39.1 million compared to $16.4 million during
the comparative period of 2016 which represent an increase of $22.7 million. Total revenues for the quarter
ended December 31, 2017 were $6.6 million compared to $4.1 million during the comparative period of
2016, representing an increase of $2.5 million.
Revenues in 2017 and 2016 included revenues from the sale of goods and development service revenues
while 2017 revenues also include milestone and licensing revenues and rental revenues. Revenues from
the sale of goods, services, licensing and milestone achievements may vary significantly from period to
period.
The following table provides the breakdown of total revenues by source for the quarter and year-ended
December 31, 2017 compared to the corresponding period in 2016.
Revenues from the sale of goods
Milestone and licensing revenues
Revenues from the rendering of services
Rental revenue
Quarter ended December 31,
2016
2017
Year ended December 31,
2017
2016
$
5,479
-
880
237
$
3,291
-
691
129
$
16,461
19,724
1,930
1,000
6,596
$
4,111
$
39,115
$
12,892
-
3,371
129
16,392
$
$
Revenues from the sale of goods were $16.5 million during the year ended December 31, 2017 compared
to $12.9 million during the corresponding period of 2016, representing an increase of $3.6 million.
Revenues from the sale of goods were $5.5 million during the fourth quarter of 2017 compared to $3.3
million during the corresponding period of 2016, representing an increase of $2.2 million. The increase for
the year and the quarter ended December 31, 2017 is mainly due to the increase in revenues from the sale
of goods from the Bioseparations segment generally denominated in GBP as the Corporation filled several
large orders during the year. This increase in sales of goods in GBP was partially offset by a lower foreign
exchange rate in the current year of approximately 8% compared to the prior year.
Milestone and licensing revenues for the year ended December 31, 2017, came from the small molecule
therapeutics segment, were $19.7 million and pertain to a licensing agreement signed with Jiangsu
Renshou Pharmaceutical Co, Ltd, during the third quarter of 2017. There were no milestone and licensing
revenue in the year ended December 31, 2016.
These milestone and licensing revenues pertain to a licensing agreement entered into during the third
quarter of 2017 with JRP. During the fourth quarter of 2017, the Corporation has written-off the related
accounts receivable since the licensee had not remitted the funds associated with the license fee and initial
milestone payment within the specified payment terms and the license agreement was subsequently
terminated by Prometic in March 2018. For complete details regarding this transaction, please refer to the
update provided under the Small molecule therapeutics segment business update section.
Service revenues were $1.9 million during the year ended December 31, 2017 compared to $3.4 million for
the corresponding period of 2016, representing a decrease of $1.4 million that was mainly related to the
reduction of the third-party service revenues in our Plasma-derived therapeutics segments of $0.9 million
and in our Bioseparations segment of $0.5 million. Service revenues were $0.9 million during the fourth
quarter of 2017 compared to $0.7 million during the corresponding period of 2016, representing an increase
of $0.2 million, were entirely generated from our Bioseparations segment.
The Corporation also earns rental revenues from a lease of a portion of the plant space at the Belleville
manufacturing facility already in place at the time of the Telesta acquisition and from subleasing the former
Telesta head offices located in Montreal.
18 of 43
25
Prometic Life Sciences Inc.
Before reviewing the analyses pertaining to cost of sales and production and R&D expenses, it is important
to explain how the advancement of the Corporation towards the commercialization of its first plasma-derived
therapeutic plasminogen, has affected the comparability of the 2017 expenses compared to 2016. Prior to
the third quarter 2016, all of the expenses incurred to produce plasma-derived therapeutics, including raw
materials, were expensed as they were incurred and presented as R&D expenses. Starting in the third
quarter of 2016, Prometic started capitalizing raw materials that could be used for the production of
plasminogen. When the materials are used to produce therapeutics destined for commercial sales, this cost
together with the related salary and manufacturing overhead expenses are capitalized as part of work in
progress or finished goods inventories as the production takes place. The cost is carried as inventories until
the product is sold at which time it will become cost of sales. If the materials are consumed to produce
therapeutics for purposes other than commercial sale, for example clinical trial materials, then the raw
materials inventory is expensed and the salaries and manufacturing overhead cost involved in the
production are not capitalized. Also, some manufacturing salaries and overhead do not meet the criteria for
inclusion into inventory. The non-capitalized production costs associated with the production of plasma-
derived therapeutics for commercial sale are now included under cost of sales and production where as in
the first half of 2016, all PBP plant and production costs were reported to R&D.
Cost of sales and production
Cost of sales and production were $10.1 million during the year ended December 31, 2017 compared to
$7.6 million for the corresponding period in 2016, representing an increase of $2.5 million. The increase is
partially due to the non-capitalized production costs of $1.6 million for the year ended December 31, 2017
pertaining to the production of commercial plasminogen inventory recognized under Cost of sales and
production in 2017 whereas in 2016, such cost were entirely classified as R&D expenses since all the
production of plasma-derived therapeutics in 2016 was destined to be used in the clinical trials. Also
contributing is the increase in cost of sales and production of $0.6 million due to the increase in volume of
sales of goods in our Bioseparations segment.
Cost of sales and production for the quarter ended December 31, 2017 and 2016 was stable at $2.4 million
compared to $2.4 million.
Revenues from the sale of goods is composed of different products and the margins on individual products
vary significantly. Several of our products are custom designed for specific customers. Since key customers
tend to place significant orders that may not be repeated on a yearly basis, the sales for individual products,
just like our product sales in general are quite variable. This is compounded by the fact that a high proportion
of our sales in a given period usually come from a limited number of customers. If our larger customers
purchase higher margin product or lower margin product, it will create volatility in our total margins and in
the cost of goods sold from period to period. In addition, the size of the orders will affect the batch size used
in production. Larger batch sizes render higher gross margins.
Research and development expenses
The R&D expenses for the quarter and the year ended December 31, 2017 compared to the same periods
in 2016 broken down into its two main components are presented in the following table.
Manufacturing cost of therapeutics
to be used in clinical trials
Other research and development expenses
Total research and development expenses
$
$
10,128
18,074
28,202
$
$
10,396
17,599
27,995
$
$
33,955
66,437
100,392
$
$
33,176
54,439
87,615
Quarter ended December 31,
2016
2017
Year ended December 31,
2017
2016
R&D expenses were $100.4 million during the year ended December 31, 2017 compared to $87.6 million
for the corresponding period in 2016, representing an increase of $12.8 million. R&D expenses remained
stable at $28.2 million during the quarter ended December 31, 2017 compared to $28.0 million for the
corresponding period in 2016.
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19 of 43
Prometic Life Sciences Inc.Management Discussion & Analysis
R&D expenses include the manufacturing cost of plasma-derived and small molecule therapeutics to be
used in clinical trials and for the development of our production processes. The plasma-derived therapeutics
are produced at the Laval plant and the Winnipeg CMO while the small molecule therapeutics are
manufactured by a third party for Prometic. The manufacturing cost of these therapeutics was $34.0 million
during the year ended December 31, 2017 compared to $33.2 million during the year ended December 31,
2016, representing an increase of $0.8 million.
The manufacturing cost of plasma-derived and small molecule therapeutics to be used in clinical trials and
for the development of our production processes was $10.1 million during the three months ended
December 31, 2017 compared to $10.4 million during the corresponding period of 2016, representing a
decrease of $0.3 million.
Despite the fact that the manufacturing cost of therapeutics has remained relatively stable, it is important
to notethat the inventory balance at December 31, 2017 is significantly higher than in the prior year as a
portion of the inventory is being capitalized since the inventory is destined to be sold or used to produce
therapeutics destined for commercial use. This also reflects the absorption of costs associated with the
increase in capacity at the Laval production facility resulting from an increase in headcount that has enabled
around the clock production activities five days a week.
Other R&D expenses were $66.4 million during the year ended December 31, 2017 compared to
$54.4 million for the corresponding period in 2016, representing an increase of $12.0 million. The increase
is partially due to higher salary and benefit expenditures including share-based payment expenses by
approximately $6.4 million reflecting the increase in employees working on the clinical trials and at our
research centers. In addition, Contract Research Organizations (“CRO”) and investigator expenses
incurred in relation to the clinical trials and pre-clinical activities increased by $2.3 million reflecting the
increase in the number of trials in progress over the course of the year, the duration and higher patient
enrolment of the trials.
Other R&D expenses were relatively stable at $18.1 million during the three months ended December 31,
2017 compared to $17.6 million for the corresponding period in 2016.
Administration, selling and marketing expenses
the year ended
Administration, selling and marketing expenses were $31.4 million during
December 31, 2017 compared to $28.5 million for the corresponding period in 2016, representing an
increase of $3.0 million. The increase is mainly attributable to the increase in expenses of $3.0 million
incurred in relation to the preparation for the plasminogen launch and an increase in salary and benefit
expenditures including share-based payment expenses resulting from an overall increase in headcount.
Administration, selling and marketing expenses were $8.7 million during
the quarter ended
December 31, 2017 compared to $12.0 million for the corresponding period in 2016, representing a
decrease of $3.2 million. The decrease is mainly attributable to the severance cost recorded in the quarter
ended December 31, 2016 of $2.1 million in relation to the Telesta rationalisation efforts. No such
transactions occurred in the current period.
Bad debt expense
Bad debt expense were $20.5 million during the year and the quarter ended December 31, 2017 compared
to $0.8 million for the corresponding periods in 2016, representing an increase of $19.7 million. The current
year expense is due to the write-off, affecting the fourth quarter of 2017, of the amounts due from JRP in
regards to a license agreement. The licensee having not remitted funds associated with the license fee and
initial milestone payment within the specified payment terms was consequently in breach of the agreement.
As a result, the Corporation was in a position to exercise its contractual rights and opted to terminate the
agreement in March 2018, thereby returning all the rights previously conferred under the license agreement
back to Prometic.
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27
Prometic Life Sciences Inc.
Share-based payments expense
Share-based payments expense represents the expense recorded as a result of stock options and
restricted stock units issued to employees and board members. This expense has been recorded as follows:
Cost of sales and production
Research and development expenses
Administration, selling and marketing expenses
$
$
Quarter ended December 31,
2016
2017
$
71
1,280
1,220
$
151
1,819
1,894
Year ended December 31,
2017
2016
$
370
4,150
4,142
261
3,052
3,550
6,863
2,571
$
3,864
$
8,662
$
Share-based payments expense were $8.7 million during the year ended December 31, 2017 compared to
$6.9 million during the corresponding period of 2016, representing an increase of $1.8 million. Share-based
payments were $2.6 million during the quarter ended December 31, 2017 compared to $3.9 million during
the corresponding period of 2016, representing a decrease of $1.3 million. These variations are mainly
explained by the fact that there were less RSU that vested in the quarter ended December 31, 2017
compared to the corresponding period 2016 but a higher number of RSU that vested overall in the year
ended December 31, 2017 compared to last year.
The RSU expense may vary significantly from period to period as certain milestones are met, others
increase or decrease in likelihood as projects advance and the time to achieve the milestones before the
RSU expiry decreases.
Finance costs
Finance costs were $8.0 million for the year ended December 31, 2017 compared to $4.5 million during the
corresponding period of 2016, representing an increase of $3.4 million. Finance costs were $2.6 million for
the quarter ended December 31, 2017 compared to $1.3 million during the corresponding period of 2016,
representing an increase of $1.3 million. This increase reflects the higher level of debt during the year ended
December 31, 2017 compared to the same period of 2016 reflecting the increase in the OID loans, the
amounts drawn on the non-revolving credit facility agreement and the debt acquired in the Telesta business
combination in October 2016.
Loss on extinguishment of liabilities
In 2017 and 2016, SALP, the holder of the long-term debt, used the set off of principal right under the loan
agreements, to settle the amounts due to the Corporation following its participation in several private
placements over the course of both years. These transactions were accounted for as an extinguishment of
a portion of an OID loan and the difference between the adjustment to the carrying value of the loan and
the amount recorded for the shares issued, was recorded as a loss on extinguishment of debt.
• On July 6, 2017, the face value of the third OID loan was reduced by $8.6 million, from $39.2 million
to $30.6 million. The reduction of $8.6 million is equivalent to the value of 5,045,369 common
shares issued at the agreed price of $1.70. A loss on extinguishment of $4.2 million was recognized
on this transaction.
• On May 25, 2016, the face value of the second OID loan was reduced by $6.0 million from
$31.3 million to $25.3 million. The reduction of $6.0 million is the equivalent to the value of
1,921,776 common share issued at the agreed price of $3.10. A loss on extinguishment of $2.6
million was recognized on this transaction.
• On October 31, 2016, the face value of the second OID loan was reduced by $4.2 million, from
$25.3 million to $21.2 million. The reduction of $4.2 million is the equivalent to the value of
1,401,632 common shares issued at the agreed price of $2.98. A loss on extinguishment of
$1.6 million was recognized on this transaction.
28
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Prometic Life Sciences Inc.Management Discussion & Analysis
Income taxes
The Corporation recorded a current income tax recovery of $3.2 million during the year ended
December 31, 2017 compared to $0.4 million for the corresponding period of 2016, representing an
increase of $2.7 million. The increase is principally due to the increase in refundable R&D tax credits in the
U.K. by $4.2 million reflecting the fact that we have increased our R&D activities in that country over the
past two years. This was partially offset by a reduction in the withholding taxes receivable of $1.0 million
taken by the Corporation as a precaution not to overstate the receivable while it continues to work with a
consultant to determine the recoverability of withholding taxes withheld on prior years’ transactions. The
current income tax recovery was $4.9 million during the quarter ended December 31, 2017 compared to
$0.2 million for the corresponding period of 2016, representing an increase of $4.7 million. The increase is
mainly due to the recognition of R&D tax credits for the U.K. and the reversal of the current income tax
expense recognized during the third quarter representing the withholding tax of $2.0 million expected to be
paid on the milestone and licensing revenues recognized in the third quarter of 2018 which will no longer
be the case now that the licensing agreement has been terminated. This was partially offset by the reduction
in withholding taxes receivable of $1.0 million referred to above.
The Corporation recorded a deferred income tax recovery of $11.6 million during the year ended
December 31, 2017 compared to $6.2 million for the corresponding period of 2016, representing an
increase of $5.4 million. The Corporation recorded a deferred income tax recovery of $8.0 million during
the quarter ended December 31, 2017 compared to $1.5 million for the corresponding period of 2016,
representing an increase of $6.4 million. The main reason for these income tax recoveries comes from to
the recognition of deferred tax assets pertaining to the unused tax losses attributable to Prometic as a
partner in NantPro, our partnership with NantPharma to develop and commercialize IVIG for the U.S.
market. The tax loss incurred to develop and commercialize IVIG in 2017 was similar to 2016. The
significant increase in the deferred income tax recovery relates to the change in the US federal income tax
rate from 35% to 21%, producing a significant decrease in the deferred tax liability that was recognized in
the business combination of NantPro.
Net loss
The Corporation incurred a net loss of $120.0 million during the year ended December 31, 2017 compared
to a net loss of $110.7 million for the corresponding period of 2016, representing an increase in the net loss
of $9.4 million. The net loss in 2017 is higher due to the increase in R&D, cost of sales and production,
administration, selling and marketing expenses and finance cost respectively of $12.8 million, $2.5 million,
$22.6 million and $3.4 million in the year ended December 31, 2017 compared to the corresponding period
of 2016. This was partially offset by the increase in the recognition of deferred income tax recovery of
$5.4 million during the year ended December 31, 2017 compared to the corresponding period in 2016.
The Corporation incurred a net loss of $41.6 million during the quarter ended December 31, 2017 compared
to a net loss of $40.1 million for the corresponding period of 2016, representing an increase in net loss of
$1.5 million. The net loss is higher mainly due to the increase in bad debt expense of $19.7 million
explained by to the recognition of a bad debt provision for the JRP receivable. This was partially offset by
increase in the income tax recovery respectively of $11.1 million and in revenues of $2.5 million compared
to the corresponding period of 2016.
22 of 43
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Prometic Life Sciences Inc.
EBITDA analysis
The Adjusted EBITDA for the Corporation for the quarter and the year ended December 31, 2017 and 2016
are presented in the following tables:
Net loss
$
(41,646)
$
(40,104)
$
(120,036)
$
(110,669)
Quarter ended December 31,
2016
2017
Year ended December 31,
2017
2016
Adjustments to obtain Adjusted EBITDA
Loss (gain) on foreign exchange
Finance costs
Loss on extinguishment of liabilities
Income tax recovery
Depreciation and amortization
Share-based payments expense
(1,427)
2,639
-
(12,872)
1,310
2,571
(228)
1,349
1,609
(1,749)
912
3,864
(726)
7,965
4,191
(14,752)
4,576
8,662
423
4,527
4,194
(6,638)
3,250
6,863
Adjusted EBITDA
$
(49,425)
$
(34,347)
$
(110,120)
$
(98,050)
Adjusted EBITDA is a non-GAAP measure that is not defined or standardized under IFRS and it is unlikely
to be comparable to similar measures presented by other companies. The Corporation believes that
Adjusted EBITDA provides an additional insight in regards to the cash used in operating activities on an
on-going basis. It also reflects how management analyzes the Corporation’s performance and compares
that performance against other companies. In addition, we believe that Adjusted EBITDA is a useful
measure as some investors and analysts use EBITDA and similar measures to compare the Corporation
against other companies.
Total Adjusted EBITDA for the Corporation was $(110.1) million for the year ended December 31, 2017
compared to $(98.1) million for the comparative period of 2016, representing an decrease in Adjusted
EBITDA of $12.1 million. This decrease is caused by the increase, R&D expenditures and administration
selling and marketing respectively of $12.8 million and $2.5 million during the year ended December 31,
2017 compared to the corresponding period in 2016. The licensing agreement with JRP had no net impact
on the Adjusted EBITDA for the year ended December 31, 2017.
Total Adjusted EBITDA was $(49.4) million for the quarter ended December 31, 2017 compared to
$(34.3) million for the comparative period of 2016, representing a decrease in Adjusted EBITDA of
$15.1 million. This decrease in Adjusted EBITDA was mainly explained by the increase in bad debt expense
of $19.7 million during the quarter ended December 31, 2017 compared to the corresponding period in
2016.This was partially offset by the increase in revenue in the quarter of $2.5 million and lower
administration, selling and marketing by $3.2 million over the same period.
30
23 of 43
Prometic Life Sciences Inc.Management Discussion & Analysis
Segmented information analysis
For the year ended December 31, 2017 and 2016
The loss for each segment and the net loss before income taxes for the total Corporation for the year ended
December 31, 2017 and 2016 are presented in the following table:
For the year ended December 31, 2017
External revenues
Intersegment revenues
Total revenues
Cost of sales and production
R&D - Manufacturing cost of therapeutics
to be used in clinical trials
R&D - Other expenses
Administration, selling and marketing expenses
Bad debt expense
Segment profit (loss)
Gain on foreign exchange
Finance costs
Loss on extinguishment of liabilities
Net loss before income taxes
Other information
Depreciation and amortization
Share-based payment expense
For the year ended December 31, 2016 (restated)
External revenues
Intersegment revenues
Total revenues
Cost of sales and production
R&D - Manufacturing cost of therapeutics
to be used in clinical trials
R&D - Other expenses
Administration, selling and marketing expenses
Bad debt expense
Segment loss
Loss on foreign exchange
Finance costs
Loss on extinguishment of liabilities
Net loss before income taxes
Other information
Depreciation and amortization
Share-based payment expense
Bioseparations
Plasma-derived
therapeutics
Small
molecule
therapeutics
Reconciliation
to statement
of operations
$
16,802
1,566
18,368
7,877
-
7,301
2,719
-
$
2,490
39
2,529
4,014
32,766
40,958
13,539
-
$
19,724
-
19,724
-
1,755
17,426
3,633
20,491
$
99
(1,605)
(1,506)
(1,742)
(423)
609
11,550
-
Total
39,115
-
39,115
10,149
34,098
66,294
31,441
20,491
471
$
(88,748)
$
(23,581)
$
(11,500)
$
(123,358)
$
907
394
$
2,880
2,269
$
428
1,509
361
4,490
$
$
Bioseparations
Plasma-derived
therapeutics
Small
molecule
therapeutics
Reconciliation
to statement
of operations
$
13,725
2,410
16,135
8,087
-
6,336
3,274
-
$
2,538
184
2,722
1,435
32,759
34,852
6,788
837
$
-
-
-
-
894
13,338
3,310
-
$
129
(2,594)
(2,465)
(1,890)
(477)
(87)
15,099
-
(726)
7,965
4,191
(134,788)
4,576
8,662
Total
16,392
-
16,392
7,632
33,176
54,439
28,471
837
(1,562)
$
(73,949)
$
(17,542)
$
(15,110)
$
(108,163)
$
898
276
$
1,801
1,345
$
352
1,316
199
3,926
423
4,527
4,194
(117,307)
3,250
6,863
$
$
$
$
$
$
$
$
24 of 43
31
Prometic Life Sciences Inc.
