UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 40-F
(Check One)
[ ] Registration statement pursuant to Section 12 of the Securities Exchange Act of 1934 or
[X] Annual report pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2015
Commission file number 1-36596
TRILLIUM THERAPEUTICS INC.
(Exact name of registrant as specified in its charter)
Ontario, Canada
(Province or other jurisdiction of
incorporation or organization)
2834
(Primary Standard Industrial
Classification Code Number
(if applicable))
Not applicable
(I.R.S. Employer
Identification Number (if applicable))
96 Skyway Avenue, Toronto, Ontario, Canada M9W 4Y9
Telephone: (416) 595-0627
(Address and Telephone Number of Registrant’s Principal Executive Offices)
Puglisi & Associates, 850 Library Avenue, Suite 204, Newark, Delaware 19711
Telephone: (302) 738-6680
(Name, Address (Including Zip Code) and Telephone Number
(Including Area Code) of Agent For Service in the United States)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class
Common Shares
Name of each exchange on which registered
The NASDAQ Stock Market LLC
Securities registered or to be registered pursuant to Section 12(g) of the Act. None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None
For annual reports, indicate by check mark the information filed with this Form:
[X] Annual Information Form
[X] Audited Annual Financial Statements
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
7,796,137 common shares
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
“Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (s.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes [ ] No [ ]
Yes [X] No [ ]
Principal Documents
FORM 40-F
The following documents, filed as Exhibits 99.1, 99.2 and 99.3 to this Annual Report on Form 40-F, are hereby incorporated by reference into this Annual Report
on Form 40-F:
(a)
(b)
(c)
Annual Information Form for the fiscal year ended December 31, 2015;
Management’s Discussion and Analysis for the years ended December 31, 2015 and 2014; and
Audited Consolidated Financial Statements for the years ended December 31, 2015 and 2014, prepared under International Financial Reporting
Standards as issued by the International Accounting Standards Board.
US-1
Certifications and Disclosure Regarding Controls and Procedures.
ADDITIONAL DISCLOSURE
(a)
(b)
Certifications . See Exhibits 99.4, 99.5, 99.6 and 99.7 to this Annual Report on Form 40-F.
Disclosure Controls and Procedures . As of the end of Trillium Therapeutics Inc.’s (“Trillium” or the “Company”) fiscal year ended December 31, 2015, an
evaluation of the effectiveness of Trillium’s “disclosure controls and procedures” (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act) was carried out by the management of Trillium, with the participation of the President and Chief Executive Officer (“CEO”) and the Chief
Financial Officer (“CFO”) of Trillium. Based upon that evaluation, the CEO and CFO have concluded that as of the end of that fiscal year, Trillium’s
disclosure controls and procedures were effective to ensure that information required to be disclosed by Trillium in reports that it files or submits under the
Securities Exchange Act of 1934, as amended, is (i) recorded, processed, summarized and reported within the time periods specified in Securities and
Exchange Commission (the “Commission”) rules and forms and (ii) accumulated and communicated to the management of Trillium, including the CEO
and CFO, to allow timely decisions regarding required disclosure.
It should be noted that while the CEO and CFO believe that Trillium’s disclosure controls and procedures provide a reasonable level of assurance that they
are effective, they do not expect that Trillium’s disclosure controls and procedures or internal control over financial reporting will prevent all errors and
fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control
system are met.
(c)
Management’s Annual Report on Internal Control Over Financial Reporting .
Management is responsible for establishing and maintaining adequate internal control over Trillium’s financial reporting. Trillium’s internal control system
was designed to provide reasonable assurance that all transactions are accurately recorded, that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that Trillium’s assets are safeguarded.
Management has assessed the effectiveness of Trillium’s internal control over financial reporting as at December 31, 2015. In making its assessment,
management used the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) framework in Internal Control – Integrated
Framework (2013) to evaluate the effectiveness of Trillium’s internal control over financial reporting. Based on this assessment, management has
concluded that Trillium’s internal control over financial reporting was effective as of December 31, 2015.
US-2
(d)
Attestation Report of the Registered Public Accounting Firm .
This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over
financial reporting because emerging growth companies are exempt from this requirement for so long as they remain emerging growth companies.
Therefore, management’s report on internal control over financial reporting is not subject to attestation by the Company’s independent registered public
accounting firm.
(e)
Changes in Internal Control Over Financial Reporting . The required disclosure is included under the heading “Disclosure Controls and Internal Controls
Over Financial Reporting” in Trillium’s Management’s Discussion and Analysis for the years ended December 31, 2015 and 2014, filed as Exhibit 99.2 to
this Annual Report on Form 40-F.
Notices Pursuant to Regulation BTR.
None.
Audit Committee Financial Expert.
Trillium’s board of directors has determined that Luke Beshar, a member of Trillium’s audit committee, qualifies as an “audit committee financial expert” (as such
term is defined in Form 40-F) and is “independent” as that term is defined in the rules of the Nasdaq Stock Market.
Code of Business Conduct .
Trillium has adopted a Code of Business Conduct and Ethics, which qualifies as a “code as ethics” within the meaning of Form 40-F, that is applicable to each of
Trillium’s directors, officers and employees, including its principal executive officer, principal financial officer, principal accounting officer or controller and
persons performing similar functions.
The Code of Business Conduct and Ethics is available for viewing on Trillium’s website at www.trilliumtherapeutics.com , and is available in print, without
charge, to any shareholder who requests a copy of it. Requests for copies of the Code of Business Conduct and Ethics should be made by contacting: James
Parsons, Chief Financial Officer, by phone at (416) 595-0627 or by e-mail to info@trilliumtherapeutics.com.
Since the date on which Trillium became subject to the reporting requirements of Section 13(a) or 15(d) of the Exchange Act, there have not been any amendments
to, or waivers, including implicit waivers, granted from, any provision of the Code of Business Conduct and Ethics.
US-3
If any amendment to the Code of Ethics is made, or if any waiver from the provisions thereof is granted, Trillium may elect to disclose the information about such
amendment or waiver required by Form 40-F to be disclosed, by posting such disclosure on its website, which may be accessed at www.trilliumtherapeutics.com.
US-4
Principal Accountant Fees and Services.
The required disclosure is included under the heading “Audit Committee Information – External Auditors Service Fees (By Category)” in Trillium’s Annual
Information Form for the year ended December 31, 2015, filed as Exhibit 99.1 to this Annual Report on Form 40-F.
Pre-Approval Policies and Procedures.
(a)
The audit committee of Trillium’s board of directors has adopted an Auditor Services Pre-Approval Policy (the "Policy") with respect to the pre-approval
of audit and permitted non-audit services to be provided by Ernst & Young LLP, Trillium’s independent auditor. Pursuant to the Policy, the audit
committee on an annual basis may approve the provision of a specified list of audit and permitted non-audit services that the audit committee believes to be
typical, reoccurring or otherwise likely to be provided by the external auditor during the then current fiscal year. All pre-approvals granted under this Policy
shall be sufficiently detailed as to the particular services being provided that it will not be necessary for management of Trillium to exercise any discretion
in determining whether a particular service has been pre-approved.
In addition, pursuant to the Policy the audit committee has delegated its pre- approval authority to the Chair of the audit committee for services where the
aggregate fees are estimated to be less than or equal to Cdn. $50,000. The Chair of the audit committee is required to report any such granted pre-approvals
to the audit committee at its next scheduled meeting. The audit committee shall not delegate to management the audit committee's responsibilities for pre-
approving audit and non-audit services to be performed by the external auditor.
Pursuant to the Policy, there is an exception to the pre-approval requirements for permitted non-audit services, provided all such services were not
recognized at the time of the engagement to be non-audit services and, once recognized, are promptly brought to the attention of the audit committee and
approved prior to the completion of the audit. The aggregate amount of all services approved in this manner may not constitute more than five percent of
the total fees paid to the external auditor during the fiscal year in which the services are provided.
(b)
Of the fees reported in this Annual Report on Form 40-F under the heading “Principal Accountant Fees and Services”, none of the fees billed by Ernst &
Young LLP were approved by Trillium’s audit committee pursuant to the de
minimus
exception provided by Section (c)(7)(i)(C) of Rule 2-01 of
Regulation S- X.
Off-Balance Sheet Arrangements.
Trillium does not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on its financial condition, revenues
or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
US-5
Tabular Disclosure of Contractual Obligations.
The required disclosure is included under the heading “Contractual Obligations and Contingencies” in Trillium’s Management’s Discussion and Analysis for the
years ended December 31, 2015 and 2014, filed as Exhibit 99.2 to this Annual Report on Form 40-F.
Identification of the Audit Committee.
Trillium has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The members of the audit
committee are: Luke Beshar, Henry Friesen and Robert Kirkman.
Mine Safety Disclosure.
Not applicable.
US-6
Disclosure Pursuant to the Requirements of the Nasdaq Stock Market.
As a Canadian corporation listed on the NASDAQ Stock Market, we are not required to comply with most of the NASDAQ corporate governance standards, so
long as we comply with Canadian corporate governance practices. In order to claim such an exemption, however, we must disclose the significant differences
between our corporate governance practices and those required to be followed by U.S. domestic issuers under NASDAQ’s corporate governance standards.
Our corporate governance practices meet or exceed all applicable Canadian requirements. They also incorporate some best practices derived from the NASDAQ
rules and comply with applicable rules adopted by the Securities and Exchange Commission to give effect to the provisions of the United States Sarbanes-Oxley
Act of 2002.
We expect that further information about our corporate governance practices will be included in our Information Circulars in respect of future annual meetings of
shareholders.
The following is a summary of the significant ways in which our corporate governance practices differ from those required to be followed by U.S. domestic issuers
under NASDAQ’s corporate governance standards. Except as described in this summary, we are in compliance with the NASDAQ corporate governance standards
in all significant respects.
Shareholder Approval
Section 5635 of the NASDAQ Marketplace Rules requires shareholder approval to be obtained in connection with the undertaking of certain actions. The
circumstances under which shareholder approval is required under the NASDAQ Marketplace Rules are not identical to the circumstances under which shareholder
approval is required under Canadian and TSX requirements. For example, but without limitation, Section 5635 requires shareholder approval of most equity
compensation plans and material revisions to such plans. This requirement covers plans that provide for the delivery of both newly issued and treasury securities.
The TSX rules provide that only the creation of or certain material amendments to equity compensation plans that provide for new issuances of securities are
subject to shareholder approval. We follow the TSX rules with respect to the requirements for shareholder approval of potential transactions, including, without
limitation, shareholder approval of equity compensation plans and material revisions to such plans.
US-7
A.
Undertaking.
UNDERTAKING AND CONSENT TO SERVICE OF PROCESS
Trillium undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish
promptly, when requested to do so by the Commission staff, information relating to: the securities registered pursuant to Form 40-F; the securities in relation to
which the obligation to file an annual report on Form 40-F arises; or transactions in said securities.
B.
Consent to Service of Process.
Trillium has previously filed a Form F-X in connection with the class of securities in relation to which the obligation to file this report arises.
Any change to the name or address of the agent for service of process of Trillium shall be communicated promptly to the Commission by an amendment to
the Form F-X referencing the file number of Trillium.
Pursuant to the requirements of the Exchange Act, Trillium Therapeutics Inc. certifies that it meets all of the requirements for filing on Form 40-F and has
duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 9, 2016.
SIGNATURES
Trillium Therapeutics Inc.
By: /s/ James Parsons
Name: James Parsons
Title: Chief Financial Officer
US-8
Exhibit
Description
EXHIBIT INDEX
99.1
99.2
99.3
99.4
99.5
99.6
99.7
99.8
Annual Information Form for the fiscal year ended December 31, 2015
Management’s Discussion and Analysis for the years ended December 31, 2015 and 2014
Audited Consolidated Financial Statements for the years ended December 31, 2015 and 2014, prepared under International Financial Reporting
Standards as issued by the International Accounting Standards Board
Certification of President & Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14 of the Securities Exchange Act of 1934
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14 of the Securities Exchange Act of 1934
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350
Consent of Ernst & Young LLP
(formerly Stem Cell Therapeutics Corp.)
ANNUAL INFORMATION FORM
FOR THE YEAR ENDED DECEMBER 31, 2015
96 Skyway Avenue
Toronto, Ontario M9W 4Y9
www.trilliumtherapeutics.com
Unless otherwise indicated, all information in the Annual Information Form
is presented as at and for the year ended December 31, 2015
March 9, 2016
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
TABLE OF CONTENTS
CORPORATE INFORMATION
BUSINESS
GENERAL DEVELOPMENT OF THE BUSINESS – 3 YEAR SUMMARY
RISK FACTORS
DESCRIPTION OF SHARE CAPITAL
MARKET FOR SECURITIES
BOARD OF DIRECTORS AND MANAGEMENT
CEASE TRADE ORDERS, BANKRUPTCIES, PENALTIES OR SANCTIONS
CONFLICTS OF INTEREST
LEGAL PROCEEDINGS
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
INTEREST OF EXPERTS
TRANSFER AGENT
MATERIAL CONTRACTS
AUDIT COMMITTEE INFORMATION
ADDITIONAL INFORMATION
SCHEDULE A - CHARTER OF THE AUDIT COMMITTEE
3
5
5
16
18
32
36
37
39
39
40
40
40
40
40
41
44
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Information Form, or AIF, contains forward-looking statements within the meaning of applicable securities laws. All statements contained herein that
are not clearly historical in nature are forward-looking, and the words “anticipate”, “believe”, “expect”, “estimate”, “may”, “will”, “could”, “leading”, “intend”,
“contemplate”, “shall” and similar expressions are generally intended to identify forward-looking statements. Forward-looking statements in this AIF include, but
are not limited to, statements with respect to:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
our expected future loss and accumulated deficit levels;
our projected financial position and estimated cash burn rate;
our expectations about the timing of achieving milestones and the cost of our development programs;
our observations and expectations regarding the relative low binding of SIRPαFc to red blood cells compared to anti-CD47 monoclonal antibodies
and proprietary CD47-blocking agents, and the potential benefits to patients;
our requirements for, and the ability to obtain, future funding on favorable terms or at all;
our projections for the SIRPαFc development plan and progress of each of our products and technologies, particularly with respect to the timely
and successful completion of studies and trials and availability of results from such studies and trials;
our expectations about the differentiated nature and potential for best-in-class product development programs and discovery research capabilities of
Fluorinov Pharma Inc., or Fluorinov;
our ability to generate future product development programs with improved pharmacological properties using Fluorinov technology;
our expectations about whether various clinical and regulatory milestones with an existing Fluorinov compound will be achieved;
our expectations of the final quantum and form of any future contingent milestone payments related to the Fluorinov acquisition;
our expectations of the ability to secure the requisite approvals (including the Toronto Stock Exchange, or TSX, and NASDAQ Stock Market, or
NASDAQ approvals) with respect to the issuance of any common shares in satisfaction of future milestone payments;
our expectations about our products’ safety and efficacy;
our expectations regarding our ability to arrange for the manufacturing of our products and technologies;
our expectations regarding the progress, and the successful and timely completion, of the various stages of the regulatory approval process;
our ability to secure strategic partnerships with larger pharmaceutical and biotechnology companies;
our strategy to acquire and develop new products and technologies and to enhance the safety and efficacy of existing products and technologies;
our plans to market, sell and distribute our products and technologies;
our expectations regarding the acceptance of our products and technologies by the market;
our ability to retain and access appropriate staff, management, and expert advisers;
our expectations with respect to existing and future corporate alliances and licensing transactions with third parties, and the receipt and timing of
any payments to be made by us or to us in respect of such arrangements; and
our strategy with respect to the protection of our intellectual property.
All forward-looking statements reflect our beliefs and assumptions based on information available at the time the assumption was made. These forward-looking
statements are not based on historical facts but rather on management’s expectations regarding future activities, results of operations, performance, future capital
and other expenditures (including the amount, nature and sources of funding thereof), competitive advantages, business prospects and opportunities. By its nature,
forward-looking information involves numerous assumptions, inherent risks and uncertainties, both general and specific, known and unknown, that contribute to
the possibility that the predictions, forecasts, projections or other forward-looking statements will not occur. Factors which could cause future outcomes to differ
materially from those set forth in the forward-looking statements include, but are not limited to:
3
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the effect of continuing operating losses on our ability to obtain, on satisfactory terms, or at all, the capital required to maintain us as a going
concern;
the ability to obtain sufficient and suitable financing to support operations, preclinical development, clinical trials, and commercialization of
products;
the risks associated with the development of novel compounds at early stages of development in our intellectual property portfolio;
the risks of reliance on third-parties for the planning, conduct and monitoring of clinical trials and for the manufacture of drug product;
the risks associated with the development of our product candidates including the demonstration of efficacy and safety;
the risks related to clinical trials including potential delays, cost overruns and the failure to demonstrate efficacy and safety;
the risks of delays and inability to complete clinical trials due to difficulties enrolling patients;
risks associated with our inability to successfully develop companion diagnostics for our development candidates;
delays or negative outcomes from the regulatory approval process;
our ability to successfully compete in our targeted markets;
our ability to attract and retain key personnel, collaborators and advisors;
risks relating to the increase in operating costs from expanding existing programs, acquisition of additional development programs and increased
staff;
risk of negative results of clinical trials or adverse safety events by us or others related to our product candidates;
the potential for product liability claims;
our ability to achieve our forecasted milestones and timelines on schedule;
financial risks related to the fluctuation of foreign currency rates and expenses denominated in foreign currencies;
our ability to adequately protect proprietary information and technology from competitors;
risks related to changes in patent laws and their interpretations;
our ability to source and maintain licenses from third-party owners; and
the risk of patent-related litigation and the ability to protect trade secrets,
all as further and more fully described under the section of this AIF entitled “Risk Factors”.
Although the forward-looking statements contained in this AIF are based upon what our management believes to be reasonable assumptions, we cannot assure
readers that actual results will be consistent with these forward-looking statements.
Any forward-looking statements represent our estimates only as of the date of this AIF and should not be relied upon as representing our estimates as of any
subsequent date. We undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of unanticipated events, except as may be required by securities legislation.
All references in this AIF to “the Company”, “Trillium”, “we”, “us”, or “our” refer to Trillium Therapeutics Inc. and the subsidiaries through which it conducts its
business, unless otherwise indicated.
All amounts are in Canadian dollars, unless otherwise indicated.
4
CORPORATE INFORMATION
We were incorporated under the Business
Corporations
Act
(Alberta) on March 31, 2004 as Neurogenesis Biotech Corp. On October 19, 2004, we amended our
articles of incorporation to change our name from Neurogenesis Biotech Corp. to Stem Cell Therapeutics Corp., or SCT. On November 7, 2013 SCT was continued
under the Business Corporations Act (Ontario), or OBCA. On June 1, 2014 we filed articles of amalgamation to amalgamate SCT with our wholly-owned
subsidiary, Trillium Therapeutics Inc., or Trillium Privateco, and renamed the combined company Trillium Therapeutics Inc. We are a company domiciled in
Ontario, Canada.
As of December 31, 2015 we had one wholly-owned subsidiary, Trillium Therapeutics USA Inc. which was incorporated March 26, 2015 in the State of Delaware.
A wholly-owned and inactive subsidiary, Stem Cell Therapeutics Inc. was dissolved on September 17, 2014.
On January 26, 2016, we acquired all the outstanding shares of Fluorinov, a corporation existing under the OBCA. See “Business - Small Molecule Program”,
below.
Our head and registered offices are located at 96 Skyway Avenue, Toronto, Ontario, Canada M9W 4Y9. Our website address is www.trilliumtherapeutics.com.
Overview
BUSINESS
We are an immuno-oncology company developing innovative therapies for the treatment of cancer. Our lead program, SIRPαFc, is a novel, antibody-like protein
that harnesses the innate immune system by blocking the activity of CD47, a molecule whose expression is increased on cancer cells to evade the host immune
system. Expressed at high levels on the cell surface of a variety of liquid and solid tumors, CD47 functions as a signal that inhibits the destruction of tumor cells by
macrophages via phagocytosis. By blocking the activity of CD47, we believe SIRPαFc has the ability to promote the macrophage-mediated killing of tumor cells in
a broad variety of cancers both as a monotherapy and in combination with other immune therapies.
The immune system is the body’s mechanism to identify and eliminate pathogens, and can be divided into the innate immune system and the adaptive immune
system. The innate immune system is the body’s first line of defense to identify and eliminate pathogens and consists of proteins and cells, such as macrophages,
that identify and provide an immediate response to pathogens. The adaptive immune system is activated by, and adapts to, pathogens, creating a targeted and
durable response. Cancer cells often have the ability to reduce the immune system’s ability to recognize and destroy them. We believe SIRPαFc could play an
important role in enhancing the innate immune system and importantly, because of its ability to target macrophages, also may have an important downstream effect
on the adaptive immune system.
Immuno-oncology
is
altering
cancer
treatment
While the concept of using the immune system to treat cancer can trace its roots back to late nineteenth century, it was only recently that the field of immuno-
oncology received validation with the approval of antibodies that block CTLA-4 (ipilimumab) and PD-1 (pembrolizumab and nivolumab). These drugs have
established the clinical principle that anti-tumor responses can be induced by interfering with the negative signals that normally shut down immune responses.
Our Strategy
Our goal is to become a leading innovator in the field of immuno-oncology by targeting immune-regulatory pathways that tumor cells exploit to evade the host
immune system. We believe that SIRPαFc has the potential to improve survival and quality of life for cancer patients.
5
•
•
•
•
Rapidly advance the clinical development of SIRPαFc . We have initiated a first-in-human trial of SIRPαFc in patients with relapsed or refractory
lymphoma in a dose escalation phase of up to 36 patients, and expect to enroll up to 8 cohorts of 12-15 patients with advanced hematologic
malignancies in an expansion phase of the trial after an optimal dose has been determined.
Expand our SIRP α Fc clinical program to include additional cancer indications . Because CD47 is highly expressed by multiple liquid and
solid tumors, and high expression is correlated with worse clinical outcomes, we believe SIRPαFc has potential to be effective in a wide variety of
cancers. We are carrying out preclinical work necessary to select additional, high potential cancer indications for clinical development.
Maximize value of SIRP α Fc through scientific collaborations . SIRPαFc has broad potential applicability in various cancer indications, and we
believe it is well suited for use as both a monotherapy and in combination with other agents. We plan to continue to selectively and
opportunistically pursue scientific collaborations with academic researchers as well as with other companies in order to realize the full value
proposition of SIRPαFc.
Initiate IND-enabling studies in 2016 with a Fluorinov product . TTI-281 is an oral bromodomain inhibitor that we believe has strong potency
and has shown efficacy in AML xenograft models. We plan to initiate scale up and manufacturing for TTI-281 in 2016.
SIRP α Fc Key Attributes
•
•
•
•
Potential efficacy in a broad range of cancers . SIRPαFc blocks the tumor’s ability to transmit a “do not eat” signal allowing macrophages to
destroy tumor cells; a mechanism that we believe could have broad applicability.
Potential for use as monotherapy and in combination with other therapies . We intend to develop SIRPαFc as a monotherapy as well as
potentially for use in combination with other cancer immuno- therapies.
Differentiated pharmacokinetic and safety profile . We believe SIRPαFc’s low level of binding to red blood cells lowers the risk of anemia and
lowers the loss of drug from circulation. This pharmacokinetic profile potentially allows for lower dosing and an improved safety profile.
May enhance both innate and adaptive immune response . SIRPαFc may enhance stimulation of tumor attacking T cells since macrophages, in
addition to their role in phagocytosis, can also prime T cells through antigen presentation.
SIRP α Fc Clinical development plan
We commenced a phase I study in patients with advanced hematologic malignancies. The two-part clinical trial is designed as a multi-center, open-label Phase
1a/1b trial, evaluating TTI-621 as a single-agent in patients with relapsed or refractory hematologic malignancies. During the dose escalation phase set to enroll up
to 36 subjects, the safety, tolerability, pharmacokinetics and pharmacodynamics will be characterized to determine the optimal dose for subsequent enrollment in
the expansion phase. To characterize potential changes in hematologic parameters that might occur with blockade of CD47, the dose-escalation portion of the phase
I trial will include lymphoma patients with normal hematologic parameters and acceptable marrow function. Once a reasonably well-tolerated dose and schedule of
SIRPαFc has been established for further study, safety and antitumor activity will be estimated in expansion cohorts of up to 15 patients with advanced hematologic
malignancies including indolent B-cell lymphoma, aggressive B-cell lymphoma, T-cell lymphoma, Hodgkin lymphoma, chronic lymphocytic leukemia, multiple
myeloma, acute myeloid leukemia, and myelodysplastic syndrome. We plan to engage five trial sites in the United States for the dose escalation part of the trial.
6
Blocking the CD47 “do not eat” signal using a SIRP α Fc decoy receptor
Macrophages are a type of white blood cell that can ingest and destroy (phagocytose) other cells. They are part of the innate immune system that helps to protect
the body from infection. More recently, a role for macrophages in the control of tumors has been described.
Macrophage activity is controlled by both positive “eat” and negative “do not eat” signals. Tumor cells may express “eat” signals (e.g., calreticulin) that make
themselves visible to macrophages. To counterbalance this increased visibility the tumor cells often express high levels of CD47, which transmits a “do not eat”
signal by binding signal regulatory protein alpha, or SIRPα, on the surface of macrophages. We believe that the higher expression of CD47 on the tumor cell helps
it evade destruction by the macrophage by overwhelming any activating “eat” signals.
SIRPαFc is an antibody-like protein that consists of the CD47-binding domain of human SIRPα linked to the Fc region of a human immunoglobulin. It is designed
to act as a soluble decoy receptor, preventing CD47 from delivering its inhibitory signal. Neutralization of the inhibitory CD47 signal enables the activation of
macrophage anti-tumor effects by the pro-phagocytic “eat” signals. The Fc region of SIRPαFc may, depending on its identity, also assist in the activation of
macrophages by engaging Fc receptors.
Figure 1, below, illustrates how SIRPαFc blocks the CD47 “do not eat” signal and engages activating Fc receptors on macrophages, leading to tumor cell
phagocytosis.
In addition to their direct anti-tumor activity, macrophages can also function as antigen-presenting cells and stimulate antigen-specific T cells. Thus it is possible
that increasing tumor cell phagocytosis after SIRPαFc exposure may result in enhanced adaptive immunity. In support of this, CD47 antibody blockade has been
recently shown to augment antigen presentation and prime an anti-tumor cytotoxic T cell response in immune-competent mice. CD47 blockade has also been
reported to promote tumor-specific T cell responses through a dendritic cell-based mechanism, although the effect of SIRPαFc on dendritic cells is currently
unknown.
SIRP α Fc has broad clinical potential
We believe that SIRPαFc has broad clinical potential in both hematological and solid tumors. High expression of the CD47 “do not eat” signal on tumor cells has
been observed in acute lymphoblastic leukemia, or AML, myelodysplastic syndrome, chronic myeloid leukemia, or CML, acute lymphoblastic leukemia, or ALL,
diffuse large B cell lymphoma, or DLBCL, chronic lymphocytic leukemia, or CLL, follicular lymphoma, mantle cell lymphoma, marginal zone lymphoma,
multiple myeloma and in the following solid tumors: bladder, brain, breast, colon, leiomyosarcoma, liver, melanoma, ovarian, pancreatic and prostate. In a number
of these cancers high CD47 expression was shown to have negative clinical consequences, correlating with more aggressive disease and poor survival. In normal
karyotype AML patients, for example, high CD47 expression was correlated with worse event-free survival (6.8 vs. 17.1 months) and worse overall survival (9.1
vs. 22.1 months) compared to low CD47 expression. These data are consistent with CD47 providing a survival advantage to tumor cells. Furthermore, numerous
studies have shown that antibody blockade of CD47 has demonstrated activity in mice engrafted with human tumors. We collaborate with academic investigators to
explore the therapeutic potential of SIRPαFc in a variety of solid tumor models.
7
In
vitro
studies with primary tumor samples obtained from AML, MDS, multiple myeloma, B cell-ALL and T-cell ALL demonstrated that SIRPαFc frequently
triggered significantly macrophage-mediated tumor cell phagocytosis compared to control treatment. Similar results were observed with tumor cell lines established
from patients with B lymphoma and CML.
Figure 2, below, shows how SIRPαFc (TTI-621) triggers macrophage-mediated phagocytosis of many different human blood cancer samples.
The p
value is a probability value, with values <0.05 considered statistically significant versus control treatment. NS indicates p
>0.05, which is considered not
statistically significant versus control treatment.
SIRP α – Minimal Red Blood Cell Binding - Competition
SIRPαFc competes directly with CD47 blocking antibodies from Forty Seven Inc. (recently licensed from Stanford University) and Celgene Corporation, both of
which have entered early clinical development. Novimmune SA has a bispecific (anti-CD47/anti-CD19) antibody program in preclinical development. Vasculox is
also developing a CD47 antibody. Alexo Therapeutics is developing mutated, high affinity SIRPα monomers as adjuvants for use with anti-cancer antibodies. Both
Vasculox and Alexo Therapeutics are in the preclinical phase of development.
8
We believe that our approach of using SIRPα, the natural binding partner for CD47, may have important advantages over treatment with CD47-specific antibodies.
In April 2015, we presented data at the 106th American Association for Cancer Research annual meeting demonstrating that our SIRPαFc fusion proteins exhibit
minimal binding to human red blood cells, or RBCs, compared to anti-CD47 monoclonal antibodies. These data build upon preliminary results announced at the
2014 American Association for Cancer Research annual meeting.
Figure 3, below, shows how SIRPαFc binding to human RBCs (n=43 donors) compares to five CD47-specific antibodies.
The very low RBC binding profile of our SIRPαFc proteins may provide three important advantages over other CD47 blocking agents. First, there may be a lower
risk of experiencing drug-induced anemia with SIRPαFc. This potential advantage may translate into improved patient care, particularly in diseases such as AML
where almost all patients experience cytopenias including anemia. Second, SIRPαFc may remain in circulation for longer intervals compared to CD47 antibodies,
which have been demonstrated to bind strongly to circulating RBCs and may thus be more likely to be removed from circulation. The ability of RBCs to absorb and
remove circulating CD47-specific antibodies, an “antigen-sink effect”, may necessitate high doses of antibody in order to effectively target the tumor cells, which
may lead to potentially higher off-target toxicity. Therefore, SIRPαFc may be associated with both improved tolerability and drug kinetics compared with CD47-
specific antibodies based on these preclinical analyses. Third, antibodies that bind RBCs have the potential to interfere with laboratory blood typing tests. The
minimal binding of TTI-621 to human RBCs may minimize this interference compared to anti-CD47 antibodies.
9
Combination Therapy
We believe that SIRPαFc enhancement of macrophage activity and possibly T cell responses could be synergistic with other immune-mediated therapies. Published
studies conducted by third parties provide evidence that SIRPαFc may be useful in combination with approved anti-cancer antibodies (e.g. Rituxan®, Herceptin®,
Campath®, and Erbitux®). Since many cancer antibodies work at least in part by activating cells of the innate immune system, it may be possible to enhance the
potency of these agents by blocking the negative “do not eat” CD47 signal that tumor cells deliver to macrophages. We hypothesize that SIRPαFc may act
synergistically with other immunological agents, including T cell checkpoint inhibitors (e.g. pembrolizumab and nivolumab), cancer vaccines, oncolytic viruses or
chimeric antigen receptor, or CAR T cells.
Small Molecule Program
On January 26, 2016, we acquired all the outstanding shares of Fluorinov, a privately-held oncology company that has developed a proprietary medicinal chemistry
platform using unique fluorine chemistry, which permits the creation of new chemical entities from validated drugs and drug candidates with improved
pharmacological properties, potentially leading to increased safety and efficacy. Fluorinov’s most advanced preclinical oncology programs include potent, orally-
available, bromodomain and proteasome inhibitors, as well as epidermal growth factor receptor antagonists with increased uptake in the brain, all of which have
been differentiated from competitors and have potential for best-in-class status. In addition, a number of compounds directed at undisclosed immuno-oncology
targets are currently in the discovery phase.
Plan of Operations
Over the next 12 months, our primary focus is the advancement of our Phase I clinical trial of SIRPαFc in patients with advanced hematologic malignancies. We
also plan to conduct preclinical research in solid tumors and in combination studies to identify future potential clinical indications.
We also plan to advance one, or possibly two, of Fluorinov’s preclinical programs through the IND-enabling phase using our internal development group, while at
the same time focusing our new chemistry group on several immuno-oncology discovery programs.
Product for Development with Partners – CD200 Monoclonal Antibodies
Our CD200 monoclonal antibody program also targets a key pathway that tumor cells use to evade attack from the immune system. There is evidence that CD200
is highly expressed by many different types of blood cell and solid tumors, and in numerous cases this high expression correlates with disease progression and poor
clinical outcome. This is consistent with tumor cells using CD200 as a means of evading immune-mediated destruction. Tumor-expressed CD200 can modulate
anti-tumor responses in vitro and in vivo, and antibodies that block CD200 have been shown to promote anti-tumor immunity in animal models of cancer.
Our CD200 monoclonal antibody is a fully human monoclonal antibody that blocks the activity of CD200. We have conducted in vitro and in vivo preclinical
oncology-focused studies. Our antibodies bind strongly to human CD200, potently neutralizing CD200 function in vitro, and have shown anti-tumor activity in a
transplanted human tumor cell model. We are seeking a development partner to advance this program into formal preclinical IND-enabling studies.
Intellectual Property
We own or control patent rights covering our key products and their therapeutic end uses. The patents and patent applications are either granted or pending in major
pharmaceutical markets. In all, the patent estate includes fourteen different inventions in three different areas that include SIRPα, CD200, and modified new
chemical entities. These are supported by 40 patents and applications. In connection specifically with patent coverage for SIRPαFc, we control two patent families
that comprise fifteen individual filings. One family has claims that embrace species of SIRPαFc found to have certain therapeutic benefits, and their use for the
treatment of cancer. We own these patent rights outright and national patent filings have been made in the U.S., Europe, Japan, Canada, Australia, China and India.
Patents emerging from this family will expire in 2033. A second SIRPα patent family was in-licensed on an exclusive basis from co-owners UHN and HSC. This
family has also been filed in major markets. The claims cover the use of various forms of SIRPα to treat CD47-positive cancers. Patents in this family begin to
expire in the year 2030.
10
Most recently, our patent estate expanded with the acquisition of Fluorinov. This estate covers eleven different inventions in the small molecule therapeutics field
and in a diverse range of medical end-uses. Six of these are provisional filings in the United States. Three others were filed recently using the Patent Cooperation
Treaty, with coverage for bromodomain inhibitors, EGFR inhibitors and for a generic chemical process useful to produce the novel classes of small molecule drugs.
As well, there are two patent families relating to proteasome inhibition that have been nationalized in the US, Canada, Europe and Australia. Most patents in these
families will have patent terms that reach out to 2035 and beyond.
In connection specifically with CD200, Trillium and its partner have made a patent filing that covers superior species of human antibodies to human CD200. A
patent family based on this filing would expire in 2037.
We intend to protect additional intellectual property developed by us through the filing of patent applications within appropriate jurisdictions throughout the world.
Regulatory Process
Government authorities in the United States, including federal, state, and local authorities, and in other countries, extensively regulate, among other things, the
manufacturing, research and clinical development, marketing, labeling and packaging, storage, distribution, post-approval monitoring and reporting, advertising
and promotion, and export and import of biological products, such as those we are developing. The process of obtaining regulatory approvals and the subsequent
compliance with appropriate federal, state, local, and foreign statutes and regulations require the expenditure of substantial time and financial resources.
Securing final regulatory approval for the manufacture and sale of biological products in the U.S., Europe, Canada and other commercial territories, is a long and
costly process that is controlled by that particular territory’s regulatory agency. The regulatory agency in the U.S. is the U.S. Food and Drug Administration, or
FDA, in Canada it is Health Canada, or HC, and in Europe it is the European Medicines Agency. Other regulatory agencies have similar regulatory approval
processes, but each regulatory agency has its own approval processes. Approval in the U.S., Canada or Europe does not assure approval by other regulatory
agencies, although often test results from one country may be used in applications for regulatory approval in another country.
None of our products have been completely developed or tested and, therefore, we are not yet in a position to seek final regulatory approval to market any of our
products. The time required to obtain approval by such regulatory authorities is unpredictable but typically takes many years following the commencement of
preclinical studies and clinical trials and will require significant additional capital. See “Risk Factors - Risks Related to our Business and our Industry” below.
U.S. Government Regulation
In the U.S., the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and its implementing regulations, and biologics under the FDCA
and the Public Health Service Act, or PHSA, and its implementing regulations. FDA approval is required before any new unapproved drug or biologic or dosage
form, including a new use of a previously approved drug, can be marketed in the United States. Drugs and biologics are also subject to other federal, state, and local
statutes and regulations. If we fail to comply with applicable FDA or other requirements at any time during the product development process, clinical testing, the
approval process or after approval, we may become subject to administrative or judicial sanctions. These sanctions could include the FDA’s refusal to approve
pending applications, license suspension or revocation, withdrawal of an approval, warning letters, product recalls, product seizures, total or partial suspension of
production or distribution, civil monetary penalties or criminal prosecution. Any FDA enforcement action could have a material adverse effect on us.
11
The process required by the FDA before product candidates may be marketed in the United States generally involves the following:
•
•
•
•
•
•
•
•
•
•
completion of extensive preclinical laboratory tests and preclinical animal studies, all performed in accordance with the Good Laboratory Practices
regulations;
submission to the FDA of an investigational new drug application, or IND, which must become effective before human clinical trials may begin
and must be updated annually;
approval by an independent institutional review board, or IRB, or ethics committee representing each clinical site before each clinical trial may be
initiated;
performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the product candidate for each proposed
indication;
preparation of and submission to the FDA of a new drug application, or NDA, or biologics license application, or BLA, after completion of all
pivotal clinical trials;
potential review of the product application by an FDA advisory committee, where appropriate and if applicable;
a determination by the FDA within 60 days of its receipt of an NDA or BLA to file the application for review;
satisfactory completion of an FDA pre-approval inspection of the manufacturing facilities where the proposed product is produced to assess
compliance with current Good Manufacturing Practices, or cGMP;
a potential FDA audit of the preclinical research and clinical trial sites that generated the data in support of the NDA or BLA; and
FDA review and approval of an NDA or BLA prior to any commercial marketing or sale of the product in the U.S.
