The accompanying notes form an integral part of these consolidated
financial statements.
The accompanying notes form an integral part of
these consolidated financial statements.
The accompanying notes form an integral part of
these consolidated financial statements.
The accompanying notes form an integral part of
these consolidated financial statements.
The accompanying notes form an integral part of
these consolidated financial statements.
The accompanying notes form an integral part of
these consolidated financial statements.
Addex
Therapeutics│Interim Condensed Consolidated Financial Statements│Notes
Unaudited Notes to the Interim Condensed Consolidated
Financial Statements
for the three-month and six-month periods ended
June 30, 2022
(Amounts in Swiss francs)
1. General information
Addex Therapeutics Ltd (the “Company”), formerly Addex
Pharmaceuticals Ltd, and its subsidiaries (together, the “Group”) are a clinical stage pharmaceutical group applying its leading
allosteric modulator drug discovery platform to discovery and development of small molecule pharmaceutical products, with an initial focus
on central nervous system disorders.
The Company is a Swiss stockholding corporation domiciled c/o Addex
Pharma SA, Chemin des Aulx 12, CH1228 Plan-les-Ouates, Geneva, Switzerland and the parent company of Addex Pharma SA, Addex Pharmaceuticals
France SAS and Addex Pharmaceuticals Inc. registered in Delaware with its principal business location in San Francisco, California, United
States. Its registered shares are traded at the SIX, Swiss Exchange, under the ticker symbol ADXN. On January 29, 2020, the Group listed
on the Nasdaq Stock Market, American Depositary Shares (ADSs) under the symbol “ADXN”, without a new issuance of securities.
ADSs represents shares that continue to be admitted to trading on SIX Swiss Exchange.
These condensed consolidated financial statements have been approved
for issuance by the Board of Directors on 17 August, 2022.
2. Basis of preparation
These interim condensed consolidated financial statements
for the three-month and six-month periods ended June 30, 2022, have been prepared under the historic cost convention and in
accordance with IAS 34 “Interim Financial Reporting” and are presented in a format consistent with the consolidated
financial statements under IAS 1 “Presentation of Financial Statements”. However, they do not include all of the notes
that would be required in a complete set of financial statements. Thus, this interim financial report should be read in conjunction
with the consolidated financial statements for the year ended December 31, 2021.
Interim financial results are not necessarily indicative of
results anticipated for the full year. The preparation of these unaudited condensed consolidated interim financial statements made
in accordance with IAS 34 requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Although these estimates are based on management’s best knowledge of current events and
actions, actual results ultimately may differ from those estimates. The areas involving a higher degree of judgment which are
significant to the interim condensed consolidated financial statements are disclosed in note 4 to the consolidated financial
statements for the year ended December 31, 2021.
A number of new or amended standards and interpretations became applicable
for financial periods beginning on or after January 1, 2022. The Group noted that the latter did not have a material impact on the Group’s
financial position or disclosures made in the interim condensed consolidated financial statements.
Due to rounding, numbers presented throughout these Interim
condensed consolidated financial statements may not add up precisely to the totals provided. All ratios and variances are
calculated using the underlying amount rather than the presented rounded amount.
3. Critical accounting estimates and judgments
The Group makes estimates and assumptions concerning the future. These
estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of
future events that are believed to be reasonable under the circumstances. The resulting accounting estimates will, by definition, seldom
equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities or may have had a significant impact on the reported results are disclosed below:
Going concern
The
Group’s accounts are prepared on a going concern basis. To date, the Group has financed its cash requirements primarily from
share issuances and licensing certain of its research and development stage products. The Group is a development-stage enterprise
and is exposed to all the risks inherent in establishing a business. The Group expects that its existing cash and cash equivalents,
at the issuance date of these unaudited condensed consolidated interim financial statements, will be sufficient to fund its
operations and meet all of its obligations as they fall due, through the end of the first half of 2023. These factors individually
and collectively indicate that a material uncertainty exists that may cast substantial doubt about the Group's ability to continue
as a going concern for one year from the date of issuance of these unaudited interim condensed consolidated financial
statements. The future viability of the Group is dependent on its ability to raise additional capital through public or private
financings or collaboration agreements to finance its future operations, that may be delayed due to COVID-19 pandemic and the
Russia’s invasion of Ukraine. The sale of additional equity may dilute existing shareholders. The inability to obtain funding,
as and when needed, would have a negative impact on the Group’s financial condition and ability to pursue its business
strategies. If the Group is unable to obtain the required funding to run its operations and to develop and commercialize its product
candidates, the Group could be forced to delay, reduce or stop some or all of its research and development programs to ensure it
remains solvent. Management continues to explore options to obtain additional funding, including through collaborations with third
parties related to the future potential development and/or commercialization of its product candidates. However, there is no
assurance that the Group will be successful in raising funds, closing collaboration agreements, obtaining sufficient funding on
terms acceptable to the Group, or if at all, which could have a material adverse effect on the Group’s business, results of
operations and financial condition.