Bioseparations segment
The revenues for the Bioseparations segment are generated mainly from sales of goods and the provision
of resin development services to external customers but the segment also generates the same type of
revenues from its transactions with the Plasma-derived therapeutics segment. Revenues for the segment
increased by $2.2 million for the year ended December 31, 2017 compared to the corresponding period of
2016 of which $3.1 million is an increase due to the external revenues. Period over period, the sales of
goods and the service revenues to third parties, mainly denominated in GBP, were higher in 2017 by
$2.4 million GBP as the segment received several large orders from existing customers.
R&D expenditures were higher by $1.0 million in 2017 as the segment increased its R&D activities to
develop new affinity resins that will eventually be used by the plasma therapeutic segment’s manufacturing
process to permit the extraction and purification of additional proteins, and increasing the sale of
Bioseparation products in the years to come.
The Bioseparations segment presented a gain of $0.5 million during the year ended December 31, 2017
and a loss of $1.6 million during the corresponding period in 2016. The main reason for the decrease in the
segment loss pertains to the increase in revenues of $2.2 million while cost of sales and production
increased only slightly due to the products sold generating a strong margin. This was partially offset by
higher R&D expenses.
Plasma-derived therapeutic segment
The revenues for the Plasma-derived therapeutics segment are generated from the sales of specialty
plasma to third parties, the provision of services to licensees and since the acquisition of Telesta, some
rental revenues coming from the leasing of a portion of the Belleville plant. Revenues from the segment
were at similar levels during both years as the decrease in service revenues of $1.0 million was mostly
offset by an increase of rental revenues of $0.9 million.
The segment loss increased by $14.8 million for the year ended December 31, 2017 compared to the
corresponding period in 2016. The increase in loss is mainly due to the higher Other R&D expenses by
$6.1 million and administration, selling and marketing expenses by $6.8 million. These increases are
generally explained by higher consulting fees and employee compensation expenditures as the segment is
ramping up for the plasminogen launch. The cost of providing product to clinical trial patients in the period
to anticipated launch is also included. During the year, the segment has hired additional employees that
will be ensuring the promotion and marketing of Ryplazim TM, ensuring compliance with the governmental
reporting requirements once the Corporation will start selling therapeutics, the logistics with our specialty
pharmacy and specialty distributors and that will be liaising with the health care providers ensuring a safe
and optimal use for the product (medical sales liaison). Finally, the administrative support that the segment
receives from the head office increased as more resources are used to support this growing business.
Small molecule therapeutics segment
The revenues for the Small molecule therapeutics segment are generated from licence agreements with
third parties. Revenue from the segment increased by $19.7 million following the closing of a licensing
agreement with JRP and the recognition of licensing and milestone revenues pertaining to the transaction
during the year.
As previously mentioned, during the fourth quarter of 2017, the Corporation has written-off the related
accounts receivable since the licensee had not remitted the funds associated with the license fee and initial
milestone payment within the specified payment terms and the license agreement was subsequently
terminated by Prometic.
The Small molecule therapeutics segment generated a segment loss of $23.6 million for the year ended
December 31, 2017 compared to a segment loss of $17.5 million last year which represents an increase of
$6.0 million compared to the corresponding period in 2016. The increase is mainly due to an increase in
manufacturing cost of therapeutics to be used in clinical trials of $0.9 million and higher other research and
32
25 of 43
Prometic Life Sciences Inc.Management Discussion & Analysis
development expenses of $4.1 million resulting from an increase in the clinical and pre-clinical cost of
$3.0 million and an increase in salary and benefit expense due to increases in headcount of $1.1 million.
The JRP licensing transaction had no net impact on the segment’s results for the year ended December
31, 2017.
For the quarters ended December 31, 2017 and 2016
The loss for each segment and the net loss before income taxes for the total Corporation for quarters ended
December 31, 2017 and 2016 are presented in the following tables.
For the quarter ended December 31, 2017
External revenues
Intersegment revenues
Total revenues
Cost of sales and production
R&D - Manufacturing cost of therapeutics
to be used in clinical trials
R&D - Other expenses
Administration, selling and marketing expenses
Bad debt expense
Segment profit (loss)
Gain on foreign exchange
Finance costs
Net loss before income taxes
Other information
Depreciation and amortization
Share-based payment expense
For the quarter ended December 31, 2016 (restated)
External revenues
Intersegment revenues
Total revenues
Cost of sales and production
R&D - Manufacturing cost of therapeutics
to be used in clinical trials
R&D - Other expenses
Administration, selling and marketing expenses
Bad debt expense
Segment loss
Gain on foreign exchange
Finance costs
Loss on extinguishment of liabilities
Net loss before income taxes
Other information
Depreciation and amortization
Share-based payment expense
Bioseparations
Plasma-derived
therapeutics
Small
molecule
therapeutics
Reconciliation
to statement
of operations
$
6,138
107
6,245
1,984
-
1,853
794
-
$
425
12
437
1,119
10,568
10,569
4,267
-
$
-
-
-
(533)
306
4,902
841
20,491
$
33
(119)
(86)
(142)
(603)
607
2,879
-
1,614
$
(26,086)
$
(26,007)
$
(2,827)
$
$
$
$
$
271
103
$
823
717
$
118
492
98
1,259
Bioseparations
Plasma-derived
therapeutics
Small
molecule
therapeutics
Reconciliation
to statement
of operations
$
2,962
547
3,509
2,173
-
1,650
632
-
$
1,020
162
1,182
706
10,297
11,292
2,558
837
$
-
-
-
-
94
4,729
1,144
-
129
(709)
(580)
(463)
5
(72)
7,652
-
Total
6,596
-
6,596
2,428
10,271
17,931
8,781
20,491
(53,306)
(1,427)
2,639
(54,518)
1,310
2,571
Total
4,111
-
4,111
2,416
10,396
17,599
11,986
837
(946)
$
(24,508)
$
(5,967)
$
(7,702)
$
(39,123)
$
223
89
$
536
691
$
97
894
56
2,190
(228)
1,349
1,609
(41,853)
912
3,864
$
$
$
$
$
$
$
$
Bioseparations segment
Revenues for the segment increased by $2.7 million for the quarter ended December 31, 2017 compared
to the corresponding period of 2016 mainly as a result of higher product sales to third parties which
increased by $3.2 million.
The Bioseparations segment had a profit of $1.6 million during the quarter ended December 31, 2017
compared to a loss of $0.9 million during the quarter ended December 31, 2016, representing an increase
in segment profit of $2.6 million. This increase is mainly explained by the increase in external revenues in
the quarter of $3.2 million while cost of sales and production remained flat despite the revenue increase
due to the products sold generating a strong margin and also due to an adjustment of manufacturing
overhead allocation which resulted in additional overhead being capitalized to inventories.
26 of 43
33
Prometic Life Sciences Inc.
Plasma-derived therapeutics segment
The segment loss for plasma-derived therapeutics increased by $1.6 million for the quarter ended
December 31, 2017 compared to the corresponding period of 2016. The segment loss increase is mainly
due to the increase in administration, selling and marketing of $1.7 million and the decrease in revenue of
$0.7 million. The increase in administration, selling a marketing expenses is mainly due to the increase in
consulting expenses incurred in preparation for the plasminogen launch and the administrative support
that the segment receives from the head office as more resources are used to support this growing
business. The decrease in revenue was mainly due to the decrease of $0.6 million generated from the sales
of specialty plasma to third parties during the quarter ended December 31, 2017 compared to the prior
period. The increase in cost of sales and production is mainly explained by manufacturing salaries and
overhead that did not meet the criteria for inclusion in the cost of inventories carried on the statement of
financial position in the fourth quarter of 2017 of $0.7 million and therefore remained as cost of production
in the statement of operations.
Small molecule therapeutics segment
The segment loss for Small molecule therapeutics segment increased by $20.0 million for the quarter ended
December 31, 2017 compared to the corresponding period of 2016. The segment loss increase is mainly
due to the increase in bad debt expense of $20.5 million due to the write-off of the JRP receivable to bad
debt expense
34
27 of 43
Prometic Life Sciences Inc.Management Discussion & Analysis
Financial condition
The consolidated statements of financial position at December 31, 2017 and December 31, 2016 are
presented in the following table followed by a discussion of the key changes in the statement of financial
position between both dates.
Cash and cash equivalents
Marketable securities and short-term investments
Accounts receivable
Income tax receivable
Inventories
Prepaids
Total current assets
Long-term income tax receivable
Other long-term assets
Capital assets
Intangible assets
Deferred tax assets
Total assets
Accounts payable and accrued liabilities
Advance on revenues from a supply agreement
Current portion of long-term debt
Deferred revenues
Total current liabilities
Long-term portion of advance on revenues from a supply agreement
Long-term portion of operating and finance lease
inducements and obligations
Other long-term liabilities
Long-term debt
Deferred tax liabilities
Total liabilities
Share capital
Contributed surplus
Warrants and future investment rights
Accumulated other comprehensive loss
Deficit
Equity attributable to owners of the parent
Non-controlling interests
Total equity
Total liabilities and equity
$
$
$
$
$
$
2017
23,166
-
6,839
4,116
36,013
2,141
72,275
$
$
$
$
108
8,663
45,254
156,647
926
283,873
29,954
1,901
3,336
829
36,020
-
2,073
3,335
83,684
15,330
140,442
575,150
16,193
73,944
(1,622)
(541,681)
121,984
21,447
143,431
$
283,873
$
2016
27,806
11,063
8,379
411
13,658
2,944
64,261
1,020
3,223
41,193
155,487
110
265,294
23,835
345
5,802
2,076
32,058
1,822
1,007
3,446
42,313
25,305
105,951
480,237
12,919
64,201
(1,964)
(423,026)
132,367
26,976
159,343
265,294
Cash and short-term investments
Cash, cash equivalents, marketable securities and short-term investments decreased by $15.7 million at
December 31, 2017 compared to December 31, 2016. Cash and short-term investments balances are
directly influenced by the timing and size of financing events and operating revenues and expenditures.
Cash flows and liquidity are discussed in detail further in the MD&A.
Accounts receivable
Accounts receivable decreased by $1.5 million at December 31, 2017 compared to December 31, 2016.
Income tax receivable
Current income tax receivable increased by $3.7 million at December 31, 2017 compared to December 31,
2016 mainly due to the increase in the refundable R&D tax credits recognized on operations in the U.K.
28 of 43
35
Prometic Life Sciences Inc.
The long-term income tax receivable decreased by $0.9 million as the Corporation reduced the receivable
as a precaution not to overstate it while it continues to work with a consultant to determine the recoverability
of withholding taxes withheld on prior years’ transactions and removed the receivable due to its uncertainty.
Inventories
Inventories increased by $22.4 million at December 31, 2017 compared to December 31, 2016. The
increase in inventory is due to the Corporation’s manufacturing of plasminogen in anticipation of the
commercial launch of the therapeutic resulting in a value of work in progress inventory for plasminogen of
$6.8 million being carried at December 31, 2017 as well as a build-up in unprocessed plasma inventories
of $14.9 million over prior year end levels.
Other long-term assets
Other long-term assets increased by $5.4 million at December 31, 2017 compared to December 31, 2016.
The increase is mainly due to the $5.3 million in fees incurred in establishing the non-revolving credit facility,
principally consisting of the value of the Seven Warrants issued to SALP and legal fees, which have been
recorded as deferred financing costs and will be amortized over the two year term of the non-revolving
credit facility.
Capital assets
Capital assets increased by $4.1 million at December 31, 2017 compared to December 31, 2016. The
increase is due to the acquisition of production equipment installed and used at the CMO plant in Winnipeg.
The equipment installed at the CMO can be relocated to other sites as needed. The increase is also due to
laboratory equipment acquired under finance lease for Prometic’s research facility in Rockville.
Accounts payable and accrued liabilities
Accounts payable and accrued liabilities increased by $6.1 million at December 31, 2017 compared to
December 31, 2016 mainly due to the increase in account payable and the current portion of operating and
finance lease inducements and obligations. This was partially offset by a decrease in wages and
severances payable as the severances relating to the Telesta rationalization in 2016 were almost entirely
settled.
Long-term debt
Long-term debt increased by $38.9 million at December 31, 2017 compared to December 31, 2016. The
increase results primarily from the drawdowns on the non-revolving credit facility in November and
December 2017 and the issuance of the third OID loan in April 2017 that resulted in an increase in long-
term debt at the dates of these transactions of $21.1 million and $18.4 million, respectively. The interest
accretion on the long-term debt during the year ended December 31, 2017 were $7.7 million. Those
increases were partially offset by repayment made on long-term debt of $3.6 million and the July 2017
transaction whereby, the holder of the long-term debt used the set off of principal right under the loan
agreements to settle the amounts due to the Corporation following its participation in a private placement
on July 6, 2017. As a result of that transaction, the carrying amount of the long-term debt was reduced by
$4.1 million.
Deferred tax liabilities
Deferred tax liabilities decreased by $10.0 million at December 31, 2017 compared to December 31, 2016
due mainly to the decrease the U.S. federal tax rate from 35% to 21% which is applied to calculate the
deferred tax liabilities, following a U.S. tax reform in 2017 which was partially offset by the recognition of
deferred income tax assets on NantPro losses during the year ended December 31, 3017.
Share Capital
Share capital increased by $94.9 million at December 31, 2017 compared to December 31, 2016 following
the issuance of shares resulting from the July 2017 bought deal with gross proceeds of $53.1 million and
the non-cash private placement concluded on July 2017 which was accounted for at the fair value of the
36
29 of 43
Prometic Life Sciences Inc.Management Discussion & Analysis
share at the date of the transaction for a total of $8.3 million. The share capital also increased because of
the exercise of the future investment rights for which the Corporation received gross proceeds of
$21.1 million and the shares issued pursuant to restricted share unit plan by $5.1 million.
Contributed surplus
Contributed surplus increased by $3.3 million at December 31, 2017 compared to December 31, 2016. The
increase is principally due to the recognition of share-based payment expense of $8.7 million during the
year ended December 31, 2017. This increase was partially offset by the shares issued pursuant to
restricted share unit plan of $5.1 million.
Warrants and future investment rights
Warrants and future investment rights increased by $9.7 million at December 31, 2017 compared to
December 31, 2016 mainly due to the recognition of the vested portion of the Seventh Warrants which were
issued on November 30, 2017, pursuant to entering into a non-revolving credit facility agreement. As of
December 31, 2017, 20 million of those warrants have vested and have been recognized for an amount of
$9.3 million. The warrants and future investment rights also increased because of the 10,600,407 warrants,
the Sixth Warrants, issued in the financing transaction with SALP in April 2017, amounting to $6.5 million.
This increase was partially offset by the exercise of all of the future investment rights in February 2017
resulting in a reduction of $6.5 million.
Non-controlling interests (“NCI”)
The non-controlling
to
December 31, 2016. The variation in the NCI between December 31, 2017 and December 31, 2016 is
shown below:
interests decreased by $5.5 million at December 31, 2017 compared
Balance at December 31, 2016
Share in losses
Share in Prometic's funding of NantPro
NCI balance at December 31, 2017
Cash flow analysis
$
$
26,976
(10,305)
4,776
21,447
The consolidated statements of cash flows for the year ended December 31, 2017 and the comparative
period in 2016 are presented below.
Quarter ended December 31,
2014
2015
Year ended December 31,
2017
2016
Cash flows used in operating activities
Cash flows from financing activities
Cash flows from investing activities
Net change in cash and cash equivalents during the year
Net effect of currency exchange rate on cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of the year
$
$
$
(122,573)
117,452
1,119
(4,002)
(638)
27,806
23,166
$
(97,693)
86,938
9,900
(855)
(624)
29,285
27,806
Cash flow used in operating activities increased by $24.9 million during the year ended December 31, 2017
compared to the same period in 2016. The increase is due mainly to the increase in non-cash working
capital items, namely inventories of $22.4 million which is related to the build-up in commercial and
unprocessed plasma inventories and the increase in operating costs. This was partially offset by the
increase in accounts payables and accrued liabilities.
Cash flows from financing activities increased by $30.5 million during the year ended December 31, 2017
compared to the same period in 2016 principally due to the exercise of the future investment rights of
$21.1 million and the increase in proceeds from debt and warrant issuances of $20.7 million during the year
30 of 43
37
Prometic Life Sciences Inc.
ended December 31, 2017 compared to prior period. This was partially offset by a decrease in proceeds
from share issuances by $7.0 million.
Cash flows from investing activities decreased by $8.8 million during the year ended December 31, 2017
compared to the same period in 2016 mainly due to the $13.5 million cash and cash equivalents acquired
from the Telesta business combination in 2016. Cash invested in capital assets decreased by $6.4 million
in 2017 mainly explained by a reduction in the investment in the equipment at the Winnipeg CMO facility
as the project came to its completion in 2017.
USE OF PROCEEDS
On July 6, 2017, the Corporation issued common shares following a bought deal public offering. The net
proceeds received upon closing of the transaction were $49.4 million.
The following table presents how the proceeds were used compared to the combined estimates, per type
of activity, provided by the Corporation at the time of each prospectus.
The investment in ongoing Plasminogen and Intravenous Immunoglobulin (“IVIG”)
clinical trials and the IVIG Biologics License Application
$
18,240
$
10,000
Total disbursements
at December 31, 2017
Expenditure
estimate
provided in
Prospectus
The investment in the sales and marketing infrastructure necessary
for the commercialization of Plasminogen and IVIG
The advancement of new clinical indications for Plasminogen including wound
healing, tympanic repairs and severe burns and the advancement
of other protein therapeutics
The advancement of pivotal clinical programs, and pre-clinical costs relating to our
orally active anti-fibrotic drug candidate PBI-4050 such as idiopathic
pulmonary fibrosis and chronic kidney diseases
The pre-clinical and scale-up of PBI-4050 follow-on drug candidates
and their advancement into clinical trial stages
The expansion of plasma collection and processing capabilities
related to the plasma derived therapeutics
General working capital
12,898
5,000
3,582
10,000
4,896
3,046
4,338
2,400
8,000
4,000
10,000
2,400
$
49,400
$
49,400
Disbursements were made towards the advancement of the plasminogen and IVIG clinical trials, the
preparation work towards the filing of the BLA for IVIG and supporting the review by the FDA of the
congenital plasminogen deficiency BLA. Those cost are mainly related to CRO, investigator as well as
manufacturing cost of the drug substance for the clinical trials. The costs of the therapeutics used in the
clinical trials and to keep those patients on the treatment plan after they have completed the number of
weeks required by the study up to the expected date of approval of the therapeutic is the main reason for
the higher spend than originally expected.
Investments were also made in an effort to build an infrastructure to support the sales and marketing force
for the commercialization of plasminogen and medical support to the health care practitioners. The
structures now being put in place will also serve for the eventual commercialization of IVIG. Those
38
31 of 43
Prometic Life Sciences Inc.Management Discussion & Analysis
investments are mainly related to headcount, consultant and information systems expenses. It also includes
the build-up of our inventory in preparation for the commercial launch and this is the main reason for the
higher spending than was originally estimated in this category.