The preclinical research and clinical testing and approval process require substantial time, effort, and financial resources, and we cannot be certain that any
approvals for our product candidates will be granted on a timely basis, if at all.
An IND is a request for authorization from the FDA to administer an investigational new drug product to humans in clinical trials. The central focus of an IND
submission is on the general investigational plan and the protocol(s) for human clinical trials. The IND also includes results of animal studies assessing the
toxicology, pharmacokinetics, pharmacology, and pharmacodynamic characteristics of the product; chemistry, manufacturing, and controls information; and any
available human data or literature to support the use of the investigational new drug. An IND must become effective before human clinical trials may begin. An
IND will automatically become effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to the proposed
clinical trials. In such a case, the IND may be placed on clinical hold and the IND sponsor and the FDA must resolve any outstanding concerns or questions before
clinical trials can begin. Accordingly, submission of an IND may or may not result in the FDA allowing clinical trials to commence.
Clinical
Trials
Clinical trials involve the administration of the investigational new drug to human subjects under the supervision of qualified investigators in accordance with
Good Clinical Practices, or GCPs, which include the requirement that all research subjects provide their informed consent for their participation in any clinical trial.
Clinical trials are conducted under protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring safety, and the
efficacy criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND.
Additionally, approval must also be obtained from each clinical trial site’s IRB or ethics committee, before the trials may be initiated, and the IRB or ethics
committee must monitor the trial until completed. There are also requirements governing the reporting of ongoing clinical trials and clinical trial results to public
registries.
The clinical investigation of a drug is generally divided into three or four phases. Although the phases are usually conducted sequentially, they may overlap or be
combined.
12
•
•
•
•
Phase I. The drug is initially introduced into healthy human subjects or patients with the target disease or condition. These studies are designed to
evaluate the safety, dosage tolerance, metabolism and pharmacologic actions of the investigational new drug in humans, the side effects associated
with increasing doses, and if possible, to gain early evidence on effectiveness.
Phase II. The drug is administered to a limited patient population to evaluate dosage tolerance and optimal dosage, identify possible adverse side
effects and safety risks, and preliminarily evaluate efficacy.
Phase III. The drug is administered to an expanded patient population, generally at geographically dispersed clinical trial sites to generate enough
data to statistically evaluate dosage, clinical effectiveness and safety, to establish the overall benefit-risk relationship of the investigational new
drug product, and to provide an adequate basis for physician labeling.
Phase IV. In some cases, the FDA may condition approval of an NDA or BLA for a product candidate on the sponsor’s agreement to conduct
additional clinical trials after approval. In other cases, a sponsor may voluntarily conduct additional clinical trials after approval to gain more
information about the drug. Such post-approval studies are typically referred to as phase IV clinical trials.
Clinical trial sponsors must also report to the FDA, within certain timeframes, serious and unexpected adverse reactions, any clinically important increase in the
rate of a serious suspected adverse reaction over that listed in the protocol or investigator’s brochure, or any findings from other studies or animal testing that
suggest a significant risk in humans exposed to the product candidate. The FDA, the IRB or ethics committee, or the clinical trial sponsor may suspend or terminate
a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Additionally, some
clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or
committee. This group provides authorization for whether or not a trial may move forward at designated check points based on access to certain data from the trial.
The clinical trial process can take years to complete, and there can be no assurance that the data collected will support FDA approval or licensure of the product.
Results from one trial are not necessarily predictive of results from later trials. We may also suspend or terminate a clinical trial based on evolving business
objectives and/or competitive climate.
Submission
of
an
NDA
or
BLA
to
the
FDA
Assuming successful completion of all required preclinical studies and clinical testing in accordance with all applicable regulatory requirements, detailed
investigational new drug product information is submitted to the FDA in the form of an NDA or BLA requesting approval to market the product for one or more
indications. Under federal law, the submission of most NDAs and BLAs is subject to an application user fee. For fiscal year 2016, the application user fee exceeds
$2.3 million, and the sponsor of an approved NDA or BLA is also subject to annual product and establishment user fees, set at $114,450 per product and $585,200
per establishment. These fees are typically increased annually. Applications for orphan drug products are exempted from the NDA and BLA application user fee,
unless the application includes an indication for other than a rare disease or condition, and may be exempted from product and establishment user fees under certain
conditions.
An NDA or BLA must include all relevant data available from pertinent preclinical studies and clinical trials, including negative or ambiguous results as well as
positive findings, together with detailed information relating to the product’s chemistry, manufacturing, controls, and proposed labeling, among other things. Data
comes from company-sponsored clinical trials intended to test the safety and effectiveness of a use of a product, and may also come from a number of alternative
sources, including trials initiated by investigators. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the
safety and effectiveness of the investigational new drug product to the satisfaction of the FDA.
Once an NDA or BLA has been submitted, the FDA’s goal is to review the application within ten months after it accepts the application for filing, or, if the
application relates to an unmet medical need in a serious or life-threatening indication, six months after the FDA accepts the application for filing. The review
process is often significantly extended by the FDA’s requests for additional information or clarification.
13
Before approving an NDA or BLA, the FDA typically will inspect the facility or facilities where the product is manufactured. The FDA will not approve an
application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent
production of the product within required specifications. Additionally, before approving an NDA or BLA, the FDA will typically inspect one or more clinical sites
to assure compliance with GCP.
The FDA is required to refer an NDA or BLA for a novel drug (in which no active ingredient has been approved in any other application) to an advisory committee
or explain why such referral was not made. Typically, an advisory committee is a panel of independent experts, including clinicians and other scientific experts,
that reviews, evaluates and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the
recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.
The
FDA’s
Decision
on
an
NDA
or
BLA
After the FDA evaluates the NDA or BLA and conducts inspections of manufacturing facilities where the product will be produced, the FDA will issue either an
approval letter or a Complete Response Letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific
indications. A Complete Response Letter indicates that the review cycle of the application is complete and the application is not ready for approval. In order to
satisfy deficiencies identified in a Complete Response Letter, additional clinical data and/or an additional phase III clinical trial(s), and/or other significant,
expensive and time-consuming requirements related to clinical trials, preclinical studies or manufacturing may be required for the product candidate. Even if such
additional information is submitted, the FDA may ultimately decide that the NDA or BLA does not satisfy the criteria for approval. The FDA could also approve
the NDA or BLA with a risk evaluation and mitigation strategy, plan to mitigate risks, which could include medication guides, physician communication plans, or
elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. The FDA also may condition approval on,
among other things, changes to proposed labeling, development of adequate controls and specifications, or a commitment to conduct one or more post-market
studies or clinical trials. Such post-market testing may include phase IV clinical trials and surveillance to further assess and monitor the product’s safety and
effectiveness after commercialization. New government requirements, including those resulting from new legislation, may be established, or the FDA’s policies
may change, which could delay or prevent regulatory approval of our products under development.
Patent
Term
Restoration
Depending upon the timing, duration, and specifics of the FDA approval of the use of our product candidates, some of our U.S. patents may be eligible for limited
patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Amendments. The
Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA
regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval
date. The patent term restoration period is generally one-half the time between the effective date of an IND and the submission date of an NDA or BLA, plus the
time between the submission date and the approval of that application. Only one patent applicable to an approved product is eligible for the extension and the
application for the extension must be submitted prior to the expiration of the patent and within 60 days of the product’s approval. The U.S. Patent and Trademark
Office, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, we may apply for restoration
of patent term for one of our currently owned or licensed patents to add patent life beyond its current expiration date, depending on the expected length of the
clinical trials and other factors involved in the filing of the relevant NDA or BLA.
Companion
Diagnostics
In its August 6, 2014, guidance document entitled “In Vitro Companion Diagnostic Devices,” the FDA defines an IVD companion diagnostic device to be an in
vitro diagnostic device that provides information that is essential for the safe and effective use of a corresponding therapeutic product. Use of an IVD companion
diagnostic device is considered essential when its use is required in the labeling of a therapeutic product, for example, to select appropriate patients for a product or
those who should not use the product, or to monitor patients to achieve safety or effectiveness. In most circumstances, the IVD companion diagnostic device should
be approved or cleared by FDA under the device authorities of the FDCA contemporaneously with the therapeutic product’s approval under section 505 of the
FDCA for a drug or section 351 of the PHSA for a biological product. FDA expects the therapeutic product sponsor to address the need for an approved or cleared
IVD companion diagnostic device in its therapeutic product development plan. The therapeutic product sponsor may develop its own IVD companion diagnostic
device, partner with a diagnostic device sponsor to develop an IVD companion diagnostic device, or explore modifying an existing IVD diagnostic device to
develop a new intended use. The FDA explains if a diagnostic device and a therapeutic device are studied together to support their respective approvals, both
products can be studied in the same investigational study that meets both the requirements of the Investigational Device Exemption, or IDE, regulations and the
IND regulations. Depending on the study plan and participants, a sponsor may seek to submit an IND alone, or both an IND and IDE.
14
Raw Materials, Manufacturing, and Supply
We have limited experience in manufacturing products for clinical or commercial purposes. We produce small quantities of our products in our laboratories for
internal use. We believe that sources of raw materials pertinent to our laboratory operations and for manufacturing of our products by a CMO are generally
available.
We have established a contract manufacturing relationship for the supply of SIRPαFc that we believe will provide sufficient material for early clinical trials. In
addition, we are establishing the basis for long-term commercial production capabilities. However, there can be no assurance that our contract manufacturer will be
successful at scaling up and producing our product with the required quality and in the quantities and timelines that we will need for clinical and/or commercial
purposes.
We expect to similarly rely on contract manufacturing relationships for any products that we may further develop, or in-license or acquire in the future. However,
there can be no assurance that we will be able to successfully contract with such manufacturers on terms acceptable to us, or at all.
Contract manufacturers are subject to ongoing periodic and unannounced inspections by the FDA, the U.S. Drug Enforcement Administration and corresponding
state agencies to ensure strict compliance with cGMP and other state and federal regulations. We do not have control over third-party manufacturers’ compliance
with these regulations and standards, other than through contractual obligations and periodic auditing. If they are deemed out of compliance with such regulations,
approvals could be delayed, product recalls could result, inventory could be destroyed, production could be stopped and supplies could be delayed or otherwise
disrupted.
If we need to change manufacturers after commercialization, the FDA and corresponding foreign regulatory agencies must approve these new manufacturers in
advance, which will involve testing and additional inspections to ensure compliance with FDA regulations and standards and may require significant lead times and
delay, and disruption of supply. Furthermore, switching manufacturers may be difficult because the number of potential manufacturers is limited. It may be difficult
or impossible for us to find a replacement manufacturer quickly or on terms acceptable to us, or at all.
Property, Plant and Equipment
We currently operate from approximately 10,000 square feet of leased laboratory and office space at 96 Skyway Avenue, Toronto, Ontario, Canada, M9W 4Y9.
Due to the growth of our staff and programs, we have secured a lease of approximately 22,000 square feet of laboratory and office space at 2488 Dunwin Avenue,
Mississauga, Ontario, L5L 1J9, and plan to relocate there in the second quarter of 2016. We perform research and development in our facility and use qualified
vendors and collaborators to conduct research and development and manufacturing on our behalf. We incur capital expenditures mainly for laboratory equipment,
office equipment, computer equipment and leaseholds in the operation of our business. As at December 31, 2015 the net carrying value of our property and
equipment was $874,390.
15
Employees
As at December 31, 2015, we had twenty-eight full-time employees including five senior management, twenty research and development staff and three finance
and administrative staff. Twenty-six employees are located at our head office and lab facilities in Toronto, Ontario, Canada and two employees are located at in the
United States.
We also use consultants and outside contractors to carry on many of our activities, including preclinical testing and validation, formulation, assay development,
manufacturing, clinical and regulatory affairs, toxicology and clinical trials.
Legal Proceedings
To our knowledge, there have not been any legal or arbitration proceedings, including those relating to bankruptcy, receivership or similar proceedings, those
involving any third party, and governmental proceedings pending or known to be contemplated, which may have, or have had in the recent past, significant effect
our financial position or profitability.
Also, to our knowledge, there have been no material proceedings in which any director, any member of senior management, or any of our affiliates is either a party
adverse to us or any of our subsidiaries or has a material interest adverse to us or any of our subsidiaries.
Acquisition of Fluorinov Pharma Inc.
GENERAL DEVELOPMENT OF THE BUSINESS – 3 YEAR SUMMARY
On January 26, 2016, we acquired all the outstanding shares of Fluorinov, a privately-held oncology company that has developed a proprietary medicinal chemistry
platform using unique fluorine chemistry. The terms of the acquisition were an upfront payment of $10 million plus up to $35 million of additional future payments
that are contingent on us achieving certain clinical and regulatory milestones with an existing Fluorinov compound. We will also have an obligation to pay royalty
payments on future sales of such compounds. The upfront payment was subject to adjustment based on the net working capital of Fluorinov and other adjustments
at the time of closing. At our discretion, up to 50% of the future contingent payments can be satisfied through the issuance of common shares of Trillium provided
that the aggregate number of common shares issuable under such payments will not exceed 1,558,447 common shares unless shareholder approval has first been
obtained. In addition, any such future share issuance remains subject to final approval from our board of directors and receipt of any requisite approvals under the
applicable rules of the Toronto Stock Exchange and the NASDAQ Stock Market. We have also committed to use commercially reasonable efforts to monetize
Fluorinov’s central nervous system, or CNS, assets and share 50% of the net proceeds with Fluorinov shareholders.
Acquisition of Trillium Privateco
During 2013, we refocused our product pipeline through the strategic acquisition of Trillium Privateco, a private biopharmaceutical company specializing in
immune regulation and the development of cancer therapeutics, which included the SIRPαFc and CD200 preclinical cancer programs. On April 9, 2013, we
completed a merger with Trillium Privateco, to access its SIRPαFc immuno-oncology program. Prior to this merger, we were focused on regenerative stem cell
technologies. Following the merger, in July 2013, we ceased all activities associated with our regenerative neurology programs and abandoned all related
intellectual property filings.
As consideration for the merger, we paid $1,200,000 in cash and issued 92,639 common shares and 110,000 units. Each unit consisted of one common share and 30
common share purchase warrants, with each 30 common share purchase warrants allowing their holder to acquire one additional common share at an exercise price
of $12.00 until March 15, 2018. Cash used in the investment of $647,996 was determined by subtracting cash acquired of $552,004 from cash consideration of
$1,200,000. Post-closing, Trillium Privateco shareholders held approximately 16% of the issued and outstanding common shares, and Trillium Privateco became
our wholly-owned subsidiary.
16
Trillium Privateco’s SIRPαFc program originated from leading researchers in the field, including Drs. John Dick and Jean Wang of the UHN and Dr. Jayne Danska
of HSC. Exclusive rights to SIRPαFc have been licensed from UHN and HSC pursuant to a license agreement amended and restated as of June 1, 2012. The
licensed intellectual property relates to methods and compounds used in the modulation of SIRPα-CD47 interaction for therapeutic cancer applications. The license
agreement requires us to use commercially reasonable efforts to commercialize the licensed technology. The license agreement will terminate on a country-by-
country basis, in countries where a valid claim exists, when the last valid claim expires in such country, or if no valid claim exists, when the last valid claim expires
in the U.S.
Under the license agreement for SIRPαFc, we have future contingent milestones payable of $35,000 related to successful patent grants, $100,000, $200,000 and
$300,000 on the first patient dosed in phase I, II and III trials respectively, and regulatory milestones on their first achievement totalling $5,000,000. The Company
is required to pay 20% of any sublicensing revenues to the licensors on the first $50 million of sublicensing revenues, and pay 15% of any sublicensing revenues to
the licensors after the first $50 million of sublicensing revenue received.
Tigecycline License
On April 16, 2013, we signed an agreement with UHN to gain rights to intellectual property related to the use of tigecycline for the treatment of leukemia which
included a UHN sponsored, open label phase I multicenter dose-escalation tigecycline trial in patients with relapsed or refractory AML. The initial consideration
for the UHN license of $1,085,714 was satisfied by the issuance of 167,619 common shares and 1,600,000 common share purchase warrants, with each 30 warrants
allowing their holder to acquire one additional common share at an exercise price of $12.00 until March 15, 2018. Additional consideration under the UHN license
included an annual license maintenance fee and future development milestones. The fair value of the common shares issued was based on the closing price of our
common shares of $6.00 on April 16, 2013 and $7.50 per unit based on the fair value of the common share and common share purchase warrant components as of
the date of acquisition.
In August 2014, we completed an evaluation of this program with respect to its scientific merit, commercial potential, strength of intellectual property, as well as its
overall fit with our current focus and expertise. We concluded that we should focus our business plan on expanding the SIRPαFc program, rather than continue
development of tigecycline, and returned the licensed rights to UHN and recorded an impairment loss of $429,763 in the second quarter of 2014.
Agreements with Catalent Pharma Solutions
In connection with our development of SIRPαFc, we entered into two agreements on August 12, 2014 with Catalent pursuant to which we acquired the right to use
two of Catalent’s proprietary GPEx® expression cell lines for the manufacture of SIRPαFc. One agreement relates to the manufacture of TTI-621 and the other
agreement relates to the manufacture of TTI-622. In consideration for the purchase of the expression cell lines, each agreement provides that we will pay Catalent
up to US$875,000 upon reaching certain pre-marketing approval milestones and up to an additional US$28.8 million for reaching certain sales milestones. We will
also pay Catalent an annual product maintenance fee until the first product derived from the expression cell lines receives a regulatory approval other than a pricing
approval.
Under the agreements, we may use the two expression cell lines to secure such regulatory approvals and to develop, test, market and otherwise commercially
exploit products originating from the cell lines. We may transfer the expression cell lines to a third party contract manufacturer who may utilize the cell lines in a
similar fashion. We, or a third-party, cannot use or modify the cell lines, or any portions of the cell lines, to create a new cell line.
We plan to further develop the expression cell lines for use in our pre-IND toxicology and pharmacology studies, as well as to supply our phase I clinical trial. We
will be required to indemnify Catalent for any costs Catalent incurs related to regulatory filings and related claims or proceedings, for the conduct of any clinical
trials and for any manufacture, packaging, sale, promotion, distribution, use of or exposure to the expression cell lines or products. As a result of this risk, we are
obligated to maintain several designated insurance policies throughout the term of the agreements.
17
We may terminate the agreements upon 90 days’ written notice to Catalent, upon their bankruptcy or upon their material breach and failure to cure within 30 days.
Similarly, Catalent may terminate the agreements upon our bankruptcy or upon our material breach and failure to cure within 30 days. If our material breach is for
nonpayment, however, we will only have 10 days to cure before Catalent may terminate the agreement.
Financings
See details of our financings completed over the past three years under “Description of Share Capital” below.
Capital Markets
We were listed on the TSX Venture Exchange, or TSXV, until April 22, 2014 when we migrated to the Toronto Stock Exchange, or TSX. We traded under the
symbol “SSS” until June 6, 2014 when the symbol was changed to “TR”. We were listed on the OTCQX International under the symbol “SCTPF” from May 20,
2013 until we began trading on the NASDAQ Capital Market under the symbol “TRIL” on December 19, 2014.
Capital Expenditures
Capital expenditures for 2015 were mainly for laboratory equipment, leasehold improvements for our new office and laboratory location, office equipment, and
information technology equipment. Capital expenditures for 2014 were mainly for laboratory equipment. Capital expenditures in the years ended December 31,
2015 and 2014 are set out in the following table.
Capital expenditures
Trend Information
Year ended December 31,
2014
2015
$
750,382
$
173,603
Historical patterns of expenditures cannot be taken as an indication of future expenditures. The amount and timing of expenditures and therefore liquidity and
capital resources vary substantially from period to period depending on the number of research and development programs being undertaken at any one time, the
stage of the development programs, the timing of significant expenditures for manufacturing, toxicology and pharmacology studies and clinical trials, and the
availability of funding from investors and prospective commercial partners.
RISK FACTORS
An
investment
in
our
common
shares
involves
a
high
degree
of
risk
and
should
be
considered
speculative.
An
investment
in
our
common
shares
should
only
be
undertaken
by
those
persons
who
can
afford
the
total
loss
of
their
investment.
You
should
carefully
consider
the
risks
and
uncertainties
described
below,
as
well
as
other
information
contained
in
this
AIF.
The
risks
and
uncertainties
below
are
not
the
only
ones
we
face.
Additional
risks
and
uncertainties
not
presently
known
to
us
or
that
we
believe
to
be
immaterial
may
also
adversely
affect
our
business.
If
any
of
the
following
risks
occur,
our
business,
financial
condition
and
results
of
operations
could
be
seriously
harmed
and
you
could
lose
all
or
part
of
your
investment.
Further,
if
we
fail
to
meet
the
expectations
of
the
public
market
in
any
given
period,
the
market
price
of
our
common
shares
could
decline.
We
operate
in
a
highly
competitive
environment
that
involves
significant
risks
and
uncertainties,
some
of
which
are
outside
of
our
control.
18
Risks Related to our Business and our Industry
We expect to incur future losses and we may never become profitable.
We have incurred losses of $14.7 million, $12.9 million and $4.3 million for the years ended December 31, 2015, 2014, and 2013, respectively, and expect to incur
an operating loss for the year ending December 31, 2016. We have an accumulated deficit since inception through December 31, 2015 of $65.3 million. We believe
that operating losses will continue as we are planning to incur significant costs associated with the clinical development of SIRPαFc. Our net losses have had and
will continue to have an adverse effect on, among other things, our shareholders’ equity, total assets and working capital. We expect that losses will fluctuate from
quarter to quarter and year to year, and that such fluctuations may be substantial. We cannot predict when we will become profitable, if at all.
We currently have no product revenue and will not be able to maintain our operations and research and development without additional funding.
To date, we have generated no product revenue and cannot predict when and if we will generate product revenue. Our ability to generate product revenue and
ultimately become profitable depends upon our ability, alone or with partners, to successfully develop our product candidates, obtain regulatory approval, and
commercialize products, including any of our current product candidates, or other product candidates that we may develop, in-license or acquire in the future. We
do not anticipate generating revenue from the sale of products for the foreseeable future. We expect our research and development expenses to increase in
connection with our ongoing activities, particularly as we advance our product candidates through clinical trials.
Our prospects depend on the success of our product candidates which are at early stages of development, and we may not generate revenue for several years, if
at all, from these products.
Given the early stage of our product development, we can make no assurance that our research and development programs will result in regulatory approval or
commercially viable products. To achieve profitable operations, we, alone or with others, must successfully develop, gain regulatory approval, and market our
future products. We currently have no products that have been approved by the FDA, HC, or any similar regulatory authority. To obtain regulatory approvals for
our product candidates being developed and to achieve commercial success, clinical trials must demonstrate that the product candidates are safe for human use and
that they demonstrate efficacy. While we have commenced a phase I trial for SIRPαFc, we have not yet completed a phase I clinical trial or subsequent required
clinical trials.
Many product candidates never reach the stage of clinical testing and even those that do have only a small chance of successfully completing clinical development
and gaining regulatory approval. Product candidates may fail for a number of reasons, including, but not limited to, being unsafe for human use or due to the failure
to provide therapeutic benefits equal to or better than the standard of treatment at the time of testing. Unsatisfactory results obtained from a particular study relating
to a research and development program may cause us or our collaborators to abandon commitments to that program. Positive results of early preclinical research
may not be indicative of the results that will be obtained in later stages of preclinical or clinical research. Similarly, positive results from early-stage clinical trials
may not be indicative of favorable outcomes in later-stage clinical trials. We can make no assurance that any future studies, if undertaken, will yield favorable
results.
We recently acquired several preclinical and discovery research programs in our acquisition of Fluorinov, including certain assets relating to the treatment of
central nervous system disorders. While we conducted extensive due diligence before making this acquisition, our assessment of the Fluorinov technologies may
not be accurate. Therefore, our expectations about whether various clinical and regulatory milestones with an existing Fluorinov compound or development of a
future program on the Fluorinov development platform will be achieved may not be borne out fully or at all. We have made a commitment to attempt to monetize
the Fluorinov central nervous system assets and, if successful, to share the net proceeds with the Fluorinov vendors. As this is not a core competency of the
Company, our efforts to monetize these assets or any other Fluorinov assets may not be successful. We can make no assurances that toxicology, or other preclinical,
studies will yield results that will allow us to proceed with clinical trials in humans.
The early stage of our product development makes it particularly uncertain whether any of our product development efforts will prove to be successful and meet
applicable regulatory requirements, and whether any of our product candidates will receive the requisite regulatory approvals, be capable of being manufactured at
a reasonable cost or be successfully marketed. If we are successful in developing our current and future product candidates into approved products, we will still
experience many potential obstacles such as the need to develop or obtain manufacturing, marketing and distribution capabilities. If we are unable to successfully
commercialize any of our products, our financial condition and results of operations may be materially and adversely affected.
19
We rely and will continue to rely on third parties to plan, conduct and monitor our preclinical studies and clinical trials, and their failure to perform as
required could cause substantial harm to our business.
We rely and will continue to rely on third parties to conduct a significant portion of our preclinical and clinical development activities. Preclinical activities include
in vivo studies providing access to specific disease models, pharmacology and toxicology studies, and assay development. Clinical development activities include
trial design, regulatory submissions, clinical patient recruitment, clinical trial monitoring, clinical data management and analysis, safety monitoring and project
management. If there is any dispute or disruption in our relationship with third parties, or if they are unable to provide quality services in a timely manner and at a
feasible cost, our active development programs will face delays. Further, if any of these third parties fails to perform as we expect or if their work fails to meet
regulatory requirements, our testing could be delayed, cancelled or rendered ineffective.
We rely on contract manufacturers over whom we have limited control. If we are subject to quality, cost or delivery issues with the preclinical and clinical
grade materials supplied by contract manufacturers, our business operations could suffer significant harm.
We have limited manufacturing experience and rely on contract manufacturing organizations, or CMOs, to manufacture our product candidates for larger
preclinical studies and clinical trials. We produce small quantities of our product candidates at bench scale in our laboratory facilities for use in smaller preclinical
studies. We rely on CMOs for manufacturing, filling, packaging, storing and shipping of drug product in compliance with cGMP regulations applicable to our
products. The FDA ensures the quality of drug products by carefully monitoring drug manufacturers’ compliance with cGMP regulations. The cGMP regulations
for drugs contain minimum requirements for the methods, facilities and controls used in manufacturing, processing and packing of a drug product.
We contracted with Catalent for the manufacture of the SIRPαFc protein to supply drug product for our phase I clinical trial. The manufacture of recombinant
proteins uses well established processes including a protein expression system. Catalent is producing SIRPαFc using their proprietary GPEx® expression system.
We believe that Catalent has the capacity, the systems, and the experience to supply SIRPαFc for our phase I clinical trial and we may consider using Catalent for
manufacturing for later clinical trials. However, since the Catalent manufacturing facility where SIRPαFc is being produced was only recently established, it has
not been inspected by the FDA. Any manufacturing failures or delays or compliance issues could cause delays in the conduct of SIRPαFc preclinical studies and
clinical trials.
There can be no assurances that CMOs will be able to meet our timetable and requirements. We have not contracted with alternate suppliers in the event Catalent is
unable to scale up production, or if Catalent otherwise experiences any other significant problems. If we are unable to arrange for alternative third-party
manufacturing sources on commercially reasonable terms or in a timely manner, we may be delayed in the development of our product candidates. Further, contract
manufacturers must operate in compliance with cGMP and failure to do so could result in, among other things, the disruption of product supplies. Our dependence
upon third parties for the manufacture of our products may adversely affect our profit margins and our ability to develop and deliver products on a timely and
competitive basis.
If clinical trials of our product candidates fail to demonstrate safety and efficacy to the satisfaction of regulatory authorities or do not otherwise produce
positive results, we would incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and
commercialization of our product candidates.
Before obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must conduct preclinical studies in animals and
extensive clinical trials in humans to demonstrate the safety and efficacy of the product candidates. Clinical testing is expensive and difficult to design and
implement, can take many years to complete and has uncertain outcomes. The outcome of preclinical studies and early clinical trials may not predict the success of
later clinical trials, and interim results of a clinical trial do not necessarily predict final results. A number of companies in the pharmaceutical and biotechnology
industries have suffered significant setbacks in advanced clinical trials due to lack of efficacy or unacceptable safety profiles, notwithstanding promising results in
earlier trials. We do not know whether the clinical trials we may conduct will demonstrate adequate efficacy and safety to result in regulatory approval to market
any of our product candidates in any jurisdiction. A product candidate may fail for safety or efficacy reasons at any stage of the testing process. A major risk we
face is the possibility that none of our product candidates under development will successfully gain market approval from the FDA or other regulatory authorities,
resulting in us being unable to derive any commercial revenue from them after investing significant amounts of capital in multiple stages of preclinical and clinical
testing.
20
If we experience delays in clinical testing, we will be delayed in commercializing our product candidates, and our business may be substantially harmed.
We cannot predict whether any clinical trials will begin as planned, will need to be restructured, or will be completed on schedule, or at all. Our product
development costs will increase if we experience delays in clinical testing. Significant clinical trial delays could shorten any periods during which we may have the
exclusive right to commercialize our product candidates or allow our competitors to bring products to market before us, which would impair our ability to
successfully commercialize our product candidates and may harm our financial condition, results of operations and prospects. The commencement and completion
of clinical trials for our products may be delayed for a number of reasons, including delays related, but not limited, to:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
failure by regulatory authorities to grant permission to proceed or placing the clinical trial on hold;
patients failing to enroll or remain in our trials at the rate we expect;
suspension or termination of clinical trials by regulators for many reasons, including concerns about patient safety or failure of our contract
manufacturers to comply with cGMP requirements;
any changes to our manufacturing process that may be necessary or desired;
delays or failure to obtain clinical supply from contract manufacturers of our products necessary to conduct clinical trials;
product candidates demonstrating a lack of safety or efficacy during clinical trials;
patients choosing an alternative treatment for the indications for which we are developing any of our product candidates or participating in
competing clinical trials;
patients failing to complete clinical trials due to dissatisfaction with the treatment, side effects or other reasons;
reports of clinical testing on similar technologies and products raising safety and/or efficacy concerns;
competing clinical trials and scheduling conflicts with participating clinicians;
clinical investigators not performing our clinical trials on their anticipated schedule, dropping out of a trial, or employing methods not consistent
with the clinical trial protocol, regulatory requirements or other third parties not performing data collection and analysis in a timely or accurate
manner;
failure of our contract research organizations, or CROs, to satisfy their contractual duties or meet expected deadlines;
inspections of clinical trial sites by regulatory authorities or Institutional Review Boards, or IRBs, or ethics committees finding regulatory
violations that require us to undertake corrective action, resulting in suspension or termination of one or more sites or the imposition of a clinical
hold on the entire study;
one or more IRBs or ethics committees rejecting, suspending or terminating the study at an investigational site, precluding enrollment of additional
subjects, or withdrawing its approval of the trial; or
failure to reach agreement on acceptable terms with prospective clinical trial sites
Our product development costs will increase if we experience delays in testing or approval or if we need to perform more or larger clinical trials than planned.
Additionally, changes in regulatory requirements and policies may occur, and we may need to amend study protocols to reflect these changes. Amendments may
require us to resubmit our study protocols to regulatory authorities or IRBs or ethics committees for re-examination, which may impact the cost, timing or
successful completion of that trial. Delays or increased product development costs may have a material adverse effect on our business, financial condition and
prospects.
If we have difficulty enrolling patients in clinical trials, the completion of the trials may be delayed or cancelled.
21
As our product candidates advance from preclinical testing to clinical testing, and then through progressively larger and more complex clinical trials, we will need
to enroll an increasing number of patients that meet our eligibility criteria. There is significant competition for recruiting cancer patients in clinical trials, and we
may be unable to enroll the patients we need to complete clinical trials on a timely basis or at all. The factors that affect our ability to enroll patients are largely
uncontrollable and include, but are not limited to, the following:
•
•
•
•
•
•
•
size and nature of the patient population;
eligibility and exclusion criteria for the trial;
design of the study protocol;
competition with other companies for clinical sites or patients;
the perceived risks and benefits of the product candidate under study;
the patient referral practices of physicians; and
the number, availability, location and accessibility of clinical trial sites
If we are unable to successfully develop companion diagnostics for our therapeutic product candidates, or experience significant delays in doing so, we may not
achieve marketing approval or realize the full commercial potential of our therapeutic product candidates.
We may develop companion diagnostics for our therapeutic product candidates. We expect that, at least in some cases, regulatory authorities may require the
development and regulatory approval of a companion diagnostic as a condition to approving our therapeutic product candidates. We have limited experience and
capabilities in developing or commercializing diagnostics and plan to rely in large part on third parties to perform these functions. We have not begun to develop
companion diagnostics for any of our therapeutic product candidates.
Companion diagnostics are subject to regulation by the FDA, HC, and comparable foreign regulatory authorities as medical devices and may require separate
regulatory approval or clearance prior to commercialization. If we, or any third parties that we engage to assist us, are unable to successfully develop companion
diagnostics for our therapeutic product candidates, or experience delays in doing so, our business may be substantially harmed.
Regulatory approval processes are lengthy, expensive and inherently unpredictable. Our inability to obtain regulatory approval for our product candidates
would substantially harm our business.
Our development and commercialization activities and product candidates are significantly regulated by a number of governmental entities, including the FDA,
HC, and comparable authorities in other countries. Regulatory approvals are required prior to each clinical trial and we may fail to obtain the necessary approvals to
commence or continue clinical testing. We must comply with regulations concerning the manufacture, testing, safety, effectiveness, labeling, documentation,
advertising, and sale of products and product candidates and ultimately must obtain regulatory approval before we can commercialize a product candidate. The time
required to obtain approval by such regulatory authorities is unpredictable but typically takes many years following the commencement of preclinical studies and
clinical trials. Any analysis of data from clinical activities we perform is subject to confirmation and interpretation by regulatory authorities, which could delay,
limit or prevent regulatory approval. Even if we believe results from our clinical trials are favorable to support the marketing of our product candidates, the FDA or
other regulatory authorities may disagree. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change
during the course of a product candidate’s clinical development and may vary among jurisdictions. We have not obtained regulatory approval for any product
candidate and it is possible that none of our existing product candidates or any future product candidates will ever obtain regulatory approval.
We could fail to receive regulatory approval for our product candidates for many reasons, including, but not limited to:
•
•
•
•
•
disagreement with the design or implementation of our clinical trials;
failure to demonstrate that a product candidate is safe and effective for its proposed indication;
failure of clinical trials to meet the level of statistical significance required for approval;
failure to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;
disagreement with our interpretation of data from preclinical studies or clinical trials;
22
•
•
•
the insufficiency of data collected from clinical trials of our product candidates to support the submission and filing of a BLA or other submission
to obtain regulatory approval;
deficiencies in the manufacturing processes or the failure of facilities of CMOs with whom we contract for clinical and commercial supplies to
pass a pre-approval inspection; or
changes in the approval policies or regulations that render our preclinical and clinical data insufficient for approval.
A regulatory authority may require more information, including additional preclinical or clinical data to support approval, which may delay or prevent approval and
our commercialization plans, or we may decide to abandon the development program. If we were to obtain approval, regulatory authorities may approve any of our
product candidates for fewer or more limited indications than we request, may grant approval contingent on the performance of costly post-marketing clinical trials,
or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that
product candidate. Moreover, depending on any safety issues associated with our product candidates that garner approval, the FDA may impose a risk evaluation
and mitigation strategy, thereby imposing certain restrictions on the sale and marketability of such products.
We will require additional capital to finance our operations, which may not be available to us on acceptable terms, or at all. As a result, we may not complete
the development and commercialization of our product candidates or develop new product candidates.
As a research and development company, our operations have consumed substantial amounts of cash since inception. We expect to spend substantial funds to
continue the research, development and testing of our product candidates and to prepare to commercialize products subject to FDA approval in the U.S. and similar
approvals in other jurisdictions. We will also require significant additional funds if we expand the scope of our current clinical plans for the SIRPαFc program or if
we were to acquire any new assets and advance their development. Therefore, for the foreseeable future, we will have to fund all of our operations and development
expenditures from cash on hand, equity or debt financings, through collaborations with other biotechnology or pharmaceutical companies or through financings
from other sources. We expect that our existing cash at December 31, 2015 of $86,770,542 will enable us to fund our current operating plan requirements for at
least the next twelve months. Additional financing will be required to meet our long term liquidity needs. If we do not succeed in raising additional funds on
acceptable terms, we might not be able to complete planned preclinical studies and clinical trials or pursue and obtain approval of any product candidates from the
FDA and other regulatory authorities. It is possible that future financing will not be available or, if available, may not be on favorable terms. The availability of
financing will be affected by the achievement of our corporate goals, the results of scientific and clinical research, the ability to obtain regulatory approvals, the
state of the capital markets generally and with particular reference to drug development companies, the status of strategic alliance agreements and other relevant
commercial considerations. If adequate funding is not available, we may be required to delay, reduce or eliminate one or more of our product development
programs, or obtain funds through corporate partners or others who may require us to relinquish significant rights to product candidates or obtain funds on less
favorable terms than we would otherwise accept. To the extent that external sources of capital become limited or unavailable or available on onerous terms, our
intangible assets and our ability to continue our clinical development plans may become impaired, and our assets, liabilities, business, financial condition and
results of operations may be materially or adversely affected.
We face competition from other biotechnology and pharmaceutical companies and our financial condition and operations will suffer if we fail to effectively
compete.
The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. Our competitors include
large, well-established pharmaceutical companies, biotechnology companies, and academic and research institutions developing cancer therapeutics for the same
indications we are targeting and competitors with existing marketed therapies. Many other companies are developing or commercializing therapies to treat the same
diseases or indications for which our product candidates may be useful. Although there are no approved therapies that specifically target the CD47 pathway, some
competitors use therapeutic approaches that may compete directly with our product candidates. For example, SIRPαFc is in direct competition with CD47 blocking
antibodies from Stanford University, Celgene Corporation, and Novimmune SA.