COVID-19
In early 2020 a coronavirus disease (COVID-19) pandemic developed globally
resulting in a significant number of infections and negative effects on economic activity. The Group is actively monitoring the situation
and is taking any necessary measures to respond to the situation in cooperation with the various stakeholders.
On
June 17, 2022 the Group terminated its dipraglurant US registration program including pivotal Phase 2B/3 and open label clinical trials
of dipraglurant in levodopa-induced dyskinesia associated with Parkinson’s disease (PD-LID) due to a slow recruitment of patients,
attributed to the consequences of COVID-19 related patient concerns about participation in clinical studies, as well as staffing shortages
and turnover within study sites.
Depending on the duration of the COVID-19 crisis and continued negative
impact on global economic activity, the Group may have to take additional measures that will have a negative impact on the Group’s
business continuity and may experience certain liquidity restraints as well as incur impairments on its assets. The exact impact on the
Group’s activities in 2022 and thereafter cannot be reasonably predicted.
Russia’s invasion of Ukraine
On
February 24, 2022, Russia invaded Ukraine creating a global conflict. The resulting conflict and retaliatory measures by the global community
have created global security concerns, including the possibility of expanded regional or global conflict, which have had, and are likely
to continue to have, short-term and more likely longer-term adverse impacts on Ukraine and Europe and around the globe. Potential ramifications
include disruption of the supply chain including research and development activities being conducted by the Group and its strategic partners.
The Group and partners rely on global networks of contract research organizations to engage clinical study sites and enroll patients,
certain of which are in Russia and Ukraine. Delays in research and development activities of the Group and its partners could increase
associated costs and, depending upon the duration of any delays, require the Group and its partners to find alternative suppliers
at additional expense. In addition, the conflict in Eastern Europe has had significant ramifications on global financial markets, which
may adversely impact the ability of the Group to raise capital on favorable terms or at all.
Revenue recognition
Revenue is primarily from fees related to licenses, milestones and
research services. Given the complexity of the relevant agreements, judgements are required to identify distinct performance obligations,
allocate the transaction price to these performance obligations and determine when the performance obligations are met. In particular,
the Group’s judgement over the estimated stand-alone selling price which is used to allocate the transaction price to the performance
obligations is disclosed in note 15.
Grants
Grants are recorded at their fair value when there is reasonable assurance
that they will be received and recognized as income when the Group has satisfied the underlying grant conditions. In certain circumstances,
grant income may be recognized before explicit grantor acknowledgement that the conditions have been met.
Accrued research and development costs
The Group records accrued expenses for estimated costs of research
and development activities conducted by third party service providers. The Group records accrued expenses for estimated costs of research
and development activities based upon the estimated amount of services provided but not yet invoiced, and these costs are included in
accrued expenses on the balance sheets and within research and development expenses in the statements of comprehensive loss. These costs
are a significant component of research and development expenses. Accrued expenses for these costs are recorded based on the estimated
amount of work completed in accordance with agreements established with these third parties. To date, the Group has not experienced significant
changes in the estimates of accrued research and development expenses after a reporting period. However, due to the nature of estimates,
the Group may be required to make changes to the estimates in the future as it becomes aware of additional information about the status
or conduct of its research activities.
Research and development costs
The Group recognizes expenditure incurred in carrying out its research
and development activities, including development supplies, until it becomes probable that future economic benefits will flow to the Group,
which results in recognizing such costs as intangible assets, involving a certain degree of judgement. Currently, such development supplies
are associated with pre-clinical and clinical trials of specific products that do not have any demonstrated technical feasibility.