The advancement on the new indications for plasminogen as progressed well as we have received the
clearance from the Swedish Medical products agency to initiate both the chronic tympanic membrane
performance and the diabetic foot ulcer phase 2 clinical trials. The cost from those operations are mainly
internal costs and R&D consultant expenses.
The disbursements made towards the advancement of the PBI-4050 clinical programs include our internal
costs to support the on-going trials, the research for potential additional indications that could benefit from
this drug, the preparations for the filing of INDs and to launch new trials such as the upcoming CFRD trial
and IPF in the U.S. They also include disbursements made to consultants, expenditures in regards to the
clinical sites and drug substance manufacturing costs for the three on-going clinical trials for PBI-4050.
The disbursements regarding follow-on drug candidates to PBI-4050 mainly involve our internal cost to
support the pre-clinical research in addition to external analysis and consulting expenses.
The disbursements regarding the expansion of the manufacturing capabilities related to the plasma-derived
therapeutics include expenditures on production equipment, acquired and installed at the Winnipeg CMO,
in order to increase our manufacturing capabilities to supply the product requirements for the clinical trials
and in view of the eventual sale of commercial products. This figure also includes investment in production
equipment at the Isle of Man Bioseparations production facility to increase the manufacturing output level
of resins used in the PPPS process as well as the investment in equipment at our plasma collection centers
in Winnipeg which was completed to increase the collection capacity in order to increase the Corporation’s
supply chain for plasma.
Although there has been higher than anticipated spending in relation to congenital plasminogen deficiency
trials as well as greater inventory build reflecting an investment in the commercialisation infrastructure, the
Corporation has been able to continue other key programs at the anticipated pace while seeking cost
reductions in their execution. Additional savings have been achieved by refocusing the R&D programs of
the Corporation.
LIQUIDITY AND CONTRACTUAL OBLIGATIONS
At December 31, 2017, the Corporation’s working capital is a surplus of $36.3 million.
The Corporation funds its research and development activities with profits generated from the sale of
Bioseparation products to third parties, the revenues it receives from licensing agreements, and periodically
from the issuance of shares, warrants and long-term debt. Depending on the licensing agreements or
agreements entered into with third parties to jointly develop a therapeutic for a certain health indication and
market, the Corporation will likely need to secure additional financing to finance its R&D activities until such
time as the plasma-derived therapeutics that are currently at the BLA stage (plasminogen for congenital
deficiency) and still in phase 3 clinical trials (IVIG for PIDD), are commercialized and generating revenues.
As the Corporation evolves its scale-up plans for both production capacity and plasma sourcing, the level
of likely future investment required will be determined by the decision to scale-up in-house or via
outsourcing to third parties. The Corporation’s capacity to successfully attract new financings will depend
namely on the attractiveness of Prometic’s common shares to investors, which will be influenced by many
factors including the success of our regulatory filings and with the clinical trials as they progress and the
market, risks and economics merits of our projects.
32 of 43
39
Prometic Life Sciences Inc.
Looking forward, there are several transactions that may generate additional cash inflows that will support
the ongoing operation expenditures such as:
•
in January and February 2018, the Corporation has drawn an additional US$20.0 million on the first
US$40 million tranche of credit available under the non-revolving credit facility with SALP. The
second US$40 million will become available to draw upon if the conditions required for the tranche’s
funds are met;
• on March 14, 2018, the Corporation filed a final shelf prospectus valid for a period of 25 months
that would enable a variety of equity financing transactions up to an aggregate of $250.0 million;
and
the Corporation is in ongoing discussions with potential licensees of its drug pipeline. Any such
discussions may lead to the conclusion of a licensing transaction which could generate a
combination of licensing, milestone and royalty revenues.
•
As usual, the Corporation modulates its R&D and general spending to take into consideration its working
capital position over time.
The Corporation expects that its financial position together with the revenues to be generated from its
operating activities and the above mentioned transactions will be sufficient to fund its operating activities
and meet its contractual obligations over the next year.
Financial obligations
The timing and expected contractual outflows required to settle the financial obligations of the Corporation
recognized in the consolidated statement of financial position at December 31, 2017 are presented in the
table below:
At December 31, 2017
Accounts payable and accrued liabilities 1)
Advance on revenues from a supply agreement
Long-term portion of settlement fee payable
Long-term portion of royalty payment obligation
Long-term portion of other employee benefit liabilities
Long-term debt 2)
Contractual Cash flows
$
Carrying
amount
Payable
within 1 year
2 - 3 years
$
26,653
1,901
88
2,963
214
87,020
$
26,653
1,919
-
-
-
5,343
$
-
-
115
3,138
241
28,137
$
Later than
4 years
-
-
-
-
-
113,469
$
118,839
$
33,915
$
31,631
$
113,469
$
Total
26,653
1,919
115
3,138
241
146,949
179,015
1) Excluding $3,301 for current portion of operating and finance lease inducement and obligations.
2) Under the terms of the OID loans and the non-revolving line of credit, the holder of Second, Third, Fourth, Fifth, Sixth and Seventh
Warrants may decide to cancel a portion of the face values of these loans as payment upon the exercise of these warrants. The
maximum repayment due on these loans has been included in the above table.
In addition to the above, the Corporation must make the following payments under finance lease
agreements that became effective during the year ended December 31, 2017:
Future minimum lease payments
$
338
$
783
$
Within 1 year
2 - 5 years
Total
1,121
Commitments
CMO Lease
In May 2015, the Corporation signed a long-term manufacturing contract with a third party which provides
the Corporation with additional manufacturing capacity (“the CMO contract”). The payments under the CMO
contract cover the use of the production facility, a specified number of direct and indirect labour hours and
the related overhead expense during a minimum of 20 weeks per year, over a 15-year term. The term of
40
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Prometic Life Sciences Inc.Management Discussion & Analysis
the agreement will be automatically extended after the initial term for successive terms of five years, unless
a notification of termination is produced by one of the parties. The annual minimum payments under the
agreement are subject to escalation annually calculated as the greatest of 3% or the Industrial Product
Price / Pharmaceutical and Medicine Manufacturing index under the North American Industry Classification
System. The annual payments are also subject to an adjustment calculated as 50% of the exchange rate
between the U.S. dollar and the Canadian dollar at December 31st of each year.
The following table represent the future minimum operating lease payment as of December 31, 2017:
Future minimum operating lease payment
$
3,468
$
14,945
$
32,291
$
Within 1 year
2 - 5 years
Later than
5 years
Total
50,704
The above payments include non-lease elements pertaining to the arrangement as it was impracticable to
separate the operating expenses from the lease payment.
Other Leases
The Corporation has total commitments in the amount of $26.7 million under various operating leases for
the rental of offices, production plant, laboratory space and office equipment. The payments for the coming
years and thereafter are as follows:
2018
2019
2020
2021
2022 and thereafter
$
$
3,880
3,212
3,007
3,054
13,527
26,680
Royalties
In April 2006, the Corporation entered into an agreement with the American Red Cross for an exclusive
license to use intellectual property rights relating to the PPPS. As per the agreement, Prometic could pay
a royalty to the American Red Cross in addition to an annual minimum royalty of US$30,000 to maintain
the license.
A company owned by an officer of the Corporation is entitled to receive a royalty of 0.5% on net sales and
3% of license revenues in regards to certain small-molecule therapeutics commercialized by the
Corporation. To date, no royalties have been accrued or paid.
In the normal course of business, the Corporation enters into license agreements for the market launching
or commercialization of products. Under these licenses, including the one mentioned above, the
Corporation has committed to pay royalties ranging generally between 1.5% and 15.0% of net sales from
products it commercializes.
Other commitments
In connection with the CMO contract, the Corporation has committed to a minimum spending between
$7.0 million and $9.0 million each year from 2018 to 2030 (the end of the initial term). As of
December 31, 2017, the remaining payment commitment under the CMO contract was $104.7 million or
$53.9 million after deduction of the minimum lease payments under the CMO contract disclosed above.
34 of 43
41
Prometic Life Sciences Inc.
The Corporation has entered into multiple plasma purchase agreements whereby it has committed to
purchase varying volumes of plasma until December 31, 2022. As at December 31, 2017, total commitment
are as follows:
2018
2019
2020
2021
2022 and thereafter
$
$
19,065
27,376
41,063
27,376
34,220
149,100
Any plasma purchased under these agreements, if in excess of short-term requirements, would be available
for sale on the spot market.
SELECTED ANNUAL INFORMATION
The following table presents selected audited annual information for the years ended December 31, 2017,
2016 and 2015.
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 long-term financial liabilities
2017
2016
39,115
$
16,392
$
2015
24,534
(109,731)
(100,807)
(50,961)
(0.16)
283,873
86,949
$
(0.17)
265,294
47,463
$
(0.09)
215,288
24,159
$
$
The mix and the amounts generated from the four main sources of revenues of the Corporation, namely
revenues from the sale of goods, milestone and licensing revenues, revenues from the rendering of services
and rental revenue has shown a lot of variability over the last three years. Revenues from the sales of
goods decreased by $8.5 million in 2016 compared to 2015 whereas they have increased by $3.6 million
during 2017. Milestone and licensing revenues were $1.3 million in 2015 and $19.7 million in 2017. There
were no milestone and licensing revenues earned in 2016. Revenues from the rendering of services
revenues increased from $1.8 million in 2015 to $3.4 million in 2016 and then returned to $1.9 million in
2017. Finally, rental revenues have increased by $ 0.9 million in 2017 going from $0.1 million in 2016 to
$1.0 million in 2017. There were no rental revenues earned in 2015. The rental revenues are incidental to
the Telesta acquisition in 2016.
The net loss attributable to the owners of the parent increased by $8.9 million from 2016 to 2017 mainly
due to the increase in the R&D expenses by $12.8 million reflecting an increase in the number of employees
involved in the clinical trials, regulatory processes and other research activities. The milestone and licensing
revenues recorded during the year ended December 31, 2017 were written-off entirely effectively negating
the contribution of those revenues. The net loss attributable to the owners of the parent increased
significantly in 2016 from 2015 by $49.8 million due to several factors including an increase of $37.4 million
in the total research and development expenses as the Corporation continued to expand the number of
proteins under development and indications being pursued with PBI-4050 and progresses with the ongoing
clinical trials.
The net loss per share on a basic and diluted basis reflects the changes in the net loss attributable to the
owner of the parent but also the increasing number of common shares outstanding from year to year. In
2015 and 2016, the basic and diluted net loss per share increased reflecting the significant increase in the
expenditures from one year to the next. In 2017 basis and diluted net loss per share remained at similar
level despite the increase in net loss since because of the important increase in the weighted average
42
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Prometic Life Sciences Inc.Management Discussion & Analysis
number of outstanding shares which went from 598 million in 2016 to 684 million in 2017.
The total assets increased from year to year as the Corporation’s activities grow from year to year. The
main reason for the change in the total assets from 2015 to 2016 of $50.0 million was an increase in cash,
cash equivalents, marketable securities and short-term investments totaling $36.2 million and an increase
in capital assets of $10.8 million at the acquisition date resulting from the Telesta acquisition in October
2016, a portion of which was used to fund the operating activities as of December 31, 2016. In addition, the
Corporation started holding inventories that would be used for the production of plasminogen for
commercial purposes and those inventories were capitaliable on the statement of financial position
compared to inventories to be used for R&D purposes that must be expensed. The increase in total assets
from 2016 to 2017 of $18.6 million is mainly due to the build-up of inventory in preparation of the commercial
launch of plasminogen.
Long-term financial liabilities increased by $23.3 million between 2015 and 2016 mainly due to the issuance
of additional OID loans of $19.4 million and the assumption of liabilities from the Telesta business
combination of $7.5 million. From 2016 to 2017 long-term financial liabilities increased by $39.5 million
mainly due to the increase in debt reflecting the drawdown on the non-revolving credit facility and the
increase in the carrying value of the long-term debt by $18.4 million following issuance of the third OID loan
in April 2017 pursuant to a financing transaction with SALP.
SUMMARY OF QUARTERLY RESULTS
The following table presents selected quarterly financial information for the last eight quarters:
Quarter ended
December 31, 2017
September 30, 2017
June 30, 2017
March 31, 2017
December 31, 2016
September 30, 2016
June 30, 2016
March 31, 2016
Revenues
14,066
-
3,619
$
$
$
4,111
3,737
3,295
5,249
$
Revenues
6,596
24,034
3,619
4,866
4,111
3,737
3,295
5,249
Net loss attributable
to the owners of the parent
$
Total
(38,279)
(15,542)
(29,513)
(26,397)
(37,308)
(25,569)
(22,351)
(15,579)
Per share
basic & diluted
(0.05)
(0.02)
(0.04)
(0.04)
(0.06)
(0.04)
(0.04)
(0.03)
Revenues from period to period may vary significantly as these are affected by the timing of orders for
goods and the shipment of the orders and the timing of the provision of research services under service
agreements. The revenues are also affected by the timing of the signing of licensing agreements and
achievement of milestones established in these agreements and how these revenues are recognized for
accounting purposes, The timing of the recognition of these revenues and the timing of the recognized
expense can cause significant variability in the results from quarter to quarter.
Revenues, mainly from the sale of goods were $5.2 million during the quarter ended March 31, 2016. The
R&D expense for the quarter was $16.5 million and administration, selling and marketing expense was
$4.8 million.
During the quarter ended June 30, 2016, the R&D expense and the administration, selling and marketing
expense were $19.4 million and $5.2 million respectively, which were higher than the previous quarter due
to the increase in the level of pre-clinical and clinical activities within the Corporation. Also, a non-cash loss
on extinguishment of liabilities of $2.6 million was recorded as the holder of the long-term debt decided to
reduce the face value of the loan in consideration of the shares they received pursuant to a private
placement. Finally, slightly lower sales of goods were registered in the second quarter of 2016 compared
to previous quarter.
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Prometic Life Sciences Inc.
Revenues during the quarter ended September 30, 2016 totalled $3.7 million. Total R&D expenses
increased by $4.2 million compared to the previous quarter. The majority of the increase is due to the
increase in the production expenses at the Laval manufacturing facility resulting from an increase in
production levels during the quarter and an increase in the expenses regarding the Winnipeg CMO mainly
reflecting the timing of the production schedule which in 2016 took place throughout the third and fourth
quarters. The remainder of the increase is due to higher employee compensation and related expenses as
the number of employees increased. Administration, selling and marketing expenses were $6.5 million, an
increase of $1.3 million from the prior quarter which was mainly due to the recording of $0.9 million in fees
regarding the GE settlement and license agreement.
Revenues during the quarter ended December 31, 2016 totalled $4.1 million. Total R&D expenses were
$28.0 million, an increase of $4.3 million compared to the previous quarter due to an increase in clinical
trial spend, employee compensation and an increase in share-based payment expenses of $1.8 million.
Administration, selling and marketing expenses were $12.8 million, an increase of $6.3 million from the
prior quarter which was mainly attributable to salary and benefit expenses resulting from an increase in
headcount and the related increase in operating costs, higher share-based payments expense of
$1.5 million and severance expense of $2.1 million recorded in relation to rationalisation efforts at Telesta.
Revenues were $4.9 million during the quarter ended March 31, 2017, which represents an increase of
$0.8 million compared to the previous quarter ended December 31, 2016. R&D and administration, selling
and marketing expense both decreased by $3.6 million and $5.9 million respectively compared to the fourth
quarter of 2016. The decline in R&D expense were mainly due to lower clinical trial expenses and a
reduction in the cost of manufacturing therapeutics for the clinical trials expensed in R&D as PBP started
the manufacturing of plasminogen for commercial purposes, which cost was capitalized in inventories.
Share-based payment expenses recorded under R&D and administration, selling and marketing expenses,
were lower by $1.2 million and $1.3 million, respectively this quarter. The fact that there were no severance
expense recorded as compared to the fourth quarter of 2016, brought administration, selling and marketing
expense to a more normal level.
Revenues declined to $3.6 million during the quarter ended June 30, 2017 as a result of lower sales of
affinity resins. Research and development was stable at $24.5 million and administration, selling and
marketing expenses at $8.1 million was higher by $1.1 million.
Revenues were $24.0 million during the quarter ended September 30, 2017 mainly driven by licensing and
milestone revenues following the signing of a small molecule licensing agreement which resulted in
$19.7 million of revenue for the Corporation. Research and development and administration, selling and
marketing expense were $23.2 million and $7.7 million respectively, remaining at similar levels to the prior
quarter. A non-cash loss on extinguishment of liabilities of $4.2 million was recorded as the holder of the
long-term debt decided to reduce the face value of the loan in consideration of the shares they received
pursuant to a private placement that occurred in July 2017.
Revenues during the quarter ended December 31, 2017 were $6.6 million, of which the majority was driven
by product sales and service revenues from the Bioseparations segment. Research and development and
administration, selling and marketing expense were $28.2 million and $8.8 million respectively. The
increase in R&D cost of $5.0 million compared to the previous quarter is mainly due to higher expense
relating to cost of therapeutics to be used in clinical trials, an increase in the external cost incurred in running
the trials and higher salary and benefit expenses. Administration, selling and marketing expenses were
slightly higher by $1.1 million principally due to higher salary and benefit expenses. During the quarter, the
Corporation recognized a bad debt expense of $20.5 million, effectively offsetting the milestone and
licensing revenues earned during the previous quarter.
44
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Prometic Life Sciences Inc.Management Discussion & Analysis
OUTSTANDING SHARE DATA
The Corporation is authorized to issue an unlimited number of common shares. At March 27, 2018,
713,329,990 common shares, 13,694,685 options to purchase common shares, 9,688,458 restricted share
units and 125,672,099 warrants to purchase common shares were issued and outstanding.
TRANSACTIONS BETWEEN RELATED PARTIES
The CEO has a share purchase loan outstanding in the amount of $400,000 at December 31, 2017. The
loan bears interest at prime plus 1% and has a maturity date of the earlier of (i) March 31, 2019 or (ii) 30
days preceding a targeted NASDAQ or NYSE listing date of Prometic’s shares. During the year ended
December 31, 2017, the Corporation earned interest revenues on the share purchase loan to the CEO in
the amount of $16. At December 31, 2017, there was $12 in interest receivable on this share purchase
loan.
SIGNIFICANT JUDGMENTS AND CRITICAL ACCOUNTING ESTIMATES
Revenue recognition – The Corporation does at times enter into revenue agreements which provide,
among other payments, for up-front 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.
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 years ended December 31, 2017 and 2016 no changes were deemed necessary. This assessment is
also performed for new subsidiaries. When assessing the functional currency of a foreign subsidiary,
management’s judgment is applied in order to determine, amongst other things, the primary economic
environment in which an entity operates, the currency in which the activities are funded and the degree of
autonomy of the foreign subsidiary from the reporting entity in its operations and financially. Judgment is
also applied in determining 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.
Determining whether assets acquired constitute a business – In determining whether the acquisition
of an equity interest in Telesta Therapeutics Inc. (“Telesta”) fell within the scope of IFRS 3, Business
Combination, management evaluated whether Telesta represented an integrated set of activities and
assets capable of being conducted and managed for the purpose of providing a return in the form of
dividends, lower cost or other economic benefits directly to investors or other owners, members or
participants. In making this evaluation, management considered whether Telesta had inputs, processes
and other elements making it a business. Although businesses usually have outputs, outputs are not
required for an integrated set to qualify as a business. Management concluded that it had inputs, processes
and other elements making it a business and therefore accounted for the acquisition as a business
combination.
Assets arising from a business combination - The Corporation acquired Telesta in 2016. The cost to
acquire the businesses must be allocated to the identifiable assets and liabilities acquired based on their
estimated fair values calculated in accordance with the requirements of IFRS 3, Business Combinations.
The estimated lives and amortization periods for certain identifiable assets must also be determined.
38 of 43
45
Prometic Life Sciences Inc.
As part of this allocation process, the Corporation must identify and attribute values and estimated lives to
the identifiable assets acquired. These determinations involve significant estimates and assumptions
regarding the value a market participant would be willing to pay for capital assets and intangibles. These
estimates and assumptions determine the amount allocated to the identifiable intangible assets and the
amortization period for identifiable intangible assets with finite lives. If future events or results differ from
these estimates and assumptions, the Corporation could record increased amortization or impairment
charges in the future.