23
Many of our competitors have substantially greater financial, technical and human resources than we do and have significantly greater experience than us in
conducting preclinical testing and human clinical trials of product candidates, scaling up manufacturing operations and obtaining regulatory approvals of products.
Accordingly, our competitors may succeed in obtaining regulatory approval for products more rapidly than we do. Our ability to compete successfully will largely
depend on:
•
•
•
•
•
•
•
the efficacy and safety profile of our product candidates relative to marketed products and other product candidates in development;
our ability to develop and maintain a competitive position in the product categories and technologies on which we focus;
the time it takes for our product candidates to complete clinical development and receive marketing approval;
our ability to obtain required regulatory approvals;
our ability to commercialize any of our product candidates that receive regulatory approval;
our ability to establish, maintain and protect intellectual property rights related to our product candidates; and
acceptance of any of our product candidates that receive regulatory approval by physicians and other healthcare providers and payers.
Competitors have developed and may develop technologies that could be the basis for products that challenge the differentiated nature and potential for best-in-
class product development programs and discovery research capabilities of Fluorinov. Some of those products may have an entirely different approach or means of
accomplishing the desired therapeutic effect than our products and may be more effective or less costly than our products. The success of our competitors and their
products and technologies relative to our technological capabilities and competitiveness could have a material adverse effect on the future pre-clinical and clinical
trials of our products, including our ability to obtain the necessary regulatory approvals for the conduct of such trials. This may further negatively impact our ability
to generate future product development programs with improved pharmacological properties using Fluorinov technology.
If we are not able to compete effectively against our current and future competitors, our business will not grow and our financial condition and operations will
substantially suffer.
We heavily rely on the capabilities and experience of our key executives and scientists and the loss of any of them could affect our ability to develop our
products.
The loss of Dr. Niclas Stiernholm, our President and Chief Executive Officer, or other key members of our staff, including Dr. Robert Uger, our Chief Scientific
Officer, Dr. Eric Sievers, our Chief Medical Officer, James Parsons, our Chief Financial Officer, Dr. Penka Petrova, our Chief Development Officer, or Dr. Malik
Slassi, our Senior Vice President, Discovery Research could harm us. We have employment agreements with Drs. Stiernholm, Uger, Sievers, Petrova and Slassi
and Mr. Parsons, although such employment agreements do not guarantee their retention. We also depend on our scientific and clinical collaborators and advisors,
all of whom have outside commitments that may limit their availability to us. In addition, we believe that our future success will depend in large part upon our
ability to attract and retain highly skilled scientific, managerial, medical, clinical and regulatory personnel, particularly as we expand our activities and seek
regulatory approvals for clinical trials. We enter into agreements with our scientific and clinical collaborators and advisors, key opinion leaders and academic
partners in the ordinary course of our business. We also enter into agreements with physicians and institutions who will recruit patients into our clinical trials on our
behalf in the ordinary course of our business. Notwithstanding these arrangements, we face significant competition for these types of personnel from other
companies, research and academic institutions, government entities and other organizations. We cannot predict our success in hiring or retaining the personnel we
require for continued growth. The loss of the services of any of our executive officers or other key personnel could potentially harm our business, operating results
or financial condition.
24
Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could
have a material adverse effect on our business.
We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include failures to comply with FDA regulations, provide
accurate information to the FDA, comply with manufacturing standards we have established, comply with federal and state health-care fraud and abuse laws and
regulations, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the
healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing, and other abusive practices. These laws and
regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other
business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in
regulatory sanctions and serious harm to our reputation. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting
our rights, those actions could have a substantial impact on our business and results of operations, including the imposition of substantial fines or other sanctions.
We may expand our business through the acquisition of companies or businesses or by entering into collaborations or by in-licensing product candidates, each
of which could disrupt our business and harm our financial condition.
We have in the past and may in the future seek to expand our pipeline and capabilities by acquiring one or more companies or businesses, entering into
collaborations, or in-licensing one or more product candidates. For example, in January 2016, we acquired Fluorinov, a small molecule medicinal chemistry
company with preclinical oncology assets and a potential discovery platform. In April 2013, we in-licensed tigecycline which was subsequently returned to the
UHN in 2014. Acquisitions, collaborations and in-licenses involve numerous risks, including, but not limited to:
•
•
•
•
•
•
•
•
•
substantial cash expenditures;
technology development risks;
potentially dilutive issuances of equity securities;
incurrence of debt and contingent liabilities, some of which may be difficult or impossible to identify at the time of acquisition;
difficulties in assimilating the operations of the acquired companies;
potential disputes regarding contingent consideration;
diverting our management’s attention away from other business concerns;
entering markets in which we have limited or no direct experience; and
potential loss of our key employees or key employees of the acquired companies or businesses.
We have experience in making acquisitions, entering collaborations, and in-licensing product candidates, however, we cannot provide assurance that any
acquisition, collaboration or in-license will result in short-term or long-term benefits to us. We may incorrectly judge the value or worth of an acquired company or
business or in-licensed product candidate. In addition, our future success would depend in part on our ability to manage the rapid growth associated with some of
these acquisitions, collaborations and in-licenses. We cannot provide assurance that we would be able to successfully combine our business with that of acquired
businesses, manage a collaboration or integrate in-licensed product candidates. Furthermore, the development or expansion of our business may require a
substantial capital investment by us.
Negative results from clinical trials or studies of others and adverse safety events involving the targets of our products may have an adverse impact on our
future commercialization efforts.
From time to time, studies or clinical trials on various aspects of biopharmaceutical products are conducted by academic researchers, competitors or others. The
results of these studies or trials, when published, may have a significant effect on the market for the biopharmaceutical product that is the subject of the study. The
publication of negative results of studies or clinical trials or adverse safety events related to our product candidates, or the therapeutic areas in which our product
candidates compete, could adversely affect our share price and our ability to finance future development of our product candidates, and our business and financial
results could be materially and adversely affected.
25
We face the risk of product liability claims, which could exceed our insurance coverage and produce recalls, each of which could deplete our cash resources.
We are exposed to the risk of product liability claims alleging that use of our product candidates caused an injury or harm. These claims can arise at any point in the
development, testing, manufacture, marketing or sale of our product candidates and may be made directly by patients involved in clinical trials of our product
candidates, by consumers or healthcare providers or by individuals, organizations or companies selling our products. Product liability claims can be expensive to
defend, even if the product or product candidate did not actually cause the alleged injury or harm.
Insurance covering product liability claims becomes increasingly expensive as a product candidate moves through the development pipeline to commercialization.
We currently maintain clinical trial liability insurance coverage of $10 million. However, there can be no assurance that such insurance coverage is or will continue
to be adequate or available to us at a cost acceptable to us or at all. We may choose or find it necessary under our collaborative agreements to increase our
insurance coverage in the future. We may not be able to secure greater or broader product liability insurance coverage on acceptable terms or at reasonable costs
when needed. Any liability for damages resulting from a product liability claim could exceed the amount of our coverage, require us to pay a substantial monetary
award from our own cash resources and have a material adverse effect on our business, financial condition and results of operations. Moreover, a product recall, if
required, could generate substantial negative publicity about our products and business, inhibit or prevent commercialization of other products and product
candidates or negatively impact existing or future collaborations.
In addition, some of our licensing and other agreements with third parties require or might require us to maintain product liability insurance. If we cannot maintain
acceptable amounts of coverage on commercially reasonable terms in accordance with the terms set forth in these agreements, the corresponding agreements would
be subject to termination, which could have a material adverse impact on our operations.
We may not achieve our publicly announced milestones according to schedule, or at all.
From time to time, we may announce the timing of certain events we expect to occur, such as the anticipated timing of results from our clinical trials. These
statements are forward-looking and are based on the best estimates of management at the time relating to the occurrence of such events. However, the actual timing
of such events may differ from what has been publicly disclosed. The timing of events such as initiation or completion of a clinical trial, filing of an application to
obtain regulatory approval, or announcement of additional clinical trials for a product candidate may ultimately vary from what is publicly disclosed. These
variations in timing may occur as a result of different events, including the nature of the results obtained during a clinical trial or during a research phase, problems
with a CMO or a CRO or any other event having the effect of delaying the publicly announced timeline. We undertake no obligation to update or revise any
forward-looking information, whether as a result of new information, future events or otherwise, except as otherwise required by law. Any variation in the timing
of previously announced milestones could have a material adverse effect on our business plan, financial condition or operating results and the trading price of
common shares.
We are exposed to the financial risk related to the fluctuation of foreign exchange rates and the degrees of volatility of those rates.
We may be adversely affected by foreign currency fluctuations. To date, we have been primarily funded through issuances of equity, proceeds from the exercise of
warrants and stock options and from interest income on funds available for investment, which are all denominated both in Canadian and U.S. dollars. Also, a
growing portion of our expenditures are in U.S. dollars, and we are therefore subject to foreign currency fluctuations which may, from time to time, impact our
financial position and results of operations.
Risks Related to Intellectual Property
If we are unable to adequately protect and enforce our intellectual property, our competitors may take advantage of our development efforts or acquired
technology and compromise our prospects of marketing and selling our key products.
26
We control two patent families relating to SIRPα. One family relates to the use of SIRPα to treat cancer. The other family relates our drug as a composition of
matter, SIRPαFc.
More recently, we acquired the patent portfolio of Fluorinov, which embraces patent filings that cover eleven different inventions. With the exception of one
process scheme, these patent filings each claim a family of small molecule drugs as compositions of matter, together with claims for their production and their
medical uses. These drugs target cancer for the most part, and some related medical end-uses.
Our success will depend in part upon our ability to protect our intellectual property and proprietary technologies and upon the nature and scope of the intellectual
property protection we receive. For example, some of our patent portfolio covers primarily methods of medical use but not compositions of matter. The ability to
compete effectively and to achieve partnerships will depend on our ability to develop and maintain proprietary aspects of our technology and to operate without
infringing on the proprietary rights of others. The presence of such proprietary rights of others could severely limit our ability to develop and commercialize our
products, to conduct our existing research and could require financial resources to defend litigation, which may be in excess of our ability to raise such funds. There
is no assurance that our pending patent applications or those that we intend to acquire will be approved in a form that will be sufficient to protect our proprietary
technology and gain or keep any competitive advantage that we may have.
The patent positions of pharmaceutical companies can be highly uncertain and involve complex legal, scientific and factual questions for which important legal
principles remain unresolved. Patents issued to us or our respective licensors may be challenged, invalidated or circumvented. To the extent our intellectual
property, including licensed intellectual property, offers inadequate protection, or is found to be invalid or unenforceable, we are exposed to a greater risk of direct
competition. If our intellectual property does not provide adequate protection against our competitors’ products, our competitive position could be adversely
affected, as could our business, financial condition and results of operations. Both the patent application process and the process of managing patent disputes can be
time consuming and expensive, and the laws of some foreign countries may not protect our intellectual property rights to the same extent as do the laws of Canada
and the United States.
We will be able to protect our intellectual property from unauthorized use by third parties only to the extent that our proprietary technologies, key products, and any
future products are covered by valid and enforceable intellectual property rights including patents or are effectively maintained as trade secrets, and provided we
have the funds to enforce our rights, if necessary.
If we lose our licenses from third-party owners we may be unable to continue a substantial part of our business.
We are party to licenses that give us rights to intellectual property that is necessary or useful for a substantial part of our business. Pursuant to our exclusive license
agreement with UHN and the HSC, under which we license certain patent rights for our key products and their uses, we are required to use commercially
reasonable efforts to commercialize products based on the licensed rights and pay certain royalties and sublicensing revenue to UHN and HSC. These licenses
require that we pay development milestone payments, regulatory milestone payments, royalties on net sales, and sublicensing revenues, as well as annual
maintenance fees.
We have also entered into agreements allowing us to manufacture SIRPαFc using Catalent’s proprietary GPEx® expression system. The consideration includes
payments at the time we successfully reach a series of development and sales milestones. We may also enter into licenses in the future to access additional third-
party intellectual property.
If we fail to pay annual maintenance fees, development and sales milestones, or it is determined that we did not use commercially reasonable efforts to
commercialize licensed products, we could lose our licenses which could have a material adverse effect on our business and financial condition.
We may require additional third-party licenses to effectively develop and manufacture our key products and are currently unable to predict the availability or
cost of such licenses.
A substantial number of patents have already been issued to other biotechnology and pharmaceutical companies. To the extent that valid third-party patent rights
cover our products or services, we or our strategic collaborators would be required to seek licenses from the holders of these patents in order to manufacture, use or
sell these products and services, and payments under them would reduce our profits from these products and services. We are currently unable to predict the extent
to which we may wish or be required to acquire rights under such patents, the availability and cost of acquiring such rights, and whether a license to such patents
will be available on acceptable terms or at all. There may be patents in the U.S. or in foreign countries or patents issued in the future that are unavailable to license
on acceptable terms. Our inability to obtain such licenses may hinder or eliminate our ability to manufacture and market our products.
27
Changes in patent law and its interpretation could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.
As is the case with other biotechnology and pharmaceutical companies, our success is heavily dependent on intellectual property rights, particularly patents.
Obtaining and enforcing patents in the biopharmaceutical industry involves technological and legal complexity, and obtaining and enforcing biopharmaceutical
patents is costly, time-consuming and inherently uncertain. The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of
patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard
to our and our licensors’ or collaborators’ ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of
patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts, and the U.S. Patent and Trademark Office, or USPTO, the laws and
regulations governing patents could change in unpredictable ways that would weaken our and our licensors’ or collaborators’ ability to obtain new patents or to
enforce existing patents and patents we and our licensors or collaborators may obtain in the future.
Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our and our licensors’ or collaborators’ patent
applications and the enforcement or defense of our or our licensors’ or collaborators’ issued patents. On September 16, 2011, the Leahy-Smith America Invents
Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that
affect the way patent applications are prosecuted and may also affect patent litigation. The USPTO recently developed new regulations and procedures to govern
administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file
provisions, only became effective on March 16, 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our
business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our or our licensors’ or
collaborators’ patent applications and the enforcement or defense of our or our licensors’ or collaborators’ issued patents, all of which could have a material
adverse effect on our business and financial condition.
Litigation regarding patents, patent applications, and other proprietary rights may be expensive, time consuming and cause delays in the development and
manufacturing of our key products.
Our success will depend in part on our ability to operate without infringing the proprietary rights of third parties. The pharmaceutical industry is characterized by
extensive patent litigation. Other parties may have, or obtain in the future, patents and allege that the use of our technologies infringes these patent claims or that
we are employing their proprietary technology without authorization.
In addition, third parties may challenge or infringe upon our existing or future patents. Proceedings involving our patents or patent applications or those of others
could result in adverse decisions regarding:
•
•
the patentability of our inventions relating to our key products; and/or
the enforceability, validity, or scope of protection offered by our patents relating to our key products.
If we are unable to avoid infringing the patent rights of others, we may be required to seek a license, defend an infringement action, or challenge the validity of the
patents in court. Regardless of the outcome, patent litigation is costly and time consuming. In some cases, we may not have sufficient resources to bring these
actions to a successful conclusion. In addition, if we do not obtain a license, develop or obtain non-infringing technology, fail to defend an infringement action
successfully or have infringed patents declared invalid, we may:
28
•
•
•
incur substantial monetary damages;
encounter significant delays in bringing our key products to market; and/or
be precluded from participating in the manufacture, use or sale of our key products or methods of treatment requiring licenses.
Even if we are successful in these proceedings, we may incur substantial costs and divert management time and attention in pursuing these proceedings, which
could have a material adverse effect on us.
Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them.
Because we rely on third parties to develop our products, we must share trade secrets with them. We seek to protect our proprietary technology in part by entering
into confidentiality agreements and, if applicable, material transfer agreements, collaborative research agreements, consulting agreements or other similar
agreements with our collaborators, advisors, employees and consultants prior to beginning research or disclosing proprietary information. These agreements
typically restrict the ability of our collaborators, advisors, employees and consultants to publish data potentially relating to our trade secrets. Our academic
collaborators typically have rights to publish data, provided that we are notified in advance and may delay publication for a specified time in order to secure our
intellectual property rights arising from the collaboration. In other cases, publication rights are controlled exclusively by us, although in some cases we may share
these rights with other parties. We also conduct joint research and development programs which may require us to share trade secrets under the terms of research
and development collaboration or similar agreements. Despite our efforts to protect our trade secrets, our competitors may discover our trade secrets, either through
breach of these agreements, independent development or publication of information including our trade secrets in cases where we do not have proprietary or
otherwise protected rights at the time of publication. A competitor’s discovery of our trade secrets may impair our competitive position and could have a material
adverse effect on our business and financial condition.
Risks Related to Our Common Shares
Our common share price has been volatile in recent years, and may continue to be volatile.
The market prices for securities of biopharmaceutical companies, including ours, have historically been volatile. In the year ended December 31, 2015, our
common shares traded on the TSX, at a high of $37.27 and a low of $10.50 per share. In the year ended December 31, 2014, on the TSXV/TSX our common shares
traded at a high of $22.20 and a low of $6.30 per share. A number of factors could influence the volatility in the trading price of our common shares, including
changes in the economy or in the financial markets, industry related developments, the results of product development and commercialization, changes in
government regulations, and developments concerning proprietary rights, litigation and cash flow. Our quarterly losses may vary because of the timing of costs for
manufacturing, preclinical studies and clinical trials. Also, the reporting of adverse safety events involving our products and public rumors about such events could
cause our share price to decline or experience periods of volatility. Each of these factors could lead to increased volatility in the market price of our common
shares. In addition, changes in the market prices of the securities of our competitors may also lead to fluctuations in the trading price of our common shares.
We have never paid dividends and do not expect to do so in the foreseeable future.
We have not declared or paid any cash dividends on our common or preferred shares to date. The payment of dividends in the future will be dependent on our
earnings and financial condition in addition to such other factors as our board of directors considers appropriate. Unless and until we pay dividends, shareholders
may not receive a return on their shares. There is no present intention by our board of directors to pay dividends on our shares.
29
Future sales or issuances of equity securities and the conversion of outstanding securities to common shares could decrease the value of the common shares,
dilute investors’ voting power, and reduce our earnings per share.
We may sell additional equity securities in future offerings, including through the sale of securities convertible into equity securities, to finance operations,
acquisitions or projects, and issue additional common shares if outstanding warrants or stock options are exercised, or preferred shares are converted to common
shares, which may result in dilution. See “Description of Share Capital”, below, for details of our outstanding securities convertible into common shares. We filed a
base shelf prospectus with securities commissions in Canada and a Form F-10 registration statement with the U.S. Securities and Exchange Commission (“SEC”)
on June 4, 2015, that provides that we may sell under the prospectus from time to time over the following 25 months up to U.S. $100 million, in one or more
offerings, of common shares, First Preferred shares, warrants to purchase common shares, or units comprising a combination of common shares, First Preferred
shares and/or warrants. Subject to receipt of any required regulatory approvals, subscribers of the December 2013 private placement who purchased a minimum of
10% of the securities sold under the offering received rights to purchase our securities in future financings to enable each such shareholder to maintain their
percentage holding in our common shares for so long as the subscriber holds at least 10% of the outstanding common shares on a fully-diluted basis. Shareholders
who do not have this future financing participation right may be disadvantaged in participating in such financings.
Our board of directors has the authority to authorize certain offers and sales of additional securities without the vote of, or prior notice to, shareholders. Based on
the need for additional capital to fund expected expenditures and growth, it is likely that we will issue additional securities to provide such capital. Such additional
issuances may involve the issuance of a significant number of common shares at prices less than the current market price for our common shares.
Sales of substantial amounts of our securities, or the availability of such securities for sale, as well as the issuance of substantial amounts of our common shares
upon conversion of outstanding convertible equity securities, could adversely affect the prevailing market prices for our securities and dilute investors’ earnings per
share. A decline in the market prices of our securities could impair our ability to raise additional capital through the sale of securities should we desire to do so.
We are likely a “passive foreign investment company,” which may have adverse U.S. federal income tax consequences for U.S. shareholders.
U.S. investors should be aware that we believe we were classified as a passive foreign investment company, or PFIC, during the tax years ended December 31,
2015 and 2014, and based on current business plans and financial expectations, we expect that we will be a PFIC for the current tax year and may be a PFIC in
future tax years. If we are a PFIC for any year during a U.S. shareholder’s holding period of our common shares, then such U.S. shareholder generally will be
required to treat any gain realized upon a disposition of our common shares, or any so-called “excess distribution” received on our common shares, as ordinary
income, and to pay an interest charge on a portion of such gain or distributions, unless the shareholder makes a timely and effective “qualified electing fund”
election, or QEF Election, or a “mark-to-market” election with respect to our shares. A U.S. shareholder who makes a QEF Election generally must report on a
current basis its share of our net capital gain and ordinary earnings for any year in which we are a PFIC, whether or not we distribute any amounts to our
shareholders. A U.S. shareholder who makes the mark-to-market election generally must include as ordinary income each year the excess of the fair market value
of the common shares over the shareholder’s adjusted tax basis therein. Each U.S. shareholder should consult its own tax advisors regarding the PFIC rules and the
U.S. federal income tax consequences of the acquisition, ownership and disposition of our common shares.
It may be difficult for non-Canadian investors to obtain and enforce judgments against us because of our Canadian incorporation and presence.
We are a corporation existing under the laws of the Province of Ontario, Canada. Several of our directors and officers, and several of the experts are residents of
Canada, and all or a substantial portion of their assets, and a substantial portion of our assets, are located outside the United States. Consequently, although we have
appointed an agent for service of process in the United States, it may be difficult for holders of our securities who reside in the United States to effect service within
the United States upon those directors and officers, and the experts who are not residents of the United States. It may also be difficult for holders of our securities
who reside in the United States to realize in the United States upon judgments of courts of the United States predicated upon our civil liability and the civil liability
of our directors, officers and experts under the United States federal securities laws. Investors should not assume that Canadian courts (i) would enforce judgments
of United States courts obtained in actions against us or such directors, officers or experts predicated upon the civil liability provisions of the United States federal
securities laws or the securities or “blue sky” laws of any state or jurisdiction of the United States or (ii) would enforce, in original actions, liabilities against us or
such directors, officers or experts predicated upon the United States federal securities laws or any securities or “blue sky” laws of any state or jurisdiction of the
United States. In addition, the protections afforded by Canadian securities laws may not be available to investors in the United States.
30
If there are substantial sales of our common shares, the market price of our common shares could decline.
Sales of substantial numbers of our common shares could cause a decline in the market price of our common shares. Any sales by existing shareholders or holders
who exercise their warrants or stock options may have an adverse effect on our ability to raise capital and may adversely affect the market price of our common
shares.
We are an “emerging growth company,” and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make
our common shares less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of
exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being
required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive
compensation in our periodic reports and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder
approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years, although circumstances could
cause us to lose that status earlier. We cannot predict if investors will find our common shares less attractive because we may rely on these exemptions. If some
investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and our share price may be more
volatile.
Any failure to maintain an effective system of internal controls may result in material misstatements of our consolidated financial statements or cause us to fail
to meet our reporting obligations or fail to prevent fraud; and in that case, our shareholders could lose confidence in our financial reporting, which would
harm our business and could negatively impact the price of our common shares.
Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. If we fail to maintain an effective system of internal controls,
we might not be able to report our financial results accurately or prevent fraud; and in that case, our shareholders could lose confidence in our financial reporting,
which would harm our business and could negatively impact the price of our common shares. While we believe that we have sufficient personnel and review
procedures to allow us maintain an effective system of internal controls, we cannot provide assurance that we will not experience potential material weaknesses in
our internal control. Even if we conclude that our internal control over financial reporting provides reasonable assurance regarding the reliability of financial
reporting and the preparation of consolidated financial statements for external purposes in accordance with International Financial Reporting Standards, as issued
by the International Accounting Standards Board, because of its inherent limitations, internal control over financial reporting may not prevent or detect fraud or
misstatements. Failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our results of operations or
cause us to fail to meet our future reporting obligations.
If we fail to timely achieve and maintain the adequacy of our internal control over financial reporting, we may not be able to produce reliable financial reports or
help prevent fraud. Our failure to achieve and maintain effective internal control over financial reporting could prevent us from complying with our reporting
obligations on a timely basis, which could result in the loss of investor confidence in the reliability of our consolidated financial statements, harm our business and
negatively impact the trading price of our common shares.
31
As a foreign private issuer, we are not subject to certain United States securities law disclosure requirements that apply to a domestic United States issuer,
which may limit the information which would be publicly available to our shareholders.
As a foreign private issuer, we are not required to comply with all the periodic disclosure requirements of the Exchange Act, and therefore, there may be less
publicly available information about us than if we were a United States domestic issuer. For example, we are not subject to the proxy rules in the United States and
disclosure with respect to our annual meetings will be governed by Canadian requirements.
Our charter documents and certain Canadian legislation could delay or deter a change of control, limit attempts by our shareholders to replace or remove our
current management and limit the market price of our common shares.
Our authorized preferred shares are available for issuance from time to time at the discretion of our board of directors, without shareholder approval. Our articles
grant our board of directors the authority to determine the special rights and restrictions granted to or imposed on any unissued series of preferred shares, and those
rights may be superior to those of our common shares. Further, the Investment Canada Act subjects any acquisition of control of a company by a non-Canadian to
government review if the value of the assets as calculated pursuant to the legislation exceeds a threshold amount or in other circumstances determined at the
discretion of the Canadian government. A reviewable acquisition may not proceed unless the relevant minister is satisfied that the investment is likely to be of net
benefit to Canada and the Canadian government is satisfied that no other important concerns arise from the acquisition of control. Any of the foregoing could
prevent or delay a change of control and may deprive or limit strategic opportunities to our shareholders to sell their shares.
Overview
DESCRIPTION OF SHARE CAPITAL
Our authorized share capital consists of an unlimited number of common shares, Class B Shares, First Preferred Shares, Series I Non-Voting Convertible First
Preferred Shares, or Series I First Preferred Shares, and Series II Non-Voting Convertible First Preferred Shares, or Series II First Preferred Shares, in each case
without nominal or par value.
The holders of common shares are entitled to receive notice of and to attend all annual and special meetings of our shareholders and to one vote per share held at
each such meeting, and they are entitled to receive dividends as determined and declared by our board of directors.
Subject to the rights of the holders of any other class of our shares entitled to receive dividends in priority to or concurrently with the holders of the common
shares, our board of directors may in its sole discretion declare dividends on the common shares to the exclusion of any other class of shares of the Company.
In the event of our liquidation, dissolution or winding up or other distribution of our assets among our shareholders for the purpose of winding up our affairs, the
holders of the common shares shall, subject to the rights of the holders of any other class of shares entitled to receive our assets upon such a distribution in priority
to or concurrently with the holders of the common shares, be entitled to participate in the distribution. Such distribution shall be made in equal amounts per share
on all the common shares at the time outstanding without preference or distinction.
The holders of the Class B Shares are entitled to receive notice of and to attend any meeting of our shareholders but shall not be entitled to vote any of their Class B
Shares at any such meeting. Each issued and fully paid Class B Share may at any time be converted, at the option of the holder, into one common share. In the
event of our liquidation, dissolution or winding up or other distribution of our assets among our shareholders for the purpose of winding up our affairs, the holders
of the Class B Shares shall be entitled to participate rateably with the common shares in any distribution of the assets of the Company.
32
The First Preferred Shares may at any time and from time to time be issued in one or more series and our board of directors may before the issue thereof fix the
number of shares in, and determine the designation, rights, privileges, restrictions and conditions attaching to the shares of, each series of First Preferred Shares.
The First Preferred Shares shall be entitled to priority over the common shares and Class B Shares and all other shares ranking junior to the First Preferred Shares
with respect to the payment of dividends and the distribution of our assets in the event of our liquidation, dissolution or winding up or other distribution of our
assets among our shareholders for the purpose of winding up our affairs.
The First Preferred Shares of each series rank on a parity with the First Preferred Shares of every other series with respect to priority in the payment of dividends
and in the distribution of our assets in the event of our liquidation, dissolution or winding up or other distribution of our assets among our shareholders for the
purpose of winding up our affairs.
During 2013, we created a new series of shares, our Series I First Preferred Shares. The holders of Series I First Preferred Shares are not entitled to vote at any
meeting of our shareholders (except in limited circumstances provided for in the OBCA), and they are entitled to receive dividends as determined and declared at
the discretion of our board of directors equally on a one-for-one basis with the holders of shares of the other series of First Preferred Shares. Each issued and fully
paid Series I First Preferred Share may at any time be converted, at the option of the holder, into one-thirtieth (1/30 th ) of a common share, subject to adjustment.
In the event of a take-over bid, that is a “formal bid”, the Offeror of such bid shall make an offer to acquire the same percentage of outstanding Series I First
Preferred Shares as the percentage of common shares for which the bid is made, on the same terms and for the same amount and kind of consideration.
During 2015, we created a new series of shares, our Series II First Preferred Shares. The holders of Series II First Preferred Shares are not entitled to vote at any
meeting of our shareholders (except in limited circumstances provided for in the OBCA), and they are entitled to receive dividends as determined and declared at
the discretion of our board of directors equally on a one-for-one basis with the holders of shares of the other series of First Preferred Shares. Each issued and fully
paid Series II First Preferred Share may at any time be converted, at the option of the holder, into one common share, subject to adjustment. In the event of a take-
over bid, that is a “formal bid”, the Offeror of such bid shall make an offer to acquire the same percentage of outstanding Series II First Preferred Shares as the
percentage of common shares for which the bid is made, on the same terms and for the same amount and kind of consideration.
As at December 31, 2015, 7,796,137 common shares were outstanding, 53,788,579 Series I Preferred Shares were outstanding and convertible into 1,792,953
common shares, and no Class B Shares were outstanding. As at December 31, 2015, 106,096,356 common share purchase warrants were outstanding and
convertible into 3,536,545 common shares at a weighted average exercise price of $8.72 per common share.
As at December 31, 2015, there were 927,834 stock options outstanding to purchase common shares. The terms and conditions of such stock options are contained
in the 2014 Stock Option Plan.
As at December 31, 2015, we have issued 51,788 deferred share units. The terms and conditions of such deferred share units are contained in the 2014 DSU Plan.
Share capital issued – for the year ended December 31, 2015
On April 7, 2015, the Company completed an underwritten public offering of common shares and non-voting convertible preferred shares in the United States. In
the offering, Trillium sold 1,750,754 common shares and 1,077,605 Series II First Preferred Shares at a price of U.S. $19.50 per share, including 228,359 common
shares sold pursuant to the full exercise of the underwriters’ option to purchase additional common shares. The gross proceeds to Trillium from this offering were
$68,875,067 (U.S. $55,153,000) before deducting offering expenses of $4,913,443.
During the year ended December 31, 2015, 1,087,603 common shares were issued on the exercise of 32,628,425 warrants for proceeds of $9,515,154 and 6,666
stock options were exercised for proceeds of $49,995.
33
During the year ended December 31, 2015, 15,716,110 Series I First Preferred Shares were converted into 523,870 common shares.
Share capital issued – for the year ended December 31, 2014
On November 14, 2014, we consolidated our outstanding common shares issuing one post-consolidated share for each 30 pre-consolidated shares. All references in
this AIF to the number of common shares, stock options and deferred share units, or DSUs, refer to the post-consolidated amounts.
In the year ended December 31, 2014, 2,596,251 warrants were exercised for 86,540 common shares and for proceeds of $946,813 and 2,614 stock options were
exercised for proceeds of $19,600. Also, 909,091 warrants issued in March 2011 expired unexercised.
During the year ended December 31, 2014, 8,390,476 Series I First Preferred Shares were converted into 279,682 common shares.
Share capital issued – for the year ended December 31, 2013
On February 6, 2013, we consolidated our outstanding common shares issuing one post-consolidated share for each 10 pre-consolidated shares.
In March 2013, we completed an offering pursuant to a base shelf prospectus and prospectus supplement and in the U.S. pursuant to a private placement
memorandum for a total of 424,500 units at a price of $7.50 per unit, for aggregate gross proceeds to us of $3,185,080 ($2,615,240 net of issuance costs). Each unit
consisted of one common share and 30 common share purchase warrants. Each 30 warrants entitle the holder to purchase one common share at a price of $12.00
per share at any time prior to expiry on March 15, 2018 (12,315,000 warrants) and March 27, 2018 (420,000 warrants). In connection with the financing, we issued
814,051 compensation warrants having an aggregate fair value of $48,843 estimated using the Black-Scholes option pricing model. Each 30 compensation warrants
entitle the holder to acquire one common share at an exercise price of $7.50 per share prior to expiry on March 16, 2015.
On April 9, 2013, we issued 202,639 common shares and 3,300,000 common share purchase warrants for partial consideration for the acquisition of Trillium
Privateco.
On April 16, 2013, we issued 167,619 common shares and 1,600,000 common share purchase warrants as consideration for the acquisition of certain rights related
to tigecycline from UHN.
On December 13, 2013, we completed a private placement of 2,641,590 common share units (each common share unit consisting of one common share and 22.5
common share purchase warrants) at a price of $6.30 per unit and 77,895,165 preferred share units (each preferred share unit consisting of one Series I First
Preferred Share and three-quarters of a common share purchase warrant) at a price of $0.21 per unit for gross proceeds of $32,866,025 ($30,713,841 net of issuance
costs). Each 30 warrants entitle the holder to purchase one common share at a price of $8.40 at any time prior to expiry on December 13, 2018. In connection with
the financing, we issued 5,014,839 compensation warrants having an aggregate fair value of $651,929 estimated using the Black-Scholes option pricing model.
Each 30 compensation warrants entitle the holder to acquire one common share at an exercise price of $6.30 per share prior to expiry on December 13, 2015.
In the December 2013 private placement, subscribers who purchased preferred share units and certain subscribers who purchased common share units were subject
to restrictions on the conversion and exercise of securities of ours convertible into common shares. Such subscribers cannot convert or exercise securities of ours
convertible or exercisable into common shares if, after giving effect to the exercise of conversion, the subscriber and its joint actors would have beneficial
ownership or direction or control over common shares in excess of 4.99% of the then outstanding common shares. This limit may be increased at the option of the
subscriber on 61 days prior written notice: (i) up to 9.99%, (ii) up to 19.99%, subject to stock exchange clearance of a personal information form submitted by the
subscriber, and (iii) above 19.99%, subject to stock exchange approval and shareholder approval.
Subject to receipt of any required regulatory approvals, subscribers who purchased a minimum of 10% of the securities sold under the offering have been given
rights to purchase securities of ours in future financings to enable each such subscriber to maintain its percentage holding in us for so long as the subscriber holds at
least 10% of the outstanding common shares on a fully-diluted basis.
34
Fully Diluted Share Capital
The number of issued and outstanding common shares, Series I First Preferred Shares, Series II First Preferred Shares warrants, stock options and DSUs on a fully
converted basis as at December 31, 2015 was as follows:
Common shares
Series I First Preferred Shares
Series II First Preferred Shares
Warrants
Stock options
Deferred share units
Fully diluted common shares as at December 31, 2015
Warrants
Number of common
share equivalents
7,796,137
1,792,953
1,077,605
3,536,545
927,834
51,788
15,182,862
The following table shows the number of warrants outstanding, the exercise prices, and the number of common shares issuable on exercise of the warrants and the
exercise price per common share for 30 warrants at December 31, 2015:
Expiry dates
March 15, 2018
March 27, 2018
December 13, 2018
Total
Number of
Warrants
Exercise
Price
Number of
Common shares
Issuable
on Exercise
Exercise
Price per
Common Share
(30 Warrants)
9,213,780
300,000
96,582,576
106,096,356
$
$
$
0.40
0.40
0.28
307,126
10,000
3,219,419
3,536,545
$
$
$
12.00
12.00
8.40
Our board of directors authorized or ratified the issuances of the warrants set forth in the table below and the issuance of one common share upon the due exercise
of each 30 warrants in accordance with its terms and the receipt by us of the designated exercise price payable in respect of the share prior to the time of expiry on
the designated expiry date.
Stock Options
Our board of directors authorized or ratified the issuances of the options set forth in the table below and the issuance of one common share upon the due exercise of
each option in accordance with its terms and the receipt by us of the designated exercise price payable in respect of the share prior to the time of expiry on the
designated expiry date.
Deferred Share Units
As at December 31, 2015, we had 51,788 issued and outstanding DSUs which are convertible into common shares.
35
Prior Sales
The following table summarizes details of each class of securities that is outstanding but not listed or quoted on a marketplace issued by the Company during the
year ended December 31, 2015.
Date of Issuance
April 1, 2015
April 7, 2015
May 27, 2015
May 27, 2015
June 4, 2015
June 16, 2015
November 19, 2015
November 19, 2015
Price per Security or
Exercise Price as Applicable
$23.441
USD$19.50
$28.045
$28.045
$28.519
$29.422
$19.333
$19.333
Number of and
Description of Securities
85,000
Options (1)
1,077,605
Series II First Preferred Shares (2)
29,000
Options (1)
8,558
Deferred Share Units (3)
12,500
Options (1)
2,039
Deferred Share Units (3)
220,859
Options (1)
12,414
Deferred Share Units (3)
Note:
(1)
(2)
(3)
Issued under the 2014 Stock Option Plan.
Issued in an underwritten public offering of common shares and non-voting convertible preferred shares in the United States.
Issued under the 2014 DSU Plan.