Share-based compensation
The Group recognizes an expense for share-based compensation based
on the valuation of equity incentive units using the Black-Scholes valuation model. A number of assumptions related to the volatility
of the underlying shares and to the risk-free rate are made in this model. Should the assumptions and estimates underlying the fair value
of these instruments vary significantly from management’s estimates, then the share-based compensation expense would be materially
different from the amounts recognized.
Pension obligations
The present value of the pension obligations is calculated by an independent
actuary and depends on a number of assumptions that are determined on an actuarial basis such as discount rates, future salary and pension
increases, and mortality rates. Any changes in these assumptions will impact the carrying amount of pension obligations. The Group determines
the appropriate discount rate at the end of each period. This is the interest rate that should be used to determine the present value
of estimated future cash outflows expected to be required to settle the pension obligations. In determining the appropriate discount rate,
the Group considers the interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will
be paid, and that have terms to maturity approximating the terms of the related pension liability. Other key assumptions for pension obligations
are based in part on current market conditions.
4. Interim measurement note
Seasonality
of the business: The business is not subject to any seasonality, but expenses and corresponding revenue are largely determined
by the phase of the respective projects, particularly with regard to external research and development expenditures.
Costs:
Costs that incur unevenly during the financial year are anticipated or deferred in the interim report only if it would also be appropriate
to anticipate or defer such costs at the end of the financial year.
5. Segment reporting
Management has identified one single operating segment, related to
the discovery, development and commercialization of small-molecule pharmaceutical products.
Information about products, services and major customers
External income of the Group for the three-month and six-month periods
ended June 30, 2022 and 2021 is derived from the business of discovery, development and commercialization of pharmaceutical products.
Income was earned from rendering of research services to a pharmaceutical company and grants earned.
Information about geographical areas
External income is exclusively recorded in the
Swiss operating company.
Analysis of revenue from contract with customer and other income by
nature is detailed as follows:
| | |
For the three months ended June 30, | | |
For the six months ended June 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Collaborative research funding | |
| 183,354 | | |
| 992,595 | | |
| 420,591 | | |
| 1,836,818 | |
| Grants earned | |
| - | | |
| 73,735 | | |
| - | | |
| 146,852 | |
| Other service income | |
| 3,089 | | |
| 5,550 | | |
| 9,800 | | |
| 10,631 | |
| Total | |
| 186,443 | | |
| 1,071,880 | | |
| 430,391 | | |
| 1,994,301 | |
Analysis of revenue from contract with customer and other income by
major counterparties is detailed as follows:
| | |
For the three months ended June 30, | | |
For the six months ended June 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Indivior PLC | |
| 183,354 | | |
| 992,595 | | |
| 420,591 | | |
| 1,836,818 | |
| Eurostars /Innosuisse | |
| - | | |
| 73,735 | | |
| - | | |
| 146,852 | |
| Other counterparties | |
| 3,089 | | |
| 5,550 | | |
| 9,800 | | |
| 10,631 | |
| Total | |
| 186,443 | | |
| 1,071,880 | | |
| 430,391 | | |
| 1,994,301 | |
For
more detail, refer to note 15, “Revenue from contract with customer” and note 16 “Other income”.
The geographical allocation of long-lived assets is detailed as follows:
| | |
June 30, 2022 | | |
December 31, 2021 | |
| Switzerland | |
| 431,836 | | |
| 596,098 | |
| United States of America | |
| 3,717 | | |
| 3,536 | |
| France | |
| 360 | | |
| 374 | |
| Total | |
| 435,913 | | |
| 600,008 | |
The geographical analysis of operating costs is as follows:
| | |
For the three months ended June 30, | | |
For the six months ended June 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Switzerland | |
| 7,267,558 | | |
| 5,567,368 | | |
| 13,264,551 | | |
| 9,628,157 | |
| United States of America | |
| 10,740 | | |
| 8,646 | | |
| 18,448 | | |
| 16,627 | |
| France | |
| 360 | | |
| 2,503 | | |
| 2,192 | | |
| 4,182 | |
| Total operating costs (note 17) | |
| 7,278,658 | | |
| 5,578,517 | | |
| 13,285,191 | | |
| 9,648,966 | |
The capital expenditure during the six-month period ended June 30,
2022 is nil (CHF 5,393 for the six-month period ended June 30, 2021).