Going concern - In assessing whether the going concern assumption is appropriate and whether there are
material uncertainties that may cast significant doubt about the Corporation’s ability to continue as a going
concern, management must estimate future cash flows for a period of at least twelve months following the
end of the reporting period by considering relevant available information about the future. Management has
considered a wide range of factors relating to expected cash inflows such as product sales, including
whether the Corporation will obtain regulatory approval for commercialization of therapeutics, licensing and
milestone revenues and potential sources of debt and equity financing including the exercise of in-the-
money warrants and options. Management has also estimated expected cash outflows such as operating
and capital expenditures and debt repayment schedules, including the ability to delay uncommitted
expenditures. These cash flow estimates are subject to uncertainty. Management has concluded that there
are no material uncertainties related to events or conditions that may cast significant doubt upon the
Corporation’s ability to continue as a going concern for at least the next twelve months.
Estimates and assumptions
Assessing the recoverable amount of intangible assets not yet available for use – In determining the
value in use as part of the impairment test on the intangible assets that are not yet available for use
performed as of November 30th each year, management must make estimates and assumptions regarding
the estimated future cash flows such as production capacities and costs, market penetration and selling
prices for the Corporation’s therapeutics and, the commencement date for their commercialisation, etc. The
future cash flows are estimated using a five year projection of cash flows before taxes which are based on
the most recent budgets and forecasts available to the Corporation. The fifth year was then extrapolated,
including a 2% annual growth rate. The estimated cash flows are then discounted to their net present value
using a pre-tax discount rate that includes a risk premium specific to the line of business. The Corporation
determined its value in use by applying a pre-tax discount rate of 17.33% at November 30, 2017 equivalent
to a post-tax discount rate of 11.87%. The values of the Canadian to U.S. dollar exchange rates used over
the forecasting period ranged from 1.23 to 1.24 CAD/USD rate and were based on forward exchange
contract rates.
Expense recognition of restricted share units – The expense recognized in regards to the RSU for which
the performance conditions have not yet been met is based on an estimation of the probability of the
successful achievement of a number of performance conditions, many of which depend on research,
regulatory process and business development outcomes which are difficult to predict, as well as the timing
of their achievement. The final expense is only determinable when the outcome is known.
Fair value of financial instruments – The individual fair values attributed to the different components of
a financing transaction, 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 the values attributed to each component of a transaction at the time of their issuance and for
disclosing the fair value of financial instruments subsequently carried at amortized cost. 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.
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Prometic Life Sciences Inc.Management Discussion & Analysis
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
The accounting policies used in the consolidated financial statements are consistent with those applied by
the Corporation in its December 31, 2016 audited annual consolidated financial statements except for the
amendments to certain accounting standards which are relevant to the Corporation and were adopted by
the Corporation as of January 1, 2017 as described below.
IAS 7, Statement of Cash Flows (“IAS 7”)
An amendment to IAS 7 requires additional disclosures that enable users of financial statements to evaluate
changes in liabilities arising from financing activities, including changes arising from cash flows and non-
cash changes. The amendment is effective for annual periods beginning on or after January 1, 2017, and
is applied prospectively. The adoption of the amendment did not have a significant impact on the
disclosures as the Corporation was already providing similar disclosures in its long-term debt note in the
consolidated financial statements.
IAS 12, Income Taxes (“IAS 12”)
An amendment to IAS 12 clarifies the guidance on the recognition of deferred tax assets related to
unrealized losses resulting from debt instruments that are measured at their fair values on a continuous
basis. The amendment is effective for annual periods beginning on or after January 1, 2017 and is applied
retrospectively. The adoption of the amendment did not have any impact on the consolidated financial
statements on the adoption date since the Corporation did not hold any debt instrument measured at fair
value on a continuous basis for which there were unrealized losses.
Segmented information
During the second quarter of 2017, the Corporation made changes to the reported operating segments by
splitting the former Protein technology segment into two segments being the Bioseparations and the
Plasma-derived therapeutics segments. The Small molecule therapeutic segment was unaffected by this
change. The modification reflects the desire of the Chief Operating Decision Makers (“CODM”) to obtain,
starting in the second quarter of 2017, discrete financial information to assess the performance of these
activities separately as the Plasma-derived therapeutic business approaches the commercial launch of its
first therapeutic (plasminogen) with other therapeutics expected to be commercialized in the following
years. The organizational structure and business activities required to develop the products, run the clinical
trials and support the commercial activities relating to the sale of a plasma-derived therapeutic are different
than those required to develop and commercialize the bioseparation products. The CODM assess the
performance of the operating segments based on segment profit or loss which comprises revenues, cost
of sales and production, research and development and administration, selling and marketing expense.
The full 2017 and 2016 years segments disclosures have been restated to reflect the changes in the
Corporation’s operating segments.
The accounting policies of the segments are the same as the accounting policies of the Corporation. The
operating segments include intercompany transactions between the segments which are done in a manner
similar to transactions with third parties.
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47
Prometic Life Sciences Inc.
NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED
The IFRS accounting standards and interpretations that the Corporation reasonably expects may have a
material impact on the disclosures, the financial position or results of operations of the Corporation when
applied at a future date are presented below. The Corporation intends to adopt these standards when they
become effective.
IFRS 9, Financial Instruments – Recognition and Measurement (“IFRS 9”)
In July 2014, the IASB issued the final version of IFRS 9, with a mandatory effective date of January 1,
2018. The new standard brings together the classification and measurements, impairment and hedge
accounting phases of the IASB’s project to replace IAS 39, Financial Instruments: Recognition and
Measurement. In addition to the new requirements for classification and measurement of financial assets,
a new general hedge accounting model and other amendments issued in previous versions of IFRS 9, the
standard also introduces new impairment requirements that are based on a forward-looking expected credit
loss model. The Corporation does not anticipate IFRS 9 having a significant impact on the financial
statements upon adoption.
IFRIC 22, Foreign Currency Transactions and Advance Consideration (“IFRIC 22”)
In December 2016, the IASB issued IFRIC 22, which addresses how to determine the date of the transaction
for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense
or income (or part of it) and on the derecognition of a non-monetary asset or non-monetary liability arising
from the payment or receipt of advance consideration in a foreign currency. IFRIC 22 is effective for annual
periods beginning on or after January 1, 2018. Early adoption is permitted. The Corporation does not
anticipate IFRIC 22 having a significant impact on the financial statements upon adoption.
IFRS 15, Revenue from contracts with customers (“IFRS 15”)
In May 2014, the IASB issued IFRS 15, a new standard that specifies the steps and timing for issuers to
recognize revenue as well as requiring them to provide more informative, relevant disclosures. IFRS 15
supersedes IAS 11, Construction Contracts, and IAS 18, Revenue and related interpretations. Adoption of
IFRS 15 is mandatory and will be effective for the Corporation’s fiscal year beginning on January 1, 2018,
with earlier adoption permitted.
IFRS 16, Leases (“IFRS 16”)
In January 2016, the IASB issued IFRS 16, a new standard that replaces IAS 17, Leases. IFRS 16 is a
major revision of the way in which companies account for leases and will no longer permit off balance sheet
leases. Adoption of IFRS 16 is mandatory and will be effective for the Corporation’s fiscal year beginning
on January 1, 2019. Early application is permitted for companies that also apply IFRS 15.
The Corporation is in the process of evaluating the impact of adopting IFRS 15 and IFRS 16 on its
consolidated financial statements.
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 and has not issued or acquired derivative financial instruments for hedging purposes. The
instruments at
following
December 31, 2017 and 2016.
the carrying amounts of
the Corporation’s
table presents
financial
48
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Prometic Life Sciences Inc.Management Discussion & Analysis
Financial assets
Cash and cash equivalents
Marketable securities and short-term investments
Accounts receivable
Other long-term receivables
Share purchase loan to an officer
Available for sale financial assets
Financial liabilities
Accounts payable and accrued liabilities
Advance on revenues from a supply agreement
Long-term debt
Other long-term financial liabilities
$
2017
2016
$
23,166
-
2,193
2,169
400
1,228
26,653
1,901
87,020
3,367
27,806
11,063
3,649
1,996
400
1,227
22,831
2,167
48,115
3,328
Impact of financial instruments in the consolidated statements of operations
The following line items in the consolidated statement of operations for the quarter and the year ended
December 31, 2017 include income, expense, gains and losses relating to financial instruments:
• Bad debt expense;
•
finance costs;
•
foreign exchange gains and losses; and
•
loss on extinguishment of liabilities.
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 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.
The Corporation recorded bad debt expense of $20.5 million during the year and the quarter ended
December 31, 2017. The current year expense is due to the write-off affecting the fourth quarter of 2017
and pertains to the write-off of the amount due from JRP in regards to a license agreement.
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.
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.
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Prometic Life Sciences Inc.
Management Discussion & Analysis
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
are in U.S. dollars and in GBP. 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 relating to the expenditures. Financial
instruments potentially exposing the Corporation to foreign exchange risk consist principally of cash and
cash equivalents, short-term investments, receivables, trade and other payables, advance on revenues
from a supply agreement and the amounts drawn on the non-revolving credit facility. The Corporation
manages foreign exchange risk by holding foreign currencies to support forecasted cash outflows in foreign
currencies.
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 maintains disclosure controls and procedures that are designed to provide reasonable
assurance that information required to be disclosed in its reports filed under securities legislation is
recorded, processed, summarized and reported within the time periods specified in securities legislation.
The Corporation’s CEO and CFO have evaluated, or caused the evaluation of, under their supervision, the
design and operating effectiveness of the Corporation’s disclosure controls and procedures. Based upon
the evaluation, the CEO and CFO have concluded that the Corporation’s disclosure controls and
procedures were effective as of December 31, 2017.
Internal control over Financial Reporting
Internal controls over financial reporting (ICFR) are designed to provide reasonable assurance regarding
the reliability of the Company’s financial reporting and the preparation of financial statements for external
purposes in accordance with IFRS.
Due to its inherent limitation, there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions, regardless of how remote.
The Corporation’s CEO and CFO are responsible for establishing and maintaining adequate ICFR. They
have evaluated, or caused the evaluation of, under their supervision, the design and operating effectiveness
of the Corporation’s ICFR as of December 31, 2017 based on the framework established in Internal Control
– Integrated Framework (2013) by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on this assessment, the CEO and CFO concluded that the Corporation’s ICFR
were effective as of December 31, 2017.
Change in Internal Controls over Financial Reporting
In accordance with the National Instrument 52-109, the Corporation has filed certificates signed by the CEO
and CFO that, among other things, report on the design of disclosure controls and procedures and the
design of ICFR as at December 31, 2017.
There have been no changes in the Corporation’s ICFR that occurred during the quarter ended
December 31, 2017 that have materially affected, or are reasonably likely to materially affect its ICFR.
50
43 of 43
Prometic Life Sciences Inc.
Financial Statements
51
Prometic Life Sciences Inc. Audited annual consolidated financial statements of
Prometic Life Sciences Inc.
For the years ended December 31, 2017 and 2016
INDEPENDENT AUDITOR’S 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, 2017 and 2016, 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 financial
statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of Prometic Life Sciences Inc.
as at December 31, 2017 and 2016, and its financial performance and its cash flows for the years then ended in accordance with
International Financial Reporting Standards.
Montreal, Canada
March 27, 2018
1 CPA auditor, CA, public accountancy permit no. A123806
52
2 of 42
Prometic Life Sciences Inc.Financial Statements PROMETIC LIFE SCIENCES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands of Canadian dollars)
At December 31
ASSETS
Current assets
Cash and cash equivalents
Marketable securities and short-term investments (note 6)
Accounts receivable (note 7)
Income tax receivable
Inventories (note 8)
Prepaids
Total current assets
Long-term income tax receivable
Other long-term assets (note 9)
Capital assets (note 10)
Intangible assets (note 11)
Deferred tax assets (note 24)
Total assets
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities (note 12)
Advance on revenues from a supply agreement (note 13)
Current portion of long-term debt (note 14)
Deferred revenues
Total current liabilities
Long-term portion of advance on revenues from a supply agreement (note 13)
Long-term portion of operating and finance lease
inducements and obligations (note 15)
Other long-term liabilities (note 16)
Long-term debt (note 14)
Deferred tax liabilities (note 24)
Total liabilities
EQUITY
Share capital (note 17a)
Contributed surplus (note 17b)
Warrants and future investment rights (note 17c)
Accumulated other comprehensive loss
Deficit
Equity attributable to owners of the parent
Non-controlling interests (note 18)
Total equity
$
$
$
$
$
Total liabilities and equity
Commitments (note 28)
The accompanying notes are an integral part of the consolidated financial statements.
$
283,873
$
On behalf of the Board
Director
Director
(s) Paul Mesburis
(s) Simon Best
2017
2016
$
23,166
-
6,839
4,116
36,013
2,141
72,275
108
8,663
45,254
156,647
926
283,873
$
$
29,954
1,901
3,336
829
36,020
-
2,073
3,335
83,684
15,330
27,806
11,063
8,379
411
13,658
2,944
64,261
1,020
3,223
41,193
155,487
110
265,294
23,835
345
5,802
2,076
32,058
1,822
1,007
3,446
42,313
25,305
140,442
$
105,951
$
575,150
16,193
73,944
(1,622)
(541,681)
121,984
21,447
143,431
480,237
12,919
64,201
(1,964)
(423,026)
132,367
26,976
159,343
265,294
3 of 42
53
Prometic Life Sciences Inc. PROMETIC LIFE SCIENCES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of Canadian dollars except for per share amounts)
Years ended December 31,
Revenues (note 20)
2017
2016
2017
$
6,596
$
4,111
$
39,115
$
Expenses
Cost of sales and production (note 8)
Research and development expenses (note 21a)
Administration, selling and marketing expenses
Bad debt expense (note 20)
Loss (gain) on foreign exchange
Finance costs (note 21b)
Loss on extinguishment of liabilities (note 14)
Net loss before income taxes
Income tax recovery (note 24)
Net loss
Net loss attributable to:
Owners of the parent
Non-controlling interests (note 18)
Loss per share
Attributable to the owners of the parent
Basic and diluted
2,428
28,202
8,781
(1,427)
2,639
-
(34,027)
(12,872)
(21,155)
(38,279)
(3,367)
$
$
2,416
27,995
11,986
(228)
1,349
1,609
(41,016)
(1,749)
(39,267)
(37,308)
(2,796)
$
$
10,149
100,392
31,441
20,491
(726)
7,965
4,191
(134,788)
(14,752)
(120,036)
(109,731)
(10,305)
$
$
(41,646)
$
(40,104)
$
(120,036)
$
(0.05)
$
(0.06)
$
(0.16)
$
$
$
$
$
Weighted average number of outstanding shares (in thousands)
709,928
616,081
683,954
The accompanying notes are an integral part of the consolidated financial statements.
2016
16,392
7,632
87,615
28,471
837
423
4,527
4,194
(117,307)
(6,638)
(110,669)
(100,807)
(9,862)
(110,669)
(0.17)
598,393
54
4 of 42
Prometic Life Sciences Inc.Financial Statements PROMETIC LIFE SCIENCES INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands of Canadian dollars)
Years ended December 31,
Net loss
Other comprehensive income (loss)
Items that may be subsequently reclassified to profit and loss:
Change in unrealized foreign exchange differences on translation
of financial statements of foreign subsidiaries
Total comprehensive loss
Total comprehensive loss attributable to:
Owners of the parent
Non-controlling interests
The accompanying notes are an integral part of the consolidated financial statements.
2017
2016
$
(120,036)
$
(110,669)
342
(2,226)
$
(119,694)
$
(112,895)
(109,389)
(10,305)
$
(119,694)
$
(103,033)
(9,862)
(112,895)
5 of 42
55
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Prometic Life Sciences Inc.Financial Statements
PROMETIC LIFE SCIENCES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of Canadian dollars)
Years ended December 31,
2017
2016
Cash flows used in operating activities
Net loss for the year
Adjustments to reconcile net loss to cash flows
used in operating activities :
Finance costs
Change in operating lease inducements and obligations
Carrying value of capital and intangible assets disposed
Change in other long-term liabilities
Loss on extinguishment of liabilities
Deferred income taxes (note 24)
Share-based payments expense (note 17b)
Depreciation of capital assets (note 10)
Amortization of intangible assets (note 11)
Change in non-cash working capital items
Cash flows from financing activities
Proceeds from share issuances (note 17a)
Proceeds from debt and warrant issuances (note 14,17c)
Repayment of principal on long-term debt (note 14)
Repayment of interest on long-term debt (note 14)
Exercise of options (note 17b)
Exercise of future investment rights (note 17c)
Debt, share and warrants issuance costs
Reimbursement of share purchase loan to an officer (note 17a)
Cash flows from investing activities
Additions to capital assets
Additions to intangible assets
Proceeds from the sale of marketable securities
and short-term investments
Cash and cash equivalents acquired in a business combination (note 5)
Additions to other long-term assets
Interest received
Net change in cash and cash equivalents during the year
Net effect of currency exchange rate on cash and cash equivalents
Cash and cash equivalents, beginning of the year
Cash and cash equivalents, end of the year
Comprising of:
Cash
Cash equivalents
The accompanying notes are an integral part of the consolidated financial statements.
$
(120,036)
$
(110,669)
8,787
2,391
563
-
4,191
(11,587)
8,662
3,632
944
(102,453)
(20,120)
(122,573)
53,125
50,717
(3,454)
(163)
481
21,052
(4,306)
-
$
$
$
117,452
$
(7,688)
(2,395)
11,063
-
(63)
202
1,119
(4,002)
(638)
27,806
23,166
23,166
-
23,166
$
$
$
$
$
$
5,283
947
174
336
4,194
(6,220)
6,863
2,519
731
(95,842)
(1,851)
(97,693)
60,140
30,010
-
-
625
-
(3,887)
50
86,938
(14,085)
(1,448)
11,651
13,495
(82)
369
9,900
(855)
(624)
29,285
27,806
19,933
7,873
27,806
7 of 42
57
Prometic Life Sciences Inc. PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2017 and 2016
(In thousands of Canadian dollars)
1.
Nature of operations
Prometic Life Sciences Inc. (“Prometic” or the “Corporation”), incorporated under the Canada Business Corporations Act, is a
publicly traded (TSX symbol: PLI) (OTCQX symbol: PFSCF), biopharmaceutical Corporation with globally recognized expertise
in bioseparation, plasma-derived therapeutics and small-molecule drug development. The Corporation is active in developing
its own novel small molecule therapeutic products targeting unmet medical needs in the field of fibrosis, autoimmune
disease/inflammation and cancer. Prometic’s exclusive technology platform is utilized for large-scale drug purification of
biologics, drug development, proteomics and the elimination of pathogens to industry leaders and uses its own affinity technology
that provides for efficient extraction and purification of therapeutic proteins from human plasma in order to develop and
commercialize plasma-derived therapeutics and orphan drugs.
The Corporation’s head office is located at 440, Boul. Armand-Frappier, suite 300, Laval, Québec, Canada, H7V 4B4. Prometic
has Research and Development (“R&D”) facilities in the U.K., the U.S. and Canada, manufacturing facilities in the Isle of Man
and Canada and business development activities in Canada, 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 and were authorized for issue by the Board of Directors on
March 27, 2018.
b) Basis of measurement
The consolidated financial statements have been prepared on a historical cost basis, except for cash, marketable securities,
and restricted cash 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 subsidiaries at December 31, 2017 and 2016 are as follows:
58
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Prometic Life Sciences Inc.Financial Statements PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2017 and 2016
(In thousands of Canadian dollars)
Name of subsidiary
Segment activity
Place of incorporation
and operation
Proportion of ownership
interest held by the group
Prometic Biosciences Inc.
Prometic Bioproduction Inc.
Prometic Bioseparations Ltd
Prometic Biotherapeutics Inc.