MARKET FOR SECURITIES
We are listed on the TSX under the symbol “TR and on the NASDAQ Capital Market under the symbol “TRIL”. The following table shows the price ranges and
volumes traded on the TSX and NASDAQ for the periods noted:
Month
December 2015
November 2015
October 2015
September 2015
August 2015
July 2015
June 2015
May 2015
April 2015
March 2015
February 2015
January 2015
High ($)
$ 20.000
$ 21.980
$ 21.800
$ 25.000
$ 28.080
$ 30.010
$ 32.760
$ 30.570
$ 37.270
$ 26.065
$ 20.210
$ 18.370
TSX
Low ($)
$ 16.010
$ 17.850
$ 16.000
$ 15.950
$ 18.150
$ 24.200
$ 25.000
$ 21.210
$ 22.690
$ 17.000
$ 15.140
$ 10.500
Volume (#)
High (US$)
NASDAQ
Low (US$)
Volume (#)
50,495
49,350
116,560
89,362
114,851
123,555
154,336
180,416
538,051
307,858
204,365
361,364
36
$ 15.020
$ 16.690
$ 16.650
$ 19.080
$ 22.200
$ 23.300
$ 26.720
$ 24.560
$ 27.989
$ 20.880
$ 16.500
$ 15.647
$ 11.494
$ 13.420
$ 12.200
$ 12.000
$ 13.380
$ 18.770
$ 19.990
$ 17.572
$ 18.800
$ 13.060
$ 12.610
$ 9.050
987,213
839,500
1,590,038
1,320,768
1,984,450
1,777,870
2,823,681
3,303,704
7,607,223
2,542,925
1,321,813
3,046,079
BOARD OF DIRECTORS AND MANAGEMENT
The following table and summary of business experience set forth the name, office held, and functions and areas of experience in the Company, principal business
activities and other principal directorships of each of our directors and senior management:
Name
Present Office Held
Province/State and
Country of Residence
Position Held Since
Luke Beshar
Director
(1)
New Jersey, USA
March 10, 2014
Henry Friesen
Director
(1)(2)
Manitoba, Canada
June 28, 2011
Robert Kirkman
Director
(1)(3)
Washington, USA
December 17, 2013
Michael Moore
Director
(2)(3)
Surrey, UK
April 9, 2013
Thomas Reynolds
Director
(2)(3)
Washington, USA
March 10, 2014
Calvin Stiller
Director,
Chair
of
the
Board
Ontario, Canada
July 18, 2011
Principal Business Activities, Other Principal Directorships and Function
Mr. Beshar is an independent biotechnology consultant and financial expert. He was most recently the
Executive/Senior Vice President and Chief Financial Officer of NPS Pharmaceuticals, Inc., a global biopharmaceutical
company from November 2007 to February 2015.
As an independent director, Mr. Beshar supervises our management and helps to ensure compliance with our corporate
governance policies and standards.
Dr. Friesen is a Distinguished University Professor Emeritus at University of Manitoba since October 2000.
As an independent director, Dr. Friesen supervises our management and helps to ensure compliance with our corporate
governance policies and standards.
Dr. Kirkman was President and Chief Executive Officer and director of Oncothyreon Inc., an oncology-focused
biotechnology company from September 2006 to January 2016.
As an independent director, Dr. Kirkman supervises our management and helps to ensure compliance with our
corporate governance policies and standards.
Dr. Moore is the Executive Chair of MISSION
Therapeutics Ltd. since 2012 and a Board Chair or Director of several
private biopharmaceutical companies in the UK. From 2004 to 2013, Dr. Moore was the Chair of Trillium Privateco,
and from 2003 to 2008, Dr. Moore was the Chief Executive Officer and Director of PIramed Ltd, a UK- based
oncology company sold to Roche in 2008.
As an independent director, Dr. Moore supervises our management and helps to ensure compliance with our corporate
governance policies and standards.
Dr. Reynolds is an independent biotechnology consultant since February 2013, and was Chief Medical Officer of
Seattle Genetics, Inc., a biotechnology company focused on antibody-based therapies for the treatment of cancer from
March 2007 to January 2013. Dr. Reynolds also sits on the board of MEI Pharma, Inc.
As an independent director, Dr. Reynolds supervises our management and helps to ensure compliance with our
corporate governance policies and standards.
Dr. Stiller is the Chair of Ontario Institute for Cancer Research and Professor Emeritus at Western University. Dr.
Stiller also sits on the board of Revera Corporation and Magor Corporation.
As an independent director, Dr. Stiller supervises our management and helps to ensure compliance with our corporate
governance policies and standards.
37
Niclas Stiernholm
President
and
Chief
Executive
Officer,
Director
Ontario, Canada
Director since July 18, 2011; President
and CEO since April 9, 2013
Robert Uger
Chief
Scientific
Officer
Ontario, Canada
April 9, 2013
James Parsons
Chief
Financial
Officer
Ontario, Canada
August 25, 2011
Penka Petrova
Chief
Development
Officer
Ontario, Canada
May 29, 2015
Eric Sievers
Chief
Medical
Officer
Washington, USA
April 1, 2015
Dr. Stiernholm is the President and Chief Executive Officer of Trillium since April 9, 2013 and was the President and
Chief Executive Officer of Trillium Privateco prior thereto from 2002. He joined Trillium from YM BioSciences where
he was Executive Vice President and Chief Scientific Officer.
As President and Chief Executive Officer, Dr. Stiernholm is responsible for overseeing our strategic direction,
executing business development plans and ensuring that our scientific programs remain funded and advance on
schedule. As a director, Dr. Stiernholm participates in management oversight and helps to ensure compliance with our
corporate governance policies and standards.
Dr. Uger is the Chief Scientific Officer of Trillium since April 9, 2013 and was the Vice President, Research of
Trillium Privateco prior thereto from 2003. He joined Trillium from Aventis Pasteur where he was a Senior Research
Scientist involved in cancer vaccine research.
As Chief Scientific Officer, Dr. Uger is responsible for developing and implementing our scientific direction, and
oversees both internal product development and external research and development programs.
Mr. Parsons is the Chief Financial Officer of Trillium since August 25, 2011 and was also the Director, Finance of
Trillium Privateco. He was previously the Vice President, Finance of DiaMedica Inc. from October 2010 to May 2014,
and Chief Financial Officer of Amorfix Life Sciences Ltd. from 2006 to 2010. Mr. Parsons sits on the board of Sernova
Corp and DiaMedica Inc.
As Chief Financial Officer, Mr. Parsons is responsible for financial and risk management, investor relations, corporate
governance and administration.
Dr. Petrova is the Chief Development Officer of Trillium since May 29, 2015 and was the Vice President, Drug
Development from April 2013 to May 2015. Dr. Petrova joined Trillium Privateco from Prescient Neuropharma in
2003.
As Chief Development Officer, Dr. Petrova is responsible for managing our formal drug development efforts, including
all outsourced activities to contract manufacturers and contract research organizations.
Dr. Sievers is the Chief Medical Officer of Trillium since April 1, 2015. He previously held several senior roles at
Seattle Genetics including the Senior Vice President, Clinical Development from October 2013 to March 2015, the
Vice President and Interim Chief Medical Officer from 2012 to October 2013, and Vice President, Clinical Affairs
from 2011 to 2012, and Executive Medical Director from 2010 to 2011.
As Chief Medical Officer, Dr. Sievers is responsible for the design and execution of our clinical and regulatory
strategy.
Notes:
(1)
(2)
(3)
Member of our audit committee.
Member of our corporate governance and nominating committee.
Member of our compensation committee.
Directors are elected annually and hold office until a successor is elected at a subsequent annual meeting of the Company, unless a director’s office is earlier
vacated in accordance with the by-laws of the Company. The business address for our directors and senior management is Trillium Therapeutics Inc., 96 Skyway
Avenue, Toronto, Ontario, Canada, M9W 4Y9.
38
As at December 31, 2015, the directors and senior officers of the Company, as a group, beneficially owned, directly or indirectly, 31,000 common shares of the
Company constituting approximately 0.4% of the issued and outstanding common shares.
CEASE TRADE ORDERS, BANKRUPTCIES, PENALTIES OR SANCTIONS
Cease
Trade
Orders
To the knowledge of the Company, no director or executive officer of the Company is, or within the ten years prior to the date hereof has been, a director, chief
executive officer, or chief financial officer, of any company (including the Company) that was subject to (a) a cease trade order; (b) an order similar to a cease trade
order; or (c) an order that denied the relevant company access to any exemption under securities legislation, that was in effect for a period of more than thirty
consecutive days, issued while that person was acting in such capacity or issued thereafter but resulted from an event that occurred while that person was acting in
such capacity.
Bankruptcies
To the knowledge of the Company, no director or executive officer or shareholder holding a sufficient number of securities of the Company to affect materially the
control of the Company is, or within the ten years prior to the date hereof has been, a director or executive officer of any company (including the Company) that,
while that person was acting in such capacity or within a year of that person ceasing to act in such capacity, became bankrupt, made a proposal under any
legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver,
receiver manager or trustee appointed to hold its assets.
To the knowledge of the Company, no director or executive officer or shareholder holding a sufficient number of securities of the Company to affect materially the
control of the Company has, within the ten years prior to the date hereof, become bankrupt, made a proposal under any legislation relating to bankruptcy or
insolvency, or become subject to or instituted any proceedings, arrangement, or compromise with creditors, or had a receiver, receiver manager or trustee appointed
to hold that person’s assets.
Penalties
and
Sanctions
No director or executive officer of the Corporation, or a shareholder holding a sufficient number of securities of the Company to affect materially the control of the
Corporation has been subject to (a) any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has
entered into a settlement agreement with a securities regulatory authority; or (b) any other penalties or sanctions imposed by a court or regulatory body that would
likely be considered important to a reasonable investor in making an investment decision.
All of the above disclosure also applies to any personal holding companies of any of the persons referred to above.
CONFLICTS OF INTEREST
Certain of our officers and directors are also officers and/or directors of other companies engaged in the biotechnology industry and research business generally. As
a result, situations arise where the interest of such directors and officers conflict with their interests as directors and officers of other companies. The resolution of
such conflicts is governed by applicable corporate laws, which require that directors act honestly, in good faith and with a view to the best interests of the
Company. In addition, the OBCA, our governing statute, requires our officers and directors to disclose any personal interest which they may have in any material
contract or transaction which is proposed to be entered into with the Company and, in the case of directors, to abstain from voting as a director for the approval of
any such contract or transaction, unless otherwise permitted under the OBCA.
In relation to the acquisition of Fluorinov on January 26, 2016, two directors declared a conflict of interest and recused themselves from discussions and board
decisions relating to the acquisition. One director was also a director of Fluorinov and had an ownership position in Fluorinov at the time of acquisition of less than
2%. A second of our directors was a director of the Ontario Institute of Cancer Research (being a beneficiary of the Fight Against Cancer Innovation Trust, a
shareholder and debenture holder of Fluorinov).
39
LEGAL PROCEEDINGS
We are and were not a party to, and none of our property or assets are or were subject to, any material legal proceedings during the last financial year, nor to our
knowledge are any such proceedings contemplated.
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
Except as provided herein, there are no material interests, direct or indirect, of directors, executive officers, any shareholders who beneficially own, or controls or
directs, directly or indirectly, more than 10% of our outstanding common shares, or any known associates or affiliates of such persons, in any transaction within the
last three completed financial years or during the current financial year which has materially affected or is reasonably expected to materially affect the Company.
For the years ended December 31, 2015 and 2014, $0 and $7,916, respectively, was paid to our former Executive Chair, a director, for consulting fees. These
transactions were in the normal course of operations and were measured at the exchange amount, which is the amount of consideration established and agreed to by
the parties.
INTEREST OF EXPERTS
Our auditors are Ernst & Young LLP, Chartered Professional Accountants, Licensed Public Accountants, Toronto, Ontario, Canada. Our consolidated financial
statements as at December 31, 2015 and 2014 have been audited by Ernst & Young LLP, Independent Registered Public Accounting Firm, as indicated in their
report dated March 9, 2016. Ernst & Young LLP has been the Corporation's auditors since inception on March 31, 2004.
Ernst & Young LLP has advised that they are independent with respect to the Corporation within the meaning of the Rules of Professional Conduct of the
Chartered Professional Accountants of Ontario (registered name of the Institute of Chartered Accountants of Ontario) and the rules and standards of the Public
Company Accounting Oversight Board (United States) and the securities laws and regulations administered by the United States Securities and Exchange
Commission.
TRANSFER AGENT
Our registrar and transfer agent is Computershare Trust Company of Canada, located at 100 University Avenue, Toronto, Ontario, M5J 2Y1.
MATERIAL CONTRACTS
There are no other contracts, other than those disclosed in this AIF and those entered into in the ordinary course of our business, that are material to us and which
were entered into in the last completed fiscal year or which were entered into before the most recently completed fiscal year but are still in effect as of the date of
this AIF:
1.
License Agreement between Trillium Privateco, UHN and HSC dated February 1, 2010 pursuant to which we licensed intellectual property relating
to methods and compounds for the modulation of the SIRPα-CD47 interaction for therapeutic cancer applications. The license agreement requires
us to use commercially reasonable efforts to commercialize the licensed technology. The license agreement will terminate on a country-by-country
basis, in countries where a valid claim exists, when the last valid claim expires in such country, or if no valid claim exists, when the last valid claim
expires in the U.S. We paid an up-front license fee of $150,000 and committed to pay an annual maintenance fee of $25,000, as well as payments
on patent issuances, development milestone payments ranging from $100,000 to $300,000 on the initiation of phase I, II and III clinical trials
respectively, and payments upon the achievement of certain regulatory milestones as well as royalties of either 3% or 1% of net revenues on
commercial sales. The regulatory milestone payments amount to $1 million on each of the submission of a first BLA in the U.S. and receipt of first
regulatory approval in the U.S. and proportionate payments in other territories worldwide. The aggregate milestones payable on their first
achievement under the agreement in the major markets of the U.S., Europe and Asia combined are $5,660,000. Under the license agreement,
Trillium is required to pay 20% of any sublicensing revenues to the licensors on the first $50 million of sublicensing revenues, and pay 15% of any
sublicensing revenues to the licensors after the first $50 million of sublicensing revenue received.
40
2.
3.
4.
5.
GPEx®-Derived Cell Line Sale Agreement between Trillium Therapeutics Inc. and Catalent Pharma Solutions, LLC dated August 12, 2014
pursuant to which we acquired the right to use the GPEx® expression system for the manufacture of TTI-621 (SIRPαFc). Consideration for the
license includes potential pre-marketing approval milestones of up to US$875,000 and aggregate sales milestone payments of up to US$28.8
million.
GPEx®-Derived Cell Line Sale Agreement between Trillium Therapeutics Inc. and Catalent Pharma Solutions, LLC dated August 12, 2014
pursuant to which we acquired the right to use the GPEx® expression system for the manufacture of TTI-622 (SIRPαFc). Consideration for the
license includes potential pre-marketing approval milestones of up to US$875,000 and aggregate sales milestone payments of up to US $28.8
million.
Share purchase agreement among the Company, Fluorinov and Fluorinov shareholders dated January 26, 2016 pursuant to which we purchased all
of the issued and outstanding shares in the capital of Fluorinov. See “General Development of the Business – 3 Year Summary”.
Royalty agreement among the Company, Fluorinov and Fluorinov shareholders dated January 26, 2016 which sets out contingent future royalty
payments. See the discussion in the section of this AIF entitled “General Development of the Business – 3 Year Summary”.
Audit Committee
AUDIT COMMITTEE INFORMATION
The Charter of the Audit Committee is attached hereto as Schedule A. The purpose of our audit committee is to assist our Board in:
•
•
•
•
•
overseeing the integrity of our financial statements and our accounting and financial reporting processes and financial statement audits;
overseeing our compliance with legal and regulatory requirements;
overseeing the qualifications and independence of our registered public accounting firm (independent auditor);
overseeing the performance of our independent auditor; and
overseeing the design, implementation and ongoing effectiveness of our systems of disclosure controls and procedures, risk management systems,
internal control over financial reporting and compliance with ethical standards adopted by us.
Composition of the Audit Committee
Our audit committee is comprised of a minimum of three members, each of whom, in the determination of our board of directors, satisfies the independence,
financial literacy and experience requirements of applicable U.S. and National Instrument 52- 110 Audit
Committees
(“ NI 52-110 ”), rules and guidelines, any
applicable stock exchange requirements or guidelines and any other applicable regulatory rules.
In particular:
41
•
•
•
•
each member shall be (a) an “Independent Director,” as defined in NASDAQ Stock Market Rule 5605(a)(2), and (b) “independent” within the
meaning of Rule 10A-3 under the Exchange Act, and the determination of independence will be affirmatively made by our board annually,
provided that our board may elect to take advantage of any exemption from such requirements provided in the rules of NASDAQ or the Exchange
Act;
each member shall meet the independence and financial literacy requirements set forth in Canadian NI 52-110;
each member shall not have participated in the preparation of the financial statements of ours (or any then current subsidiary of ours) at any time
during the past three years;
each member shall be able to read and understand fundamental financial statements in accordance with the audit committee requirements for
companies listed on NASDAQ in NASDAQ Stock Market Rule 5605(c)(2)(A)(iv); and
at least one (1) member shall, in the judgment of our board, be an “audit committee financial expert” within the meaning of such term in Item 407(d) of Regulation
S-K under the United States Securities
Act
of
1933
.
Our audit committee members are Mr. Luke Beshar (chair), Dr. Henry Friesen and Dr. Robert Kirkman, each of whom is a non-executive member of our Board.
Our Board has determined that each of the members of our audit committee is financially literate and has sufficient financial expertise, and is independent within
the meaning of such term in the rules of NASDAQ, the SEC and Canadian provincial securities regulatory authorities. Our Board has determined that Mr. Luke
Beshar is a financial expert in accordance with the rules and regulations of the SEC.
Relevant Education and Experience
The following describes the education and experience of each audit committee member that is relevant in the performance of his responsibilities as an audit
committee member:
Luke Beshar, CPA - Director,
Chair
of
the
Audit
Committee
Mr. Beshar was Executive Vice President and Chief Financial Officer of NPS Pharmaceuticals until February 2015 when the company was sold to Shire plc. He
joined NPS Pharmaceuticals in 2007 and has been responsible for financial management, investor relations, information technology, technical operations, supply-
chain management, facilities, project management, contracts and outsourcing and strategic and alliance management. Prior to joining NPS, Mr. Beshar served as
Executive Vice President and Chief Financial Officer of Cambrex Corporation, a global life sciences company. Mr. Beshar began his career with Arthur Andersen
& Co. and is a certified public accountant.
He obtained his bachelor’s degree in Accounting and Finance from Michigan State University and is a graduate of The Executive Program at the Darden Graduate
School of Business at the University of Virginia.
Dr. Henry Friesen - Director
Dr. Friesen was the President of the Canadian Government’s Medical Research Council, and the architect and lead champion for the creation the Canadian
Institutes for Health Research, President of the National Cancer Institute of Canada and President of the Canadian Society for Clinical Investigation. He is the Past
Founding Chair of Genome Canada. A Fellow of the Royal Society of Canada, Dr. Friesen was named a Companion of the Order of Canada and was inducted into
the Canadian Medical Hall of Fame in 2001 and, later the Order of Manitoba. He was also awarded the Gairdner Foundation Wightman Award, the McLaughlin
Medal of the Royal Society of Canada, and the Koch Medal, the highest award of the Endocrine Society. He was presented with the Frederic Newton Gisborne
Starr Award by the Canadian Medical Association, the association’s highest award, in 2006. Dr. Friesen also holds eight Honorary Doctorates from Canadian
universities.
42
Dr. Robert Kirkman - Director
Dr. Kirkman served as Oncothyreon’s President and Chief Executive Officer from September 2006 to January 2016. From 2005 to 2006, he was acting President
and Chief Executive Officer of Xcyte Therapies, which concluded a merger with Cyclacel Pharmaceuticals, both development-stage biopharmaceutical companies,
in March of 2006. From 2004 to 2005, Dr. Kirkman was Chief Business Officer and Vice President of Xcyte. From 1998 to 2003, Dr. Kirkman was Vice President,
Business Development and Corporate Communications of Protein Design Labs, a biopharmaceutical company. Dr. Kirkman holds a M.D. degree from Harvard
Medical School and a B.A. in economics from Yale University.
Audit Committee Oversight
Since the commencement of our most recently completed fiscal year and adoption of the audit committee charter, the Board has not failed to adopt a
recommendation of the audit committee to nominate or compensate an external auditor.
Pre-Approval Policies and Procedures
The audit committee has adopted specific policies and procedures for the engagement of audit and non-audit services as set out in our Auditor Services Pre-
Approval Policy. Pursuant to the Policy, the audit committee on an annual basis may approve the provision of a specified list of audit and permitted non-audit
services that the audit committee believes to be typical, reoccurring or otherwise likely to be provided by the external auditor during the then current fiscal year. All
pre-approvals granted under this Policy shall be sufficiently detailed as to the particular services being provided that it will not be necessary for management of
Trillium to exercise any discretion in determining whether a particular service has been pre-approved.
In addition, pursuant to the Policy the audit committee has delegated its pre-approval authority to the Chair of the audit committee for services where the aggregate
fees are estimated to be less than or equal to Cdn. $50,000. The Chair of the audit committee is required to report any such granted pre-approvals to the audit
committee at its next scheduled meeting. The audit committee shall not delegate to management the audit committee's responsibilities for pre-approving audit and
non-audit services to be performed by the external auditor.
Pursuant to the Policy, there is an exception to the pre-approval requirements for permitted non-audit services, provided all such services were not recognized at the
time of the engagement to be non-audit services and, once recognized, are promptly brought to the attention of the audit committee and approved prior to the
completion of the audit. The aggregate amount of all services approved in this manner may not constitute more than five percent of the total fees paid to the
external auditor during the fiscal year in which the services are provided.
External Auditors Service Fees (By Category)
The aggregate fees billed and accrued by our external auditor in the last two fiscal years for auditor service fees were as follows:
Financial Year Ending
December 31, 2015
December 31, 2014
Audit Fees (1)
378,970
$
313,820
$
Audit Related
Fees (2)
Nil
Nil
$
$
Tax Fees (3)
22,805
2,050
All Other Fees (4)
Nil
Nil
Notes:
(1)
“Audit fees” are the aggregate fees billed by Ernst & Young LLP for the audit of Trillium’s consolidated annual financial statements, reviews of
interim financial statements and attestation services that are provided in connection with statutory and regulatory filings or engagements. During
2014, the services also consisted of fees related to the filing of a base shelf prospectus and procedures for the Form 20-F filing.
43
(2)
(3)
(4)
“Audit-related fees” are fees charged by Ernst & Young LLP for assurance and related services that are reasonably related to the performance of
the audit or review of the Trillium’s financial statements and are not reported under “Audit Fees.”
“Tax fees” are fees billed by Ernst & Young LLP for tax compliance and tax advice.
“All other fees” are fees billed by Ernst & Young LLP for services not described above.
ADDITIONAL INFORMATION
Additional information about us may be found on SEDAR at www.sedar.com. Additional information, including directors’ and officers’ remuneration and
indebtedness, principal holders of our securities, options to purchase securities and securities authorized for issuance under equity compensation plans, is contained
in our Management Information Circular for our most recent annual meeting of shareholders. Additional information may also be found in our audited financial
statements and related management’s discussion and analysis for our most recently completed financial year.
44
SCHEDULE A
TRILLIUM THERAPEUTICS INC.
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
Approved
by
the
Board
of
Directors
on
November
19,
2015
POWER, AUTHORITY AND PURPOSE OF THE COMMITTEE
The purpose of the Audit Committee (the “Committee”) of the Board of Directors (the “Board”) of Trillium Therapeutics Inc. (together with its subsidiaries, the
“Company”) is to assist the Board in:
•
•
•
•
•
Overseeing the integrity of the Company’s financial statements and the Company’s accounting and financial reporting processes and financial
statement audits.
Overseeing the Company’s compliance with legal and regulatory requirements.
Overseeing the qualifications and independence of the Company’s registered public accounting firm (independent auditor).
Overseeing the performance of the Company’s independent auditor.
Overseeing the design, implementation and on-going effectiveness of the Company’s systems of disclosure controls and procedures, risk
management systems, internal control over financial reporting and compliance with ethical standards adopted by the Company.
The operation of the Committee shall be subject to the Bylaws of the Company, as in effect from time to time, and the rules and regulations promulgated by the
Ontario Securities Commission, the Toronto Stock Exchange, the U.S. Securities and Exchange Commission (“SEC”) and the NASDAQ Stock Market LLC
(“NASDAQ”), as in effect from time to time. The Committee shall have the full power and authority to carry out the duties and responsibilities listed below.
While the Committee has the responsibilities and powers set forth in this charter (this “Charter”), it is not the duty of the Committee to plan or conduct audits or to
determine that the Company’s financial statements are complete and accurate and are in accordance with generally accepted accounting principles. Management is
responsible for preparing the Company’s financial statements, and the Company’s independent auditor is responsible for auditing those financial statements.
The Committee has the authority to undertake the specific duties and responsibilities listed below and such other duties as the Board may from time to time
prescribe. It is acknowledged, however, that all of the areas of oversight listed below may not be relevant to all of the matters and tasks that the Committee may
consider and act upon from time to time, and the members of the Committee in their judgment may determine the relevance thereof and the attention such items
will receive in any particular context.
The Committee shall have the power and authority to act independently of management, conduct investigations into any matters within its scope of responsibility,
hire and obtain advice from its own outside legal, accounting or other advisors who will report solely to the Committee, set and pay the compensation for any
advisors employed by the Committee and communicate directly with internal and external auditors.
Committee members and the Committee Chair shall receive such remuneration for their service on the Committee as the Board may determine from time to time,
on the recommendation of the Compensation Committee.
COMPOSITION
The Committee shall be comprised of a minimum of three members, each of whom, in the determination of the Board, satisfies the independence, financial literacy
and experience requirements of applicable U.S. and Canadian securities laws, rules and guidelines, any applicable stock exchange requirements or guidelines and
any other applicable regulatory rules.
In particular:
1.
2.
3.
4.
5.
each member shall be (a) an “Independent Director,” as defined in NASDAQ Marketplace Rule 5605(a)(2), and (b) “independent” within the
meaning of Rule 10A-3 under the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the determination of
independence will be affirmatively made by the Board annually, provided that the Board may elect to take advantage of any exemption from such
requirements provided in the NASDAQ rules or the Exchange Act;
each member shall meet the independence and financial literacy requirements set forth in Canadian National Instrument 52-110 Audit
Committees
and such additional criteria for independence as the Board may establish;
each member shall not have participated in the preparation of the financial statements of the Company (or any then current subsidiary of the
Company) at any time during the past three years;
each member shall be able to read and understand fundamental financial statements in accordance with the audit committee requirements for
companies listed on NASDAQ in NASDAQ Marketplace Rule 5605(c)(2)(A)(iv); and
at least one (1) member shall, in the judgment of the Board, be an “audit committee financial expert” within the meaning of such term in Item
407(d) of Regulation S-K of the SEC.
The chairperson of the Committee (the “Chair”) will be appointed by the Board on the recommendation of the Corporate Governance and Nominating Committee
and will serve at the discretion of the Board, and all members will serve at the pleasure of the Board, continuing as a member of the Committee until resignation or
replacement. The Board may fill vacancies on the Committee by appointment, on the recommendation of the Corporate Governance and Nominating Committee,
from qualified members of the Board.
The designation of the Chair shall occur annually at the first meeting of the Board after a meeting of shareholders at which Directors are elected. If the Chair is not
so designated, the Director who is then serving as Chair shall continue as Chair until his or her successor is appointed.
COMMITTEE FUNCTION AND PROCESS
The Committee will meet at least once each fiscal quarter. The Committee may establish its own schedule and call additional meetings as it deems necessary to
fulfill its responsibilities. The Committee shall fix its own rules of procedure, which shall be consistent with the Bylaws of the Company and this Charter. A
majority of the Committee members, but not less than two, shall constitute a quorum. Committee meetings may be attended in person or by telephone or video
conferencing or any other electronic means of communication. The Committee may request that any directors, officers or employees of the Company, or other
persons whose advice and counsel are sought by the Committee, attend any meeting to provide such information as the Committee requests. The Committee may
take action by unanimous written consent when deemed necessary or desirable by the Committee or its Chair, subject to the requirements of any applicable law,
regulation or rule.
A - 2
The Committee Chair will approve the agenda for the Committee’s meetings and any member may suggest items for consideration. Committee members may raise
any subjects that are not set on the agenda by the Committee Chair. Each regularly scheduled meeting will conclude with an executive session of the Committee
absent members of management.
The Committee will meet separately with the Chief Executive Officer and the Chief Financial Officer at such times as it deems appropriate to review the financial
affairs of the Company. The Committee will meet separately with the independent auditor and without management present, at such times as it deems appropriate,
but not less than quarterly, to fulfill the responsibilities of the Committee under this Charter.
The independent auditor shall receive notice of each meeting of the Committee and shall be entitled to attend and be heard at any such meeting at the Company's
expense.
The Committee shall maintain copies of minutes of each meeting and each written consent to action taken without a meeting, reflecting the actions so authorized or
taken by the Committee. After approval, the minutes shall be signed by the Chair or Secretary of the meeting and a copy of the minutes and all consents shall be
placed in the Company’s minute book.
The Committee will summarize its examinations and recommendations to the Board as may be appropriate, consistent with this Charter.
ROLE OF THE CHAIR
The Chair’s primary role is to ensure that the Committee functions properly, meets its obligations and responsibilities, fulfills its purpose and that its organization
and mechanisms are in place and working effectively. More specifically, the Chair shall:
1.
2.
3.
4.
5.
6.
chair meetings of the Committee;
in consultation with the Chair of the Board, the members, and the Chief Financial Officer, set the agendas for the meetings of the Committee;
in collaboration with the Chair of the Board, the Chief Executive Officer, and the Chief Financial Officer, ensure that agenda items for all
Committee meetings are ready for presentation and that adequate information is distributed to members in advance of such meetings in order that
members may properly inform themselves on matters to be acted upon;
assign work to members;
act as liaison and maintain communication with the Chair of the Board and the Board to optimize and co- ordinate input from directors, and to
optimize the effectiveness of the Committee; and
provide leadership to the Committee with respect to its functions as described in this Charter and as otherwise may be appropriate.
DUTIES AND RESPONSIBILITIES
The Committee shall:
1.
Be responsible for overseeing the design, implementation and on-going effectiveness of policies and procedures for providing reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles, including those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts
and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that
could have a material effect on the financial statements.
A - 3
2.
3.
4.
5.
6.
Periodically review the adequacy and effectiveness of the Company’s system of internal control over financial reporting and disclosure controls and
procedures, by meeting with the Company’s management, the independent auditor and the Chair of the Disclosure Committee to review the
adequacy and effectiveness of such controls; and review before its release the disclosure regarding such system of internal control and disclosure
controls required to be contained in the Company’s periodic filings and the attestations or reports by the independent auditor relating to such
disclosure.
Review with the chief executive officer, the chief financial officer, and the independent auditor: (i) all significant deficiencies and material
weaknesses in the design or operation of the Company’s internal controls that could adversely affect the Company’s ability to record, process,
summarize and report financial information required to be disclosed by the Company in the reports that it files or submits with applicable securities
regulators within the required time periods, and (ii) any fraud, whether or not material, that involves management of the Company or other
employees who have a significant role in the Company’s internal controls.
Be directly responsible, in its capacity as a committee of the Board and subject to the rights of shareholders and applicable law, for the selection,
nomination, retention, termination and oversight of the work of any independent auditor (including the resolution of disagreements between
management and the independent auditor regarding financial reporting) engaged for the purpose of preparing or issuing an audit report or
performing other audit, review or attest services for the Company. The Committee shall recommend to the Board the independent auditor to be
nominated for approval by the shareholders and the compensation of the independent auditor. Each such independent auditor shall report directly to
the Committee.
Pre-approve all audit services to be provided to the Company by the independent auditor, and pre-approve, or establish policies and procedures for
the review and pre-approval of all permitted non-audit services to be provided to the Company by the independent auditor.
Review and provide guidance with respect to the external audit and the Company’s relationship with its independent auditor by (a) reviewing the
independent auditor’s proposed audit plan (including scope, fees and schedule), approach and independence; (b) obtaining on a periodic basis, but
no less frequently than annually, a formal written statement from the independent auditor delineating all relationships between the independent
auditor and the Company concerning auditor independence; being actively engaged in dialogue with the independent auditor with respect to any
disclosed relationship or services with the Company that may impact the objectivity and independence of the independent auditor, presenting this
statement to the Board, and to the extent there are relationships, monitoring and investigating them; (c) taking, or recommending to the Board to
take, appropriate action to oversee the independence of the independent auditor; (d) reviewing any publicly available inspection report on the
independent auditor issued by the Public Company Accounting Oversight Board or the Canadian Public Accountability Board; (e) discussing with
the Company’s independent auditor the financial statements and audit findings, including any significant adjustments, management judgments and
accounting estimates, significant new accounting policies and disagreements with management; (f) reviewing with both management and the
independent auditor the appropriateness and acceptability of the Company’s critical accounting policies and any proposed changes thereto; and (g)
reviewing reports submitted to the audit committee by the independent auditor in accordance with the applicable regulatory requirements.
7.
Review any problems experienced by the independent auditor in performing audits.
A - 4
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
Review and discuss with management and the independent auditor, and approve the annual audited financial statements and quarterly unaudited
financial statements, including the Company’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” prior to filing with regulatory authorities.
Recommend to the Board the approval and filing of the annual audited financial statements.
Periodically review and discuss with the Chair of the Disclosure Committee the disclosures contained in the Company’s filings with the regulatory
authorities prior to filing and the processes and procedures followed to ensure the accuracy of such disclosure.
Direct the Company’s independent auditor to review before filing with all regulatory authorities the Company’s interim financial statements, using
professional standards and procedures for conducting such reviews.
Review all material written communications between the independent auditor and management, including post audit or management letters
containing recommendations of the independent auditor, management’s response and follow up with respect to the identified weaknesses.
Review before release any press release including annual and quarterly results or forecasts.
Satisfy itself that adequate procedures are in place for the review of the Company’s public disclosure of financial information extracted or derived
from the Company’s financial statements (including, without limitation, the use of “pro forma” or non-GAAP financial information), other than the
public dissemination referred to in the foregoing paragraph, and periodically assess the adequacy of those procedures.
Oversee compliance with the regulatory requirements for disclosure of auditor’s services and audit committee members, member qualifications and
activities.
Review and reassess the adequacy of the Whistleblower Policy, the Auditor Services Pre-Approval Policy, and the Corporate Disclosure and
Confidentiality Policy on at least an annual basis and recommend any proposed changes to the Board for approval.
Review, in conjunction with counsel, any legal matters that could have a significant impact on the Company’s financial statements.
Engage, as appropriate, outside legal, accounting and other advisors, with (a) the authority to retain such counsel or other advisors as the
Committee may deem appropriate in its sole discretion, and (b) the sole authority to determine funding, approve fees and retention terms for such
counsel and advisors.
Review and approve in advance any proposed related-party transactions, and report any such transactions to the Board.
Review and reassess the adequacy of the Audit Committee charter, structure, processes and membership requirements on at least an annual basis
and recommend any proposed changes to the Board for approval.
Establish procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting
controls or auditing matters; and establish procedures for the confidential, anonymous submission by employees of the Company of concerns
regarding questionable accounting or auditing matters.
22.
Review, approve and monitor the Company’s investment policy, investment portfolio, cash management objectives, and exposure to market risk.
A - 5
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
Review the effectiveness of the Company’s risk management system to assure that material risks are identified and appropriate risk management
processes are in place.
Review and discuss with management the Company’s major financial risk exposures and the steps management has taken to monitor and control
such exposures.
Review with management and the external auditor the presentation and impact of significant risks and uncertainties associated with the Company’s
business, all alternative treatments of financial information with generally accepted accounting principles that have been discussed with
management, the material assumptions made by management relating to them and their effect on the Company’s financial statements.
Periodically review the Company’s practices to maintain the security of its information technology systems.
Ensure the regular rotation of the lead audit partner, the concurring partner and other audit partners engaged in the Company’s annual audit to the
extent required by applicable law;
Perform an evaluation of its performance at least annually to determine whether it is functioning effectively.
Establish, or review and approve, in accordance with applicable law, hiring policies for partners, employees or former partners and employees of
the present and former independent auditor and oversee the hiring of any personnel from the independent auditor into positions within the
Company.
Obtain assurance from the independent auditor that disclosure to the Committee is not required pursuant to the provisions of the Exchange Act
regarding the discovery of illegal acts by the independent auditor.
Review management’s processes in place to prevent and detect fraud.
Review policies and practices with respect to off-balance sheet transactions and trading and hedging activities, and consider the results of any
review of these areas by the independent auditor.
Review with the chief executive officer and the chief financial officer their certifications required to be included in periodic reports filed with
securities regulators.
Perform any other activities consistent with this Charter, the Company’s bylaws and governing laws that the Board or the Committee determines
are necessary or appropriate.
DELEGATION OF AUTHORITY
The Committee may, in accordance with law, delegate to one or more independent members of the Committee the authority to pre-approve audit and permitted
non-audit services, provided that such pre-approval decision is presented to the full Committee at its first scheduled meeting following such pre-approval.
RESOURCES AND ADDITIONAL AUTHORITY OF THE COMMITTEE
The Committee shall have the resources and authority appropriate to discharge its duties and responsibilities in accordance with this Charter. The Company shall
provide appropriate funding, as determined by the Committee, in its capacity as a committee of the Board, for payment of (i) compensation to any independent
auditor engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company; (ii) compensation to
any advisors employed by the Committee pursuant to the foregoing paragraph; and (iii) ordinary administrative expenses of the Committee that are necessary or
appropriate in carrying out its duties.
A - 6
(formerly Stem Cell Therapeutics Corp.)
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEARS ENDED
DECEMBER 31, 2015 AND 2014
Dated: March 9, 2016
96 Skyway Avenue
Toronto, Ontario, M9W 4Y9
www.trilliumtherapeutics.com
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
ABOUT THIS MANAGEMENT DISCUSSION AND ANALYSIS
All references in this management’s discussion and analysis, or MD&A to “the Company”, “Trillium”, “we”, “us”, or “our” refer to Trillium Therapeutics Inc. and
the subsidiaries through which it conducts its business, unless otherwise indicated.
The following MD&A is prepared as of March 9, 2016 for Trillium Therapeutics Inc. for the years ended December 31, 2015 and 2014, and should be read in
conjunction with the audited consolidated financial statements for the years ended December 31, 2015 and 2014, which have been prepared by management in
accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. Our IFRS accounting
policies are set out in note 3 of the annual audited consolidated financial statements for the years ended December 31, 2015 and 2014.