6. Cash and cash equivalents
| | |
June 30, 2022 | | |
December 31, 2021 | |
| Cash at bank and on hand | |
| 8,812,858 | | |
| 20,484,836 | |
| Total cash and cash equivalents | |
| 8,812,858 | | |
| 20,484,836 | |
Split by currency:
| | |
June 30, 2022 | | |
December 31, 2021 | |
| CHF | |
| 86.65 | % | |
| 44.33 | % |
| USD | |
| 10.46 | % | |
| 54.47 | % |
| EUR | |
| 2.33 | % | |
| 0.58 | % |
| GBP | |
| 0.56 | % | |
| 0.62 | % |
| Total | |
| 100.00 | % | |
| 100.00 | % |
The Group pays interests on CHF cash and cash equivalents and earns
interests on USD cash and cash equivalents. The Group invests its cash balances into a variety of current and deposit accounts mainly
with Swiss banks.
All cash and cash equivalents were held either at banks or on hand
as of June 30, 2022 and December 31, 2021.
7. Other current assets
| | |
June 30, 2022 | | |
December 31, 2021 | |
| Other financial assets | |
| 3,561 | | |
| 17,145 | |
| Trade and other receivables | |
| 331,770 | | |
| 164,785 | |
| Contract asset (Indivior PLC) | |
| 78,253 | | |
| 159,636 | |
| Prepayments | |
| 1,719,694 | | |
| 1,115,374 | |
| Total other current assets | |
| 2,133,278 | | |
| 1,456,940 | |
The Group applies the IFRS 9 simplified approach to measuring expected
credit losses (“ECL”), which uses a lifetime expected loss allowance for all contract assets, trade receivables and other
receivables. As of June 30, 2022, the combined amount of the contract asset, trade receivables and other receivables amounted to CHF 410,023
(CHF 324,421 as of December 31, 2021) including CHF 180,747 for the research agreement with Indivior (CHF 159,636 as of December 31, 2021),
CHF 131,848 for the grant from Eurostars/Innosuisse (CHF 131,848 as of December 31, 2021) and CHF 53,881 for five non-governmental
debtors (four non-governmental debtors for CHF 3,978 as of December 31, 2021). The Group has considered that the contract
asset, trade receivables and other receivables have a low risk of default based on historic loss rates and forward-looking information
on macroeconomic factors affecting the ability of the third parties to settle invoices. As a result, expected loss allowance has been
deemed as nil as of June 30, 2022 and December 31, 2021. The prepayments increased by CHF 0.6 million as of June 30, 2022 compared to
December 31, 2021 primarily due to Directors and Officers (D&O) Insurance premium for CHF 0.8 million and retirement benefits for
CHF 0.3 million paid annually at the beginning of the year, partially offset by a decrease of CHF 0.5 million in amounts prepaid to Contract
Research Organization (CROSs).
8. Right-of-use assets
| Year ended December 31, 2021 | |
Properties | | |
Equipment | | |
Total | |
| Opening net book amount | |
| 543,890 | | |
| 21,454 | | |
| 565,344 | |
| Additions | |
| 2,000 | | |
| - | | |
| 2,000 | |
| Depreciation charge | |
| (294,389 | ) | |
| (26,026 | ) | |
| (320,415 | ) |
| Effect of lease modifications | |
| 208,902 | | |
| 17,676 | | |
| 226,578 | |
| Disposals | |
| (4,216 | ) | |
| - | | |
| (4,216 | ) |
| Exchange differences | |
| 698 | | |
| - | | |
| 698 | |
| Closing net book amount | |
| 456,885 | | |
| 13,104 | | |
| 469,989 | |
| As of December 31, 2021 | |
Properties | | |
Equipment | | |
Total | |
| Cost | |
| 1,298,569 | | |
| 88,844 | | |
| 1,387,413 | |
| Accumulated depreciation | |
| (841,684 | ) | |
| (75,740 | ) | |
| (917,424 | ) |
| Net book value | |
| 456,885 | | |
| 13,104 | | |
| 469,989 | |
| Period ended June 30, 2022 | |
Properties | | |
Equipment | | |
Total | |
| Opening net book amount | |
| 456,885 | | |