Prometic Biotherapeutics Ltd
Prometic Manufacturing Inc.
Pathogen Removal and Diagnostic
Technologies Inc.
NantPro Biosciences, LLC
Prometic Plasma Resources Inc.
Prometic Plasma Resources USA Inc.
Prometic Pharma SMT Holdings Limited
Prometic Pharma SMT Limited
Telesta Therapeutics Inc.
Telesta Pharma Inc.
Telesta Therapeutics IP Inc.
Econiche Corp
Small molecule therapeutics
Plasma-derived therapeutics
Bioseparations
Plasma-derived therapeutics
Plasma-derived therapeutics
Bioseparations
Bioseparations
Plasma-derived therapeutics
Plasma-derived therapeutics
Plasma-derived therapeutics
Small molecule therapeutics
Small molecule therapeutics
Plasma-derived therapeutics
N/A
N/A
Plasma-derived therapeutics
Quebec, Canada
Quebec, Canada
Isle of Man, British Isles
Delaware, U.S.
Cambridge, United Kingdom
Quebec, Canada
Delaware, U.S.
Delaware, U.S.
Winnipeg, Canada
Delaware, U.S.
Cambridge, United Kingdom
Cambridge, United Kingdom
Quebec, Canada
Quebec, Canada
Quebec, Canada
Ontario, Canada
2017
100%
87%
100%
100%
100%
100%
77%
73%
100%
100%
100%
100%
100%
100%
100%
100%
2016
100%
87%
100%
100%
100%
100%
77%
73%
100%
N/A
100%
100%
100%
100%
100%
100%
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.
When a subsidiary is not wholly-owned the Corporation recognizes the non-controlling interests’ share of the net assets and
results of operations in the subsidiary. When the proportion of the equity held by non-controlling interests’ changes without
resulting in a change of control, the carrying amount of the controlling and non-controlling interest are adjusted to reflect the
changes in their relative interests in the subsidiary. In these situations, the Corporation recognizes directly in equity the effect of
the change in ownership of a subsidiary on the non-controlling interests. Similarly, after picking up its share of the operating
losses, the non-controlling interest is adjusted for its share of the equity contribution made by Prometic that does not modify the
interest held by either party. The offset to this adjustment is recorded in the deficit. The effect of these transactions are presented
in the statement of changes in equity.
e)
Financial instruments
Financial instruments are initially measured at fair value. They are subsequently measured in accordance to their classification
as described below:
Financial assets and financial liabilities at fair value through profit and loss
i)
Cash, marketable securities and restricted cash are respectively classified as 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
ii)
Cash equivalents, short-term investments, trade receivables, other receivables and long-term receivables are classified as loans
and receivables. They are initially recognized at fair value and subsequently carried at amortized cost using the effective interest
method.
9 of 42
59
Prometic Life Sciences Inc. PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2017 and 2016
(In thousands of Canadian dollars)
iii) Available-for-sale financial assets
Investments in common or preferred shares of private corporations are classified as available-for-sale and are measured at cost
since their fair value cannot be measured reliably.
iv) Financial liabilities
Trade payable, wages and severances payable, other employee benefit liabilities, settlement fee payable, royalty payment
obligation, other long-term liabilities, 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.
Credit facility fees are recorded in deferred financing cost and are amortized into finance cost over the term of the credit facility.
Impairment of investments
When there has been a significant or prolonged decline in the value of an investment, the investment is written down to recognize
the loss.
Cash and cash equivalents
Cash and cash equivalents comprise deposits in banks and highly liquid investments having an original maturity of 90 days or
less when issued.
f)
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. The cost of manufactured inventories comprises all costs that are directly attributable
to the manufacturing process, such as raw materials, direct labour and manufacturing overhead based on normal operating
capacity. Net realizable value is the estimated selling price in the ordinary course of business less the estimated cost of
completion and the estimated selling costs except for raw materials for which it is determined using replacement cost.
g) 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
Buildings and improvements
Leasehold improvements
Production and laboratory equipment
Furniture
Computer equipment
Assets held under financing leases
Period
20 years
The lower of the lease term and the useful life
5 - 20 years
5 - 10 years
3 - 5 years
The lower of the lease term and the useful life
The estimated useful lives, residual values and depreciation methods 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.
h) 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.
60
10 of 42
Prometic Life Sciences Inc.Financial Statements PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2017 and 2016
(In thousands of Canadian dollars)
i)
Intangible Assets
Intangible assets include acquired rights such as licenses for product manufacturing and commercialization, donor lists, external
patent costs and software costs. They are carried at cost less accumulated amortization. Amortization commences when the
intangible asset is available for use and is calculated over the estimated useful lives of the intangible assets acquired using the
straight-line method. The maximum period used for each category of intangible asset are presented in the table below. 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.
Intangible asset
Licenses and other rights
Donor lists
Patents
Software
Period
30 years
10 years
20 years
5 years
j)
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 impairment indicators exist, the
recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. For intangible assets
not yet available for use, an impairment test is performed annually at November 30, until amortization commences, whether or
not there are impairment indicators. When 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) which represents 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.
k)
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 and milestone fees, sale of goods and leasing
arrangements, 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
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61
Prometic Life Sciences Inc. PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2017 and 2016
(In thousands of Canadian dollars)
probable that the economic benefits will flow to the Corporation and revenue and costs associated with the transaction can be
measured reliably.
Licensing fees and milestone payments
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 customer 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.
Amounts received in advance of meeting the revenue recognition criteria are recorded as deferred revenue on the consolidated
statements of financial position.
Rental revenue
The Corporation accounts for the lease with its tenant as an operating lease when the Corporation has not transferred
substantially all of the risks and benefits of ownership of its property. Revenue recognition under an operating lease commences
when the tenant has a right to use the leased asset, and the total amount of contractual rent to be received from the operating
lease is recognized on a straight-line basis over the term of the lease. Rental revenue also includes recoveries of operating
expenses and property taxes.
l)
Research and development expenses
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 expenditures attributable to the intangible asset during its development.
To date, the Corporation has not capitalized any development costs.
Research and development expenses presented in the statement of operations comprise the costs to manufacture the plasma-
derived therapeutics used in pre-clinical tests and clinical trials. It also includes the cost of therapeutics used in the PBI-4050
clinical trials, external consultants supporting the clinical trials and pre-clinical tests, employee compensation and other operating
expenses involved in research and development activities. Finally, it includes the cost of developing new bioseparation products.
62
12 of 42
Prometic Life Sciences Inc.Financial Statements PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2017 and 2016
(In thousands of Canadian dollars)
m) Foreign currency translation
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 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 at the dates when the initial transactions took place.
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 loss. On disposal of a foreign
operation, the component of other comprehensive 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 deferred 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 Share Units
(“RSU”) is determined using the market value of the Corporation’s shares on the grant date. When the vesting of RSU is
dependent on meeting performance targets, to determine the expense to recognize over the vesting period, the Corporation will
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 vesting program was changed for the 2017-2019 RSU cycle. Under the new program, a portion of the RSU granted will vest
at a rate of 33% at the end of each calendar year. These are usually referred to as time based vesting RSU. The remainder of
the awards granted require objectives to be achieved by the end of the cycle, in this case the end of 2019, when the performance
assessment is made for the vesting to occur. For RSU issued under previous cycles (2016 and prior), the RSU vest upon
achievement of the objectives which are assessed on a quarterly basis. Under all programs, the participant must be in the employ
of the Corporation when the conditions for obtaining the RSU are met. For RSU that vest upon the achievement of objectives
and for which the objectives are considered probable of being achieved at the end of a given reporting period, the Corporation
will recognize over the expected vesting period, the probability weighted expense associated with the RSU. On this basis, if the
likelihood of an objective being met increases over time, a higher portion of the expense would be recognized, and the opposite,
if the probability decreases.
The Corporation’s policy is to issue new shares upon the exercise of stock options and the release of RSU for which conditions
have been met.
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63
Prometic Life Sciences Inc. PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2017 and 2016
(In thousands of Canadian dollars)
p)
Earnings per share (EPS)
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 year. Diluted EPS is determined by adjusting the weighted average number of common shares
outstanding for the effects of all dilutive potential common shares, which comprise warrants, future investment rights, stock
options and RSU. For the years ended December 31, 2017 and 2016, all warrants, future investment rights, stock options and
RSU were anti-dilutive since the Corporation reported net losses.
q)
Share and warrant issue expenses
The Corporation records share and warrant issue expenses as an increase to the deficit.
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,
up-front 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.
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 years ended December 31, 2017 and
2016 no changes were deemed necessary. This assessment is also performed for new subsidiaries. When assessing the
functional currency of a foreign subsidiary, management’s judgment is applied in order to determine, amongst other things, the
primary economic environment in which an entity operates, the currency in which the activities are funded and the degree of
autonomy of the foreign subsidiary from the reporting entity in its operations and financially. Judgment is also applied in
determining 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.
Determining whether assets acquired constitute a business – In determining whether the acquisition of an equity interest in
Telesta Therapeutics Inc. (“Telesta”) fell within the scope of IFRS 3, Business Combination (see note 5), management evaluated
whether Telesta represented an integrated set of activities and assets capable of being conducted and managed for the purpose
of providing a return in the form of dividends, lower cost or other economic benefits directly to investors or other owners, members
or participants. In making this evaluation, management considered whether Telesta had inputs, processes and other elements
making it a business. Although businesses usually have outputs, outputs are not required for an integrated set to qualify as a
business. Management concluded that it had inputs, processes and other elements making it a business and therefore
accounted for the acquisition as a business combination.
Assets arising from a business combination - The cost of the acquisition of a business must be allocated to the identifiable
assets and liabilities acquired based on their estimated fair values in accordance with the requirements of IFRS 3, Business
Combinations. The estimated lives and amortization periods for certain identifiable assets must also be determined.
64
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Prometic Life Sciences Inc.Financial Statements PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2017 and 2016
(In thousands of Canadian dollars)
As part of this allocation process, the Corporation must identify and attribute values and estimated lives to the identifiable assets
acquired. These determinations involve significant estimates and assumptions regarding the value a market participant would
be willing to pay for capital assets and intangibles. These estimates and assumptions determine the amount allocated to the
identifiable capital and intangible assets and the amortization period for capital assets and intangible assets with finite lives. If
future events or results differ from these estimates and assumptions, the Corporation could record increased amortization or
impairment charges in the future.
Going concern - In assessing whether the going concern assumption is appropriate and whether there are material uncertainties
that may cast significant doubt about the Corporation’s ability to continue as a going concern, management must estimate future
cash flows for a period of at least twelve months following the end of the reporting period by considering relevant available
information about the future. Management has considered a wide range of factors relating to expected cash inflows such as
product sales, including whether the Corporation will obtain regulatory approval for commercialization of therapeutics, licensing
and milestone revenues and potential sources of debt and equity financing including the exercise of in-the-money warrants and
options. Management has also estimated expected cash outflows such as operating and capital expenditures and debt
repayment schedules, including the ability to delay uncommitted expenditures. These cash flow estimates are subject to
uncertainty. Management has concluded that there are no material uncertainties related to events or conditions that may cast
significant doubt upon the Corporation’s ability to continue as a going concern for at least the next twelve months.
Estimates and assumptions
Assessing the recoverable amount of intangible assets not yet available for use – In determining the value in use as part
of the impairment test on the intangible assets that are not yet available for use (note 11) performed as of November 30th each
year, management must make estimates and assumptions regarding the estimated future cash flows such as production
capacities and costs, market penetration and selling prices for the Corporation’s therapeutics and, the commencement date for
their commercialisation, etc. The future cash flows are estimated using a five-year projection of cash flows before taxes which
are based on the most recent budgets and forecasts available to the Corporation. The fifth year was then extrapolated, including
a 2% annual growth rate. The estimated cash flows are then discounted to their net present value using a pre-tax discount rate
that includes a risk premium specific to the line of business. The Corporation determined its value in use by applying a pre-tax
discount rate of 17.33% at November 30, 2017 equivalent to a post-tax discount rate of 11.87%. The values of the Canadian to
U.S. dollar exchange rates used over the forecasting period ranged from 1.23 to 1.24 CAD/USD rate and were based on forward
exchange contract rates.
Expense recognition of restricted share units – The expense recognized in regards to the RSU for which the performance
conditions have not yet been met is based on an estimation of the probability of the successful achievement of a number of
performance conditions, many of which depend on research, regulatory process and business development outcomes which
are difficult to predict, as well as the timing of their achievement. The final expense is only determinable when the outcome is
known.
Fair value of financial instruments – The individual fair values attributed to the different components of a financing transaction,
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 the values attributed to each component of a
transaction at the time of their issuance and for disclosing the fair value of financial instruments subsequently carried at amortized
cost. 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 long-term
debt are disclosed in note 14.
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.
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65
Prometic Life Sciences Inc. PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2017 and 2016
(In thousands of Canadian dollars)
4. Change in standards, interpretations and accounting policies
a)
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 might
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 – Recognition and Measurement (“IFRS 9”)
In July 2014, the IASB issued the final version of IFRS 9, with a mandatory effective date of January 1, 2018. The new standard
brings together the classification and measurements, impairment and hedge accounting phases of the IASB’s project to replace
IAS 39, Financial Instruments: Recognition and Measurement. In addition to the new requirements for classification and
measurement of financial assets, a new general hedge accounting model and other amendments issued in previous versions of
IFRS 9, the standard also introduces new impairment requirements that are based on a forward-looking expected credit loss
model. The Corporation does not anticipate IFRS 9 having a significant impact on the financial statements upon adoption.
IFRIC 22, Foreign Currency Transactions and Advance Consideration (“IFRIC 22”)
In December 2016, the IASB issued IFRIC 22, which addresses how to determine the date of the transaction for the purpose of
determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) and on the
derecognition of a non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration in
a foreign currency. IFRIC 22 is effective for annual periods beginning on or after January 1, 2018. Early adoption is permitted.
The Corporation does not anticipate IFRIC 22 having a significant impact on the financial statements upon adoption.
IFRS 15, Revenue from contracts with customers (“IFRS 15”)
In May 2014, the IASB issued IFRS 15, a new standard that specifies the steps and timing for issuers to recognize revenue as
well as requiring them to provide more informative, relevant disclosures. IFRS 15 supersedes IAS 11, Construction Contracts,
and IAS 18, Revenue and related interpretations. Adoption of IFRS 15 is mandatory and will be effective for the Corporation’s
fiscal year beginning on January 1, 2018, with earlier adoption permitted.
IFRS 16, Leases (“IFRS 16”)
In January 2016, the IASB issued IFRS 16, a new standard that replaces IAS 17, Leases. IFRS 16 is a major revision of the way
in which companies account for leases and will no longer permit off balance sheet leases. Adoption of IFRS 16 is mandatory
and will be effective for the Corporation’s fiscal year beginning on January 1, 2019. Early application is permitted for companies
that also apply IFRS 15.
The Corporation is in the process of evaluating the impact of adopting IFRS 15 and IFRS 16 on its consolidated financial
statements.
b)
Adoption of new accounting standards
The accounting policies used in these annual consolidated financial statements are consistent with those applied by the
Corporation in its December 31, 2016 annual consolidated financial statements except for the amendments to certain accounting
standards which are relevant to the Corporation and were adopted by the Corporation as of January 1, 2017 as described below.
IAS 7, Statement of Cash Flows (“IAS 7”)
An amendment to IAS 7 requires additional disclosures that enable users of financial statements to evaluate changes in liabilities
arising from financing activities, including changes arising from cash flows and non-cash changes. The amendment is effective
for annual periods beginning on or after January 1, 2017, and is applied prospectively. The adoption of the amendment did not
have a significant impact on the disclosures as the Corporation was already providing similar disclosures in its long-term debt
note in the consolidated financial statements.
66
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Prometic Life Sciences Inc.Financial Statements PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2017 and 2016
(In thousands of Canadian dollars)
IAS 12, Income Taxes (“IAS 12”)
An amendment to IAS 12 clarifies the guidance on the recognition of deferred tax assets related to unrealized losses resulting
from debt instruments that are measured at their fair values on a continuous basis. The amendment is effective for annual
periods beginning on or after January 1, 2017 and is applied retrospectively. The adoption of the amendment did not have any
impact on the consolidated financial statements on the adoption date since the Corporation did not hold any debt instrument
measured at fair value on a continuous basis for which there were unrealized losses.
c)
Change in accounting policies
Segmented information
During the second quarter of 2017, the Corporation made changes to the reported operating segments by splitting the former
Protein technology segment into two new segments being the Bioseparations and the Plasma-derived therapeutics segments.
The Small molecule therapeutic segment was unaffected by this change. The modification reflects the desire of the Chief
Operating Decision Makers (“CODM”) to obtain, starting in the second quarter of 2017, discrete financial information to assess
the performance of these activities separately as the Plasma-derived therapeutic business approaches the commercial launch
of its first therapeutic (plasminogen) with other therapeutics expected to be commercialized in the following years. The
organizational structure and business activities required to develop the products, run the clinical trials and support the
commercial activities relating to the sale of a plasma-derived therapeutic are different than those required to develop and
commercialize the bioseparation products. The CODM assess the performance of the operating segments based on segment
profit or loss which comprises revenues, cost of sales and production, research and development and administration, selling
and marketing expense.
The full 2017 and 2016 years segments disclosures have been restated to reflect the changes in the Corporation’s operating
segments.
5.
Business combination
On October 31, 2016 (the “closing date”), the Corporation acquired 100% of the outstanding shares of Telesta Therapeutics Inc.,
a Canadian based company at a price of $0.14 per Telesta common share, payable in Prometic common shares. The number
of common shares issued by Prometic to acquire the Telesta common shares was based on the volume weighted average
closing price (“VWAP”) of Prometic’s common shares for the five trading days prior to the closing date of the acquisition of $2.98.
Accordingly, each Telesta common share was acquired for 0.04698 Prometic common share and a total of 14,258,213 Prometic
common shares were issued. The Corporation also issued 277,910 warrants having an exercise price of $6.39 maturing on
September 23, 2019 in replacement of the Telesta warrants. The fair value of the common shares issued by the Corporation
was calculated using the closing market price of the shares on the closing date of $2.82. The fair value of the warrants issued
was determined using a Black-Scholes pricing model and the following assumptions: volatility 56%, interest-free rate 0.56% and
a marketability discount of 20%.
The fair value of the consideration given is presented in the table below:
Common shares issued
Warrants issued
$
$
-
-
-
$
$
40,208
65
40,273
17 of 42
67
Prometic Life Sciences Inc. PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2017 and 2016
(In thousands of Canadian dollars)
The Corporation recognised all of the identifiable net assets at their acquisition date fair values as presented in the following
table.
Net identifiable assets acquired:
Cash and cash equivalents
Marketable securities and short-term investments
Account receivable
Prepaids
Long-term receivable
Capital assets
Accounts payable and accrued liabilities
Other long-term liabilities
Deferred revenues
Finance lease obligation
Long-term debt
Net assets
$
$
-
-
-
-
-
-
-
-
-
-
-
-
$
$
13,495
22,714
1,446
164
1,718
10,753
(1,878)
(587)
(88)
(12)
(7,452)
40,273
The following financial instruments had gross contractual amounts which were different than the fair value recognized.
Long-term receivable
Accounts payable and accrued liabilities
Other long-term liabilities
Long-term debt
Contractual
$
amounts
Fair value Contractual amounts
Fair value
$
-
-
-
-
$
-
-
-
-
$
1,845
(1,897)
(698)
(7,986)
1,718
(1,878)
(587)
(7,452)
The assets and liabilities of Telesta are included in the consolidated statements of financial position as at December 31, 2017
and 2016, and the operating results are reflected in its consolidated statements of operations since October 31, 2016.