On June 1, 2014, we amalgamated with our wholly-owned subsidiary Trillium Therapeutics Inc., or Trillium Privateco and changed its name to Trillium
Therapeutics Inc. All amounts are in Canadian dollars, unless otherwise indicated.
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
This MD&A contains forward-looking statements within the meaning of applicable securities laws. All statements contained herein that are not clearly historical in
nature are forward-looking, and the words “anticipate”, “believe”, “expect”, “estimate”, “may”, “will”, “could”, “leading”, “intend”, “contemplate”, “shall” and
similar expressions are generally intended to identify forward-looking statements. Forward-looking statements in this MD&A include, but are not limited to,
statements with respect to:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
our expected future loss and accumulated deficit levels;
our projected financial position and estimated cash burn rate;
our expectations about the timing of achieving milestones and the cost of our development programs;
our observations and expectations regarding the relative low binding of SIRPαFc to red blood cells compared to anti-CD47 monoclonal antibodies
and proprietary CD47-blocking agents and the potential benefits to patients;
our requirements for, and the ability to obtain, future funding on favorable terms or at all;
our projections for the SIRPαFc development plan and progress of each of our products and technologies, particularly with respect to the timely
and successful completion of studies and trials and availability of results from such studies and trials;
our expectations about the differentiated nature and potential for best-in-class product development programs and discovery research capabilities of
Fluorinov Pharma Inc., or Fluorinov;
our ability to generate future product development programs with improved pharmacological properties using Fluorinov technology;
our expectations about whether various clinical and regulatory milestones with an existing Fluorinov compound will be achieved;
our expectations of the final quantum and form of any future contingent milestone payments related to the Fluorinov acquisition;
our expectations of the ability to secure the requisite approvals (including TSX and NASDAQ approvals) with respect to the issuance of any
common shares in satisfaction of future milestone payments;
our expectations about our products’ safety and efficacy;
our expectations regarding our ability to arrange for the manufacturing of our products and technologies;
our expectations regarding the progress, and the successful and timely completion, of the various stages of the regulatory approval process;
our ability to secure strategic partnerships with larger pharmaceutical and biotechnology companies;
our strategy to acquire and develop new products and technologies and to enhance the safety and efficacy of existing products and technologies;
- 2 -
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
•
•
•
•
•
our plans to market, sell and distribute our products and technologies;
our expectations regarding the acceptance of our products and technologies by the market;
our ability to retain and access appropriate staff, management, and expert advisers;
our expectations with respect to existing and future corporate alliances and licensing transactions with third parties, and the receipt and timing of
any payments to be made by us or to us in respect of such arrangements; and
our strategy with respect to the protection of our intellectual property.
All forward-looking statements reflect our beliefs and assumptions based on information available at the time the assumption was made. These forward-looking
statements are not based on historical facts but rather on management’s expectations regarding future activities, results of operations, performance, future capital
and other expenditures (including the amount, nature and sources of funding thereof), competitive advantages, business prospects and opportunities. By its nature,
forward-looking information involves numerous assumptions, inherent risks and uncertainties, both general and specific, known and unknown, that contribute to
the possibility that the predictions, forecasts, projections or other forward-looking statements will not occur. Factors which could cause future outcomes to differ
materially from those set forth in the forward-looking statements include, but are not limited to:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the effect of continuing operating losses on our ability to obtain, on satisfactory terms, or at all, the capital required to maintain us as a going
concern;
the ability to obtain sufficient and suitable financing to support operations, preclinical development, clinical trials, and commercialization of
products;
the risks associated with the development of novel compounds at early stages of development in our intellectual property portfolio;
the risks of reliance on third-parties for the planning, conduct and monitoring of clinical trials and for the manufacture of drug product;
the risks associated with the development of our product candidates including the demonstration of efficacy and safety;
the risks related to clinical trials including potential delays, cost overruns and the failure to demonstrate efficacy and safety;
the risks of delays and inability to complete clinical trials due to difficulties enrolling patients;
risks associated with our inability to successfully develop companion diagnostics for our development candidates;
delays or negative outcomes from the regulatory approval process;
our ability to successfully compete in our targeted markets;
our ability to attract and retain key personnel, collaborators and advisors;
risks relating to the increase in operating costs from expanding existing programs, acquisition of additional development programs and increased
staff;
risk of negative results of clinical trials or adverse safety events by us or others related to our product candidates;
the potential for product liability claims;
our ability to achieve our forecasted milestones and timelines on schedule;
financial risks related to the fluctuation of foreign currency rates and expenses denominated in foreign currencies;
our ability to adequately protect proprietary information and technology from competitors;
risks related to changes in patent laws and their interpretations;
our ability to source and maintain licenses from third-party owners; and
the risk of patent-related litigation and the ability to protect trade secrets,
all as further and more fully described under the heading “Risk Factors” in this MD&A and in our Annual Information Form.
- 3 -
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
Although the forward-looking statements contained in this MD&A are based upon what our management believes to be reasonable assumptions, we cannot assure
readers that actual results will be consistent with these forward looking statements.
Any forward-looking statements represent our estimates only as of the date of this MD&A and should not be relied upon as representing our estimates as of any
subsequent date. We undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of unanticipated events, except as may be required by securities legislation.
Overview
BUSINESS
We are an immuno-oncology company developing innovative therapies for the treatment of cancer. Our lead program, SIRPαFc, is a novel, antibody-like protein
that harnesses the innate immune system by blocking the activity of CD47, a molecule whose expression is increased on cancer cells to evade the host immune
system. Expressed at high levels on the cell surface of a variety of liquid and solid tumors, CD47 functions as a signal that inhibits the destruction of tumor cells by
macrophages via phagocytosis. By blocking the activity of CD47, we believe SIRPαFc has the ability to promote the macrophage-mediated killing of tumor cells in
a broad variety of cancers both as a monotherapy and in combination with other immune therapies.
The immune system is the body’s mechanism to identify and eliminate pathogens, and can be divided into the innate immune system and the adaptive immune
system. The innate immune system is the body’s first line of defense to identify and eliminate pathogens and consists of proteins and cells, such as macrophages,
that identify and provide an immediate response to pathogens. The adaptive immune system is activated by, and adapts to, pathogens, creating a targeted and
durable response. Cancer cells often have the ability to reduce the immune system’s ability to recognize and destroy them. We believe SIRPαFc could play an
important role in enhancing the innate immune system and importantly, because of its ability to target macrophages, also has an important downstream effect on the
adaptive immune system.
Our Strategy
Our goal is to become a leading innovator in the field of immuno-oncology by targeting immune-regulatory pathways that tumor cells exploit to evade the host
immune system. We believe that SIRPαFc has the potential to improve survival and quality of life for cancer patients.
•
•
•
•
Rapidly advance the clinical development of SIRP α Fc . We have initiated a first-in-human trial of SIRPαFc in patients with relapsed or
refractory lymphoma in a dose escalation phase of up to 36 patients, and expect to enroll up to 8 cohorts of 12-15 patients with advanced
hematologic malignancies in an expansion phase of the trial after an optimal dose has been determined.
Expand our SIRP α Fc clinical program to include additional cancer indications . Because CD47 is highly expressed by multiple liquid and
solid tumors, and high expression is correlated with worse clinical outcomes, we believe SIRPαFc has potential to be effective in a wide variety of
cancers. We are carrying out preclinical work necessary to select additional, high potential cancer indications for clinical development.
Maximize value of SIRP α Fc through scientific collaborations . SIRPαFc has broad potential applicability in various cancer indications, and we
believe it is well suited for use as both a monotherapy and in combination with other agents. We plan to continue to selectively and
opportunistically pursue scientific collaborations with academic researchers as well as with other companies in order to realize the full value
proposition of SIRPαFc.
Initiate IND-enabling studies in 2016 with a Fluorinov product . TTI-281 is an oral bromodomain inhibitor that we believe has strong potency
and has shown efficacy in AML xenograft models. We plan to initiate scale up and manufacturing for TTI-281 in 2016.
- 4 -
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
SIRP α Fc Key Attributes
•
•
•
•
Potential efficacy in a broad range of cancers . SIRPαFc blocks the tumor’s ability to transmit a “do not eat” signal allowing macrophages to
destroy tumor cells; a mechanism that we believe could have broad applicability.
Potential for use as monotherapy and in combination with other therapies . We intend to develop SIRPαFc as a monotherapy as well as
potentially for use in combination with other cancer immuno- therapies.
Differentiated pharmacokinetic and safety profile . We believe SIRPαFc’s low level of binding to red blood cells lowers the risk of anemia and
lowers the loss of drug from circulation. This pharmacokinetic profile potentially allows for lower dosing and an improved safety profile.
May enhance both innate and adaptive immune response . SIRPαFc may enhance stimulation of tumor attacking T cells since macrophages, in
addition to their role in phagocytosis, can also prime T cells through antigen presentation.
SIRP α Fc Clinical development plan
We commenced a phase I study in patients with advanced hematologic malignancies. The two-part clinical trial is designed as a multi-center, open-label Phase
1a/1b trial, evaluating TTI-621 as a single-agent in patients with relapsed or refractory hematologic malignancies. During the dose escalation phase set to enroll up
to 36 subjects, the safety, tolerability, pharmacokinetics and pharmacodynamics will be characterized to determine the optimal dose for subsequent enrollment in
the expansion phase. To characterize potential changes in hematologic parameters that might occur with blockade of CD47, the dose-escalation portion of the phase
I trial will include lymphoma patients with normal hematologic parameters and acceptable marrow function. Once a reasonably well-tolerated dose and schedule of
SIRPαFc has been established for further study, safety and antitumor activity will be estimated in expansion cohorts of up to 15 patients with advanced hematologic
malignancies including indolent B-cell lymphoma, aggressive B-cell lymphoma, T-cell lymphoma, Hodgkin lymphoma, chronic lymphocytic leukemia, multiple
myeloma, acute myeloid leukemia, and myelodysplastic syndrome. We plan to engage five trial sites in the United States for the dose escalation part of the trial.
Blocking the CD47 “do not eat” signal using a SIRP α Fc decoy receptor
Macrophages are a type of white blood cell that can ingest and destroy (phagocytose) other cells. They are part of the innate immune system that helps to protect
the body from infection. More recently, a role for macrophages in the control of tumors has been described.
Macrophage activity is controlled by both positive “eat” and negative “do not eat” signals. Tumor cells may express “eat” signals (e.g., calreticulin) that make
themselves visible to macrophages. To counterbalance this increased visibility the tumor cells often express high levels of CD47, which transmits a “do not eat”
signal by binding signal regulatory protein alpha, or SIRPα, on the surface of macrophages. We believe that the higher expression of CD47 on the tumor cell helps
it evade destruction by the macrophage by overwhelming any activating “eat” signals.
SIRPαFc is an antibody-like protein that consists of the CD47-binding domain of human SIRPα linked to the Fc region of a human immunoglobulin. It is designed
to act as a soluble decoy receptor, preventing CD47 from delivering its inhibitory signal. Neutralization of the inhibitory CD47 signal enables the activation of
macrophage anti-tumor effects by the pro-phagocytic “eat” signals. The Fc region of SIRPαFc may, depending on its identity, also assist in the activation of
macrophages by engaging Fc receptors.
Figure 1, below, illustrates how SIRPαFc blocks the CD47 “do not eat” signal and engages activating Fc receptors on macrophages, leading to tumor cell
phagocytosis.
- 5 -
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
In addition to their direct anti-tumor activity, macrophages can also function as antigen-presenting cells and stimulate antigen-specific T cells. Thus it is possible
that increasing tumor cell phagocytosis after SIRPαFc exposure may result in enhanced adaptive immunity. In support of this, CD47 antibody blockade has been
recently shown to augment antigen presentation and prime an anti-tumor cytotoxic T cell response in immune-competent mice. CD47 blockade has also been
reported to promote tumor-specific T cell responses through a dendritic cell-based mechanism, although the effect of SIRPαFc on dendritic cells is currently
unknown.
SIRP α Fc has broad clinical potential
We believe that SIRPαFc has broad clinical potential in both hematological and solid tumors. High expression of the CD47 “do not eat” signal on tumor cells has
been observed in AML, MDS, chronic myeloid leukemia, or CML, acute lymphoblastic leukemia, or ALL, diffuse large B cell lymphoma, or DLBCL, chronic
lymphocytic leukemia, or CLL, follicular lymphoma, mantle cell lymphoma, marginal zone lymphoma, multiple myeloma and in the following solid tumors:
bladder, brain, breast, colon, leiomyosarcoma, liver, melanoma, ovarian and prostate. In a number of these cancers high CD47 expression was shown to have
negative clinical consequences, correlating with more aggressive disease and poor survival. In normal karyotype AML patients, for example, high CD47 expression
was correlated with worse event-free survival (6.8 vs. 17.1 months) and worse overall survival (9.1 vs. 22.1 months) compared to low CD47 expression. These data
are consistent with CD47 providing a survival advantage to tumor cells. Furthermore, numerous studies have shown that antibody blockade of CD47 has
demonstrated activity in mice engrafted with human tumors. We collaborate with academic investigators to explore the therapeutic potential of SIRPαFc in a
variety of solid tumor models.
In vitro studies with primary tumor samples obtained from AML, MDS, multiple myeloma, B cell-ALL and T-cell ALL demonstrated that SIRPαFc frequently
triggered significantly macrophage-mediated tumor cell phagocytosis compared to control treatment. Similar results were observed with tumor cell lines established
from patients with B lymphoma and CML.
Figure 2, below, shows how SIRPαFc (TTI-621) triggers macrophage-mediated phagocytosis of many different human blood cancer samples.
- 6 -
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
The p value is a probability value, with values <0.05 considered statistically significant versus control treatment. NS indicates p>0.05, which is considered not
statistically significant versus control treatment.
SIRP α – Minimal Red Blood Cell Binding - Competition
SIRPαFc competes directly with CD47 blocking antibodies from Forty Seven Inc. (recently licensed from Stanford University) and Celgene Corporation, both of
which have entered early clinical development. Novimmune SA has a bispecific (anti-CD47/anti-CD19) antibody program in preclinical development. Vasculox is
also developing a CD47 antibody. Alexo Therapeutics is developing mutated, high affinity SIRPα monomers as adjuvants for use with anti-cancer antibodies. Both
Vasculox and Alexo Therapeutics are in the preclinical phase of development.
We believe that our approach of using SIRPα, the natural binding partner for CD47, may have important advantages over treatment with CD47-specific antibodies.
In April 2015, we presented data at the 106th American Association for Cancer Research annual meeting demonstrating that our SIRPαFc fusion proteins exhibit
minimal binding to human red blood cells, or RBCs, compared to anti-CD47 monoclonal antibodies. These data build upon preliminary results announced at the
2014 American Association for Cancer Research annual meeting.
Figure 3, below, shows how SIRPαFc binding to human RBCs (n=43 donors) compares to five CD47-specific antibodies.
- 7 -
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
The very low RBC binding profile of our SIRPαFc proteins may provide three important advantages over other CD47 blocking agents. First, there may be a lower
risk of experiencing drug-induced anemia with SIRPαFc. This potential advantage may translate into improved patient care, particularly in diseases such as AML
where almost all patients experience cytopenias including anemia. Second, SIRPαFc may remain in circulation for longer intervals compared to CD47 antibodies,
which have been demonstrated to bind strongly to circulating RBCs and may thus be more likely to be removed from circulation. The ability of RBCs to absorb and
remove circulating CD47-specific antibodies, an “antigen-sink effect”, may necessitate high doses of antibody in order to effectively target the tumor cells, which
may lead to potentially higher off-target toxicity. Therefore, SIRPαFc may be associated with both improved tolerability and drug kinetics compared with CD47-
specific antibodies based on these preclinical analyses. Third, antibodies that bind RBCs have the potential to interfere with laboratory blood typing tests. The
minimal binding of TTI-621 to human RBCs may minimize this interference compared to anti-CD47 antibodies.
Combination Therapy
We believe that SIRPαFc enhancement of macrophage activity and possibly T cell responses could be synergistic with other immune-mediated therapies. Published
studies conducted by third parties provide evidence that SIRPαFc may be useful in combination with approved anti-cancer antibodies (e.g. Rituxan®, Herceptin®,
Campath®, and Erbitux®). Since many cancer antibodies work at least in part by activating cells of the innate immune system, it may be possible to enhance the
potency of these agents by blocking the negative “do not eat” CD47 signal that tumor cells deliver to macrophages. We hypothesize that SIRPαFc may act
synergistically with other immunological agents, including T cell checkpoint inhibitors (e.g. pembrolizumab and nivolumab), cancer vaccines, oncolytic viruses or
chimeric antigen receptor, or CAR T cells.
Small Molecule Program
On January 26, 2016, we acquired all the outstanding shares of Fluorinov, a privately-held oncology company that has developed a proprietary medicinal chemistry
platform using unique fluorine chemistry, which permits the creation of new chemical entities from validated drugs and drug candidates with improved
pharmacological properties, potentially leading to increased safety and efficacy. Fluorinov’s most advanced preclinical oncology programs include potent, orally-
available, bromodomain and proteasome inhibitors, as well as epidermal growth factor receptor antagonists with increased uptake in the brain, all of which have
been differentiated from competitors and have potential for best-in-class status. In addition, a number of compounds directed at undisclosed immuno-oncology
targets are currently in the discovery phase.
- 8 -
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
The terms of the acquisition were an upfront payment of $10 million plus up to $35 million of additional future payments that are contingent on us achieving
certain clinical and regulatory milestones with an existing Fluorinov compound. We will also have an obligation to pay royalty payments on future sales of such
compounds. The upfront payment was subject to adjustment based on the net working capital of Fluorinov and other adjustments at the time of closing. At our
discretion, up to 50% of the future contingent payments can be satisfied through the issuance of common shares of Trillium provided that the aggregate number of
common shares issuable under such payments will not exceed 1,558,447 common shares unless shareholder approval has first been obtained. In addition, any such
future share issuance remains subject to final approval from our board of directors and receipt of any requisite approvals under the applicable rules of the Toronto
Stock Exchange and the NASDAQ Stock Market. We have also committed to use commercially reasonable efforts to monetize Fluorinov’s central nervous system,
or CNS, assets and share 50% of the net proceeds with Fluorinov shareholders.
Plan of Operations
Over the next 12 months, our primary focus is the advancement of our Phase I clinical trial of SIRPαFc in patients with advanced hematologic malignancies. We
also plan to conduct preclinical research in solid tumors and in combination studies to identify future potential clinical indications.
We also plan to advance one, or possibly two, of Fluorinov’s preclinical programs through the Investigational New Drug, or IND-enabling phase using our internal
development group, while at the same time focusing our new chemistry group on several immuno-oncology discovery programs.
Capital Markets
We were listed on the TSX Venture Exchange, or TSXV, until April 22, 2014 when we migrated to the Toronto Stock Exchange, or TSX. We traded under the
symbol “SSS” until June 6, 2014 when the symbol was changed to “TR”. We were listed on the OTCQX International under the symbol “SCTPF” from May 20,
2013 until we began trading on the NASDAQ Capital Market under the symbol “TRIL” on December 19, 2014.
Legal Proceedings
To our knowledge, there have not been any legal or arbitration proceedings, including those relating to bankruptcy, receivership or similar proceedings, those
involving any third party, and governmental proceedings pending or known to be contemplated, which may have, or have had in the recent past, significant effect
our financial position or profitability.
Also, to our knowledge, there have been no material proceedings in which any director, any member of senior management, or any of our affiliates is either a party
adverse to us or any of our subsidiaries or has a material interest adverse to us or any of our subsidiaries.
- 9 -
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
For the three months and years ended December 31, 2015 and 2014
Overview
RESULTS OF OPERATIONS
Since inception, we have incurred losses while advancing the research and development of our products. Net loss for the three months ended December 31, 2015 of
$2,988,843 was lower than the loss of $4,214,862 for the three months ended December 31, 2014. Net loss for the year ended December 31, 2015 of $14,733,699
exceeded the loss of $12,881,820 for the year ended December 31, 2014. Research and development costs for both 2015 periods were significantly higher than
2014 due mainly to higher costs for our SIRPαFc development program including increased personnel costs. The loss for the three months ended December 31,
2015 was lower than the comparative period due mainly to a net foreign exchange gain of $2,163,429.
Research and Development
Research and development expenses by program for the years ended December 31, 2015 and 2014 were as follows:
SIRPαFc
Tigecycline
Other
Total (1)
Three months
ended
December 31,
2015
$
4,332,644
-
32,939
4,365,583
Three months
ended
December 31,
2014
$
3,828,172
125
6,650
3,834,947
Year ended
December 31,
2015
$
17,978,930
-
71,161
18,050,091
Year ended
December 31,
2014
$
9,372,467
1,091,297
132,044
10,595,808
Note:
(1)
Research and development expenditures in the above table include all direct and indirect costs for the programs, personnel costs, intellectual property
related costs net of recoveries, share-based compensation and research and development overhead, and is net of government assistance. Research and
development overhead costs have been allocated to the programs based mainly on personnel time spent on the programs.
During 2015, most of our resources were focused on the development of our SIRPαFc program. For the year ended December 31, 2015, research and development
costs increased over the same period in the prior year as we completed IND-enabling toxicology studies, incurred manufacturing costs to supply our clinical trial,
completed the IND submission and initiated the Phase I trial in 2015. Personnel costs were also higher in 2015 as we added staff to manage our expanded research
and development activities. In 2014, we discontinued our tigecycline program and recorded an impairment charge of $429,763.
Components of research and development expenses for the three months ended December 31, 2015 and 2014 were as follows:
Research and development programs excluding the below items
Salaries, fees and short-term benefits
Share-based compensation
Amortization of intangible assets
Depreciation of property and equipment
Tax credits
- 10 -
2015
$
2,764,541
1,143,872
520,853
84,837
32,513
(181,033)
4,365,583
2014
$
2,650,581
718,714
258,995
84,837
15,429
106,391
3,834,947
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
Components of research and development expenses for the years ended December 31, 2015 and 2014 were as follows:
Research and development programs excluding the below items
Salaries, fees and short-term benefits
Share-based compensation
Amortization of intangible assets
Impairment of intangible assets
Depreciation of property and equipment
Tax credits
2015
$
12,083,797
4,120,109
1,942,173
339,348
-
118,394
(553,730)
18,050,091
2014
$
5,893,030
2,311,755
1,626,824
610,776
429,763
47,208
(323,548)
10,595,808
The increase in research and development program expenses for the three months ended December 31, 2015 compared to the three months ended December 31,
2014 was due mainly to higher facility costs and advisory fees related to our IND filing, partially offset by lower program costs. Salaries, fees and short-term
benefits increased in the three months ended December 31, 2015 due to higher staffing and salaries compared to the same period in 2014. Share-based
compensation increased due mainly to new options granted in 2015 with higher fair values as determined by the Black-Scholes option pricing model.
The increase in research and development program expenses for the year ended December 31, 2015 compared to the year ended December 31, 2014 was due
mainly to completion of IND-enabling toxicology studies, manufacturing costs to supply our clinical trial, costs to prepare and submit our IND and initiation of the
Phase I trial in 2015 for SIRPαFc. Salaries, fees, and short-term benefits increased for the year ended December 31, 2015 due mainly to additional research and
development personnel hired in 2015. Amortization and impairment of intangible assets was lower in the year ended December 31, 2015 due to the discontinuation
of the tigecycline program in 2014. Depreciation expense was higher in 2015 due to higher purchases of new lab equipment.
General and Administrative
Components of general and administrative expenses for the three months ended December 31, 2015 and 2014 were as follows:
General and administrative expenses excluding the below items
Salaries, fees and short-term benefits
DSU units issued for director compensation
Share-based compensation
- 11 -
2015
$
460,582
119,620
240,000
71,339
891,541
2014
$
181,117
198,941
-
59,788
439,846
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
Components of general and administrative expenses for the years ended December 31, 2015 and 2014 were as follows:
General and administrative expenses excluding the below items
Salaries, fees and short-term benefits
DSU units issued for director compensation
Share-based compensation
2015
$
1,521,639
898,381
540,000
224,327
3,184,347
2014
$
1,198,181
694,849
240,000
444,430
2,577,460
General and administrative expenses for the three months ended December 31, 2015 were higher than the comparable prior year period due mainly to expenses
related to the Fluorinov acquisition and higher insurance costs related to our NASDAQ stock exchange listing. DSU units issued for director compensation were
higher for the three months ended December 31, 2015 as DSUs were not used for director compensation in the comparable 2014 period.
General and administrative expenses for the year ended December 31, 2015 were higher than the comparable prior year period due mainly to higher insurance costs
and expenses related to the Fluorinov acquisition, partially offset by lower stock exchange filing fees. Salaries, fees and short-term benefits increased in 2015 over
2014 due mainly to higher administrative staffing. The value of DSUs issued for director compensation increased in 2015, and share-based compensation expense
was lower in 2015 due mainly to fewer stock options issued to administrative personnel in the year.
Finance income and costs
Components of finance income for the three months ended December 31, 2015 and 2014 were as follows:
Interest income
Net foreign currency gain
Components of finance income for the years ended December 31, 2015 and 2014 were as follows:
Interest income
Net foreign currency gain
- 12 -
2015
$
135,928
2,163,429
2,299,357
2015
$
488,486
6,106,703
6,595,189
2014
$
93,634
-
93,634
2014
$
378,692
-
378,692
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
Finance income for the three months and year ended December 31, 2015 was higher than the prior year comparable periods due mainly to a net foreign currency
gain of $2,163,429 and $6,106,703, respectively, due mainly to holding U.S. dollar denominated cash with a strengthening U.S. dollar. Interest income in 2015 was
also higher due to higher average cash balances.
Finance costs for the year ended December 31, 2015 were comparable to the prior year periods.
Liquidity and Capital Resources
Cash, working capital, and debt
Since inception, we have financed our operations primarily from sales of equity, proceeds from the exercise of warrants and stock options, and from interest income
on funds available for investment. Our primary capital needs are for funds to support our scientific research and development activities including staffing, facilities,
manufacturing, preclinical studies and clinical trials, administrative costs and for working capital.
We have experienced operating losses and cash outflows from operations since incorporation, will require ongoing financing in order to continue our research and
development activities, and we have not earned significant revenue or reached successful commercialization of our products. Our future operations are dependent
upon our ability to finance our cash requirements which will allow us to continue our research and development activities and the commercialization of our
products. There can be no assurance that we will be successful in continuing to finance our operations.
On April 7, 2015, we completed an underwritten public offering of common shares and non-voting convertible preferred shares in the United States. In the offering,
we sold 1,750,754 common shares and 1,077,605 Series II Non-Voting Convertible First Preferred Shares at a price of U.S. $19.50 per share, including 228,359
common shares sold pursuant to the full exercise of the underwriters’ option to purchase additional common shares. The gross proceeds from this offering were
$68,875,067 (U.S. $55,153,000) before deducting offering expenses of $4,913,443.
The Series II Non-Voting Convertible First Preferred Shares sold in the offering are non-voting and are convertible into common shares, on a one-for-one basis
(subject to adjustment), at any time at the option of the holder, subject to certain restrictions on conversion. Holders may not convert Series II Non-Voting
Convertible First Preferred Shares into common shares if, after giving effect to the exercise of conversion, the holder and its joint actors would have beneficial
ownership or direction or control over common shares in excess of 4.99% of the then outstanding common shares. This limit may be raised at the option of the
holder on 61 days’ prior written notice: (i) up to 9.99%, (ii) up to 19.99%, subject to clearance of a personal information form submitted by the holder to the
Toronto Stock Exchange, and (iii) above 19.99%, subject to approval by the Toronto Stock Exchange and shareholder approval.
On May 29, 2015, we filed a base shelf prospectus with the British Columbia, Alberta, Manitoba, Ontario and Nova Scotia securities commissions in Canada and a
Form F-10 registration statement with the United States Securities and Exchange Commission, or SEC, that provides that we may sell under the prospectus from
time to time over the following 25 months up to U.S. $100 million, in one or more offerings, of common shares, First Preferred shares, warrants to purchase
common shares, or units comprising a combination of common shares, First Preferred shares and/or warrants.
Our cash totaled $86,770,542 at December 31, 2015 compared to $26,165,056 at December 31, 2014. As at December 31, 2015, our working capital increased to
$85,369,945 compared to $23,989,252 at December 31, 2014 due mainly to funds received in the April 7, 2015 offering, warrant exercises, and foreign exchange
gains, partially offset by cash used in operations. Accounts payable and accrued liabilities as at December 31, 2015 of $3,233,749 were comparable to the balance
of $3,248,984 at December 31, 2014. Amounts receivable as at December 31, 2015 were $974,822 compared to $344,416 at December 31, 2014. The increase in
amounts receivable was due mainly to the recording of expected refundable tax credits on research and development activities and refundable withholding taxes in
the year ended December 31, 2015.
- 13 -
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
We are indebted to the Federal Economic Development Agency for Southern Ontario, or FedDev, under a non-interest bearing contribution agreement and are
making monthly repayments of $9,586 through November 2019. As at December 31, 2015, the balance repayable is $440,935. The loan payable was discounted
using an estimated market interest rate of 15%. Interest expense accretes on the discounted loan amount until it reaches its face value at maturity.
As at December 31, 2015, we have a deferred lease inducement of $348,205 for a new facility lease. The inducement benefit will be recognized over the expected
term of the lease.
We have a long-term liability of $60,109 related to certain discontinued technologies. This liability was discounted using an estimated market interest rate of 15%
and interest expense is accreting.
Cash flows from operating activities
Cash used in operating activities increased to $18,298,112 for the year ended December 31, 2015, compared to $7,448,068 for the year ended December 31, 2014,
due mainly to higher research and development expenses in the current year.
Cash flows from investing activities
Cash used in investing activities totaled $750,382 for the year ended December 31, 2015, compared to cash provided by investing activities of $352,995 for the
year ended December 31, 2014. The increase was due to higher purchases of property and equipment compared to the prior year.
Cash flows from financing activities
Cash provided by financing activities totaled $73,642,984 for the year ended December 31, 2015, compared to $803,623 for the year ended December 31, 2014.
The increase was due mainly to the completion of an underwritten public offering of common shares and non-voting convertible preferred shares in April 2015.
Contractual Obligations and Contingencies
We enter into research, development and license agreements in the ordinary course of business where we receive research services and rights to proprietary
technologies. Milestone and royalty payments that may become due under various agreements are dependent on, among other factors, clinical trials, regulatory
approvals and ultimately the successful development of a new drug, the outcome and timing of which is uncertain.
Under the license agreement for SIRPαFc, we have future contingent milestones payable of $35,000 related to successful patent grants, $100,000, $200,000 and
$300,000 on the first patient dosed in phase I, II and III trials respectively, and regulatory milestones on their first achievement totalling $5,000,000.We are also
required to pay 20% of any sublicensing revenues to the licensors on the first $50 million of sublicensing revenues, and pay 15% of any sublicensing revenues to
the licensors after the first $50 million of sublicensing revenue received.
Under two agreements with Catalent pursuant to which we acquired the right to use a proprietary expression system for the manufacture of two SIRPαFc
constructs, we have future contingent milestones on pre-marketing approval of up to U.S. $875,000 and aggregate sales milestone payments of up to U.S. $28.8
million for each agreement.
- 14 -
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
We periodically enter into research and license agreements with third parties that include indemnification provisions customary in the industry. These guarantees
generally require us to compensate the other party for certain damages and costs incurred as a result of claims arising from research and development activities
undertaken by or on our behalf. In some cases, the maximum potential amount of future payments that could be required under these indemnification provisions
could be unlimited. These indemnification provisions generally survive termination of the underlying agreement. The nature of the indemnification obligations
prevents us from making a reasonable estimate of the maximum potential amount it could be required to pay. Historically, we have not made any indemnification
payments under such agreements and no amount has been accrued in our audited consolidated financial statements with respect to these indemnification
obligations.
Other than as disclosed below, we did not have any contractual obligations relating to long-term debt obligations, capital (finance) lease obligations, operating lease
obligations, purchase obligations or other long-term liabilities reflected on our balance sheet as at December 31, 2015:
Contractual Obligations (1)(2)
Long-Term Debt Obligations (3)
Capital (Finance) Lease Obligations
Operating Lease Obligations (4)
Purchase Obligations (5)
Other Long-Term Liabilities
Reflected on our Balance Sheet (6)
Less than
1 year
Payment due by period
1 to 3
years
105,446 $
-
266,435
4,788,286
230,064 $
-
457,882
3,826,522
Total
440,935 $
-
2,510,227
8,614,808
3 to 5
years
More than
5 years
105,425 $
-
496,901
-
-
-
1,289,009
-
309,634
11,875,604 $
249,525
5,409,692 $
60,109
4,574,577 $
-
602,326 $
-
1,289,009
$
$
Notes:
(1)
(2)
(3)
(4)
(5)
(6)
Contractual obligations in the above table do not include amounts in accounts payable and accrued liabilities on our balance sheet as at December 31, 2015.
Annual technology license fees currently approximating $50,000 are not included in the above table.
Contingent milestones under the UHN license agreement and the Catalent expression system agreements are not included in the above table.
Amounts due to FedDev repayable in equal monthly installments of $9,586 through November 2019.
Includes operating lease obligations for laboratory and office facilities.
Purchase obligations represent significant research and development contracts and other commitments that include the clinical research organization
agreement for conducting the Phase I trial, and other preclinical and manufacturing activities.
Long-term liability related to the cessation of the development of our regenerative medicine products.
- 15 -
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
Description of Share Capital
The continuity of the number of our issued and outstanding common and preferred shares for the year ended December 31, 2014, the year ended December 31,
2015, and to the date of this MD&A is presented below:
Balance December 31, 2013
Consolidation 1 for 30
Issued on exercise of stock options
Issued on exercise of warrants
Preferred shares converted to common shares
Balance at December 31, 2014
Issued on exercise of stock options
Issued on exercise of warrants
Issued in public offering
Preferred shares converted to common shares
Balance at December 31, 2015
Preferred shares converted to common shares
Balance at the date of this MD&A
Notes:
Number of Series I
Preferred Shares (1)
Number of Series II
Preferred Shares (2)
Number of
Common Shares
77,895,165
-
-
-
(8,390,476)
69,504,689
-
-
-
(15,716,110)
53,788,579
(562,388)
53,226,191
-
-
-
-
-
-
-
-
1,077,605
-
1,077,605
-
1,077,605
121,752,380
(117,693,972)
2,614
86,540
279,682
4,427,244
6,666
1,087,603
1,750,754
523,870
7,796,137
18,746
7,814,883
(1)
(2)
Convertible at a ratio of 30 Series I Preferred Shares for one common share.
Convertible at a ratio of one Series II Preferred Share for one common share.
Share capital issued – for the year ended December 31, 2015
On April 7, 2015, we completed an underwritten public offering of common shares and non-voting convertible preferred shares in the United States. In the offering,
we sold 1,750,754 common shares and 1,077,605 Series II Non-Voting Convertible First Preferred Shares at a price of U.S. $19.50 per share, including 228,359
common shares sold pursuant to the full exercise of the underwriters’ option to purchase additional common shares. The gross proceeds from this offering were
$68,875,067 (U.S. $55,153,000) before deducting offering expenses of $4,913,443.
During the year ended December 31, 2015, 1,087,603 common shares were issued on the exercise of 32,628,425 warrants for proceeds of $9,515,154 and 6,666
stock options were exercised for proceeds of $49,995.
During the year ended December 31, 2015, 15,716,110 Series I First Preferred Shares were converted into 523,870 common shares.
Share capital issued – for the year ended December 31, 2014
On November 14, 2014, we consolidated our outstanding common shares issuing one post-consolidated share for each 30 pre-consolidated shares. All references in
this MD&A to the number of common shares, deferred share units and stock options refer to the post-consolidation amounts.
During the year ended December 31, 2014, 2,596,251 warrants were exercised for 86,540 common shares and for proceeds of $946,813 and 2,614 stock options
were exercised for proceeds of $19,600. Also, 909,091 warrants issued in March 2011 expired unexercised.
During the year ended December 31, 2014, 8,390,476 Series I First Preferred Shares were converted into 279,682 common shares.
- 16 -
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
Warrants
As a result of the November 14, 2014 common share consolidation, the ratio of the number of warrants exercisable for one common share was adjusted from one
warrant for one common share to 30 warrants for one common share. The number of warrants outstanding was not adjusted.
The continuity of the number of issued and outstanding warrants for the year ended December 31, 2014, the year ended December 31, 2015, and to the date of this
MD&A is presented below:
Balance December 31, 2013
Exercised
Expired
Balance at December 31, 2014
Exercised
Balance at December 31, 2015 and the date of this MD&A
Number of
Warrants
142,230,123
(2,596,251)
(909,091)
138,724,781
(32,628,425)
106,096,356
The following table shows the number of warrants outstanding, the exercise prices, and the number of common shares issuable on exercise of the warrants and the
exercise price per common share for 30 warrants at December 31, 2015:
Expiry dates
March 15, 2018
March 27, 2018
December 13, 2018
Total
Number of
Warrants
Exercise
Price
Number of
Common shares
Issuable
on Exercise
Exercise
Price per
Common Share
(30 Warrants)
9,213,780
300,000
96,582,576
106,096,356
$
$
$
0.40
0.40
0.28
307,126
10,000
3,219,419
3,536,545
$
$
$
12.00
12.00
8.40
Our board of directors authorized or ratified the issuances of the warrants set forth in the table above and the issuance of one common share upon the due exercise
of every 30 warrants in accordance with its terms and the receipt by us of the designated exercise price payable in respect of the share prior to the time of expiry on
the designated expiry date.
Stock Options
We have a 10% rolling stock option plan, or the 2014 Stock Option Plan, which was approved by our shareholders at our annual general meeting held on May 27,
2014. Pursuant to the 2014 Stock Option Plan, we may grant stock options to purchase up to an aggregate of 10% of our issued and outstanding common shares
plus 10% of the total number of common shares into which the outstanding First Preferred Shares may be converted. Options granted under the 2014 Stock Option
plan are equity-settled, have a vesting period of four years and have a maximum term of ten years. As at December 31, 2015, the Company was entitled to issue an
additional 87,048 stock options under the 2014 Stock Option Plan.
- 17 -
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
The continuity of the number of issued and outstanding stock options for the year ended December 31, 2014, the years ended December 31, 2015, and to the date of
this MD&A is presented below:
Balance December 31, 2013
Granted
Exercised
Cancelled/ forfeited
Balance at December 31, 2014
Granted
Exercised
Cancelled/forfeited
Balance at December 31, 2015 and at the date of this MD&A
Deferred Share Unit Plan
Number of
Options
Weighted Average
Exercise Price
97,372
499,883
(2,614)
(4,500)
590,141
347,359
(6,666)
(3,000)
927,834
$
$
9.94
9.78
7.50
16.58
9.76
21.40
7.50
30.00
14.07
Our shareholders approved the 2014 DSU Plan on May 27, 2014. The 2014 DSU Plan is intended to promote a greater alignment of long-term interests between our
non-executive directors and executive officers and our shareholders through the issuance of DSUs. Since the value of a DSU increases or decreases with the market
price of the common shares, DSUs reflect a philosophy of aligning the interests of directors and executive officers with those of the shareholders by tying
compensation to share price performance. The Board of Directors intends to use DSUs issued under the 2014 DSU Plan, as well as stock options issued under the
2014 Stock Option Plan, as part of our overall director and executive officer compensation program. A total of 28,777 units were issued during the year ended
December 31, 2014 and 23,011 units were issued during the year ended December 31, 2015 for payment of director fees. We had 51,788 units outstanding as at
December 31, 2015. We have reserved for issuance up to 66,667 common shares under the 2014 DSU Plan.
Fully Diluted Share Capital
The number of issued and outstanding common shares, Series I First Preferred Shares, Series II First Preferred Shares warrants, stock options and DSUs on a fully
converted basis as at December 31, 2015 was as follows:
Common shares
Series I First Preferred Shares
Series II First Preferred Shares
Warrants
Stock options
Deferred share units
Fully diluted common shares as at December 31, 2015
- 18 -
Number of common
share equivalents
7,796,137
1,792,953
1,077,605
3,536,545
927,834
51,788
15,182,862
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
Shareholder Rights Plan
On October 17, 2013 our shareholders adopted a shareholder rights plan, or the 2013 Rights Plan, and approved certain amendments on May 27, 2014, or the
Rights Plan Amendment, and which together with the 2013 Rights Plan may be referred to as the Rights Plan. The Rights Plan is designed to provide adequate time
for the Board of Directors and the shareholders to assess an unsolicited takeover bid for the Company, to provide the Board of Directors with sufficient time to
explore and develop alternatives for maximizing shareholder value if a takeover bid is made, and to provide shareholders with an equal opportunity to participate in
a takeover bid and receive full and fair value for their common shares. The Rights Plan will expire at the close of our annual meeting of shareholders in 2016.
The rights issued under the Rights Plan initially attach to and trade with the common shares and no separate certificates will be issued unless an event triggering
these rights occurs. The rights will become exercisable only when a person, including any party related to it, acquires or attempts to acquire 20% or more of the
outstanding common shares without complying with the “Permitted Bid” provisions of the Rights Plan or without approval of the Board of Directors. Should such
an acquisition occur or be announced, each right would, upon exercise, entitle a rights holder, other than the acquiring person and related persons, to purchase
common shares at an approximate 50% discount to the market price at the time.
Under the Rights Plan, a Permitted Bid is a bid made to all holders of the common shares and which is open for acceptance for not less than 60 days. If at the end of
60 days at least 50% of the outstanding common shares, other than those owned by the offeror and certain related parties have been tendered, the offeror may take
up and pay for the common shares but must extend the bid for a further 10 days to allow other shareholders to tender. The issuance of common shares upon the
exercise of the rights is subject to receipt of certain regulatory approvals.
Related Parties
For the years ended December 31, 2015 and 2014, our key management personnel were the Board of Directors, Chief Executive Officer, Chief Financial Officer,
Chief Scientific Officer, Chief Medical Officer, and Chief Development Officer.
Compensation for our key management personnel for the years ended December 31, 2015 and 2014 was as follows:
Salaries, fees and short-term benefits
Share-based compensation
2015
$
2,595,536
2,433,710
5,029,246
2014
$
1,708,717
2,281,561
3,990,278
Executive officers and directors participate in the 2014 Stock Option Plan and the 2014 DSU Plan, and officers participate in our benefit plans. Directors receive
annual fees for their services. As at December 31, 2015, the key management personnel controlled less than 1% of our voting shares.
Outstanding balances with related parties at the period-end are unsecured, interest free and settlement occurs in cash. There have been no guarantees provided or
received for any related party receivables or payables. For the years ended December 31, 2015 and 2014, $0 and $7,916, respectively, was paid to a former director
for consulting fees.
- 19 -
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
Trend Information
Historical patterns of expenditures cannot be taken as an indication of future expenditures. The amount and timing of expenditures and therefore liquidity and
capital resources vary substantially from period to period depending on the number of research and development programs being undertaken at any one time, the
stage of the development programs, the timing of significant expenditures for manufacturing, toxicology and pharmacology studies and clinical trials, and the
availability of funding from investors and prospective commercial partners.
Selected Annual Financial Information
Interest income
Net loss
Net loss per share
Total assets
Total long-term liabilities
2015
$
488,486
2014
$
378,692
2013
$
44,113
14,733,699
12,881,820
4,289,308
2.22
3.06
3.16
90,039,468
28,186,032
35,087,386
678,700
353,293
446,313
In 2013 we acquired the SIRPαFc program and raised capital in December 2013 to take the program forward into IND-enabling studies. In 2014, we significantly
increased our research and development activities including manufacturing and preclinical studies resulting in a higher net loss in 2014. We raised additional funds
in April 2015 and completed manufacturing, IND-enabling studies and submitted our IND for a first-in-human trial of SIPRaFc in 2015. The net loss for the year
ended December 31, 2015 included a net foreign exchange gain of $6,106,703 that resulted mainly from holding U.S. denominated cash with a strengthening U.S.
dollar exchange rate. Interest income increased in 2014 and 2015 due mainly to higher average cash balances. Although a higher net loss in 2014 and 2015, the net
loss per share decreased due to a higher issued and outstanding number of common shares issued in the two financings. Total assets increased significantly in 2015
as the April 2015 financing raised net proceeds of $64.0 million. Long-term liabilities increased in 2015 due mainly to long-term lease inducements on a new office
and laboratory facility that will be recognized over the expected lease term.
Selected Quarterly Financial Information
2015
Revenue
Research and development expenses
General and administrative expenses
Net loss for the period
Basic and diluted net loss per share*
Cash
Q4-2015
$
-
4,365,583
891,541
2,988,843
0.40
Q3-2015
$
-
4,954,811
721,549
1,505,979
0.21
Q2-2015
$
-
4,713,316
966,438
5,568,564
0.80
Q1-2015
$
-
4,016,381
604,819
4,670,313
0.98
86,770,542
89,082,852
89,545,097
25,702,189
- 20 -
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
2014
Revenue
Research and development expenses
General and administrative expenses
Net loss for the period
Basic and diluted net loss per share*
Cash
Q4-2014
$
-
3,834,947
439,846
4,214,862
0.97
Q3-2014
$
-
2,089,977
500,072
2,526,527
0.60
Q2-2014
$
-
3,105,402
1,075,961
4,100,371
0.99
Q1-2014
$
-
1,565,482
561,581
2,040,060
0.50
26,165,056
27,754,378
30,041,001
31,864,387
* Note: Loss per share has been calculated for all periods on a post-share consolidation basis.
Research and development expenses increased through 2014 as the SRIPaFc development program advanced and were higher in 2015 due to higher costs
associated with IND-enabling toxicology studies, preparing the IND submission and initiating the Phase I clinical trial. Research and development expenses for the
second quarter of 2014 were higher due to higher non-cash share-based compensation and the recognition of an impairment charge on return of the tigecycline
rights back to UHN. General and administrative expenses for the second quarter of 2014 were higher due mainly to higher non-cash share-based compensation
expenses and costs associated with migrating to the TSX. General and administrative costs for the second quarter of 2015 were higher than the first quarter of 2015
due mainly to the issuance of DSUs for director fees. The net loss for the third and fourth quarters of 2015 were lower due mainly to net foreign exchange gains of
$4,019,251 and $2,163,429, respectively, that resulted mainly from holding U.S. denominated cash with a strengthening U.S. dollar exchange rate.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Quantitative & Qualitative Disclosures About Market Risk
Fair Value
IFRS 13, Fair
Value
Measurement
provides a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or
unobservable. Observable inputs are those which reflect market data obtained from independent sources, while unobservable inputs reflects our assumptions with
respect to how market participants would price an asset or liability. These two inputs used to measure fair value fall into the following three different levels of the
fair value hierarchy:
Level 1 Quoted prices in active markets for identical instruments that are observable.
Level 2 Quoted prices in active markets for similar instruments; inputs other than quoted prices that are observable and derived from or corroborated by
observable market data.
Level 3 Valuations derived from valuation techniques in which one or more significant inputs are unobservable.
The hierarchy requires the use of observable market data when available.
- 21 -
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
We have classified cash and marketable securities as Level 1. The loan payable has been classified as Level 2.
Cash, marketable securities, amounts receivable, accounts payable and accrued liabilities, and other current liabilities, due within one year, are all short-term in
nature and, as such, their carrying values approximate fair values. The fair value of the non-current loan payable and long-term liability is estimated by discounting
the expected future cash flows at the cost of money to us, which is equal to its carrying value.
Risks
We are exposed to credit risk, liquidity risk, interest rate risk and currency risk. Our Board of Directors has overall responsibility for the establishment and
oversight of our risk management framework. The Audit Committee is responsible for reviewing our risk management policies.
Credit
risk
Credit risk is the risk of financial loss to the Company if a counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from
the Company’s cash and amounts receivable. The carrying amount of these financial assets represents the maximum credit exposure. The Company follows an
investment policy to mitigate against the deterioration of principal and to enhance the Company’s ability to meet its liquidity needs. Cash is on deposit with major
Canadian chartered banks and the Company invests in high grade short-term instruments. Amounts receivable are primarily comprised of amounts due from the
federal government.
Liquidity
risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company is a development stage company and is
reliant on external fundraising to support its operations. Once funds have been raised, the Company manages its liquidity risk by investing in cash and short-term
instruments to provide regular cash flow for current operations. It also manages liquidity risk by continuously monitoring actual and projected cash flows. The
Board of Directors reviews and approves the Company’s operating and capital budgets, as well as any material transactions not in the ordinary course of business.
The majority of the Company’s accounts payable and accrued liabilities have maturities of less than three months.
Interest
rate
risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company
holds its cash in bank accounts or high interest savings accounts which have a variable rate of interest. The Company manages its interest rate risk by holding
highly liquid short-term instruments and by holding its investments to maturity, where possible. For the years ended December 31, 2015 and 2014, the Company
earned interest income of $488,486 and $378,692, respectively. Therefore, a 1% change in the average interest rate for the years ended December 31, 2015 and
2014, would have a net impact on finance income of $4,885 and $3,787, respectively.
- 22 -
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
Currency
risk
The Company is exposed to currency risk related to the fluctuation of foreign exchange rates and the degree of volatility of those rates. Currency risk is limited to
the portion of the Company’s business transactions denominated in currencies other than the Canadian dollar which are primarily expenses in US dollars. As at
December 31, 2015 and 2014, the Company held US dollar cash in the amount of US$44,547,591 and US$142,558 and had US dollar denominated accounts
payable and accrued liabilities in the amount of US$1,033,319 and US$1,910,430, respectively. Therefore, a 1% change in the foreign exchange rate would have a
net impact on finance costs as at December 31, 2015 and 2014 of $435,143 and $17,679, respectively.
US dollar expenses for the years ended December 31, 2015 and 2014 were approximately US$8,700,000 and US$3,260,000, respectively. Varying the US
exchange rate for the years ended December 31, 2015 and 2014 to reflect a 5% strengthening of the Canadian dollar would have decreased the net loss by
approximately $435,000 and $163,000, respectively, assuming that all other variables remained constant.
Implications of Being an Emerging Growth Company
We are an “emerging growth company” under the U.S. Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and will continue to qualify as an “emerging
growth company” until the earliest to occur of: (a) the last day of the fiscal year during which we have total annual gross revenues of $1,000,000,000 (as such
amount is indexed for inflation every 5 years by the SEC) or more; (b) the last day of our fiscal year following the fifth anniversary of the date of the first sale of
our common shares pursuant to an effective registration statement under the Securities Act; (c) the date on which we have, during the previous 3-year period, issued
more than $1,000,000,000 in non-convertible debt; or (d) the date on which we are deemed to be a “large accelerated filer”, as defined in Rule 12b–2 of the
Exchange Act.
Generally, a company that registers any class of its securities under Section 12 of the Exchange Act is required to include in the second and all subsequent annual
reports filed by it under the Exchange Act, a management report on internal control over financial reporting and, subject to an exemption available to companies
that meet the definition of a “smaller reporting company” in Rule 12b-2 under the Exchange Act, an auditor attestation report on management’s assessment of the
company’s internal control over financial reporting. However, for so long as we continue to qualify as an emerging growth company, we will be exempt from the
requirement to include an auditor attestation report in our annual reports filed under the Exchange Act, even if we do not qualify as a “smaller reporting company”.
In addition, Section 103(a)(3) of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, has been amended by the JOBS Act to provide that, among other
things, auditors of an emerging growth company are exempt from any rules of the Public Company Accounting Oversight Board requiring mandatory audit firm
rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements
of the company.
Any U.S. domestic issuer that is an emerging growth company is able to avail itself of the reduced disclosure obligations regarding executive compensation in
periodic reports and proxy statements, and to not present to its shareholders a non-binding advisory vote on executive compensation, obtain approval of any golden
parachute payments not previously approved, or present the relationship between executive compensation actually paid and our financial performance. So long as
we are a foreign private issuer, we are not subject to such requirements, and will not become subject to such requirements even if we were to cease to be an
emerging growth company.
As a reporting issuer under the securities legislation of the Canadian provinces of Ontario, British Columbia, Manitoba, Nova Scotia and Alberta, we are required
to comply with all new or revised accounting standards that apply to Canadian public companies. Pursuant to Section 107(b) of the JOBS Act, an emerging growth
company may elect to utilize an extended transition period for complying with new or revised accounting standards for public companies until such standards apply
to private companies. We have elected not to utilize this extended transition period.
- 23 -
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
Critical Accounting Estimates
The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets and liabilities, revenue and expenses and the related disclosures of contingent assets and liabilities and the
determination of the Company’s ability to continue as a going concern. Actual results could differ materially from these estimates and assumptions. The Company
reviews its estimates and underlying assumptions on an ongoing basis. Revisions are recognized in the period in which the estimates are revised and may impact
future periods.
The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements have been set
out in Note 2 of our annual audited consolidated financial statements for the year ended December 31, 2015.
Accounting Policies
Our significant accounting policies are outlined in our annual audited consolidated financial statements for the year ended December 31, 2015. This MD&A should
be read in conjunction with the annual audited consolidated financial statements for the year ended December 31, 2015.
New standards and interpretations not yet effective
IFRS 9 Financial Instruments
In October 2010, the IASB published amendments to IFRS 9 Financial Instruments, or IFRS 9, which provides added guidance on the classification and
measurement of financial liabilities. In July 2014, the IASB issued its final version of IFRS 9, which completes the classification and measurement, impairment and
hedge accounting phases of the IASB’s project to replace IAS 39. The final standard is mandatorily effective for annual periods beginning on or after January 1,
2018, with earlier application permitted. We are reviewing the standard to determine the impact that the adoption of this standard may have on the consolidated
financial statements.
IFRS 15 Revenue from Contracts with Customers
In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers, or IFRS 15, which covers principles for reporting about the nature, amount,
timing and uncertainty of revenue and cash flows arising from contracts with customers. IFRS 15 is effective for annual periods beginning on or after January 1,
2018. Entities will transition following either a full or modified retrospective approach. We are reviewing the standard to determine the impact that the adoption of
this standard may have on the consolidated financial statements.
IFRS 16 Leases
In January 2016, the IASB has issued IFRS 16 Leases, or IFRS 16, its new leases standard that requires lessees to recognize assets and liabilities for most leases on
their balance sheets. Lessees applying IFRS 16 will have a single accounting model for all leases, with certain exemptions. Lessor accounting is substantially
unchanged. The new standard will be effective from January 1, 2019 with limited early application permitted. We have not yet begun the process of evaluating the
impact of this standard on our consolidated financial statements.
Other accounting standards or amendments to existing accounting standards that have been issued, but have future effective dates, are either not applicable or are
not expected to have a significant impact on our consolidated financial statements.
- 24 -
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
RISK FACTORS
An
investment
in
our
common
shares
involves
a
high
degree
of
risk
and
should
be
considered
speculative.
An
investment
in
our
common
shares
should
only
be
undertaken
by
those
persons
who
can
afford
the
total
loss
of
their
investment.
You
should
carefully
consider
the
risks
and
uncertainties
described
below,
as
well
as
other
information
contained
in
this
MD&A.
The
risks
and
uncertainties
below
are
not
the
only
ones
we
face.
Additional
risks
and
uncertainties
not
presently
known
to
us
or
that
we
believe
to
be
immaterial
may
also
adversely
affect
our
business.
If
any
of
the
following
risks
occur,
our
business,
financial
condition
and
results
of
operations
could
be
seriously
harmed
and
you
could
lose
all
or
part
of
your
investment.
Further,
if
we
fail
to
meet
the
expectations
of
the
public
market
in
any
given
period,
the
market
price
of
our
common
shares
could
decline.
We
operate
in
a
highly
competitive
environment
that
involves
significant
risks
and
uncertainties,
some
of
which
are
outside
of
our
control.
Risks Related to our Business and our Industry
We expect to incur future losses and we may never become profitable.
We have incurred losses of $14.7 million, $12.9 million and $4.3 million for the years ended December 31, 2015, 2014, and 2013, respectively, and expect to incur
an operating loss for the year ending December 31, 2015. We have an accumulated deficit since inception through December 31, 2015 of $65.3 million. We believe
that operating losses will continue as we are planning to incur significant costs associated with the clinical development of SIRPαFc. Our net losses have had and
will continue to have an adverse effect on, among other things, our shareholders’ equity, total assets and working capital. We expect that losses will fluctuate from
quarter to quarter and year to year, and that such fluctuations may be substantial. We cannot predict when we will become profitable, if at all.
We currently have no product revenue and will not be able to maintain our operations and research and development without additional funding.
To date, we have generated no product revenue and cannot predict when and if we will generate product revenue. Our ability to generate product revenue and
ultimately become profitable depends upon our ability, alone or with partners, to successfully develop our product candidates, obtain regulatory approval, and
commercialize products, including any of our current product candidates, or other product candidates that we may develop, in-license or acquire in the future. We
do not anticipate generating revenue from the sale of products for the foreseeable future. We expect our research and development expenses to increase in
connection with our ongoing activities, particularly as we advance our product candidates through clinical trials.
Our prospects depend on the success of our product candidates which are at early stages of development, and we may not generate revenue for several years, if
at all, from these products.
Given the early stage of our product development, we can make no assurance that our research and development programs will result in regulatory approval or
commercially viable products. To achieve profitable operations, we, alone or with others, must successfully develop, gain regulatory approval, and market our
future products. We currently have no products that have been approved by the U.S. Food and Drug Administration, or FDA, Health Canada, or HC, or any similar
regulatory authority. To obtain regulatory approvals for our product candidates being developed and to achieve commercial success, clinical trials must
demonstrate that the product candidates are safe for human use and that they demonstrate efficacy. While we have commenced a phase I trial for SIRPαFc, we have
not yet completed a phase I clinical trial or subsequent required clinical trials.
Many product candidates never reach the stage of clinical testing and even those that do have only a small chance of successfully completing clinical development
and gaining regulatory approval. Product candidates may fail for a number of reasons, including, but not limited to, being unsafe for human use or due to the failure
to provide therapeutic benefits equal to or better than the standard of treatment at the time of testing. Unsatisfactory results obtained from a particular study relating
to a research and development program may cause us or our collaborators to abandon commitments to that program. Positive results of early preclinical research
may not be indicative of the results that will be obtained in later stages of preclinical or clinical research. Similarly, positive results from early-stage clinical trials
may not be indicative of favorable outcomes in later-stage clinical trials. We can make no assurance that any future studies, if undertaken, will yield favorable
results.
We recently acquired several preclinical and discovery research programs in our acquisition of Fluorinov, including certain assets relating to the treatment of
central nervous system disorders. While we conducted extensive due diligence before making this acquisition, our assessment of the Fluorinov technologies may
not be accurate. Therefore, our expectations about whether various clinical and regulatory milestones with an existing Fluorinov compound or development of a
future program on the Fluorinov development platform will be achieved may not be borne out fully or at all. We have made a commitment to attempt to monetize
the Fluorinov central nervous system assets and, if successful, to share the net proceeds with the Fluorinov vendors. As this is not a core competency of the
Company, our efforts to monetize these assets or any other Fluorinov assets may not be successful. We can make no assurances that toxicology, or other preclinical,
studies will yield results that will allow us to proceed with clinical trials in humans.
- 25 -
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
The early stage of our product development makes it particularly uncertain whether any of our product development efforts will prove to be successful and meet
applicable regulatory requirements, and whether any of our product candidates will receive the requisite regulatory approvals, be capable of being manufactured at
a reasonable cost or be successfully marketed. If we are successful in developing our current and future product candidates into approved products, we will still
experience many potential obstacles such as the need to develop or obtain manufacturing, marketing and distribution capabilities. If we are unable to successfully
commercialize any of our products, our financial condition and results of operations may be materially and adversely affected.
We rely and will continue to rely on third parties to plan, conduct and monitor our preclinical studies and clinical trials, and their failure to perform as
required could cause substantial harm to our business.
We rely and will continue to rely on third parties to conduct a significant portion of our preclinical and clinical development activities. Preclinical activities include
in vivo studies providing access to specific disease models, pharmacology and toxicology studies, and assay development. Clinical development activities include
trial design, regulatory submissions, clinical patient recruitment, clinical trial monitoring, clinical data management and analysis, safety monitoring and project
management. If there is any dispute or disruption in our relationship with third parties, or if they are unable to provide quality services in a timely manner and at a
feasible cost, our active development programs will face delays. Further, if any of these third parties fails to perform as we expect or if their work fails to meet
regulatory requirements, our testing could be delayed, cancelled or rendered ineffective.
We rely on contract manufacturers over whom we have limited control. If we are subject to quality, cost or delivery issues with the preclinical and clinical
grade materials supplied by contract manufacturers, our business operations could suffer significant harm.
We have limited manufacturing experience and rely on contract manufacturing organizations, or CMOs to manufacture our product candidates for larger preclinical
studies and clinical trials. We produce small quantities of our product candidates at bench scale in our laboratory facilities for use in smaller preclinical studies. We
rely on CMOs for manufacturing, filling, packaging, storing and shipping of drug product in compliance with cGMP regulations applicable to our products. The
FDA ensures the quality of drug products by carefully monitoring drug manufacturers’ compliance with cGMP regulations. The cGMP regulations for drugs
contain minimum requirements for the methods, facilities and controls used in manufacturing, processing and packing of a drug product.
We contracted with Catalent for the manufacture of the SIRPαFc protein to supply drug product for our phase I clinical trial. The manufacture of recombinant
proteins uses well established processes including a protein expression system. Catalent is producing SIRPαFc using their proprietary GPEx® expression system.
We believe that Catalent has the capacity, the systems, and the experience to supply SIRPαFc for our phase I clinical trial and we may consider using Catalent for
manufacturing for later clinical trials. However, since the Catalent manufacturing facility where SIRPαFc is being produced was only recently established, it has
not been inspected by the FDA. Any manufacturing failures or delays or compliance issues could cause delays in the conduct of SIRPαFc preclinical studies and
clinical trials.
There can be no assurances that CMOs will be able to meet our timetable and requirements. We have not contracted with alternate suppliers in the event Catalent is
unable to scale up production, or if Catalent otherwise experiences any other significant problems. If we are unable to arrange for alternative third-party
manufacturing sources on commercially reasonable terms or in a timely manner, we may be delayed in the development of our product candidates. Further, contract
manufacturers must operate in compliance with cGMP and failure to do so could result in, among other things, the disruption of product supplies. Our dependence
upon third parties for the manufacture of our products may adversely affect our profit margins and our ability to develop and deliver products on a timely and
competitive basis.
- 26 -
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
If clinical trials of our product candidates fail to demonstrate safety and efficacy to the satisfaction of regulatory authorities or do not otherwise produce
positive results, we would incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and
commercialization of our product candidates.
Before obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must conduct preclinical studies in animals and
extensive clinical trials in humans to demonstrate the safety and efficacy of the product candidates. Clinical testing is expensive and difficult to design and
implement, can take many years to complete and has uncertain outcomes. The outcome of preclinical studies and early clinical trials may not predict the success of
later clinical trials, and interim results of a clinical trial do not necessarily predict final results. A number of companies in the pharmaceutical and biotechnology
industries have suffered significant setbacks in advanced clinical trials due to lack of efficacy or unacceptable safety profiles, notwithstanding promising results in
earlier trials. We do not know whether the clinical trials we may conduct will demonstrate adequate efficacy and safety to result in regulatory approval to market
any of our product candidates in any jurisdiction. A product candidate may fail for safety or efficacy reasons at any stage of the testing process. A major risk we
face is the possibility that none of our product candidates under development will successfully gain market approval from the FDA or other regulatory authorities,
resulting in us being unable to derive any commercial revenue from them after investing significant amounts of capital in multiple stages of preclinical and clinical
testing.
If we experience delays in clinical testing, we will be delayed in commercializing our product candidates, and our business may be substantially harmed.
We cannot predict whether any clinical trials will begin as planned, will need to be restructured, or will be completed on schedule, or at all. Our product
development costs will increase if we experience delays in clinical testing. Significant clinical trial delays could shorten any periods during which we may have the
exclusive right to commercialize our product candidates or allow our competitors to bring products to market before us, which would impair our ability to
successfully commercialize our product candidates and may harm our financial condition, results of operations and prospects. The commencement and completion
of clinical trials for our products may be delayed for a number of reasons, including delays related, but not limited, to:
•
•
•
•
•
•
•
•
•
•
•
failure by regulatory authorities to grant permission to proceed or placing the clinical trial on hold;
patients failing to enroll or remain in our trials at the rate we expect;
suspension or termination of clinical trials by regulators for many reasons, including concerns about patient safety or failure of our contract
manufacturers to comply with cGMP requirements;
any changes to our manufacturing process that may be necessary or desired;
delays or failure to obtain clinical supply from contract manufacturers of our products necessary to conduct clinical trials;
product candidates demonstrating a lack of safety or efficacy during clinical trials;
patients choosing an alternative treatment for the indications for which we are developing any of our product candidates or participating in
competing clinical trials;
patients failing to complete clinical trials due to dissatisfaction with the treatment, side effects or other reasons;
reports of clinical testing on similar technologies and products raising safety and/or efficacy concerns;
competing clinical trials and scheduling conflicts with participating clinicians;
clinical investigators not performing our clinical trials on their anticipated schedule, dropping out of a trial, or employing methods not consistent
with the clinical trial protocol, regulatory requirements or other third parties not performing data collection and analysis in a timely or accurate
manner;
- 27 -
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
•
•
•
•
failure of our contract research organizations, or CROs, to satisfy their contractual duties or meet expected deadlines;
inspections of clinical trial sites by regulatory authorities or Institutional Review Boards, or IRBs, or ethics committees finding regulatory
violations that require us to undertake corrective action, resulting in suspension or termination of one or more sites or the imposition of a clinical
hold on the entire study;
one or more IRBs or ethics committees rejecting, suspending or terminating the study at an investigational site, precluding enrollment of additional
subjects, or withdrawing its approval of the trial; or
failure to reach agreement on acceptable terms with prospective clinical trial sites.
Our product development costs will increase if we experience delays in testing or approval or if we need to perform more or larger clinical trials than planned.
Additionally, changes in regulatory requirements and policies may occur, and we may need to amend study protocols to reflect these changes. Amendments may
require us to resubmit our study protocols to regulatory authorities or IRBs or ethics committees for re-examination, which may impact the cost, timing or
successful completion of that trial. Delays or increased product development costs may have a material adverse effect on our business, financial condition and
prospects.
If we have difficulty enrolling patients in clinical trials, the completion of the trials may be delayed or cancelled.
As our product candidates advance from preclinical testing to clinical testing, and then through progressively larger and more complex clinical trials, we will need
to enroll an increasing number of patients that meet our eligibility criteria. There is significant competition for recruiting cancer patients in clinical trials, and we
may be unable to enroll the patients we need to complete clinical trials on a timely basis or at all. The factors that affect our ability to enroll patients are largely
uncontrollable and include, but are not limited to, the following:
•
•
•
•
•
•
•
size and nature of the patient population;
eligibility and exclusion criteria for the trial;
design of the study protocol;
competition with other companies for clinical sites or patients;
the perceived risks and benefits of the product candidate under study;
the patient referral practices of physicians; and
the number, availability, location and accessibility of clinical trial sites.
If we are unable to successfully develop companion diagnostics for our therapeutic product candidates, or experience significant delays in doing so, we may not
achieve marketing approval or realize the full commercial potential of our therapeutic product candidates.
We may develop companion diagnostics for our therapeutic product candidates. We expect that, at least in some cases, regulatory authorities may require the
development and regulatory approval of a companion diagnostic as a condition to approving our therapeutic product candidates. We have limited experience and
capabilities in developing or commercializing diagnostics and plan to rely in large part on third parties to perform these functions. We have not begun to develop
companion diagnostics for any of our therapeutic product candidates.
Companion diagnostics are subject to regulation by the FDA, HC, and comparable foreign regulatory authorities as medical devices and may require separate
regulatory approval or clearance prior to commercialization. If we, or any third parties that we engage to assist us, are unable to successfully develop companion
diagnostics for our therapeutic product candidates, or experience delays in doing so, our business may be substantially harmed.
Regulatory approval processes are lengthy, expensive and inherently unpredictable. Our inability to obtain regulatory approval for our product candidates
would substantially harm our business.
Our development and commercialization activities and product candidates are significantly regulated by a number of governmental entities, including the FDA,
HC, and comparable authorities in other countries. Regulatory approvals are required prior to each clinical trial and we may fail to obtain the necessary approvals to
commence or continue clinical testing. We must comply with regulations concerning the manufacture, testing, safety, effectiveness, labeling, documentation,
advertising, and sale of products and product candidates and ultimately must obtain regulatory approval before we can commercialize a product candidate. The time
required to obtain approval by such regulatory authorities is unpredictable but typically takes many years following the commencement of preclinical studies and
clinical trials. Any analysis of data from clinical activities we perform is subject to confirmation and interpretation by regulatory authorities, which could delay,
limit or prevent regulatory approval. Even if we believe results from our clinical trials are favorable to support the marketing of our product candidates, the FDA or
other regulatory authorities may disagree. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change
during the course of a product candidate’s clinical development and may vary among jurisdictions. We have not obtained regulatory approval for any product
candidate and it is possible that none of our existing product candidates or any future product candidates will ever obtain regulatory approval.
- 28 -
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
We could fail to receive regulatory approval for our product candidates for many reasons, including, but not limited to:
•
•
•
•
•
•
•
•
disagreement with the design or implementation of our clinical trials;
failure to demonstrate that a product candidate is safe and effective for its proposed indication;
failure of clinical trials to meet the level of statistical significance required for approval;
failure to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;
disagreement with our interpretation of data from preclinical studies or clinical trials;
the insufficiency of data collected from clinical trials of our product candidates to support the submission and filing of a BLA or other submission
to obtain regulatory approval;
deficiencies in the manufacturing processes or the failure of facilities of CMOs with whom we contract for clinical and commercial supplies to
pass a pre-approval inspection; or
changes in the approval policies or regulations that render our preclinical and clinical data insufficient for approval.
A regulatory authority may require more information, including additional preclinical or clinical data to support approval, which may delay or prevent approval and
our commercialization plans, or we may decide to abandon the development program. If we were to obtain approval, regulatory authorities may approve any of our
product candidates for fewer or more limited indications than we request, may grant approval contingent on the performance of costly post-marketing clinical trials,
or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that
product candidate. Moreover, depending on any safety issues associated with our product candidates that garner approval, the FDA may impose a risk evaluation
and mitigation strategy, thereby imposing certain restrictions on the sale and marketability of such products.
We will require additional capital to finance our operations, which may not be available to us on acceptable terms, or at all. As a result, we may not complete
the development and commercialization of our product candidates or develop new product candidates.
As a research and development company, our operations have consumed substantial amounts of cash since inception. We expect to spend substantial funds to
continue the research, development and testing of our product candidates and to prepare to commercialize products subject to FDA approval in the U.S. and similar
approvals in other jurisdictions. We will also require significant additional funds if we expand the scope of our current clinical plans for the SIRPαFc program or if
we were to acquire any new assets and advance their development. Therefore, for the foreseeable future, we will have to fund all of our operations and development
expenditures from cash on hand, equity or debt financings, through collaborations with other biotechnology or pharmaceutical companies or through financings
from other sources. We expect that our existing cash at December 31, 2015 of $86,770,542 will enable us to fund our current operating plan requirements for at
least the next twelve months. Additional financing will be required to meet our long term liquidity needs. If we do not succeed in raising additional funds on
acceptable terms, we might not be able to complete planned preclinical studies and clinical trials or pursue and obtain approval of any product candidates from the
FDA and other regulatory authorities. It is possible that future financing will not be available or, if available, may not be on favorable terms. The availability of
financing will be affected by the achievement of our corporate goals, the results of scientific and clinical research, the ability to obtain regulatory approvals, the
state of the capital markets generally and with particular reference to drug development companies, the status of strategic alliance agreements and other relevant
commercial considerations. If adequate funding is not available, we may be required to delay, reduce or eliminate one or more of our product development
programs, or obtain funds through corporate partners or others who may require us to relinquish significant rights to product candidates or obtain funds on less
favorable terms than we would otherwise accept. To the extent that external sources of capital become limited or unavailable or available on onerous terms, our
intangible assets and our ability to continue our clinical development plans may become impaired, and our assets, liabilities, business, financial condition and
results of operations may be materially or adversely affected.
- 29 -
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
We face competition from other biotechnology and pharmaceutical companies and our financial condition and operations will suffer if we fail to effectively
compete.
The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. Our competitors include
large, well-established pharmaceutical companies, biotechnology companies, and academic and research institutions developing cancer therapeutics for the same
indications we are targeting and competitors with existing marketed therapies. Many other companies are developing or commercializing therapies to treat the same
diseases or indications for which our product candidates may be useful. Although there are no approved therapies that specifically target the CD47 pathway, some
competitors use therapeutic approaches that may compete directly with our product candidates. For example, SIRPαFc is in direct competition with CD47 blocking
antibodies from Stanford University, Celgene Corporation, and Novimmune SA.
Many of our competitors have substantially greater financial, technical and human resources than we do and have significantly greater experience than us in
conducting preclinical testing and human clinical trials of product candidates, scaling up manufacturing operations and obtaining regulatory approvals of products.
Accordingly, our competitors may succeed in obtaining regulatory approval for products more rapidly than we do. Our ability to compete successfully will largely
depend on:
•
•
•
•
•
•
•
the efficacy and safety profile of our product candidates relative to marketed products and other product candidates in development;
our ability to develop and maintain a competitive position in the product categories and technologies on which we focus;
the time it takes for our product candidates to complete clinical development and receive marketing approval;
our ability to obtain required regulatory approvals;
our ability to commercialize any of our product candidates that receive regulatory approval;
our ability to establish, maintain and protect intellectual property rights related to our product candidates; and
acceptance of any of our product candidates that receive regulatory approval by physicians and other healthcare providers and payers.
Competitors have developed and may develop technologies that could be the basis for products that challenge the differentiated nature and potential for best-in-
class product development programs and discovery research capabilities of Fluorinov. Some of those products may have an entirely different approach or means of
accomplishing the desired therapeutic effect than our products and may be more effective or less costly than our products. The success of our competitors and their
products and technologies relative to our technological capabilities and competitiveness could have a material adverse effect on the future pre-clinical and clinical
trials of our products, including our ability to obtain the necessary regulatory approvals for the conduct of such trials. This may further negatively impact our ability
to generate future product development programs with improved pharmacological properties using Fluorinov technology.
- 30 -
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
If we are not able to compete effectively against our current and future competitors, our business will not grow and our financial condition and operations will
substantially suffer.
We heavily rely on the capabilities and experience of our key executives and scientists and the loss of any of them could affect our ability to develop our
products.
The loss of Dr. Niclas Stiernholm, our President and Chief Executive Officer, or other key members of our staff, including Dr. Robert Uger, our Chief Scientific
Officer, Dr. Eric Sievers, our Chief Medical Officer, James Parsons, our Chief Financial Officer, Dr. Penka Petrova, our Chief Development Officer, or Dr. Malik
Slassi, our Senior Vice President, Discovery Research could harm us. We have employment agreements with Drs. Stiernholm, Uger, Sievers, Petrova and Slassi
and Mr. Parsons, although such employment agreements do not guarantee their retention. We also depend on our scientific and clinical collaborators and advisors,
all of whom have outside commitments that may limit their availability to us. In addition, we believe that our future success will depend in large part upon our
ability to attract and retain highly skilled scientific, managerial, medical, clinical and regulatory personnel, particularly as we expand our activities and seek
regulatory approvals for clinical trials. We enter into agreements with our scientific and clinical collaborators and advisors, key opinion leaders and academic
partners in the ordinary course of our business. We also enter into agreements with physicians and institutions who will recruit patients into our clinical trials on our
behalf in the ordinary course of our business. Notwithstanding these arrangements, we face significant competition for these types of personnel from other
companies, research and academic institutions, government entities and other organizations. We cannot predict our success in hiring or retaining the personnel we
require for continued growth. The loss of the services of any of our executive officers or other key personnel could potentially harm our business, operating results
or financial condition.
Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could
have a material adverse effect on our business.
We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include failures to comply with FDA regulations, provide
accurate information to the FDA, comply with manufacturing standards we have established, comply with federal and state health-care fraud and abuse laws and
regulations, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the
healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing, and other abusive practices. These laws and
regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other
business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in
regulatory sanctions and serious harm to our reputation. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting
our rights, those actions could have a substantial impact on our business and results of operations, including the imposition of substantial fines or other sanctions.
We may expand our business through the acquisition of companies or businesses or by entering into collaborations or by in-licensing product candidates, each
of which could disrupt our business and harm our financial condition.
We have in the past and may in the future seek to expand our pipeline and capabilities by acquiring one or more companies or businesses, entering into
collaborations, or in-licensing one or more product candidates. For example, in January 2016, we acquired Fluorinov, a small molecule medicinal chemistry
company with preclinical oncology assets and a potential discovery platform. In April 2013, we in-licensed tigecycline which was subsequently returned to the
UHN in 2014. Acquisitions, collaborations and in-licenses involve numerous risks, including, but not limited to:
•
•
•
substantial cash expenditures;
technology development risks;
potentially dilutive issuances of equity securities;
- 31 -
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
•
•
•
•
•
•
incurrence of debt and contingent liabilities, some of which may be difficult or impossible to identify at the time of acquisition;
difficulties in assimilating the operations of the acquired companies;
potential disputes regarding contingent consideration;
diverting our management’s attention away from other business concerns;
entering markets in which we have limited or no direct experience; and
potential loss of our key employees or key employees of the acquired companies or businesses.
We have experience in making acquisitions, entering collaborations, and in-licensing product candidates, however, we cannot provide assurance that any
acquisition, collaboration or in-license will result in short-term or long-term benefits to us. We may incorrectly judge the value or worth of an acquired company or
business or in-licensed product candidate. In addition, our future success would depend in part on our ability to manage the rapid growth associated with some of
these acquisitions, collaborations and in-licenses. We cannot provide assurance that we would be able to successfully combine our business with that of acquired
businesses, manage a collaboration or integrate in-licensed product candidates. Furthermore, the development or expansion of our business may require a
substantial capital investment by us.
Negative results from clinical trials or studies of others and adverse safety events involving the targets of our products may have an adverse impact on our
future commercialization efforts .
From time to time, studies or clinical trials on various aspects of biopharmaceutical products are conducted by academic researchers, competitors or others. The
results of these studies or trials, when published, may have a significant effect on the market for the biopharmaceutical product that is the subject of the study. The
publication of negative results of studies or clinical trials or adverse safety events related to our product candidates, or the therapeutic areas in which our product
candidates compete, could adversely affect our share price and our ability to finance future development of our product candidates, and our business and financial
results could be materially and adversely affected.
We face the risk of product liability claims, which could exceed our insurance coverage and produce recalls, each of which could deplete our cash resources.
We are exposed to the risk of product liability claims alleging that use of our product candidates caused an injury or harm. These claims can arise at any point in the
development, testing, manufacture, marketing or sale of our product candidates and may be made directly by patients involved in clinical trials of our product
candidates, by consumers or healthcare providers or by individuals, organizations or companies selling our products. Product liability claims can be expensive to
defend, even if the product or product candidate did not actually cause the alleged injury or harm.
Insurance covering product liability claims becomes increasingly expensive as a product candidate moves through the development pipeline to commercialization.
We currently maintain clinical trial liability insurance coverage of $10 million. However, there can be no assurance that such insurance coverage is or will continue
to be adequate or available to us at a cost acceptable to us or at all. We may choose or find it necessary under our collaborative agreements to increase our
insurance coverage in the future. We may not be able to secure greater or broader product liability insurance coverage on acceptable terms or at reasonable costs
when needed. Any liability for damages resulting from a product liability claim could exceed the amount of our coverage, require us to pay a substantial monetary
award from our own cash resources and have a material adverse effect on our business, financial condition and results of operations. Moreover, a product recall, if
required, could generate substantial negative publicity about our products and business, inhibit or prevent commercialization of other products and product
candidates or negatively impact existing or future collaborations.
In addition, some of our licensing and other agreements with third parties require or might require us to maintain product liability insurance. If we cannot maintain
acceptable amounts of coverage on commercially reasonable terms in accordance with the terms set forth in these agreements, the corresponding agreements would
be subject to termination, which could have a material adverse impact on our operations.
- 32 -
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
We may not achieve our publicly announced milestones according to schedule, or at all.
From time to time, we may announce the timing of certain events we expect to occur, such as the anticipated timing of results from our clinical trials. These
statements are forward-looking and are based on the best estimates of management at the time relating to the occurrence of such events. However, the actual timing
of such events may differ from what has been publicly disclosed. The timing of events such as initiation or completion of a clinical trial, filing of an application to
obtain regulatory approval, or announcement of additional clinical trials for a product candidate may ultimately vary from what is publicly disclosed. These
variations in timing may occur as a result of different events, including the nature of the results obtained during a clinical trial or during a research phase, problems
with a CMO or a CRO or any other event having the effect of delaying the publicly announced timeline. We undertake no obligation to update or revise any
forward-looking information, whether as a result of new information, future events or otherwise, except as otherwise required by law. Any variation in the timing
of previously announced milestones could have a material adverse effect on our business plan, financial condition or operating results and the trading price of
common shares.
We are exposed to the financial risk related to the fluctuation of foreign exchange rates and the degrees of volatility of those rates.
We may be adversely affected by foreign currency fluctuations. To date, we have been primarily funded through issuances of equity, proceeds from the exercise of
warrants and stock options and from interest income on funds available for investment, which are all denominated both in Canadian and U.S. dollars. Also, a
growing portion of our expenditures are in U.S. dollars, and we are therefore subject to foreign currency fluctuations which may, from time to time, impact our
financial position and results of operations.
Risks Related to Intellectual Property
If we are unable to adequately protect and enforce our intellectual property, our competitors may take advantage of our development efforts or acquired
technology and compromise our prospects of marketing and selling our key products.
We control two patent families relating to SIRPα. One family relates to the use of SIRPα to treat cancer. The other family relates our drug as a composition of
matter, SIRPαFc.
More recently, we acquired the patent portfolio of Fluorinov, which embraces patent filings that cover eleven different inventions. With the exception of one
process scheme, these patent filings each claim a family of small molecule drugs as compositions of matter, together with claims for their production and their
medical uses. These drugs target cancer for the most part, and some related medical end-uses.
Our success will depend in part upon our ability to protect our intellectual property and proprietary technologies and upon the nature and scope of the intellectual
property protection we receive. For example, some of our patent portfolio covers primarily methods of medical use but not compositions of matter. The ability to
compete effectively and to achieve partnerships will depend on our ability to develop and maintain proprietary aspects of our technology and to operate without
infringing on the proprietary rights of others. The presence of such proprietary rights of others could severely limit our ability to develop and commercialize our
products, to conduct our existing research and could require financial resources to defend litigation, which may be in excess of our ability to raise such funds. There
is no assurance that our pending patent applications or those that we intend to acquire will be approved in a form that will be sufficient to protect our proprietary
technology and gain or keep any competitive advantage that we may have.
- 33 -
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
The patent positions of pharmaceutical companies can be highly uncertain and involve complex legal, scientific and factual questions for which important legal
principles remain unresolved. Patents issued to us or our respective licensors may be challenged, invalidated or circumvented. To the extent our intellectual
property, including licensed intellectual property, offers inadequate protection, or is found to be invalid or unenforceable, we are exposed to a greater risk of direct
competition. If our intellectual property does not provide adequate protection against our competitors’ products, our competitive position could be adversely
affected, as could our business, financial condition and results of operations. Both the patent application process and the process of managing patent disputes can be
time consuming and expensive, and the laws of some foreign countries may not protect our intellectual property rights to the same extent as do the laws of Canada
and the United States.
We will be able to protect our intellectual property from unauthorized use by third parties only to the extent that our proprietary technologies, key products, and any
future products are covered by valid and enforceable intellectual property rights including patents or are effectively maintained as trade secrets, and provided we
have the funds to enforce our rights, if necessary.
If we lose our licenses from third-party owners we may be unable to continue a substantial part of our business.
We are party to licenses that give us rights to intellectual property that is necessary or useful for a substantial part of our business. Pursuant to our exclusive license
agreement with UHN and the Hospital for Sick Children, or HSC, under which we license certain patent rights for our key products and their uses, we are required
to use commercially reasonable efforts to commercialize products based on the licensed rights and pay certain royalties and sublicensing revenue to UHN and HSC.
These licenses require that we pay development milestone payments, regulatory milestone payments, royalties on net sales, and sublicensing revenues, as well as
annual maintenance fees.
We have also entered into agreements allowing us to manufacture SIRPαFc using Catalent’s proprietary GPEx® expression system. The consideration includes
payments at the time we successfully reach a series of development and sales milestones. We may also enter into licenses in the future to access additional third-
party intellectual property.
If we fail to pay annual maintenance fees, development and sales milestones, or it is determined that we did not use commercially reasonable efforts to
commercialize licensed products, we could lose our licenses which could have a material adverse effect on our business and financial condition.
We may require additional third-party licenses to effectively develop and manufacture our key products and are currently unable to predict the availability or
cost of such licenses.
A substantial number of patents have already been issued to other biotechnology and pharmaceutical companies. To the extent that valid third-party patent rights
cover our products or services, we or our strategic collaborators would be required to seek licenses from the holders of these patents in order to manufacture, use or
sell these products and services, and payments under them would reduce our profits from these products and services. We are currently unable to predict the extent
to which we may wish or be required to acquire rights under such patents, the availability and cost of acquiring such rights, and whether a license to such patents
will be available on acceptable terms or at all. There may be patents in the U.S. or in foreign countries or patents issued in the future that are unavailable to license
on acceptable terms. Our inability to obtain such licenses may hinder or eliminate our ability to manufacture and market our products.
- 34 -
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
Changes in patent law and its interpretation could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.
As is the case with other biotechnology and pharmaceutical companies, our success is heavily dependent on intellectual property rights, particularly patents.
Obtaining and enforcing patents in the biopharmaceutical industry involves technological and legal complexity, and obtaining and enforcing biopharmaceutical
patents is costly, time-consuming and inherently uncertain. The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of
patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard
to our and our licensors’ or collaborators’ ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of
patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts, and the U.S. Patent and Trademark Office, or USPTO, the laws and
regulations governing patents could change in unpredictable ways that would weaken our and our licensors’ or collaborators’ ability to obtain new patents or to
enforce existing patents and patents we and our licensors or collaborators may obtain in the future.
Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our and our licensors’ or collaborators’ patent
applications and the enforcement or defense of our or our licensors’ or collaborators’ issued patents. On September 16, 2011, the Leahy-Smith America Invents
Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that
affect the way patent applications are prosecuted and may also affect patent litigation. The USPTO recently developed new regulations and procedures to govern
administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file
provisions, only became effective on March 16, 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our
business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our or our licensors’ or
collaborators’ patent applications and the enforcement or defense of our or our licensors’ or collaborators’ issued patents, all of which could have a material
adverse effect on our business and financial condition.
Litigation regarding patents, patent applications, and other proprietary rights may be expensive, time consuming and cause delays in the development and
manufacturing of our key products.
Our success will depend in part on our ability to operate without infringing the proprietary rights of third parties. The pharmaceutical industry is characterized by
extensive patent litigation. Other parties may have, or obtain in the future, patents and allege that the use of our technologies infringes these patent claims or that
we are employing their proprietary technology without authorization.
In addition, third parties may challenge or infringe upon our existing or future patents. Proceedings involving our patents or patent applications or those of others
could result in adverse decisions regarding:
•
•
the patentability of our inventions relating to our key products; and/or
the enforceability, validity, or scope of protection offered by our patents relating to our key products.
If we are unable to avoid infringing the patent rights of others, we may be required to seek a license, defend an infringement action, or challenge the validity of the
patents in court. Regardless of the outcome, patent litigation is costly and time consuming. In some cases, we may not have sufficient resources to bring these
actions to a successful conclusion. In addition, if we do not obtain a license, develop or obtain non-infringing technology, fail to defend an infringement action
successfully or have infringed patents declared invalid, we may:
•
•
incur substantial monetary damages;
encounter significant delays in bringing our key products to market; and/or
- 35 -
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
•
be precluded from participating in the manufacture, use or sale of our key products or methods of treatment requiring licenses.
Even if we are successful in these proceedings, we may incur substantial costs and divert management time and attention in pursuing these proceedings, which
could have a material adverse effect on us.
Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them.
Because we rely on third parties to develop our products, we must share trade secrets with them. We seek to protect our proprietary technology in part by entering
into confidentiality agreements and, if applicable, material transfer agreements, collaborative research agreements, consulting agreements or other similar
agreements with our collaborators, advisors, employees and consultants prior to beginning research or disclosing proprietary information. These agreements
typically restrict the ability of our collaborators, advisors, employees and consultants to publish data potentially relating to our trade secrets. Our academic
collaborators typically have rights to publish data, provided that we are notified in advance and may delay publication for a specified time in order to secure our
intellectual property rights arising from the collaboration. In other cases, publication rights are controlled exclusively by us, although in some cases we may share
these rights with other parties. We also conduct joint research and development programs which may require us to share trade secrets under the terms of research
and development collaboration or similar agreements. Despite our efforts to protect our trade secrets, our competitors may discover our trade secrets, either through
breach of these agreements, independent development or publication of information including our trade secrets in cases where we do not have proprietary or
otherwise protected rights at the time of publication. A competitor’s discovery of our trade secrets may impair our competitive position and could have a material
adverse effect on our business and financial condition.
Risks Related to Our Common Shares
Our common share price has been volatile in recent years, and may continue to be volatile.
The market prices for securities of biopharmaceutical companies, including ours, have historically been volatile. In the year ended December 31, 2015, our
common shares traded on the TSX, at a high of $37.27 and a low of $10.50 per share. In the year ended December 31, 2014, on the TSXV/TSX our common shares
traded at a high of $22.20 and a low of $6.30 per share. A number of factors could influence the volatility in the trading price of our common shares, including
changes in the economy or in the financial markets, industry related developments, the results of product development and commercialization, changes in
government regulations, and developments concerning proprietary rights, litigation and cash flow. Our quarterly losses may vary because of the timing of costs for
manufacturing, preclinical studies and clinical trials. Also, the reporting of adverse safety events involving our products and public rumors about such events could
cause our share price to decline or experience periods of volatility. Each of these factors could lead to increased volatility in the market price of our common
shares. In addition, changes in the market prices of the securities of our competitors may also lead to fluctuations in the trading price of our common shares.
We have never paid dividends and do not expect to do so in the foreseeable future.
We have not declared or paid any cash dividends on our common or preferred shares to date. The payment of dividends in the future will be dependent on our
earnings and financial condition in addition to such other factors as our board of directors considers appropriate. Unless and until we pay dividends, shareholders
may not receive a return on their shares. There is no present intention by our board of directors to pay dividends on our shares.
- 36 -
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
Future sales or issuances of equity securities and the conversion of outstanding securities to common shares could decrease the value of the common shares,
dilute investors’ voting power, and reduce our earnings per share.
We may sell additional equity securities in future offerings, including through the sale of securities convertible into equity securities, to finance operations,
acquisitions or projects, and issue additional common shares if outstanding warrants or stock options are exercised, or preferred shares are converted to common
shares, which may result in dilution. See the information in the section of this MD&A entitled “Description of Share Capital” for details of our outstanding
securities convertible into common shares. We filed a base shelf prospectus with securities commissions in Canada and a Form F-10 registration statement with the
SEC on May 29, 2015 that provides that we may sell under the prospectus from time to time over the following 25 months up to U.S. $100 million, in one or more
offerings, of common shares, First Preferred shares, warrants to purchase common shares, or units comprising a combination of common shares, First Preferred
shares and/or warrants. Subject to receipt of any required regulatory approvals, subscribers of the December 2013 private placement who purchased a minimum of
10% of the securities sold under the offering received rights to purchase our securities in future financings to enable each such shareholder to maintain their
percentage holding in our common shares for so long as the subscriber holds at least 10% of the outstanding common shares on a fully-diluted basis. Shareholders
who do not have this future financing participation right may be disadvantaged in participating in such financings.
Our board of directors has the authority to authorize certain offers and sales of additional securities without the vote of, or prior notice to, shareholders. Based on
the need for additional capital to fund expected expenditures and growth, it is likely that we will issue additional securities to provide such capital. Such additional
issuances may involve the issuance of a significant number of common shares at prices less than the current market price for our common shares.
Sales of substantial amounts of our securities, or the availability of such securities for sale, as well as the issuance of substantial amounts of our common shares
upon conversion of outstanding convertible equity securities, could adversely affect the prevailing market prices for our securities and dilute investors’ earnings per
share. A decline in the market prices of our securities could impair our ability to raise additional capital through the sale of securities should we desire to do so.
We are likely a “passive foreign investment company,” which may have adverse U.S. federal income tax consequences for U.S. shareholders .
U.S. investors should be aware that we believe we were classified as a passive foreign investment company, or PFIC, during the tax years ended December 31,
2015 and 2014, and based on current business plans and financial expectations, we expect that we will be a PFIC for the current tax year and may be a PFIC in
future tax years. If we are a PFIC for any year during a U.S. shareholder’s holding period of our common shares, then such U.S. shareholder generally will be
required to treat any gain realized upon a disposition of our common shares, or any so-called “excess distribution” received on our common shares, as ordinary
income, and to pay an interest charge on a portion of such gain or distributions, unless the shareholder makes a timely and effective “qualified electing fund”
election, or QEF Election, or a “mark-to-market” election with respect to our shares. A U.S. shareholder who makes a QEF Election generally must report on a
current basis its share of our net capital gain and ordinary earnings for any year in which we are a PFIC, whether or not we distribute any amounts to our
shareholders. A U.S. shareholder who makes the mark-to-market election generally must include as ordinary income each year the excess of the fair market value
of the common shares over the shareholder’s adjusted tax basis therein. Each U.S. shareholder should consult its own tax advisors regarding the PFIC rules and the
U.S. federal income tax consequences of the acquisition, ownership and disposition of our common shares.
- 37 -
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
It may be difficult for non-Canadian investors to obtain and enforce judgments against us because of our Canadian incorporation and presence.
We are a corporation existing under the laws of the Province of Ontario, Canada. Several of our directors and officers, and several of the experts are residents of
Canada, and all or a substantial portion of their assets, and a substantial portion of our assets, are located outside the United States. Consequently, although we have
appointed an agent for service of process in the United States, it may be difficult for holders of our securities who reside in the United States to effect service within
the United States upon those directors and officers, and the experts who are not residents of the United States. It may also be difficult for holders of our securities
who reside in the United States to realize in the United States upon judgments of courts of the United States predicated upon our civil liability and the civil liability
of our directors, officers and experts under the United States federal securities laws. Investors should not assume that Canadian courts (i) would enforce judgments
of United States courts obtained in actions against us or such directors, officers or experts predicated upon the civil liability provisions of the United States federal
securities laws or the securities or “blue sky” laws of any state or jurisdiction of the United States or (ii) would enforce, in original actions, liabilities against us or
such directors, officers or experts predicated upon the United States federal securities laws or any securities or “blue sky” laws of any state or jurisdiction of the
United States. In addition, the protections afforded by Canadian securities laws may not be available to investors in the United States.
If there are substantial sales of our common shares, the market price of our common shares could decline.
Sales of substantial numbers of our common shares could cause a decline in the market price of our common shares. Any sales by existing shareholders or holders
who exercise their warrants or stock options may have an adverse effect on our ability to raise capital and may adversely affect the market price of our common
shares.
We are an “emerging growth company,” and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make
our common shares less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of
exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being
required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive
compensation in our periodic reports and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder
approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years, although circumstances could
cause us to lose that status earlier. We cannot predict if investors will find our common shares less attractive because we may rely on these exemptions. If some
investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and our share price may be more
volatile.
Any failure to maintain an effective system of internal controls may result in material misstatements of our consolidated financial statements or cause us to fail
to meet our reporting obligations or fail to prevent fraud; and in that case, our shareholders could lose confidence in our financial reporting, which would
harm our business and could negatively impact the price of our common shares.
Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. If we fail to maintain an effective system of internal controls,
we might not be able to report our financial results accurately or prevent fraud; and in that case, our shareholders could lose confidence in our financial reporting,
which would harm our business and could negatively impact the price of our common shares. While we believe that we have sufficient personnel and review
procedures to allow us maintain an effective system of internal controls, we cannot provide assurance that we will not experience potential material weaknesses in
our internal control. Even if we conclude that our internal control over financial reporting provides reasonable assurance regarding the reliability of financial
reporting and the preparation of consolidated financial statements for external purposes in accordance with International Financial Reporting Standards, as issued
by the International Accounting Standards Board, because of its inherent limitations, internal control over financial reporting may not prevent or detect fraud or
misstatements. Failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our results of operations or
cause us to fail to meet our future reporting obligations.
- 38 -
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
If we fail to timely achieve and maintain the adequacy of our internal control over financial reporting, we may not be able to produce reliable financial reports or
help prevent fraud. Our failure to achieve and maintain effective internal control over financial reporting could prevent us from complying with our reporting
obligations on a timely basis, which could result in the loss of investor confidence in the reliability of our consolidated financial statements, harm our business and
negatively impact the trading price of our common shares.
As a foreign private issuer, we are not subject to certain United States securities law disclosure requirements that apply to a domestic United States issuer,
which may limit the information which would be publicly available to our shareholders.
As a foreign private issuer, we are not required to comply with all the periodic disclosure requirements of the Exchange Act, and therefore, there may be less
publicly available information about us than if we were a United States domestic issuer. For example, we are not subject to the proxy rules in the United States and
disclosure with respect to our annual meetings will be governed by Canadian requirements.
Our charter documents and certain Canadian legislation could delay or deter a change of control, limit attempts by our shareholders to replace or remove our
current management and limit the market price of our common shares.
Our authorized preferred shares are available for issuance from time to time at the discretion of our board of directors, without shareholder approval. Our articles
grant our board of directors the authority to determine the special rights and restrictions granted to or imposed on any unissued series of preferred shares, and those
rights may be superior to those of our common shares. Further, the Investment Canada Act subjects any acquisition of control of a company by a non-Canadian to
government review if the value of the assets as calculated pursuant to the legislation exceeds a threshold amount or in other circumstances determined at the
discretion of the Canadian government. A reviewable acquisition may not proceed unless the relevant minister is satisfied that the investment is likely to be of net
benefit to Canada and the Canadian government is satisfied that no other important concerns arise from the acquisition of control. Any of the foregoing could
prevent or delay a change of control and may deprive or limit strategic opportunities to our shareholders to sell their shares.
DISCLOSURE CONTROLS AND INTERNAL CONTROLS OVER FINANCIAL REPORTING
We have implemented a system of internal controls that we believe adequately protects our assets and is appropriate for the nature of our business and the size of
our operations. Our internal control system was designed to provide reasonable assurance that all transactions are accurately recorded, that transactions are recorded
as necessary to permit preparation of financial statements in accordance with IFRS, and that our assets are safeguarded.
These internal controls include disclosure controls and procedures designed to ensure that information required to be disclosed by us is accumulated and
communicated as appropriate to allow timely decisions regarding required disclosure.
Internal control over financial reporting means a process designed by or under the supervision of the Chief Executive Officer and the Chief Financial Officer to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
IFRS as issued by the IASB. The internal controls are not expected to prevent and detect all misstatements due to error or fraud.
There were no changes in our internal control over financial reporting that occurred during the three months ended December 31, 2015 that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting. As at December 31, 2015, we have assessed the effectiveness of
our internal control over financial reporting and disclosure controls and procedures using the Committee of Sponsoring Organizations of the Treadway
Commission’s 2013 framework. Based on their evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that these controls and
procedures are effective.
- 39 -
TRILLIUM THERAPEUTICS INC.
Management’s Discussion and Analysis
Additional information for Trillium can be found on SEDAR at www.sedar.com, on EDGAR at www.sec.gov/edgar.shtml.
ADDITIONAL INFORMATION
- 40 -
(formerly Stem Cell Therapeutics Corp.)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2015 AND 2014
96 Skyway Avenue
Toronto, Ontario M9W 4Y9
www.trilliumtherapeutics.com
INDEPENDENT AUDITORS’ REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of
Trillium Therapeutics Inc.
We have audited the accompanying consolidated financial statements of Trillium Therapeutics Inc . which comprise the consolidated statements of financial
position as at December 31, 2015 and 2014, and the consolidated statements of loss and 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, as issued by the International Accounting Standards Board, 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 and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from
material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
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. An audit also includes, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Trillium Therapeutics Inc. as at December 31,
2015 and 2014, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards, as issued
by the International Accounting Standards Board.
Toronto, Canada
March 9, 2016
/s/ Ernst & Young LLP
Chartered Professional Accountants
Licensed Public Accountants
TRILLIUM THERAPEUTICS INC.
Consolidated Statements of Financial Position
Amounts in Canadian Dollars
ASSETS
Current
Cash
Amounts receivable
Prepaid expenses
Total current assets
Property and equipment
Intangible assets
Other assets
Total non-current assets
Total assets
LIABILITIES
Current
Accounts payable and accrued liabilities
Other current liabilities
Total current liabilities
Loan payable
Deferred lease inducement
Long-term liability
Total non-current liabilities
Total liabilities
EQUITY
Common shares
Series I preferred shares
Series II preferred shares
Warrants
Contributed surplus
Deficit
Total equity
Total liabilities and equity
Note
As at
December 31, 2015
$
As at
December 31, 2014
$
4
5
6
7
8
8
8
8
9
9
9
9
9
86,770,542
974,822
1,181,481
26,165,056
344,416
1,008,225
88,926,845
27,517,697
897,390
93,585
121,648
1,112,623
235,402
432,933
-
668,335
90,039,468
28,186,032
3,233,749
323,151
3,248,984
279,461
3,556,900
3,528,445
270,386
348,205
60,109
678,700
283,352
-
69,941
353,293
4,235,600
3,881,738
103,340,072
7,797,773
24,369,384
6,926,019
8,660,355
(65,289,735)
49,505,792
10,076,151
-
9,283,332
5,995,055
(50,556,036)
85,803,868
24,304,294
90,039,468
28,186,032
Commitments and contingencies [note
14]
Approved by the Board and authorized for issue on March 9, 2016:
(signed) Luke Beshar, Director
(signed) Henry Friesen, Director
See
accompanying
notes
to
the
consolidated
financial
statements
- 1 -
TRILLIUM THERAPEUTICS INC.
Consolidated Statements of Loss and Comprehensive Loss
Amounts in Canadian Dollars
EXPENSES
Research and development
General and administrative
Operating expenses
Finance income
Finance costs
Net finance income
Net loss before income taxes
Current income tax expense
Note
Year ended
December 31, 2015
$
Year ended
December 31, 2014
$
11
12
13
13
18,050,091
3,184,347
10,595,808
2,577,460
21,234,438
13,173,268
(6,595,189)
84,948
(378,692)
87,244
(6,510,241)
(291,448)
14,724,197
12,881,820
10
9,502
-
Net loss and comprehensive loss for the year
14,733,699
12,881,820
Basic and diluted loss per common share
9(c)
(2.22)
(3.06)
See
accompanying
notes
to
the
consolidated
financial
statements
- 2 -
TRILLIUM THERAPEUTICS INC.
Consolidated Statements of Changes in Equity
Amounts in Canadian Dollars
Balance, December
31, 2014
Net loss and
comprehensive
loss for the
period
Transactions with
owners
of the
Company,
recognized
directly in
equity
Shares issued,
net of issue
costs
Exercise of
warrants
Exercise of stock
options
Conversion of
Common shares
Series I preferred shares
Number
#
Amount
$
(note 9)
Number
#
Amount
$
(note 9)
Series II preferred shares
Number
#
Amount
$
(note 9)
Warrants
Number
#
Amount
$
(note 9)
Contributed
surplus
$
(note 9)
Deficit
$
Total
$
4,427,244
49,505,792
69,504,689
10,076,151
-
-
-
-
-
-
-
138,724,781
9,283,332
5,995,055
(50,556,036)
24,304,294
-
-
-
-
(14,733,699)
(14,733,699)
1,750,754
39,592,240
1,087,603
11,872,467
6,666
91,195
-
-
-
-
-
-
1,077,605
24,369,384
-
-
(32,628,425)
(2,357,313)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(41,200)
-
2,706,500
preferred shares
523,870
2,278,378
(15,716,110)
(2,278,378)
Share-based
compensation
-
-
-
-
-
-
-
-
-
63,961,624
9,515,154
49,995
-
2,706,500
Total transactions
with
owners of the
Company
Balance, December
3,368,893
53,834,280
(15,716,110)
(2,278,378)
1,077,605
24,369,384
(32,628,425)
(2,357,313)
2,665,300
-
76,233,273
31, 2015
7,796,137
103,340,072
53,788,579
7,797,773
1,077,605
24,369,384
106,096,356
6,926,019
8,660,355
(65,289,735)
85,803,868
Common shares
Number
#
Amount
$
Series I preferred shares
Number
#
Amount
$
Warrants
Number
#
Amount
$
Contributed
surplus
$
Deficit
$
Total
$
Balance, December 31, 2013
4,058,408
47,191,303
77,895,165
11,292,525
142,230,123
9,818,179
3,280,656
(37,674,216)
33,908,447
Net loss and comprehensive
loss for the period
Transactions with owners
of the Company, recognized
directly in equity
Exercise of warrants
Exercise of stock options
Conversion of preferred shares
Expiry of warrants
Share-based compensation
Total transactions with
owners of the Company
Balance, December 31, 2014
-
-
-
-
-
-
-
(12,881,820)
(12,881,820)
86,540
2,614
279,682
-
-
1,065,015
33,100
1,216,374
-
-
-
-
(8,390,476)
-
-
-
-
(1,216,374)
-
-
(2,596,251)
-
-
(909,091)
-
(118,202)
-
-
(416,645)
-
-
(13,500)
-
416,645
2,311,254
-
-
-
-
-
946,813
19,600
-
-
2,311,254
368,836
4,427,244
2,314,489
49,505,792
(8,390,476)
69,504,689
(1,216,374)
10,076,151
(3,505,342)
138,724,781
(534,847)
9,283,332
2,714,399
5,995,055
-
(50,556,036)
3,277,667
24,304,294
See
accompanying
notes
to
the
consolidated
financial
statements
- 3 -
TRILLIUM THERAPEUTICS INC.
Consolidated Statements of Cash Flows
Amounts in Canadian Dollars
OPERATING ACTIVITIES
Net loss for the year
Adjustments for items not affecting cash
Share-based compensation
Interest accretion
Amortization of intangible assets
Impairment of intangible assets
Depreciation of property and equipment
Non-cash change in deferred lease inducement
Unrealized foreign exchange gain
Changes in non-cash working capital balances
Amounts receivable
Prepaid expenses
Accounts payable and accrued liabilities
Other current liabilities
Increase in other assets
Cash used in operating activities
INVESTING ACTIVITIES
Purchase of property and equipment
Net change in marketable securities
Cash provided by (used) in investing activities
FINANCING ACTIVITIES
Change in loan payable
Receipt of deferred lease inducement
Change in long-term liability
Issue of share capital, net of issuance costs
Cash provided by financing activities
Impact of foreign exchange rate on cash
Net increase (decrease) in cash during the year
Cash, beginning of year
Cash, end of year
Supplemental cash flow information
Note
Year ended
December 31, 2015
$
Year ended
December 31, 2014
$
(14,733,699)
(12,881,820)
9
8,13
6,11
6,11
5,11
5
8
8
8
9
2,706,500
73,391
339,348
-
118,394
105,805
(6,010,996)
(17,401,257)
(630,406)
(173,256)
(15,235)
43,690
(121,648)
(18,298,112)
(750,382)
-
(750,382)
(68,761)
212,400
(27,428)
73,526,773
73,642,984
6,010,996
60,605,486
2,311,254
69,770
610,776
429,763
47,208
-
-
(9,413,049)
82,818
(913,656)
2,579,124
216,695
-
(7,448,068)
(173,603)
526,598
352,995
(115,031)
-
(47,759)
966,413
803,623
-
(6,291,450)
26,165,056
32,456,506
86,770,542
26,165,056
Preferred shares converted to common shares (note 9)
2,278,378
1,216,374
See
accompanying
notes
to
the
consolidated
financial
statements
- 4 -
TRILLIUM THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
Amounts in Canadian Dollars
1.
Corporate information
Trillium Therapeutics Inc. (the “Company” or “Trillium”) is a Canadian public immuno-oncology company developing innovative therapies for the
treatment of cancer. The Company was incorporated under the laws of the Province of Alberta on March 31, 2004 with nominal share capital and filed
Articles of Continuance to change its jurisdiction to Ontario on November 7, 2013. On June 1, 2014, the Company amalgamated with its wholly-owned
subsidiary Trillium Therapeutics Inc. (“Trillium Privateco”) and changed its name from Stem Cell Therapeutics Corp. to Trillium Therapeutics Inc.
The Company’s head office is located at 96 Skyway Avenue, Toronto, Ontario, M9W 4Y9 and is listed on the Toronto Stock Exchange under the symbol
TR and on the NASDAQ Stock Exchange under the symbol TRIL.
2.
Basis of presentation
(a)
Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the
International Accounting Standards Board (“IASB”).
These consolidated financial statements were approved by the Company’s Board of Directors on March 9, 2016.
(b)
Basis of measurement
These consolidated financial statements have been prepared on the historical cost basis, except for held-for-trading financial assets which are measured at
fair value.
(c)
Functional and presentation currency
These consolidated financial statements are presented in Canadian dollars, which is the Company's functional currency.
(d)
Use of significant estimates and assumptions
The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the
application of accounting policies and the reported amounts of assets and liabilities, revenue and expenses and the related disclosures of contingent assets
and liabilities and the determination of the Company’s ability to continue as a going concern. Actual results could differ materially from these estimates
and assumptions. The Company reviews its estimates and underlying assumptions on an ongoing basis. Revisions are recognized in the period in which the
estimates are revised and may impact future periods.
Management has applied significant estimates and assumptions to the following:
Valuation of share-based compensation and warrants
Management measures the costs for share-based compensation and warrants using market-based option valuation techniques. Assumptions are made and
estimates are used in applying the valuation techniques. These include estimating the future volatility of the share price, expected dividend yield, expected
risk-free interest rate, future employee turnover rates, future exercise behaviours and corporate performance. Such estimates and assumptions are inherently
uncertain. Changes in these assumptions affect the fair value estimates of share-based payments and warrants.
- 5 -
TRILLIUM THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
Amounts in Canadian Dollars
2.
Basis of presentation (continued)
Impairment of long lived assets
Long-lived assets are reviewed for impairment upon the occurrence of events or changes in circumstances indicating that the carrying value of the asset
may not be recoverable. For the purpose of measuring recoverable amounts, assets are grouped at the lowest levels for which there are separately
identifiable cash flows (cash-generating units). The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use (being the
present value of the expected future cash flows of the relevant asset or cash-generating unit). An impairment loss is recognized for the amount by which the
asset’s carrying amount exceeds its recoverable amount. Management evaluates impairment losses for potential reversals when events or circumstances
warrant such consideration.
Intangible assets
The Company estimates the useful lives of intangible assets from the date they are available for use in the manner intended by management and at least
annually reviews the useful lives to reflect management's intent about developing and commercializing the assets.
3.
Significant accounting policies
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.
(a)
Basis of consolidation
These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Stem Cell Therapeutics Inc. to the date of
its dissolution on September 17, 2014, and Trillium Privateco from April 9, 2013, the date of acquisition to the date of its amalgamation with the Company
on June 1, 2014.
Investments in entities where the Company 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, are considered subsidiaries due to the control exercised over the investee by the Company. Subsidiaries
are fully consolidated from the date at which control is determined to have occurred and are de-consolidated from the date that the Company no longer
controls the entity. The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting
policies. Intercompany transactions, balances and unrealized gains and losses on transactions between subsidiaries are eliminated.
(b)
Foreign currency
Transactions in foreign currencies are translated to the functional currency at the rate on the date of the transactions. Monetary assets and liabilities
denominated in foreign currencies are retranslated at the spot rate of exchange as at the reporting date. All differences are taken to profit or loss. Non-
monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial
transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rate at the date when the fair value was
determined.
- 6 -
TRILLIUM THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
Amounts in Canadian Dollars
3.
(c)
Significant accounting policies (continued)
Financial instruments
Financial assets
A financial asset is classified at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. Attributable
transaction costs are recognized in profit or loss as incurred. Financial assets at fair value through profit or loss are measured at fair value and changes
therein are recognized in profit or loss.
Loans
and
receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and
receivables are initially recognized at fair value plus transaction costs and subsequently measured at amortized cost using the effective interest rate method
less any impairment losses. The Company has classified its amounts receivable as loans and receivables.
Derecognition
A financial asset is derecognized when the rights to receive cash flows from the asset have expired or when the Company has transferred its rights to
receive cash flows from the asset.
Financial liabilities
Financial liabilities are recognized initially at fair value plus any directly attributable transaction costs, and subsequently at amortized cost using the
effective interest method. The Company has classified its accounts payable and accrued liabilities, and loan payable as financial liabilities.
Derecognition
A financial liability is derecognized when its contractual obligations are discharged, cancelled or expired.
Equity
Common shares, preferred shares and warrants to purchase common shares are classified as equity. Incremental costs directly attributable to the issue of
common shares, preferred shares and warrants are recognized as a deduction from equity, net of any tax effects.
(d)
Property and equipment
Recognition
and
measurement
Items of property and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes the expenditure that
is directly attributable to the acquisition of the asset. When parts of an item of property and equipment have different useful lives, they are accounted for as
separate items (major components) of property and equipment. Gains and losses on disposal of an item of property and equipment are determined by
comparing the proceeds from disposal with the carrying amount of property and equipment, and are recognized in profit or loss.