6. Marketable securities and short-term investments
Marketable securities and short-term investments with maturities greater than 90 days are as follows:
Marketable securities:
Bonds issued in CAD currency, earning interest at rates
ranging from 0.77% to 1.30% and matured on various
dates from January 9, 2017 to February 23, 2017
Short-term investments:
Guaranteed investment certificate issued in CAD currency,
earning interest at 0.90% and matured on January 9, 2017
Term deposits having a principal of US $4,758,260 earning
interest at rates ranging from 0.86% to 0.90% and matured
on various dates from January 23, 2017 to February 8, 2017
Treasury bill having a principal of US $1,502,536 earning
interest at 0.53% and matured on February 10, 2017
December 31,
2017
December 31,
2016
$
$
$
$
-
-
-
-
-
-
$
$
$
$
2,198
459
6,389
2,017
8,865
11,063
68
18 of 42
Prometic Life Sciences Inc.Financial Statements PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2017 and 2016
(In thousands of Canadian dollars)
7.
Accounts receivable
Trade receivables
Tax credits and government grants receivable
Sales taxes receivable
Other receivables
8.
Inventories
Raw materials
Work in progress
Finished goods
December 31,
2017
December 31,
2016
1,796
3,883
763
397
6,839
December 31,
2017
24,075
10,090
1,848
36,013
$
$
$
$
3,340
4,134
596
309
8,379
December 31,
2016
11,727
967
964
13,658
$
$
$
$
During the year ended December 31, 2017, inventories in the amount of $6,594 were recognized as cost of sales and production
($5,757 for the year ended December 31, 2016). Inventory write-downs of $246 were recorded during the year ended
December 31, 2017 ($546 for the year ended December 31, 2016).
9. Other long-term assets
Restricted cash
Long-term receivables
Deferred financing costs
Available-for-sale financial assets
December 31,
2017
December 31,
2016
$
$
$
226
1,943
5,266
1,228
8,663
$
175
1,821
-
1,227
3,223
Restricted cash is composed of a guaranteed investment certificate, bearing interest at 0.35% per annum (at December 31,
2016, bearing interest at 0.35%), pledged as collateral for a letter of credit to a landlord which automatically renews until the end
of the lease.
19 of 42
69
Prometic Life Sciences Inc. PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2017 and 2016
(In thousands of Canadian dollars)
10. Capital assets
Land and
Leasehold
Buildings improvements
Production Furniture and
computer
equipment
and laboratory
equipment
Cost
Balance at January 1, 2016
Additions
Acquired in a business combination (note 5)
Disposals
Effect of foreign exchange differences
Balance at December 31, 2016
Additions
Disposals
Effect of foreign exchange differences
Balance at December 31, 2017
Accumulated depreciation
Balance at January 1, 2016
Depreciation expense
Disposals
Effect of foreign exchange differences
Balance at December 31, 2016
Depreciation expense
Disposals
Effect of foreign exchange differences
Balance at December 31, 2017
Carrying amounts
At December 31, 2017
At December 31, 2016
$
$
$
$
$
$
$
Total
27,010
15,227
10,753
(374)
(2,076)
- $
-
4,501
-
-
4,501 $
38
-
-
9,253 $
2,645
268
-
(1,021)
16,106 $
11,346
5,799
(240)
(948)
1,651 $
1,236
185
(134)
(107)
11,145 $
32,063 $
2,831 $
50,540
1,587
-
92
5,321
(680)
83
806
(90)
8
7,752
(770)
183
4,539 $
12,824 $
36,787 $
3,555 $
57,705
- $
27
-
-
27 $
192
-
-
3,057 $
473
-
(424)
3,106 $
580
-
40
4,157 $
1,644
(216)
(358)
5,227 $
2,221
(521)
35
755 $
375
(98)
(45)
987 $
639
(84)
2
7,969
2,519
(314)
(827)
9,347
3,632
(605)
77
219 $
3,726 $
6,962 $
1,544 $
12,451
4,320 $
4,474
9,098 $
8,039
29,825 $
26,836
2,011 $
1,844
45,254
41,193
As at December 31, 2017, there are $10,219 and $3,524 of production and laboratory equipment and leasehold improvements,
respectively, net of government grants, that are not yet available for use and for which depreciation has not started ($12,751
and $3,427 as of December 31, 2016).
Certain investments in equipment are eligible for government grants. The government grants receivable are recorded in the
same period as the eligible additions and are credited against the capital asset addition. During the year ended December 31,
2017, the Corporation recognized $231 ($4 during the year ended December 31, 2016) in government grants.
As at December 31, 2017, production and laboratory equipment includes assets under finance leases with a net carrying amount
of $1,131 ($nil as at December 31, 2016).
70
20 of 42
Prometic Life Sciences Inc.Financial Statements PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2017 and 2016
(In thousands of Canadian dollars)
11.
Intangible assets
Cost
Balance at January 1, 2016
Additions
Disposals
Effect of foreign exchange differences
Balance at December 31, 2016
Additions
Disposals
Effect of foreign exchange differences
Balance at December 31, 2017
Accumulated amortization
Balance at January 1, 2016
Amortization expense
Disposals
Effect of foreign exchange differences
Balance at December 31, 2016
Amortization expense
Disposals
Effect of foreign exchange differences
Balance at December 31, 2017
Carrying amounts
At December 31, 2017
At December 31, 2016
Licenses and
other rights
Patents
Software
Total
$
$
$
$
$
$
$
146,596 $
7,109
-
(102)
6,484 $
723
(140)
(965)
964 $
536
(36)
(13)
154,044
8,368
(176)
(1,080)
153,603 $
6,102 $
1,451 $
161,156
963
-
6
742
(593)
95
757
-
5
2,462
(593)
106
154,572 $
6,346 $
2,213 $
163,131
3,210 $
151
-
(68)
3,293 $
197
-
7
2,150 $
431
(26)
(625)
1,930 $
458
(195)
57
345 $
149
(36)
(12)
446 $
289
-
2
3,497 $
2,250 $
737 $
5,705
731
(62)
(705)
5,669
944
(195)
66
6,484
151,075 $
150,310
4,096 $
4,172
1,476 $
1,005
156,647
155,487
Intangible assets include $141,000 pertaining to a license held by NantPro Biosciences, LLC (“NantPro”) and $7,106 pertaining
to a reacquired right from a licensee; both of these rights are not yet available for use and consequently their amortization has
not commenced. At November 30, 2017, the Corporation performed an impairment test on the license and reacquired right and
concluded that no impairment was required (see note 3).
12. Accounts payable and accrued liabilities
Trade payables
Wages and severances payable
Current portion of operating and finance lease inducements and obligations (note 15)
Current portion of settlement fee payable (note 16)
Current portion of royalty payment obligation (note 16)
Current portion of other employee benefit liabilities (note 16)
December 31,
2017
December 31,
2016
$
$
$
19,333
6,839
3,301
102
-
379
29,954
$
14,269
7,606
1,004
-
577
379
23,835
13. Advance on revenues from a supply agreement
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 (2,000,000 Great British pounds, “GBP”) and originally maturing in
21 of 42
71
Prometic Life Sciences Inc. PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2017 and 2016
(In thousands of Canadian dollars)
September 2014. In May 2014, the Corporation and the customer amended the loan agreement extending the maturity date to
April 1, 2015 and on March 27, 2015, the loan agreement was amended further extending the maturity date to April 30, 2018.
The principal amount of the advance bears interest at a rate of 5% per annum and is being repaid as products are supplied and
revenues received.
14. Long-term debt
The transactions during the years ended December 31, 2017 and 2016 and the carrying value of the long-term debt at
December 31, 2017 and 2016 were as follows:
Balance at January 1,
Interest accretion
Repayment of principal on long-term debt
Repayment of stated interest on long-term debt
Issuance of third OID loan
Drawdown on non-revolving credit facility
Foreign exchange revaluation on credit facility balance
Reduction of the face value of the third OID loan by $8,577
Increase of the face value of the first OID loan by $50,373
Long-term debt assumed in a business combination (note 5)
Reduction of the face value of the second OID loan by $5,958
Reduction of the face value of the second OID loan by $4,176
Balance at December 31,
Comprised of the following loans:
OID loan having a face value of $61,704 maturing
on July 31, 2022 with an effective interest rate of 14.8% 1)
OID loan having a face value of $21,172 maturing
on July 31, 2022 with an effective interest rate of 10.6% 1)
OID loan having a face value of $30,593 maturing
on July 31, 2022 with an effective interest rate of 15.5% 1)
Non-revolving US dollars credit facility draws, expiring on November 30, 2019
bearing stated interest of 8.5% per annum (effective interest rate of 16.4%)1)
Government term loan having a principal amount of $1,000
full repayable on August 31, 2018 with an effective interest rate of 9.2%
and a stated interest of 3.2%2), 3)
Non-interest bearing government term loan having a principal amount of $2,306
repayable in equal monthly installments of $82 until January 31, 2020
with an effective interest rate of 2.8% 2)
Non-interest bearing government term loan having a principal amount of $1,031
full repayable on January 5, 2018 with an effective interest rate of 9.1% 2)
Less current portion of long-term debt
$
$
$
$
$
$
$
$
2017
48,115
7,686
(3,454)
(163)
18,363
21,098
(491)
(4,134)
-
-
-
-
87,020
32,721
13,355
15,815
20,876
2016
21,998
4,781
-
-
-
-
-
-
19,427
7,452
(3,200)
(2,343)
48,115
28,492
12,078
-
-
973
2,986
2,249
1,031
87,020
(3,336)
83,684
$
$
2,640
1,919
48,115
(5,802)
42,313
1)The loans are secured by all the assets of the Corporation excluding patents and require that certain covenants be respected including
maintaining an adjusted working capital ratio.
2) These loans were assumed as part of the Telesta business combination (note 5) and were recognized at their fair values on the closing date
of the transaction. The fair value was determined using a discounted cashflow model and an effective interest rate specific to the loan as
disclosed in the table above.
3) The loan is secured by the land, the manufacturing facility and equipments located in Belleville. At December 31, 2017, the net carrying value
of the secured assets is $8,678.
72
22 of 42
Prometic Life Sciences Inc.Financial Statements PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2017 and 2016
(In thousands of Canadian dollars)
2017
On April 27, 2017, the Corporation issued a third Original Issue Discount (“OID”) loan and warrants (the “Sixth Warrants”) to the
holder of the long-term debt for total proceeds of $25,010. The total proceeds were allocated to the debt and the warrants based
on fair value at the issue date. Further details concerning the warrants are provided in note 17c. Under the terms of the new
loan, the Corporation will repay the face value of the OID loan, in the amount of $39,170 at maturity on July 31, 2022. The OID
loan was recorded at its fair value at the transaction date less the associated transaction costs of $184 for a net amount of
$18,363. The fair value of the loan was determined using a discounted cash flow model for the debt instrument with a market
interest rate of 15.5%.
In July 2017, the holder of the long-term debt used the set off of principal right under the loan agreements, to settle the amounts
due to the Corporation following its participation in a private placement for 5,045,369 common shares which occurred
concurrently with the closing of a public offering of common shares, on July 6, 2017.
As a result, the face value of the third OID loan was reduced by $8,577, from $39,170 to $30,593. The reduction of $8,577 is
equivalent to the value of the shares issued at the agreed price of $1.70 concluded in connection with the private placement.
This transaction was accounted for as an extinguishment of a portion of the OID loan and the difference between the adjustment
to the carrying value of the loan of $4,134 and the amount recorded for the shares issued of $8,325 was recorded as a loss on
extinguishment of a loan of $4,191. The shares were recorded at fair value, determined using the closing price of $1.65 on the
date of issue July 6, 2017, resulting in a value of the shares issued of $8,325.
On November 30, 2017, the Corporation entered into a non-revolving credit facility agreement bearing interest of 8.5% per
annum which expires November 30, 2019. The credit facility comprises two tranches of US$40,000,000 which become available
to draw upon once certain conditions are met. The drawdowns on the available tranches are limited to US$10,000,000 per
month.
As part of the agreement, the Corporation issued 54 million warrants (“Seventh Warrants”) to the holder of the long-term debt in
consideration for the non-revolving credit facility and US$10,000. Further details concerning the warrants are provided in note
17c. At each drawdown, the value of the proceeds drawn are allocated to the debt and equity based on their fair value.
The Corporation drew on the credit facility on November 30, 2017 and on December 14, 2017 respectively. The total proceeds
allocated to the debt upon the two drawdowns in 2017 was $21,098. The fair value of the debt was determined using a discounted
cash flow model for the debt instrument with a market interest rate of 16.4%. The fees incurred in regards of the credit facility,
which comprise legal fees and also the 10,000,000 warrants issued upon signature of the credit facility (note 17c), for a total of
$5,473 have been recorded in the consolidated statement of financial position as other long-term assets and will be amortized
and recognized into the consolidated statement of operations over the term of the credit facility.
At December 31, 2017, the Corporation was in compliance with covenants of all outstanding loans and the credit facility.
2016
On February 29, 2016, pursuant to an additional financing for total proceeds of $30,010, the Corporation issued additional debt
and warrants (the “Fifth Warrants”) to the holder of the long-term debt. Under the terms of this addendum to the first Original
Issue Discount (“OID”) loan, the face value of the OID loan to be repaid at the maturity loan, which remains unchanged at July 31,
2022, increased by $50,373. This brought the total face value of the first OID loan to $61,704. Further details concerning the
warrants issued are provided in note 17c.
The total proceeds were allocated to the debt and warrants based on fair value at the issue date. The carrying amount of the
debt increased by the issue date fair value of the additional sum to repay at the maturity date less the associated transaction
costs of $165, representing a net amount of $19,427. The fair value of the increased payment of $50,373 at the maturity date
was determined using a discounted cash flow model for the debt instrument with a market interest rate of 15.84%. When
combining the loan that was outstanding at the date of the increase with the addendum, the combined effective rate that will be
used to recognise the interest expense on the first OID loan going forward is 14.8%.
23 of 42
73
Prometic Life Sciences Inc. PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2017 and 2016
(In thousands of Canadian dollars)
In May 2016, the holder of the long-term debt used the set off of principal right under the loan agreements, to settle the amounts
due to the Corporation following its participation in a private placement for 1,921,776 common shares which occurred
concurrently with the closing of a public offering of common shares, on May 25, 2016.
As a result, the face value of the second OID loan was reduced by $5,958, from $31,306 to $25,348. The reduction of $5,958 is
equivalent to the value of the shares issued at the agreed price of $3.10 concluded in connection with the private placement.
This transaction was accounted for as an extinguishment of a portion of the OID loan and the difference between the adjustment
to the carrying value of the loan of $3,200 and the amount recorded for the shares issued of $5,785 was recorded as a loss on
extinguishment of a loan of $2,585. The shares were recorded at fair value, determined using the closing price of $3.01 on the
date of issue May 25, 2016, resulting in a value of the shares issued of $5,785.
On October 31, 2016, concurrently with the closing of the Telesta acquisition, the Corporation entered into a private placement
agreement with the holder of the long-term debt for 1,401,632 common shares. The holder of the long-term debt has used the
set off of principal rights under the loan agreements, to settle the amounts due to the Corporation following its participation in
the private placement.
As a result, the face value of the second OID loan was reduced by $4,176, from $25,348 to $21,172. The reduction of $4,176 is
equivalent to the value of the shares issued at the 5-day VWAP of $2.98 concluded in connection with the private placement.
This transaction was accounted for as an extinguishment of a portion of the OID loan and the difference between the adjustment
to the carrying value of the loan of $2,343 and the amount recorded for the shares issued of $3,953 was recorded as a loss on
extinguishment of a loan of $1,609. The shares were recorded at fair value, determined using the closing price of $2.82 on the
date of issue October 31, 2016, resulting in a value of the shares issued of $3,953.
15. Operating and finance lease inducements and obligations
December 31,
2017
December 31,
2016
Finance lease obligations
Deferred operating lease inducements and obligations
Less current portion of operating and finance lease inducements and obligations
$
$
$
972
4,402
5,374
(3,301)
2,073
The following table presents the future minimum finance lease payments as of December 31, 2017:
Future minimum lease payments
Less future finance costs
Finance lease obligation
Within 1 year
2 - 5 years
$
$
338
(73)
265
$
$
783
(76)
707
$
$
$
$
$
-
2,011
2,011
(1,004)
1,007
Total
1,121
(149)
972
74
24 of 42
Prometic Life Sciences Inc.Financial Statements PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2017 and 2016
(In thousands of Canadian dollars)
16. Other long-term liabilities
Settlement fee payable (a)
Royalty payment obligation (b)
Other employee benefit liabilities
Other long-term liabilities
Less:
Current portion of settlement fee payable (note 12)
Current portion of royalty payment obligation (note 12)
Current portion of employee benefit liabilities (note 12)
a)
Settlement of litigation
December 31,
2017
December 31,
2016
$
$
$
$
$
190
2,963
593
70
3,816
(102)
-
(379)
3,335
$
270
3,100
914
118
4,402
-
(577)
(379)
3,446
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 Canadian issued patents held by a third party plaintiff, GE Healthcare Biosciences AB
(“GE”). The Corporation filed a statement of defence on the infringement claims, in addition to a counterclaim requesting that
the Court declare both patents invalid and unenforceable.
The Corporation and GE entered into a settlement and license agreement on October 25, 2016 to mutually discontinue all past
claims and counterclaims between the parties and to commercialize the underlying technologies over the term of the license,
which shall not extend, on a country-by-country basis, beyond October 2021 (the “Term”). Under the agreement, Prometic shall
pay GE an aggregate amount of $1,000 between October 25, 2016 and October 25, 2020 in consideration thereof, Minimum
Annual Royalty (“MAR”) payments totaling $587 over the Term and a 2% net sales royalty on sales of certain Prometic
bioseparation products to third parties and affiliates during the Term; the royalties being creditable against the MAR. The net
sales royalty expense will be recorded as such product sales are recognized.
As a result, the Corporation recorded an expense of $913 representing the present value of the $1,000 settlement fee determined
using an effective interest rate of 15.8%, under administration expenses in the consolidated statement of operations for the year
ended December 31, 2016.
b)
Royalty payment obligation
On December 16, 2016, the Corporation and one of its licensee’s modified the terms of a license agreement entered into by the
parties. As a result, the Corporation reacquired the rights initially granted in the license agreement, to a 50% share of the
worldwide profits pertaining to the sale of plasminogen for the treatment of plasminogen congenital deficiency (the “Reacquired
Right”). As consideration for the Reacquired Right, the Corporation issued 1,683,040 common shares (note 17a), accepted to
forego the payment of an outstanding receivable balance of $1,334 and agreed to make royalty payments on the sales of
plasminogen for congenital deficiency, using a rate of 5% up to a total of US$2,500,000. If by December 31, 2020 the full royalty
obligation has not been paid, the unpaid balance will become due. The Corporation recognized a royalty payment obligation of
$3,100 in the consolidated statement of financial position at December 31, 2016, representing the discounted value of the
expected royalty payments to be made until December 31, 2020, using a discount rate of 9.2%. The aggregate value of the
consideration given of $7,059 was recognized as an addition to intangible assets.
25 of 42
75
Prometic Life Sciences Inc. PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2017 and 2016
(In thousands of Canadian dollars)
17. Share capital and other equity instruments
a) Share capital
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 common shares
Share purchase loan to an officer
Issued and fully paid common shares
December 31, 2017
December 31, 2016
Number
710,593,273
-
710,593,273
$
$
Amount
575,550
(400)
575,150
Number
623,229,331
-
623,229,331
$
$
Amount
480,637
(400)
480,237
In February 2016, $50 of the principal amount of the share purchase loan to an officer was reimbursed together with $55 in
interest receivable. As a result, the principal amount of the loan was reduced to $400. In March 2016, the maturity date of the
loan was amended to the earlier of (i) March 31, 2019 or (ii) 30 days preceding a targeted NASDAQ or NYSE listing date of
Prometic’s shares. The share purchase loan bears interest at prime plus 1%.