Subsequent
costs
The cost of replacing a part of an item of property and equipment is recognized in the carrying amount of the item if it is probable that the future economic
benefits embodied within the part will flow to the Company, and its cost can be measured reliably. The carrying amount of the replaced part is then
derecognized. The costs of the day-to-day servicing of property and equipment are recognized in profit or loss as incurred.
- 7 -
TRILLIUM THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
Amounts in Canadian Dollars
3.
Significant accounting policies (continued)
Depreciation
The estimated useful lives and the methods of depreciation for the current and comparative periods are as follows:
Asset
Lab equipment
Computer equipment
Office equipment
Leaseholds
Basis
20% declining balance
30% declining balance
20% declining balance
Straight-line over expected lease term
Estimates for depreciation methods, useful lives and residual values are reviewed at each reporting period-end and adjusted if appropriate. Depreciation
expense is recognized in research and development expenses.
(e)
Intangible assets
Research and development
Expenditures on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, are recognized in
profit or loss as incurred.
Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditures are
capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits
are probable, and the Company intends to complete development and has sufficient resources to complete development and to use or sell the asset. Other
development expenditures are expensed as incurred. No internal development costs have been capitalized to date.
Research and development expenses include all direct and indirect operating expenses supporting the products in development. The costs incurred in
establishing and maintaining patents are expensed as incurred.
Intangible assets
Intangible assets that are acquired separately and have finite useful lives are measured at cost less accumulated amortization and accumulated impairment
losses. Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which it relates. All
other expenditure is recognized in profit or loss as incurred.
Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of intangible assets from the date they are available for
use in the manner intended by management. The period that the technologies acquired in the Trillium Privateco acquisition are available for use is
estimated at three years, which reflects management's intent about developing and commercializing the assets.
The amortization method and amortization period of an intangible asset with a finite life is reviewed at least annually. Changes in the expected useful life
or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortization period or method,
as appropriate, and are treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in research
and development expenses.
- 8 -
TRILLIUM THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
Amounts in Canadian Dollars
3.
(f)
Significant accounting policies (continued)
Impairment
Financial assets
A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is
impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the
loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.
An impairment test is performed, on an individual basis, for each material financial asset. Other individually non-material financial assets are tested as
groups of financial assets with similar risk characteristics. Impairment losses are recognized in profit or loss.
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present
value of the estimated future cash flows discounted at the asset's original effective interest rate. Losses are recognized in profit or loss and reflected in an
allowance account against the respective financial asset. Interest on the impaired asset continues to be recognized through the unwinding of the discount.
When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.
Non-financial assets
The carrying amounts of the Company's non-financial assets are reviewed at each reporting date to determine whether there is any indication of
impairment. If such an indication exists, the recoverable amount is estimated.
The recoverable amount of an asset or a cash-generating unit is the greater of its value in use and its fair value less costs to sell. 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 or cash-generating unit. For the purpose of impairment testing, assets that cannot be tested individually are
grouped together into the smallest group of assets that generate cash inflows from continuing use that are largely independent of cash inflows of other
assets or cash-generating units. An impairment loss is recognized if the carrying amount of an asset or its related cash-generating unit exceeds its estimated
recoverable amount. Impairment losses for intangible assets are recognized in research and development expenses.
Impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An
impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to
the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no
impairment loss had been recognized.
(g)
Provisions
A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is
probable that an outflow of economic benefits will be required to settle the obligation. Provisions are assessed by discounting the expected future cash
flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the
discount on provisions is recognized in finance costs.
A provision for onerous contracts is recognized when the unavoidable costs of meeting the obligations under the contract exceed the economic benefits
expected to be received under it. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the
expected net cost of continuing with the contract.
(h)
Government assistance
Government assistance relating to research and development is recorded as a reduction of expenses when the related expenditures are incurred.
- 9 -
TRILLIUM THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
Amounts in Canadian Dollars
3.
(i)
Significant accounting policies (continued)
Share-based compensation
The grant-date fair value of share-based payment awards granted to employees is recognized as personnel costs, with a corresponding increase in
contributed surplus, over the period that the employees unconditionally become entitled to the awards. The amount recognized as an expense is adjusted to
reflect the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately
recognized as an expense is based on the number of awards that met the related service and non-market performance conditions at the vesting date.
For equity-settled share-based payment transactions, the Company measures the goods or services received, and the corresponding increase in contributed
surplus, directly, at the fair value of the goods or services received, unless that fair value cannot be estimated reliably. If the Company cannot estimate
reliably the fair value of the goods or services received, it measures their value by reference to the fair value of the equity instruments granted. Transactions
measured by reference to the fair value of the equity instruments granted have their fair values remeasured at each vesting and reporting date until fully
vested.
(j)
Income taxes
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for taxation purposes. Deferred tax is not recognized for temporary differences on the initial recognition of assets or liabilities in a
transaction that is not a business combination and that affects neither accounting nor taxable income nor loss.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax assets and liabilities, and they relate to income taxes
levied by the same tax authority on the same taxable entity.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been
enacted or substantively enacted at the reporting date. A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary
differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized.
Investment tax credits earned from scientific research and development expenditures are recorded when collectability is reasonably assured.
(k)
Loss per share
Basic loss per share is computed by dividing the net loss available to common shareholders by the weighted average number of shares outstanding during
the reporting period. Diluted loss per share is computed similar to basic loss per share except that the weighted average number of shares outstanding are
increased to include additional shares for the assumed exercise of stock options, deferred share units, warrants, and conversion of preferred shares, if
dilutive. The number of additional shares is calculated by assuming that outstanding preferred shares would convert to common shares and that outstanding
stock options and warrants were exercised and that the proceeds from such exercises were used to acquire common stock at the average market price during
the reporting period. The inclusion of the Company's stock options, deferred share units, warrants and preferred shares in the computation of diluted loss
per share has an anti-dilutive effect on the loss per share and therefore, they have been excluded from the calculation of diluted loss per share.
(l)
New standards and interpretations not yet effective
IFRS 9 Financial
Instruments
In October 2010, the IASB published amendments to IFRS 9 Financial
Instruments
(“IFRS 9”), which provides added guidance on the classification and
measurement of financial liabilities. In July 2014, the IASB issued its final version of IFRS 9, which completes the classification and measurement,
impairment and hedge accounting phases of the IASB’s project to replace IAS 39. The final standard is mandatorily effective for annual periods beginning
on or after January 1, 2018, with earlier application permitted. The Company is reviewing the standard to determine the impact that the adoption of this
standard may have on the consolidated financial statements.
- 10 -
TRILLIUM THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
Amounts in Canadian Dollars
3.
Significant accounting policies (continued)
IFRS 15 Revenue
from
Contracts
with
Customers
In May 2014, the IASB issued IFRS 15 Revenue
from
Contracts
with
Customers
(“IFRS 15”), which covers principles for reporting about the nature,
amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. IFRS 15 is effective for annual periods beginning on or
after January 1, 2018. Entities will transition following either a full or modified retrospective approach. The Company is reviewing the standard to
determine the impact that the adoption of this standard may have on the consolidated financial statements.
IFRS 16 Leases
In January 2016, the IASB has issued IFRS 16 Leases
(“IFRS 16”), its new leases standard that requires lessees to recognize assets and liabilities for most
leases on their balance sheets. Lessees applying IFRS 16 will have a single accounting model for all leases, with certain exemptions. Lessor accounting is
substantially unchanged. The new standard will be effective from January 1, 2019 with limited early application permitted. The Company has not yet begun
the process of evaluating the impact of this standard on its consolidated financial statements.
Other accounting standards or amendments to existing accounting standards that have been issued, but have future effective dates, are either not applicable
or are not expected to have a significant impact on the Company’s consolidated financial statements. The Company assesses the impact of adoption of
future standards on its consolidated financial statements, but does not anticipate significant changes in 2016.
4.
Amounts receivable
Government receivable
Other amounts receivable
December 31,
2015
$
December 31,
2014
$
957,951
16,871
974,822
344,416
-
344,416
- 11 -
TRILLIUM THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
Amounts in Canadian Dollars
5.
Property and equipment
Cost
Balance, December 31, 2013
Additions
Balance, December 31, 2014
Additions
Balance, December 31, 2015
Accumulated depreciation
Balance, December 31, 2013
Depreciation
Balance, December 31, 2014
Depreciation
Balance December 31, 2015
Net carrying amounts
December 31, 2014
December 31, 2015
6.
Intangible assets
Cost
Balance, December 31, 2013
Disposals
Balance December 31, 2014 and 2015
Accumulated amortization
Balance, December 31, 2013
Amortization
Disposals
Balance, December 31, 2014
Amortization
Balance, December 31, 2015
Net carrying amounts
December 31, 2014
December 31, 2015
Lab
equipment
$
Computer
equipment
and software
$
Office
equipment and
leaseholds
$
111,025
141,051
252,076
457,796
709,872
14,723
33,366
48,089
86,577
134,666
203,987
575,206
18,111
21,917
40,028
57,180
97,208
14,004
9,554
23,558
26,679
50,237
16,470
46,971
9,381
10,635
20,016
265,406
285,422
783
4,288
5,071
5,138
10,209
14,945
275,213
Total
$
138,517
173,603
312,120
780,382
1,092,502
29,510
47,208
76,718
118,394
195,112
235,402
897,390
Total
$
2,103,751
(1,085,714)
1,018,037
630,279
610,776
(655,951)
585,104
339,348
924,452
432,933
93,585
As at December 31, 2015, intangible assets were comprised of licensed patent rights related to the SIRPαFc program acquired in 2013 in the amount of
$1,018,037.
The Company returned rights related to tigecycline and recorded an impairment loss of $429,763 in the second quarter of 2014.
- 12 -
TRILLIUM THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
Amounts in Canadian Dollars
7.
Accounts payable and accrued liabilities
Trade and other payables
Accrued liabilities
Due to related parties (note 15)
December 31,
2015
$
December 31,
2014
$
1,401,462
1,728,636
103,651
3,233,749
1,604,533
1,585,823
58,628
3,248,984
8.
(a)
(b)
(c)
Amounts due to related parties represent expense reimbursements, accrued vacation payable and directors’ fees payable.
Non-current liabilities
Trillium is indebted to the Federal Economic Development Agency for Southern Ontario under a non-interest bearing contribution agreement and is
making monthly repayments of $9,586 through November 2019. As at December 31, 2015 and 2014, the balance repayable was $440,935 and $555,968,
respectively. The loan payable was discounted using an estimated market interest rate of 15%. Interest expense accretes on the discounted loan amount
until it reaches its face value at maturity.
As at December 31, 2015 and 2014, the Company has a deferred lease inducement of $348,205 and nil, respectively, for a new facility lease. The
inducement benefit will be recognized over the expected term of the lease.
As at December 31, 2015 and 2014, the Company has a long-term liability of $60,109 and $69,941, respectively, related to certain discontinued
technologies. This liability has been discounted using an estimated market interest rate of 15% and interest expense is accreting.
The current portions of the loan payable and long-term liability are included in other current liabilities in the statements of financial position.
9.
Share capital
(a)
Authorized
The authorized share capital of the Company consists of an unlimited number of common shares, Class B shares and First Preferred Shares, in each case
without nominal or par value. Common shares are voting and may receive dividends as declared at the discretion of the Board of Directors. Class B shares
are non-voting and convertible to common shares at the holder’s discretion, on a one-for-one basis. Upon dissolution or wind-up of the Company, Class B
shares participate rateably with the common shares in the distribution of the Company’s assets. Preferred shares have voting rights as decided upon by the
Board of Directors at the time of grant. Upon dissolution or wind-up of the Company, First Preferred Shares are entitled to priority over common and Class
B shares.
The Company has Series I First Preferred Shares that are non-voting, may receive dividends as declared at the discretion of the Board of Directors, and are
convertible to common shares at the holder’s discretion, on the basis of 30 Series I First Preferred Shares for one common share.
The Company has Series II First Preferred Shares that are non-voting, may receive dividends as declared at the discretion of the Board of Directors, and are
convertible to common shares at the holder’s discretion, on the basis of one Series II First Preferred Share for one common share.
Holders may not convert Series I or Series II Non-Voting Convertible First Preferred Shares into common shares if, after giving effect to the exercise of
conversion, the holder and its joint actors would have beneficial ownership or direction or control over common shares in excess of 4.99% of the then
outstanding common shares. This limit may be raised at the option of the holder on 61 days’ prior written notice: (i) up to 9.99%, (ii) up to 19.99%, subject
to clearance of a personal information form submitted by the holder to the Toronto Stock Exchange, and (iii) above 19.99%, subject to approval by the
Toronto Stock Exchange and shareholder approval.
- 13 -
TRILLIUM THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
Amounts in Canadian Dollars
9.
Share capital (continued)
(b)
Share capital issued – year ended December 31, 2015
On April 7, 2015, the Company completed an underwritten public offering of common shares and non-voting convertible preferred shares in the United
States. In the offering, Trillium sold 1,750,754 common shares and 1,077,605 Series II Non-Voting Convertible First Preferred Shares at a price of U.S.
$19.50 per share, including 228,359 common shares sold pursuant to the full exercise of the underwriters’ option to purchase additional common shares.
The gross proceeds to Trillium from this offering were $68,875,067 (U.S. $55,153,000) before deducting offering expenses of $4,913,443.
During the year ended December 31, 2015, 1,087,603 common shares were issued on the exercise of 32,628,425 warrants for proceeds of $9,515,154 and
6,666 stock options were exercised for proceeds of $49,995.
During the year ended December 31, 2015, 15,716,110 Series I First Preferred Shares were converted into 523,870 common shares.
Share capital issued – year ended December 31, 2014
On November 14, 2014, the Company consolidated its outstanding common shares issuing one post-consolidated share for each 30 pre-consolidated shares.
All references in these consolidated financial statements and notes to the number of common shares, deferred share units and stock options have been
adjusted to the post-consolidation amounts.
During the year ended December 31, 2014, 2,596,251 warrants were exercised for 86,540 common shares and for proceeds of $946,813 and 2,614 stock
options were exercised for proceeds of $19,600. Also, 909,091 warrants issued in March 2011 expired unexercised.
During the year ended December 31, 2014, 8,390,476 Series I First Preferred Shares were converted into 279,682 common shares.
(c)
Weighted average number of common shares
The weighted average number of common shares outstanding for the purposes of calculating earnings per share have been adjusted for 2015 and 2014 to
the post-consolidated number. The post-consolidated weighted average number of common shares outstanding for the years ended December 31, 2015 and
2014 were 6,641,161 and 4,202,900, respectively. The Company has not adjusted its weighted average number of common shares outstanding in the
calculation of diluted loss per share, as any adjustment would be antidilutive.
- 14 -
TRILLIUM THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
Amounts in Canadian Dollars
9.
Share capital (continued)
(d)
Warrants
All warrants were exercisable on issuance. As a result of the November 14, 2014 common share consolidation, the ratio of the number of warrants
exercisable for one common share was adjusted from one warrant for each common share to 30 warrants for each common share. The number of warrants
outstanding was not adjusted.
The following table shows the number of warrants outstanding, the exercise prices, and the number of common shares issuable on exercise of the warrants
and the exercise price per common share for 30 warrants as at December 31, 2015:
Expiry dates
March 15, 2018
March 27, 2018
December 13, 2018
Number of
warrants
Exercise
price
Number of
common shares
issuable
on exercise
Exercise
price per
common share
(30 warrants)
9,213,780 $
300,000 $
96,582,576 $
106,096,356
0.40
0.40
0.28
307,126 $
10,000 $
3,219,419 $
3,536,545
12.00
12.00
8.40
Changes in the number of warrants outstanding during the years ended December 31 were as follows:
Balance, beginning of year
Exercised
Expired
Balance, end of year
(e)
Stock option plan
2015
Weighted
average
exercise
price
Number of
warrants
Number of
warrants
138,724,781 $
(32,628,425)
-
0.29
0.29
-
142,230,123 $
(2,596,251)
(909,091)
106,096,356 $
0.29
138,724,781 $
2014
Weighted
average
exercise
price
0.30
0.36
1.60
0.29
The Company has a 10% rolling stock option plan (the “2014 Stock Option Plan”) that was approved by the Company’s shareholders at its annual general
meeting held on May 27, 2014. Pursuant to the 2014 Stock Option Plan, the Company may grant stock options to purchase up to an aggregate of 10% of the
Company’s issued and outstanding common shares plus 10% of the total number of common shares into which the outstanding Series I First Preferred
Shares may be converted. Options granted under the 2014 Stock Option plan are equity-settled, have a vesting period of four years and have a maximum
term of ten years. As at December 31, 2015, the Company was entitled to issue an additional 87,048 stock options under the 2014 Stock Option Plan.
- 15 -
TRILLIUM THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
Amounts in Canadian Dollars
9.
Share capital (continued)
Changes in the number of options outstanding during the years ended December 31 were as follows:
2015
Weighted
average
exercise
price
9.76
21.40
7.50
30.00
14.07
10.94
2014
Weighted
average
exercise
price
9.94
9.78
7.50
16.58
9.76
Number of
options
97,372 $
499,883
(2,614)
(4,500)
590,141 $
219,470 $
10.13
Number of
options
590,141 $
347,359
(6,666)
(3,000)
927,834 $
333,927 $
Balance, beginning of year
Granted
Exercised
Cancelled/forfeited
Balance, end of year
Options exercisable, end of year
The following table reflects stock options outstanding at December 31, 2015:
Stock options outstanding
Stock options exercisable
Exercise prices
Number
outstanding
Weighted average
remaining
contractual life
(in years)
Weighted average
exercise price
Exercisable
number
Weighted average
exercise price
$7.50
$8.34
$10.35
$15.30
$18.90
$19.33
$23.44
$28.05
$28.52
$30.00
74,841
215,758
264,127
6,666
13,332
220,859
85,000
29,000
12,500
5,751
927,834
7.3 $
8.4 $
8.3 $
8.1 $
8.2 $
9.9 $
9.3 $
9.4 $
9.4 $
0.6 $
8.7 $
- 16 -
7.50
8.34
10.35
15.30
18.90
19.33
23.44
28.05
28.52
30.00
14.07
49,903 $
107,878 $
132,064 $
3,333 $
6,666 $
- $
28,332 $
- $
- $
5,751 $
333,927 $
7.50
8.34
10.35
15.30
18.90
19.33
23.44
28.05
28.52
30.00
10.94
TRILLIUM THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
Amounts in Canadian Dollars
9.
Share capital (continued)
Share-based compensation expense was determined based on the fair value of the options at the date of measurement using the Black-Scholes option
pricing model with the weighted average assumptions for the years ended December 31 as follows:
Expected option life
Risk-free interest rate
Dividend yield
Expected volatility
2015
6 years
1.2%
0%
83%
2014
6 years
1.7%
0%
90%
The Black-Scholes option pricing model was developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions,
which significantly differs from the Company's stock option awards. This model also requires highly subjective assumptions, including future stock price
volatility and average option life, which significantly affect the calculated values.
The risk-free interest rate is based on the implied yield on a Government of Canada zero-coupon issue with a remaining term equal to the expected term of
the option. Expected volatility was determined using a combination of historical volatilities of a peer group of biotechnology companies and the
Company’s own historical volatility. The life of the options is estimated considering the vesting period at the grant date, the life of the option and the
average length of time similar grants have remained outstanding in the past. The forfeiture rate is an estimate based on historical evidence and future
expectations. The dividend yield was excluded from the calculation since it is the present policy of the Company to retain all earnings to finance operations
and future growth.
For the years ended December 31, 2015 and 2014, the Company issued 347,359 and 499,883 stock options with a fair value of $5,227,499 and $3,580,892
and a weighted average grant date fair value of $15.05 and $7.16, respectively.
(f)
Deferred Share Unit Plan
The 2014 Deferred Share Unit Plan (the “2014 DSU Plan”) promotes greater alignment of long-term interests between non-executive directors and
executive officers of the Company and its shareholders through the issuance of deferred share units (“DSUs”). Since the value of a DSU increases or
decreases with the market price of the common shares, DSUs reflect a philosophy of aligning the interests of directors and executive officers with those of
the shareholders by tying compensation to share price performance. For the years ended December 31, 2015 and 2014, a total of 23,011 and 28,777 DSUs
were issued for payment of directors’ fees, respectively. The Company has reserved for issuance up to 66,667 common shares under the 2014 DSU Plan
and 51,788 DSUs were outstanding as at December 31, 2015.
(g)
Shareholder Rights Plan
On October 17, 2013 the Company’s shareholders adopted a shareholder rights plan (the “2013 Rights Plan”) and approved certain amendments on May
27, 2014 (the “Rights Plan Amendment” which together with the 2013 Rights Plan may be referred to as the “Rights Plan”). The Rights Plan is designed to
provide adequate time for the Board of Directors and the shareholders to assess an unsolicited takeover bid for the Company, to provide the Board of
Directors with sufficient time to explore and develop alternatives for maximizing shareholder value if a takeover bid is made, and to provide shareholders
with an equal opportunity to participate in a takeover bid and receive full and fair value for their common shares. The Rights Plan will expire at the close of
the Company’s annual meeting of shareholders in 2016.
- 17 -
TRILLIUM THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
Amounts in Canadian Dollars
9.
Share capital (continued)
The rights issued under the Rights Plan initially attach to and trade with the common shares and no separate certificates will be issued unless an event
triggering these rights occurs. The rights will become exercisable only when a person, including any party related to it, acquires or attempts to acquire 20%
or more of the outstanding common shares without complying with the “Permitted Bid” provisions of the Rights Plan or without approval of the Board of
Directors. Should such an acquisition occur or be announced, each right would, upon exercise, entitle a rights holder, other than the acquiring person and
related persons, to purchase common shares at an approximate 50% discount to the market price at the time.
Under the Rights Plan, a Permitted Bid is a bid made to all holders of the common shares and which is open for acceptance for not less than 60 days. If at
the end of 60 days at least 50% of the outstanding common shares, other than those owned by the offeror and certain related parties have been tendered, the
offeror may take up and pay for the common shares but must extend the bid for a further 10 days to allow other shareholders to tender. The issuance of
common shares upon the exercise of the rights is subject to receipt of certain regulatory approvals.
10.
Income taxes
Income taxes have not been recognized in the consolidated statements of loss and comprehensive loss, as the Company has been incurring losses since
inception, and it is not probable that future taxable profits will be available against which the accumulated tax losses can be utilized.
(a)
Unrecognized deferred tax assets
As at December 31, 2015 and 2014, deferred tax assets have not been recognized with respect to the following items:
Non-capital losses carried forward
Tax credits carryforward
Tax basis of property and equipment and intangible assets in excess of accounting basis
Scientific research and experimental development expenditures
Share issue costs and other
2015
$
11,750,952
3,090,833
1,577,156
5,524,225
493,476
22,436,642
2014
$
9,234,460
2,607,496
1,413,171
4,801,014
436,795
18,492,936
(b)
As at December 31, 2015 and 2014, the Company has available research and development expenditures of approximately $20,846,000 and $18,117,000,
respectively, for income tax purposes which may be carried forward indefinitely to reduce future years’ taxable income. As at December 31, 2015 and
2014, the Company also has unclaimed Canadian scientific research and development tax credits of $3,920,000 and $3,293,000, respectively, which are
available to reduce future taxes payable with expiries from 2017 through 2034. The benefit of these expenditures and tax credits has not been recorded in
the accounts.
(c)
As at December 31, 2015, the Company has accumulated non-capital losses for federal and provincial income tax purposes in Canada which are available
for application against future taxable income. The benefit of these losses has not been recorded in the accounts.
- 18 -
TRILLIUM THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
Amounts in Canadian Dollars
10.
Income taxes (continued)
The non-capital tax losses expire as follows:
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
(d)
The reconciliation of the Canadian statutory income tax rate applied to the net loss for the year to the income tax recovery is as follows:
Statutory income tax rate
Income tax recovery based on statutory income tax rate
Investment tax credits
Share-based compensation and other
Change in unrecognized tax assets
Income tax expense
11.
Research and development
Components of research and development expenses for the years ended December 31 were as follows:
Research and development programs, excluding the below items
Salaries, fees and short-term benefits
Share-based compensation
Amortization of intangible assets
Impairment of intangible assets
Depreciation of property and equipment
Tax credits
- 19 -
Federal
$
3,213,000
6,457,000
4,659,000
4,144,000
3,736,000
1,819,000
1,387,000
2,715,000
1,971,000
5,001,000
9,241,000
44,343,000
2014
$
26.5%
(3,413,682)
(1,091,870)
657,494
3,848,058
2015
$
26.5%
(3,901,912)
(473,156)
485,009
3,899,561
9,502
-
2015
$
12,083,797
4,120,109
1,942,173
339,348
-
118,394
(553,730)
18,050,091
2014
$
5,893,030
2,311,755
1,626,824
610,776
429,763
47,208
(323,548)
10,595,808
TRILLIUM THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
Amounts in Canadian Dollars
12.
General and administrative
Components of general and administrative expenses for the years ended December 31 were as follows:
General and administrative expenses, excluding the below items
Salaries, fees and short-term benefits
DSU units issued for director compensation
Share-based compensation
13.
Finance income and finance costs
Finance income for the years ended December 31 was as follows:
Interest income
Net foreign currency gain
Finance costs for the years ended December 31 were as follows:
Bank charges
Accreted interest
Net foreign currency loss
14.
Commitments and contingencies
2015
$
1,521,639
898,381
540,000
224,327
3,184,347
2015
$
488,486
6,106,703
6,595,189
2015
$
11,557
73,391
-
84,948
2014
$
1,198,181
694,849
240,000
444,430
2,577,460
2014
$
378,692
-
378,692
2014
$
7,212
69,770
10,262
87,244
As at December 31, 2015, the Company had capital commitments for the acquisition of property and equipment of approximately $1,026,000.
As at December 31, 2015, the Company had obligations to make future payments, representing significant research and development contracts and other
commitments that are known and committed in the amount of approximately $7,789,000. These contracts include the clinical research organization
agreement for conducting the Phase I trial, and other preclinical and manufacturing activities. The Company also has minimum lease payments relating to
operating lease commitments in the amount of $266,000 over the next 12 months, $955,000 from 12 to 60 months, and $1,289,000 thereafter.
The Company enters into research, development and license agreements in the ordinary course of business where the Company receives research services
and rights to proprietary technologies. Milestone and royalty payments that may become due under various agreements are dependent on, among other
factors, clinical trials, regulatory approvals and ultimately the successful development of a new drug, the outcome and timing of which is uncertain. Under
the license agreement for SIRPαFc, the Company has future contingent milestones payable of $35,000 related to successful patent grants, $100,000,
$200,000 and $300,000 on the first patient dosed in phase I, II and III trials respectively, and regulatory milestones on their first achievement totalling
$5,000,000. The Company is required to pay 20% of any sublicensing revenues to the licensors on the first $50 million of sublicensing revenues, and pay
15% of any sublicensing revenues to the licensors after the first $50 million of sublicensing revenue received.
- 20 -
TRILLIUM THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
Amounts in Canadian Dollars
14.
Commitments and contingencies (continued)
The Company entered into two agreements with Catalent Pharma Solutions in August 2014 pursuant to which Trillium acquired the right to use a
proprietary expression system for the manufacture of two SIRPαFc constructs. Consideration for each license includes potential pre-marketing approval
milestones of up to U.S. $875,000 and aggregate sales milestone payments of up to U.S. $28.8 million.
The Company periodically enters into research and license agreements with third parties that include indemnification provisions customary in the industry.
These guarantees generally require the Company to compensate the other party for certain damages and costs incurred as a result of claims arising from
research and development activities undertaken by or on behalf of the Company. In some cases, the maximum potential amount of future payments that
could be required under these indemnification provisions could be unlimited. These indemnification provisions generally survive termination of the
underlying agreement. The nature of the indemnification obligations prevents the Company from making a reasonable estimate of the maximum potential
amount it could be required to pay. Historically, the Company has not made any indemnification payments under such agreements and no amount has been
accrued in the audited consolidated financial statements with respect to these indemnification obligations.
15.
Related parties
For the years ended December 31, 2015 and 2014, the key management personnel of the Company were the Board of Directors, Chief Executive Officer,
Chief Medical Officer, Chief Scientific Officer, Chief Financial Officer and the Chief Development Officer.
Compensation for key management personnel of the Company for the years ended December 31 was as follows:
Salaries, fees and short-term benefits
Share-based compensation
Total
2015
$
2,595,536
2,433,710
5,029,246
2014
$
1,708,717
2,281,561
3,990,278
Executive officers and directors participate in the 2014 Stock Option Plan and the 2014 DSU Plan, and officers participate in the Company’s benefit plans.
Directors receive annual fees for their services. As at December 31, 2015, the key management personnel controlled approximately 1% of the voting shares
of the Company.
Under IFRS, the acquisition of Fluorinov Pharma Inc. (“Fluorinov”) was considered a related party transaction as two Company directors were determined
to be related parties of Fluorinov (see Note 19). One Company director was a director of Fluorinov and had an ownership position in Fluorinov at the time
of acquisition of less than 2%, and the second director was a director of an entity that was a beneficiary of a trust that was a shareholder and debenture
holder of Fluorinov. The two directors declared their conflict of interest and abstained from all discussions and decisions concerning the Fluorinov
acquisition. Accordingly, the Company determined that the consideration paid on the acquisition was made on terms equivalent to those that prevail in
arm’s length transactions.
Outstanding balances with related parties at the year-end are unsecured, interest free and settlement occurs in cash. There have been no guarantees provided
or received for any related party receivables or payables. For the years ended December 31, 2015 and 2014, a former director was paid consulting fees of
$0 and $7,916, respectively.
16.
Operating segment
The Company has a single operating segment, the research and development therapies for the treatment of cancer. Substantially all of the Company’s
operations, assets, and employees are in Canada.
- 21 -
TRILLIUM THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
Amounts in Canadian Dollars
17.
Management of capital
The Company defines its capital as share capital, warrants and contributed surplus. The Company’s objectives when managing capital are to ensure there
are sufficient funds available to carry out its research and development programs. To date, these programs have been funded primarily through the sale of
equity securities and the exercise of common share purchase warrants. The Company also sources non-dilutive funding by accessing grants, government
assistance and tax incentives, and through partnerships with corporations and research institutions. The Company uses budgets and purchasing controls to
manage its costs. The Company is not exposed to any externally imposed capital requirements.
18.
Financial instruments
Fair value
IFRS 13 Fair
Value
Measurement
provides a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or
unobservable. Observable inputs are those which reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s
assumptions with respect to how market participants would price an asset or liability. These two inputs used to measure fair value fall into the following
three different levels of the fair value hierarchy:
Level 1
Level 2
Level 3
Quoted prices in active markets for identical instruments that are observable.
Quoted prices in active markets for similar instruments; inputs other than quoted prices that are observable and derived from or
corroborated by observable market data.
Valuations derived from valuation techniques in which one or more significant inputs are unobservable.
The hierarchy requires the use of observable market data when available.
The Company has classified cash as Level 1. The loan payable has been classified as Level 2.
Cash, amounts receivable, accounts payable and accrued liabilities, and other current liabilities, due within one year, are all short-term in nature and, as
such, their carrying values approximate fair values. The fair value of the non-current loan payable is estimated by discounting the expected future cash
flows at the cost of money to the Company, which is equal to its carrying value.
Risks
The Company has exposure to credit risk, liquidity risk, interest rate risk and currency risk. The Company’s Board of Directors has overall responsibility
for the establishment and oversight of the Company’s risk management framework. The Audit Committee of the Board is responsible for reviewing the
Company’s risk management policies.
(a)
Credit risk
Credit risk is the risk of financial loss to the Company if a counterparty to a financial instrument fails to meet its contractual obligations, and arises
principally from the Company’s cash and amounts receivable. The carrying amount of these financial assets represents the maximum credit exposure. The
Company follows an investment policy to mitigate against the deterioration of principal and to enhance the Company’s ability to meet its liquidity needs.
Cash is on deposit with major Canadian chartered banks and the Company invests in high grade short-term instruments. Amounts receivable are primarily
comprised of amounts due from the federal government.
(b)
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company is a development stage company
and is reliant on external fundraising to support its operations. Once funds have been raised, the Company manages its liquidity risk by investing in cash
and short-term instruments to provide regular cash flow for current operations. It also manages liquidity risk by continuously monitoring actual and
projected cash flows. The Board of Directors reviews and approves the Company’s operating and capital budgets, as well as any material transactions not in
the ordinary course of business. The majority of the Company’s accounts payable and accrued liabilities have maturities of less than three months.
- 22 -
TRILLIUM THERAPEUTICS INC.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2015 and 2014
Amounts in Canadian Dollars
18.
(c)
Financial instruments (continued)
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The
Company holds its cash in bank accounts or high interest savings accounts which have a variable rate of interest. The Company manages its interest rate
risk by holding highly liquid short-term instruments and by holding its investments to maturity, where possible. For the years ended December 31, 2015
and 2014, the Company earned interest income of $488,486 and $378,692, respectively. Therefore, a 1% change in the average interest rate for the years
ended December 31, 2015 and 2014, would have a net impact on finance income of $4,885 and $3,787, respectively.
(d)
Currency risk
The Company is exposed to currency risk related to the fluctuation of foreign exchange rates and the degree of volatility of those rates. Currency risk is
limited to the portion of the Company’s business transactions denominated in currencies other than the Canadian dollar which are primarily expenses in US
dollars. As at December 31, 2015 and 2014, the Company held US dollar cash in the amount of US$44,547,591 and US$142,558 and had US dollar
denominated accounts payable and accrued liabilities in the amount of US$1,033,319 and US$1,910,430, respectively. Therefore, a 1% change in the
foreign exchange rate would have a net impact on finance costs as at December 31, 2015 and 2014 of $435,143 and $17,679, respectively.
US dollar expenses for the years ended December 31, 2015 and 2014 were approximately US$8,700,000 and US$3,260,000, respectively. Varying the US
exchange rate for the years ended December 31, 2015 and 2014 to reflect a 5% strengthening of the Canadian dollar would have decreased the net loss by
approximately $435,000 and $163,000, respectively, assuming that all other variables remained constant.
19.
Events after the balance sheet date
On January 26, 2016, the Company acquired all of the outstanding shares of Fluorinov, a private oncology company, for an upfront payment of $10 million
plus up to $35 million of additional future payments that are contingent on Trillium achieving certain clinical and regulatory milestones with an existing
Fluorinov compound. Trillium will also have an obligation to pay royalty payments on future sales of such compounds. The upfront payment was subject to
adjustment based on the net working capital of Fluorinov and other adjustments at the time of closing. At Trillium’s discretion, up to 50% of the future
contingent payments can be satisfied through the issuance of common shares of Trillium provided that the aggregate number of common shares issuable
under such payments will not exceed 1,558,447 common shares unless shareholder approval has first been obtained. In addition, any such future share
issuance remains subject to final approval from Trillium’s board of directors and receipt of any requisite approvals under the applicable rules of the Toronto
Stock Exchange and the NASDAQ Stock Market. Trillium has also committed to use commercially reasonable efforts to monetize Fluorinov’s CNS assets
and share 50% of the net proceeds with Fluorinov shareholders. The acquisition of Fluorinov will be accounted for as a business combination under the
acquisition method of accounting. The Company will record the assets acquired and liabilities assumed at their fair values as of the acquisition date. Due to
the limited amount of time since the acquisition date, the preliminary acquisition valuation for the business combination is incomplete at this time. As a
result, the Company is unable to provide the amounts recognized as of the acquisition date for the major classes of assets acquired and liabilities assumed.
- 23 -
Exhibit 99.4
CERTIFICATION PURSUANT TO RULE 13a-14 OR 15d-14 OF THE
SECURITIES EXCHANGE ACT OF 1934
I, Niclas Stiernholm, certify that:
1. I have reviewed this annual report on Form 40-F of Trillium Therapeutics Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;
4. The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and
have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure
that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the period covered by the annual
report that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting; and
5. The issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
issuer’s auditors and the audit committee of the issuer’s board of directors (or persons performing the equivalent function):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely
to adversely affect the issuer’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal control over
financial reporting.
Date: March 9, 2016
/s/ Niclas Stiernholm
Niclas Stiernholm
President and Chief Executive Officer
CERTIFICATION PURSUANT TO RULE 13a-14 OR 15d-14 OF THE SECURITIES
EXCHANGE ACT OF 1934
Exhibit 99.5
I, James Parsons, certify that:
1. I have reviewed this annual report on Form 40-F of Trillium Therapeutics Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;
4. The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and
have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure
that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the period covered by the annual
report that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting; and
5. The issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
issuer’s auditors and the audit committee of the issuer’s board of directors (or persons performing the equivalent function):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely
to adversely affect the issuer’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal control over
financial reporting.
Date: March 9, 2016
/s/ James Parsons
James Parsons
Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 99.6
In connection with the Annual Report of Trillium Therapeutics Inc. (the “Company”) on Form 40-F for the year ended December 31, 2015, as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Niclas Stiernholm, President and Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1.
2.
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Niclas Stiernholm
Niclas Stiernholm
President and Chief Executive Officer
March 9, 2016
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 99.7
In connection with the Annual Report of Trillium Therapeutics Inc. (the “Company”) on Form 40-F for the year ended December 31, 2015, as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, James Parsons, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1.
2.
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ James Parsons
James Parsons
Chief Financial Officer
March 9, 2016
Consent of Independent Registered Public Accounting Firm
Exhibit 99.8
We consent to the reference to our Firm under the caption “Interest of Experts”, and to the use in the Annual Report on Form 40-F and to the use and incorporation
by reference into the registration statement on Form F-10 (File No. 333- 204551) of Trillium Therapeutics Inc., of our report dated March 9, 2016, with respect to
the consolidated statements of financial position of Trillium Therapeutics Inc. (formerly Stem Cell Therapeutics Corp.) as at December 31, 2015 and 2014, and the
consolidated statements of loss and comprehensive loss, changes in equity, and cash flows for the years then ended.
Toronto, Canada
March 9, 2016
/s/ Ernst & Young LLP
Chartered Professional Accountants
Licensed Public Accountants