Changes in the issued and outstanding common shares during the years ended December 31, 2017 and 2016 were as follows:
2017
Number
Amount
Number
Balance - beginning of year
Issued for cash
Issued in consideration of loan extinguishment (note 14)
Exercise of future investment rights (note 17c)
Exercise of stock options (note 17b)
Shares issued under restricted share units plan (note 17b)
Issued in relation to the business combination (note 5)
Issued in consideration of reaquired rights (note 16b)
Reimbursement of share purchase loan to an officer
$
623,229,331
31,250,000
5,045,369
44,791,488
3,086,203
3,190,882
-
-
-
Balance - end of year
710,593,273
$
480,237
53,125
8,325
27,594
811
5,058
-
-
-
575,150
2016
$
581,930,868
19,400,000
3,323,408
-
2,022,590
611,212
14,258,213
1,683,040
-
623,229,331
$
Amount
365,540
60,140
9,737
-
979
957
40,208
2,626
50
480,237
2017
On July 6, 2017, the Corporation issued 31,250,000 common shares following a bought deal public offering for gross proceeds
of $53,125. The underwriters received a cash commission of 6% of the gross proceeds of the offering. Concurrently with the
bought deal public offering, the Corporation concluded a private placement with the holder of the long-term debt. Using the rights
conveyed under the loan agreement, the holder of the long-term debt elected to extinguish a portion of the face value of the third
OID loan as consideration for the 5,045,369 shares issued (note 14). The aggregate issuance costs related to these issuances,
including the commission, in the amount of $3,878, were recorded against the deficit during the year ended December 31, 2017.
2016
On May 25, 2016, the Corporation issued 19,400,000 common shares following a bought deal public offering for gross proceeds
of $60,140. The underwriters received a cash commission of 5% of the gross proceeds of the offering. Concurrently with the
bought deal public offering, the Corporation concluded a private placement with the holder of the long-term debt. Using the rights
conveyed under the loan agreement, the holder of the long-term debt elected to extinguish a portion of the face value of the
second OID loan as consideration for the 1,921,776 shares issued (note 14). The aggregate issuance costs related to these
issuances, including the underwriters’ commission, in the amount of $3,549, were recorded against the deficit during the year
ended December 31, 2016.
On October 31, 2016, the Corporation issued 14,258,213 common shares having a fair value of $40,208 to acquire Telesta
(note 5). Concurrently with the share issuance, the Corporation concluded a private placement with the holder of the long-term
76
26 of 42
Prometic Life Sciences Inc.Financial Statements PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2017 and 2016
(In thousands of Canadian dollars)
debt. Using the rights conveyed under the loan agreement, the holder of the long-term debt elected to extinguish a portion of
the face value of the second OID loan as a consideration for the 1,401,632 common shares issued (note 14). The aggregate
issuance costs related to the shares of $93 were recorded against the deficit during the year ended December 31, 2016.
On December 16, 2016, the Corporation issued 1,683,040 common shares having a fair value of $2,626 as part of the
consideration given to reacquire a right from a licensee (note 16b). The aggregate issuance cost related to the shares of $13
were recorded against the deficit during the year ended December 31, 2016.
b) Contributed surplus (share-based payments)
Stock options
The Corporation has established a stock option plan for its directors, officers, 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 33,434,585
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 stock options issued under the plan may be exercised over a period not
exceeding ten years from the date they were granted. The vesting period of the stock options varies from immediate vesting to
vesting over a period not exceeding 5 years. In some circumstances, the vesting of stock options may be 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.
Changes in the number of stock options outstanding during the years ended December 31, 2017 and 2016 were as follows:
Balance - beginning of year
Granted
Forfeited
Exercised
Expired
Balance - end of year
2017
$
Number
14,372,640
3,809,870
(630,037)
(3,086,203)
(3,000)
14,463,270
$
Weighted
average
exercise price
1.41
1.99
2.53
0.16
0.12
1.79
2016
$
Number
13,513,736
3,024,100
(140,106)
(2,022,590)
(2,500)
14,372,640
$
Weighted
average
exercise price
0.92
2.91
2.27
0.31
0.13
1.41
During the year ended December 31, 2017, 177,050 and 3,632,820 options having a contractual term of five and ten years
respectively were granted. All other outstanding options have a contractual term of five years.
During the year ended December 31, 2017, 3,086,203 options were exercised resulting in cash proceeds of $481 and a transfer
from contributed surplus to share capital of $330. The weighted average share price on the date of exercise of the options during
the year ended December 31, 2017 was $1.71.
During the year ended December 31, 2016, 2,022,590 stock options were exercised resulting in cash proceeds of $625 and a
transfer from contributed surplus to share capital of $354. The weighted average share price on the date of exercise of the stock
options during the year ended December 31, 2016 was $2.75.
27 of 42
77
Prometic Life Sciences Inc. PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2017 and 2016
(In thousands of Canadian dollars)
At December 31, 2017, stock options issued and outstanding by range of exercise price are as follows:
Range of
exercise price
$0.34 - $0.88
$1.10 - $2.02
$2.07 - $2.44
$2.55 - $3.19
Number
outstanding
3,052,624
2,920,861
5,770,981
2,718,804
14,463,270
Weighted average
remaining
contractual life
(in years)
Weighted
average
exercise price
0.4
2.9
6.1
3.4
3.7
$
$
0.38
1.27
2.23
2.98
1.79
Number
exercisable
$
3,052,624
1,881,217
2,041,493
1,203,016
8,178,350
$
Weighted
average
exercise price
0.38
1.19
2.35
2.98
1.44
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 during the year ended December 31, 2017 and
2016 were as follows:
Expected dividend rate
Expected volatility of share price
Risk-free interest rate
Expected life in years
Weighted average grant date fair value
2017
-
61.8%
1.2%
6.8
$ 1.19
2016
-
63.3%
0.7%
3.8
$ 1.36
The expected volatility was 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 between 3.4% to 5.5%
(between 2.8% and 4.6% in 2016) of the unvested stock options will be forfeited annually over the service period.
A share-based payment compensation expense of $3,436 was recorded for the stock options for the year ended
December 31, 2017 ($2,871 for the year ended December 31, 2016).
Restricted share units
The Corporation has established an equity-settled restricted share units 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. The vesting conditions are established by the Board of Directors on the grant date and must generally
be met within 3 years. Each vested RSU gives the right to receive a common share.
During 2017, the Board decided to replace 1,220,623 of the expired RSU with an equivalent number of RSU keeping the same
vesting conditions but extending the evaluation period for the attainment of the objectives by one year to December 31, 2017.
The replacement RSU were issued on April 11, 2017. This transaction was accounted for as a modification of the existing RSU
that did not have an impact on the value of the RSU.
The RSU granted prior to the grant on November 24, 2017 vest upon achievement of various corporate and commercial
objectives and the underlying shares become available for issuance once the RSU are vested. On November 24, 2017, the
Corporation granted 6,228,456 RSU to management (the “2017-2019 RSU”), the time period to meet the vesting conditions goes
until December 31, 2019. The grant included 1,132,448 units that vest at a rate of 33.3% at the end of each year and become
available for release at the time of vesting, and 5,096,008 units that have performance-based conditions with a scaling payout
depending on performance. These 2017-2019 performance based RSU will only vest at the end of 2019 if individual RSU
objectives are met and if the participant is still at the employ of the Corporation at that time.
Changes in the number of RSU outstanding during the years ended December 31, 2017 and 2016 are presented in the following
table. The units granted represent the maximum payout based on achievement of all objectives.
78
28 of 42
Prometic Life Sciences Inc.Financial Statements PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2017 and 2016
(In thousands of Canadian dollars)
Balance - beginning of year
Granted
Expired
Forfeited
Released
Balance - end of year
2017
9,999,251
7,449,079
(3,157,311)
(538,854)
(3,190,882)
10,561,283
2016
7,869,117
2,741,346
-
-
(611,212)
9,999,251
The grant date fair value of a 2017-2019 RSU is $1.42 (2016-2018 RSU is $2.87). A share-based payment compensation
expense of $5,226 was recorded during the year ended December 31, 2017 ($3,992 for the year ended December 31, 2016).
At December 31, 2017, there were 1,895,224 vested RSU outstanding (1,214,479 at December 31, 2016) and 8,666,059
unvested RSU outstanding (8,784,772 at December 31, 2016).
Share-based payment expense
The total share-based payment expense has been included in the consolidated statements of operations for the years ended
December 31, 2017 and 2016 as indicated in the following table:
Cost of sales and production
Research and development expenses
Administration, selling and marketing expenses
c) Warrants and future investment rights
$
$
2017
71
1,280
1,220
2,571
$
$
2016
151
1,819
1,894
3,864
$
$
2017
370
4,150
4,142
8,662
$
$
2016
261
3,052
3,550
6,863
The warrants and future investment rights issued by the Corporation provide essentially the same rights to the holders. The
following table summarizes the changes in the number of warrants and rights outstanding during the years ended
December 31, 2017 and 2016:
Balance of warrants and rights - beginning of year
Warrants issued for cash
Warrants issued in relation to the business combination (note 5)
Exercise of future investment rights
Balance of warrants and rights - end of year
Balance of warrants and rights exercisable - end of year
2017
2016
Number
101,863,180
64,600,407
-
(44,791,488)
121,672,099
87,672,099
$
$
$
Weighted
average
exercise price
1.44
2.03
-
0.47
2.11
2.27
Number
89,791,890
11,793,380
277,910
-
101,863,180
101,863,180
$
$
$
Weighted
average
exercise price
1.00
4.70
6.39
-
1.44
1.44
2017
On February 3, 2017, all of the 44,791,488 future investment rights were exercised resulting in cash proceeds of $21,052 and a
transfer from warrants and future investment rights to share capital of $6,542.
On April 27, 2017, pursuant to a financing for total proceeds of $25,010, the Corporation issued additional debt and the Sixth
Warrants to the holder of the long-term debt. Further details concerning the debt issued are provided in note 14. The Sixth
Warrants consist of 10,600,407 warrants, each giving the holder the right to acquire one common share at an exercise price of
$3.70, paid either in cash or in consideration of the lender’s cancellation of an equivalent amount of the face value of an OID
loan. The warrants expire on October 26, 2023. The value of the proceeds attributed to the warrants of $6,463 was recorded in
warrants and future investment rights. The issuance cost related to the warrants, in the amount of $145, has been recorded
against the deficit.
29 of 42
79
Prometic Life Sciences Inc. PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2017 and 2016
(In thousands of Canadian dollars)
On November 30, 2017, pursuant to entering into a non-revolving credit facility agreement, the Corporation issued the Seventh
Warrants to the holder of the long-term debt. Further details concerning the credit facility are provided in note 14. The Seventh
Warrants consist of 54 million warrants from which 10 million warrants were exercisable as of the date of the agreement and the
remaining 44 million warrants become exercisable as and if the Corporation draws upon the credit facility in increments of
US$10,000,000; five million warrants become exercisable for each US$10,000,000 drawn on the first US$40,000,000 tranche
of the credit facility and six million warrants become exercisable for each US$10,000,000 drawn on the second US$40,000,000
tranche of the credit facility. Each warrant gives the holder the right to acquire one common share at an exercise price of $1.70.
The warrants expire on June 30, 2026. Although the warrants are issued and outstanding in the warrant table above, for
accounting purposes, these warrants will be recognized and measured at the time they become exercisable.
The amount of each US$10,000,000 drawdown on the non-revolving credit facility is allocated to the debt and the warrants
based on their fair value at the time of the drawdown. The initial 10 million warrants exercisable upon signature of the agreement
were valued at $5,214 and were recognized as a deferred financing costs with the offsetting entry in equity. The Corporation
drew on the facility on November 30, 2017 and on December 14, 2017 and the value of the proceeds attributed to the warrants
was $2,363 and $2,245 respectively, which was recorded in equity. Issuance cost related to the issuance of the Seventh
Warrants, in the amount of $125, have been recorded against the deficit.
2016
On February 29, 2016, pursuant to an additional financing for total proceeds of $30,010, the Corporation issued additional debt
and the Fifth Warrants to the holder of the long-term debt. Further details concerning the debt issued are provided in note 14.
The Fifth Warrants consist of 11,793,380 warrants, each giving the holder the right to acquire one common share at an exercise
price of $4.70, paid either in cash or in consideration of the lender’s cancellation of an equivalent amount of the face value of an
OID loan. The warrants expire on July 31, 2022. The value of the proceeds attributed to the warrants of $10,418 was recorded
in warrants and future investment rights.
On October 31, 2016, the Corporation issued 277,910 warrants in replacement of the Telesta warrants and in connection with
the business combination of Telesta (note 5). The warrants have an exercise price of $6.39 and expire on September 23, 2019.
The aggregate issuance cost related to the warrants, in the amount of $167, has been recorded against the deficit.
As at December 31, 2017, the following warrants and future investment rights, classified as equity, to acquire shares were
outstanding:
Number
277,910
1,000,000
20,276,595
16,723,807
7,000,000
11,793,380
10,600,407
54,000,000
121,672,099
Expiry date
Exercise price
September 2019
September 2021
September 2021
July 2022
July 2022
July 2022
October 2023
June 2026
$
$
6.39
0.52
0.77
1.87
3.00
4.70
3.70
1.70
2.11
18. Non-controlling interests
The shares of three of the Corporation’s subsidiaries are partially held by non-controlling interests. The subsidiaries are Prometic
Bioproduction Inc. (PBP), Pathogen Removal and Diagnostic Technologies Inc. (PRDT) and NantPro. The Corporation held on
December 31, 2017 and 2016, 87.0%, 77.0% and 73.0% of the ownership interests respectively.
80
30 of 42
Prometic Life Sciences Inc.Financial Statements PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2017 and 2016
(In thousands of Canadian dollars)
Summarized financial information for PBP, PRDT and NantPro, for the years ended December 31, 2017 and 2016 is provided
in the following tables. This information is based on amounts before inter-company eliminations.
2017
Summarized statements of financial position
Investment tax credits receivables, inventories and other current assets
Capital and intangible assets (long-term)
Trade and other payables (current)
Intercompany loans and lease inducements and obligations (long-term)
Total equity
Attributable to non-controlling interests
Summarized statements of operations
Revenues or services rendered to other members of the group
Cost of sales and production
Research and development expenses
Adminstration and other expenses
Net loss and comprehensive loss
Attributable to non-controlling interests
$
$
$
$
$
$
PBP
13,250
20,427
(6,965)
(120,789)
(94,077)
(10,722)
PBP
3,712
(1,635)
(34,027)
(4,587)
(36,537)
(4,750)
$
$
$
$
$
$
PRDT
-
398
(417)
(15,003)
(15,022)
(5,901)
PRDT
181
-
(335)
(957)
(1,111)
(779)
$
$
$
$
$
$
NantPro
-
141,025
-
-
141,025
38,070
NantPro
-
-
(17,482)
(210)
(17,692)
(4,776)
During the year ended December 31, 2017, PBP used $24,394 and $3,544 in cash for its operating and investing activities
respectively and received $28,200 from financing activities.
2016
Summarized statements of financial position
Investment tax credits receivables and other current assets
Capital and intangible assets (long-term)
Trade and other payables (current)
Intercompany loans (long-term)
Total equity
Attributable to non-controlling interests
Summarized statements of operations
Revenues or services rendered to other members of the group
Research and development expenses
Adminstration and other expenses
Net loss and comprehensive loss
Attributable to non-controlling interests
$
$
$
$
$
$
PBP
7,464
18,624
(4,925)
(78,703)
(57,540)
(5,972)
PBP
5,440
(34,698)
(2,936)
(32,194)
(4,185)
$
$
$
$
$
$
PRDT
-
566
(374)
(13,801)
(13,609)
(5,122)
PRDT
126
(234)
(1,009)
(1,117)
(813)
$
$
$
$
$
$
NantPro
-
141,025
-
-
141,025
38,070
NantPro
-
(17,897)
(119)
(18,016)
(4,864)
During the year ended December 31, 2016, PBP used $25,962 and $9,653 in cash for its operating and investing activities
respectively and received $35,602 from financing activities.
31 of 42
81
Prometic Life Sciences Inc. PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2017 and 2016
(In thousands of Canadian dollars)
The losses allocated to the non-controlling interests and the carrying amount of the non-controlling interest on the consolidated
statement of financial position, per subsidiary are as follows:
Consolidated statements of financial position :
Prometic Bioproduction Inc.
Pathogen Removal and Diagnostic Technologies Inc.
NantPro Biosciences, LLC
Total non-controlling interests
Consolidated statements of operations :
Prometic Bioproduction Inc.
Pathogen Removal and Diagnostic Technologies Inc.
NantPro Biosciences, LLC
Total non-controlling interests
$
$
19. Capital disclosures
Finance lease obligations
Long-term debt
Total equity
Cash and cash equivalents
Marketable securities and short-term investments
Total Capital
$
$
$
2017
(10,722)
(5,901)
38,070
21,447
2017
(4,750)
(779)
(4,776)
$
$
$
2017
$
(2,510)
(96)
(2,969)
2016
(2,885)
(105)
(2,216)
(5,575)
$
(5,206)
$
(10,305)
$
$
$
$
2017
972
87,020
143,431
(23,166)
-
208,257
$
2016
(5,972)
(5,122)
38,070
26,976
2016
(4,185)
(813)
(4,864)
(9,862)
2016
-
48,115
159,343
(27,806)
(11,063)
168,589
The Corporation’s objective in managing capital is to ensure sufficient liquidity to finance its research and development activities,
administration, selling and marketing expenses, working capital and overall expenditures on capital and intangible assets. 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 14) and the Corporation’s overall strategy
with respect to capital risk management remains unchanged from the year ended December 31, 2016.
20. Revenues
Revenues from the sale of goods
Milestone and licensing revenues
Revenues from the rendering of services
Rental revenue
$
$
2017
5,479
-
880
237
6,596
$
$
2016
3,291
-
691
129
4,111
$
$
$
2017
16,461
19,724
1,930
1,000
39,115
$
2016
12,892
-
3,371
129
16,392
In August 2017, the Corporation entered into a licensing agreement with a third-party in China and as a result, milestone and
licensing revenues of $19,724 were recorded during the third quarter of 2017. The third party having not remitted funds
associated with the license fee and initial milestone payment within the specified payment terms was consequently in breach of
the agreement. As a result, the Corporation was in a position to exercise its contractual rights and opted to terminate the
agreement in March 2018 thereby returning all the rights previously conferred under the license agreement back to Prometic.
The Corporation has written-off the accounts receivable to bad debt expense as at December 31, 2017 (see note 29b).
82
32 of 42
Prometic Life Sciences Inc.Financial Statements PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2017 and 2016
(In thousands of Canadian dollars)
21.
Information included in the consolidated statements of operations
Year ended December 31,
2017
2016
a) Government assistance included in research and development
Gross research and development expenses
Research and development tax credits
b) Finance costs
Interest on long-term debt
Amortization of fees for line of credit
Other interest expense, transaction and bank fees
Interest income
c) Wages and salaries
Wages and salaries
Employer's benefits
Share-based payments expense
Total employee benefit expense
22. Pension plan
$
$
$
$
$
$
$
$
$
101,946
(1,554)
100,392
7,686
208
384
(313)
7,965
$
44,211
8,556
8,662
61,429
$
$
88,863
(1,248)
87,615
4,781
-
109
(363)
4,527
36,191
6,766
6,863
49,820
The Corporation maintains a defined contribution pension plan for its permanent employees. The Corporation matches the
contributions made by employees who elect to participate in the plan up to a maximum percentage of their annual salary. The
Corporation’s contributions recognized as an expense for the year ended December 31, 2017 amounted to $1,596 ($1,154 for
the year ended December 31, 2016).
23. Government assistance
The Corporation has received government grants from the Isle of Man Government relating 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 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%.
If the Corporation were to cease operations in the Isle of Man as December 31, 2017, it would be required to repay $1,787 in
relation to grants received in the past amounting to $1,888. No provision has been made in these consolidated financial
statements for any future repayment relating to the grants received.
33 of 42
83
Prometic Life Sciences Inc. PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2017 and 2016
(In thousands of Canadian dollars)
24.
Income taxes
The income tax recovery reported in the consolidated statement of operations for the years ended December 31, 2017 and 2016
are as follows:
Current income taxes
Deferred income taxes
$
$
2017
(3,165)
(11,587)
(14,752)
$
$
2016
(418)
(6,220)
(6,638)
The following table provides a reconciliation of the income tax recovery calculated at the combined statutory income tax rate to
the income tax recovery recognized in the consolidated statements of operations:
Net loss before income taxes
Combined Canadian statutory income tax rate
Income tax at combined income tax rate
Increase (decrease) 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 or taxable items
Change in tax rate
Recognition of previous years unrecognized deferred tax assets
Research and development tax credit
Foreign witholding tax
Other
$
2017
$
(134,788)
26.8%
(36,123)
2016
(117,307)
26.9%
(31,556)
35,568
(2,513)
(1,132)
(6,175)
(1,221)
(4,193)
1,039
(2)
$
(14,752)
$
23,499
(2,988)
2,962
2,107
(242)
(420)
-
-
(6,638)
The following table presents the nature of the deferred tax assets and liabilities that make up the deferred tax assets and deferred
tax liabilities balance at December 31, 2017 and 2016.
Intangible assets R&D expenses
As at January 1, 2016
Charged (credited) to profit or loss
Charged (credited) to profit and loss (foreign exchange)
As at December 31, 2016
Deferred tax liabilities
Charged (credited) to profit and loss
Charged (credited) to profit and loss (foreign exchange)
As at December 31, 2017
Comprised of the following :
Deferred tax assets
Deferred tax liabilities
$
$
$
$
40,607
83
-
40,690
(13,209)
-
27,481
-
27,481
$
$
$
$
-
(97)
-
(97)
(841)
-
(938)
(938)
-
$
$
$
$
Losses
(9,192)
(6,491)
257
(15,426)
2,582
684
(12,160)
(9)
(12,151)
$
$
$
$
Other
(257) $
285
-
28
(7)
-
21
21
-
$
$
$
Total
31,158
(6,220)
257
25,195
(11,475)
684
14,404
(926)
15,330
84
34 of 42
Prometic Life Sciences Inc.Financial Statements PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2017 and 2016
(In thousands of Canadian dollars)
Available temporary differences not recognized at December 31, 2017 and 2016 are as follows:
Tax losses (non-capital)
Tax losses (capital)
Unused research and development expenses
Undeducted financing expenses
Interest expenses carried forward
Trade and other payable
Capital assets
Intangible assets
Start-up expense
Unrealized loss (gain) on exchange rate
Other
$
$
2017
280,002
33,962
72,636
17,894
8,176
1,141
580
95,980
3,952
413
241
$
514,977
$
2016
278,197
34,053
130,443
10,770
7,316
1,631
804
103,963
4,434
-
379
571,990
At December 31, 2017, the Corporation has non-capital losses of $361,914 of which $280,002 are available to reduce future
taxable income for which the benefits have not been recognized. These losses expire at various dates from 2022 to 2037 (except
for the non-capital losses in the United Kingdom which do not expire). The Corporation has capital losses of $33,962 that are
available to reduce future taxable income for which the benefits have not been recognized. These tax attributes can be carried
forward indefinitely. At December 31, 2017, the Corporation also has unused research and development expenses of $76,415
of which $72,636 are available to reduce future taxable income for which the benefits have not been recognized.
At December 31, 2017, the Corporation also had unused federal tax credits available to reduce future income tax in the amount
of $18,672 expiring between 2022 and 2037. Those credits have not been recorded and no deferred income tax assets have
been recognized in respect to those tax credits.
The unused non-capital losses expire as indicated in the table below:
At December 31, 2017
Losses carried forward expiring in:
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
$
Canada
Federal
Provincial
Foreign
Countries
$
-
-
-
-
-
-
3,510
-
76
977
855
4,089
8,761
9,314
30,186
42,650
$
-
-
-
-
-
-
3,495
-
76
977
855
4,023
8,261
10,826
22,668
42,649
1,551
2,521
3,390
2,649
2,547
9,511
9,940
3,951
9,274
8,982
1,517
2,063
12,808
26,906
40,166
49,542
$
100,418
$
93,830
$
187,318
As at December 31, 2017, the Corporation and its subsidiaries have tax losses which arose in the United Kingdom of $74,178
that are available to reduce future taxable income for which the benefits have not been recognized. These tax attributes can be
carried forward indefinitely.
35 of 42
85
Prometic Life Sciences Inc. PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2017 and 2016
(In thousands of Canadian dollars)
25. Segmented information
The Corporation’s three operating segments are Bioseparations, Plasma-derived therapeutics and Small molecule therapeutics
(see note 4c – change in accounting policies).
Bioseparations: The segment develops and manufactures Prometic’s core bioseparation technologies and products. Its
proprietary affinity absorbents and Mimetic LigandTM purification platform are used by pharmaceutical and medical companies
worldwide and for its own extraction and purification manufacturing processes.
Plasma-derived therapeutics: The segment develops manufacturing processes, based on Prometic’s own affinity technology, to
provide efficient extraction and purification of therapeutic proteins from human plasma, the Plasma Protein Purification System
(PPPSTM), a multi-product sequential purification process. This technology is key for extracting proteins, which Prometic plans
to commercialize with an emphasis on therapeutic products targeting orphan and rare diseases.
Small molecule therapeutics: The segment is a small molecule drug discovery and development business. It has lead
compounds, namely PBI-4050 which targets unmet medical needs such as the treatment of idiopathic pulmonary fibrosis (“IPF”),
Alström syndrome as well as other fibrotic indications. The operating segment is also working on multiple follow-on drugs such
as PBI-4547 and PBI-4425 at the pre-clinical stage.
The reconciliation to the statement of operations column includes the elimination of intercompany transactions between the
segments and the remaining activities not included in the above segments. These expenses generally pertain to public entity
reporting obligations, investor relations, financing and other corporate office activities.
The accounting policies of the segments are the same as the accounting policies of the Corporation. The operating segments
results include intercompany transactions between the segments which are done in a manner similar to transactions with third
parties.
a) Revenues and expenses by operating segments
For the year ended December 31, 2017
External revenues
Intersegment revenues
Total revenues
Cost of sales and production
R&D - Manufacturing cost of therapeutics
to be used in clinical trials
R&D - Other expenses
Administration, selling and marketing expenses
Bad debt expense
Segment profit (loss)
Gain on foreign exchange
Finance costs
Loss on extinguishment of liabilities
Net loss before income taxes
Other information
Depreciation and amortization
Share-based payment expense
86
$
$
Bioseparations
$
16,802 $
Plasma-derived
therapeutics
Small
molecule
therapeutics
Reconciliation
to statement
of operations
1,566
18,368
7,877
-
7,301
2,719
-
471 $
2,490 $
39
2,529
4,014
32,766
40,958
13,539
-
(88,748) $
19,724 $
-
19,724
-
1,755
17,426
3,633
20,491
(23,581) $
907 $
394
2,880 $
2,269
428 $
1,509
Total
39,115
-
39,115
10,149
34,098
66,294
31,441
20,491
(123,358)
(726)
7,965
4,191
(134,788)
4,576
8,662
99 $
(1,605)
(1,506)
(1,742)
(423)
609
11,550
-
(11,500) $
$
361 $
4,490
36 of 42
Prometic Life Sciences Inc.Financial Statements PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2017 and 2016
(In thousands of Canadian dollars)
For the year ended December 31, 2016 (restated)
Bioseparations
$
13,725 $
External revenues
Intersegment revenues
Total revenues
Cost of sales and production
R&D - Manufacturing cost of therapeutics
to be used in clinical trials
R&D - Other expenses
Administration, selling and marketing expenses
Bad debt expense
Segment loss
Loss on foreign exchange
Finance costs
Loss on extinguishment of liabilities
Net loss before income taxes
Other information
Depreciation and amortization
Share-based payment expense
Information by geographic area
$
$
Plasma-derived
therapeutics
Small
molecule
therapeutics
Reconciliation
to statement
of operations
2,538 $
184
2,722
1,435
32,759
34,852
6,788
837
(73,949) $
- $
-
-
-
894
13,338
3,310
-
129 $
(2,594)
(2,465)
(1,890)
(477)
(87)
15,099
-
(17,542) $
(15,110) $
2,410
16,135
8,087
-
6,336
3,274
-
(1,562) $
898 $
276
1,801 $
1,345
352 $
1,316
b) Capital and intangible assets by geographic area
Canada
United States
United Kingdom
c) Revenues by location
China
Switzerland
Netherlands
Korea
Canada
Austria
United States
United Kingdom
Other countries
$
2017
19,724
3,723
724
$
1,144
1,392
869
25
392
$
27,993
$
2016
-
2,713
588
1,307
90
1,988
450
756
7,892
$
$
$
Total
16,392
-
16,392
7,632
33,176
54,439
28,471
837
(108,163)
423
4,527
4,194
(117,307)
3,250
6,863
2016
32,624
153,630
10,426
196,680
2016
200
7,967
965
40
1,636
133
3,038
1,059
1,354
$
199 $
3,926
$
$
$
2017
33,979
155,034
12,888
201,901
2017
19,724
7,411
2,722
2,637
2,482
1,439
1,075
843
782
$
39,115
$
16,392
Revenues are attributed to countries based on the location of customers.
The Corporation derives significant revenues from certain customers. During the year ended December 31, 2017, there was one
customer in the Small molecule therapeutics segment that accounted for 50% of total revenues and two customers in the
Bioseparations segment that accounted for 27% (20% and 7% respectively) of total revenues. For the year ended December 31,
2016, there was one customer who accounted for 51% of total revenues in the Bioseparations segment.
26. 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
37 of 42
87
Prometic Life Sciences Inc. PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2017 and 2016
(In thousands of Canadian dollars)
parties are disclosed below and in other notes accordingly to the nature of the transactions. These transactions have been
recorded at the exchange amount, meaning the amount agreed to between the parties.
During the year ended December 31, 2017, interest revenues earned on the share purchase loan to an officer (note 17a) in the
amount of $16 ($15 for the year ended December 31, 2016) were recorded and included in other receivables. At
December 31, 2017, there was $12 in interest receivable on the share purchase loan to an officer ($13 at December 31, 2016).
27. Compensation of key management personnel
The Corporation’s key management personnel comprises the external directors, officers and executives which included 24
individuals in 2017 and 23 individuals in 2016. The remuneration of the key management personnel during the years ended
December 31, 2017 and 2016 was as follows:
Current employee benefits1)
Pension costs
Share-based payments
$
$
2017
7,750
293
6,515
14,558
$
$
2016
6,760
278
5,330
12,368
1) Short-term employee benefits include director fees paid in cash, salaries, bonuses and the cost of other employee benefits.
28. Commitments
CMO Lease
The Corporation signed a long-term manufacturing contract with a third party which provides the Corporation with additional
manufacturing capacity (“the CMO contract”). The payments under the CMO contract cover the use of the production facility, a
specified number of direct and indirect labour hours and the related overhead expense during a minimum of 20 weeks per year,
over a 15-year term. The term of the agreement will be automatically extended after the initial term for successive terms of five
years, unless a notification of termination is produced by one of the parties. The annual minimum payments under the agreement
are subject to escalation annually calculated as the greatest of 3% or the Industrial Product Price / Pharmaceutical and Medicine
Manufacturing index under the North American Industry Classification System. The annual payments are also subject to an
adjustment calculated as 50% of the exchange rate between the U.S. dollar and the Canadian dollar at December 31st of each
year.
The following table represent the future minimum operating lease payment as of December 31, 2017:
Future minimum operating lease payment
$
3,468
$
14,945
$
32,291
$
Within 1 year
2 - 5 years
Later than
5 years
Total
50,704
The above payments include non-lease elements pertaining to the arrangement as it was impracticable to separate the operating
expenses from the lease payment. The operating lease expense recognised in the consolidated statements of operations for
the CMO contract was $4,707 for the year ended December 31, 2017 ($4,711 for the year ended December 31, 2016), which
includes contingent rent of $727 for the year ended December 31, 2017 ($791 for the year ended December 31, 2016).
Other Leases
The Corporation has total commitments in the amount of $26,680 under various operating leases for the rental of offices,
production plant, laboratory space and office equipment. The payments for the coming years and thereafter are as follows:
88
38 of 42
Prometic Life Sciences Inc.Financial Statements PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2017 and 2016
(In thousands of Canadian dollars)
2018
2019
2020
2021
2022 and thereafter
$
$
3,880
3,212
3,007
3,054
13,527
26,680
The operating lease expense recognised in the consolidated statements of operations was $5,431 for the year ended
December 31, 2017 ($4,373 for the year ended December 31, 2016).
Royalties
In April 2006, the Corporation entered into an agreement with the American Red Cross for an exclusive license to use intellectual
property rights relating to the PPPS. As per the agreement, Prometic could pay a royalty to the American Red Cross in addition
to an annual minimum royalty of US$30,000 to maintain the license.
A company owned by an officer of the Corporation is entitled to receive a royalty of 0.5% on net sales and 3% of license revenues
in regards to certain small-molecule therapeutics commercialized by the Corporation.
In the normal course of business, the Corporation enters into license agreements for the market launching or commercialization
of products. Under these licenses, including the one mentioned above, the Corporation has committed to pay royalties ranging
generally between 1.5% and 15.0% of net sales from products it commercializes.
Other commitments
In connection with the CMO contract, the Corporation has committed to a minimum spending between $7,000 and $9,000 each
year from 2018 to 2030 (the end of the initial term). As of December 31, 2017, the remaining payment commitment under the
CMO contract was $104,700 or $53,996 after deduction of the minimum lease payments under the CMO contract disclosed
above.
The Corporation has entered into multiple plasma purchase agreements whereby it has committed to purchase varying volumes
of plasma until December 31, 2022. As at December 31, 2017, total commitment are as follows:
2018
2019
2020
2021
2022 and thereafter
$
$
19,065
27,376
41,063
27,376
34,220
149,100
29. 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:
39 of 42
89
Prometic Life Sciences Inc. PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2017 and 2016
(In thousands of Canadian dollars)
Financial assets
Cash
Restricted cash
Marketable Securities
Long-term receivables
Financial liabilities
Settlement fee payable
Royalty payment obligation
Other employee benefit liabilities
Long-term debt
2017
Carrying
amount
23,166
226
-
1,943
190
2,963
593
87,020
$
$
Fair
value
23,166
226
-
1,943
305
3,133
911
99,662
$
$
$
$
2016
Carrying
amount
$
19,933
175
2,198
1,821
270
3,100
914
48,115 $
Fair
value
19,933
175
2,198
1,821
272
2,832
911
53,551
The fair value of the long-term debt at December 31, 2017 was calculated using a discounted cashflow model via the market
interest rate specific to the term of the debt instruments ranging from 7.6% to 16.4%. The fair value differs from the carrying
value of the long-term debt of $87,020 which is carried at amortized cost.
The fair value of the advance on revenues from a supply agreement approximates the carrying amount since the loan bears
interest at a fixed rate of interest approximating market rates for this type of advance.
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, restricted cash and marketable securities are considered to be level 1 fair value measurements.
The long-term receivables, settlement fee payable, royalty payment obligation, other employee benefit liabilities, and long-term
debt are level 2 measurements.
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.
90
40 of 42
Prometic Life Sciences Inc.Financial Statements PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2017 and 2016
(In thousands of Canadian dollars)
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 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, 2017 and 2016, the allocation of the trade
receivables based on aging is indicated in the following table:
Current and not impaired
Past due in the following periods:
31 to 60 days
61 to 90 days
91 to 180 days
Over 180 days
Allowance for doubtful accounts
$
$
2017
919
$
876
-
1
782
(782)
1,796
$
2016
1,596
1,212
1
541
827
(837)
3,340
Trade receivables included amounts from two customers which represent approximately 82% (70% and 13% respectively) of
the Corporation’s total trade accounts receivable as at December 31, 2017, and four customers which represent approximately
87% (34%, 22%, 16% and 15% respectively) of the Corporation’s total trade accounts receivable as at December 31, 2016.
In August 2017, the Corporation entered into a licensing agreement with a third-party in China and as a result, milestone and
licensing revenues of $19,724 were recorded during the third quarter. The third party having not remitted funds associated with
the license fee and initial milestone payment within the specified payment terms was consequently in breach of the agreement.
As a result, the corporation was in a position to exercise its contractual rights and opted to terminate the agreement in March
2018 thereby returning all the rights previously conferred under the license agreement back to Prometic. The Corporation has
written-off the accounts receivable of $18,518 to bad debt expense and has reversed the withholding taxes of $1,972 expected
to be paid on this transaction as at December 31, 2017. The difference between the amount of revenue recognized and the bad
debt amount is the withholding taxes that were recorded in deduction of the accounts receivable and the effect of the change in
the CAD/GBP exchange rate on the accounts receivable.
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.
The following table presents the contractual maturities of the financial liabilities as of December 31, 2017.
At December 31, 2017
Accounts payable and accrued liabilities1)
Advance on revenues from a supply agreement
Long-term portion of settlement fee payable
Long-term portion of royalty payment obligation
Long-term portion of other employee benefit liabilities
Long-term debt 2)
Carrying
amount
Payable
within 1 year
2 - 3 years
Later than
4 years
Contractual Cash flows
$
$
26,653
1,901
88
2,963
214
87,020
$
26,653
1,919
-
-
-
5,343
$
-
-
115
3,138
241
28,137
$
-
-
-
-
-
113,469
Total
26,653
1,919
115
3,138
241
146,949
$
118,839
$
33,915
$
31,631
$
113,469
$
179,015
1) Excluding $3,301 for current portion of operating and finance lease inducement and obligations (note 15).
2) Under the terms of the OID loans and the non-revolving line of credit (note 14), the holder of Second, Third, Fourth, Fifth, Sixth and Seventh
Warrants may decide to cancel a portion of the face values of these loans as payment upon the exercise of these warrants. The maximum
repayment due on these loans has been included in the above table.
41 of 42
91
Prometic Life Sciences Inc. Financial Statements
PROMETIC LIFE SCIENCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended on December 31, 2017 and 2016
(In thousands of Canadian dollars)
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.
i) Interest risk
The majority of the Corporation’s debt is at a fixed rate or a fixed amount including interest. Therefore there is limited exposure
to changes in interest payments as a result of interest rate risk.
ii) Foreign exchange risk:
The Corporation is exposed to the financial risk related to the fluctuation of foreign exchange rates. The Corporation operates
in the Isle of Man, the United Kingdom and in the United States and a portion of its expenses incurred are in U.S dollars and in
Great British Pounds (“GBP”). 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 relating to the expenditures. Financial instruments potentially exposing the Corporation to
foreign exchange risk consist principally of cash and cash equivalents, short-term investments, receivables, trade and other
payables, advance on revenues from a supply agreement and the amounts drawn on the non-revolving credit facility. The
Corporation manages foreign exchange risk by holding foreign currencies to support forecasted cash outflows in foreign
currencies.
As at December 31, 2017 and 2016, the Corporation’s net exposure to the GBP was not significant. Its net exposure to currency
risk through assets and liabilities denominated in U.S. dollars was as follows:
Exposure in US dollars
Cash and cash equivalents
Short-term investments
Accounts receivable
Accounts payable and accrued liabilities
Other long-term liabilities
Finance lease obligations
Long-term debt
Net exposure
2017
2016
Amount due
in U.S. dollar
4,813,581
-
605,935
(11,609,837)
(1,051,790)
(774,978)
(20,209,000)
(28,226,089)
Equivalent in
full CDN dollar
6,041,526
-
760,509
(14,571,506)
(1,320,102)
(972,675)
(25,364,316)
(35,426,564)
Amount due
in U.S, dollar
11,597,289
6,260,796
815,417
(8,240,224)
(2,054,433)
-
-
8,378,845
Equivalent in
full CDN dollar
15,571,679
8,406,371
1,094,861
(11,064,149)
(2,758,487)
-
-
11,250,275
Based on the above net exposures as at December 31, 2017, 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 $3,543. The Corporation has not hedged its exposure to currency fluctuations.
30. Comparative information
Certain of the December 31, 2016 figures have been reclassified to conform to the current year’s presentation.
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Prometic Life Sciences Inc.