| 13,104 | | |
| 469,989 | |
| Depreciation charge | |
| (139,348 | ) | |
| (13,150 | ) | |
| (152,498 | ) |
| Effect of lease modifications | |
| - | | |
| 5,916 | | |
| 5,916 | |
| Closing net book amount | |
| 317,537 | | |
| 5,870 | | |
| 323,407 | |
| As of June 30, 2022 | |
Properties | | |
Equipment | | |
Total | |
| Cost | |
| 1,298,569 | | |
| 13,542 | | |
| 1,312,111 | |
| Accumulated depreciation | |
| (981,032 | ) | |
| (7,672 | ) | |
| (988,704 | ) |
| Net book value | |
| 317,537 | | |
| 5,870 | | |
| 323,407 | |
9. Property, plant and equipment
| Year ended December 31, 2021 | |
Equipment | | |
Furniture &
fixtures | | |
Chemical library | | |
Total | |
| Opening net book amount | |
| 67,760 | | |
| - | | |
| - | | |
| 67,760 | |
| Additions | |
| 31,549 | | |
| - | | |
| - | | |
| 31,549 | |
| Depreciation charge | |
| (27,198 | ) | |
| - | | |
| - | | |
| (27,198 | ) |
| Closing net book amount | |
| 72,111 | | |
| - | | |
| - | | |
| 72,111 | |
| As of December 31, 2021 | |
Equipment | | |
Furniture &
fixtures | | |
Chemical library | | |
Total | |
| Cost | |
| 1,713,828 | | |
| 7,564 | | |
| 1,207,165 | | |
| 2,928,557 | |
| Accumulated depreciation | |
| (1,641,717 | ) | |
| (7,564 | ) | |
| (1,207,165 | ) | |
| (2,856,446 | ) |
| Net book value | |
| 72,111 | | |
| - | | |
| - | | |
| 72,111 | |
| Period ended June 30, 2022 | |
Equipment | | |
Furniture &
fixtures | | |
Chemical library | | |
Total | |
| Opening net book amount | |
| 72,111 | | |
| - | | |
| - | | |
| 72,111 | |
| Depreciation charge | |
| (17,680 | ) | |
| - | | |
| - | | |
| (17,680 | ) |
| Closing net book amount | |
| 54,431 | | |
| - | | |
| - | | |
| 54,431 | |
| As of June 30, 2022 | |
Equipment | | |
Furniture &
fixtures | | |
Chemical library | | |
Total | |
| Cost | |
| 1,713,828 | | |
| 7,564 | | |
| 1,207,165 | | |
| 2,928,557 | |
| Accumulated depreciation | |
| (1,659,397 | ) | |
| (7,564 | ) | |
| (1,207,165 | ) | |
| (2,874,126 | ) |
| Net book value | |
| 54,431 | | |
| - | | |
| - | | |
| 54,431 | |
10. Non-current financial assets
| | |
June 30, 2022 | | |
December 31, 2021 | |
| Security rental deposits | |
| 58,075 | | |
| 57,908 | |
| Total non-current financial assets | |
| 58,075 | | |
| 57,908 | |
11. Payables and accruals
| | |
June 30, 2022 | | |
December 31, 2021 | |
| Trade payables | |
| 1,819,031 | | |
| 1,787,287 | |
| Social security and other taxes | |
| 149,742 | | |
| 203,288 | |
| Accrued expenses | |
| 2,084,597 | | |
| 1,856,570 | |
| Total payables and accruals | |
| 4,053,370 | | |
| 3,847,145 | |
All payables mature within 3 months. Accrued expenses and trade
payables primarily relate to R&D services from contract research organizations, consultants and professional fees. The accrued expenses
increased by CHF 0.2 million as of June 30, 2022 compared to December 31, 2021, primarily due to increased research and development activities.
The carrying amounts of payables do not materially differ from their fair values, due to their short-term nature.
12. Share capital
| | |
Number of shares | |
| | |
Common shares | | |
Treasury shares | | |
Total | |
| Balance as of January 1, 2021 | |
| 32,848,635 | | |
| (5,729,861 | ) | |
| 27,118,774 | |
| Issue of shares – capital increase | |
| 16,424,317 | | |
| (9,524,317 | ) | |
| 6,900,000 | |
| Settlement of supplier invoices | |
| - | | |
| 80,306 | | |
| 80,306 | |
| Net purchase of treasury shares under liquidity agreement | |
| - | | |
| (19,448 | ) | |
| (19,448 | ) |
| Other net sale of treasury shares | |
| - | | |
| 39,940 | | |
| 39,940 | |
| Balance as of June 30, 2021 | |
| 49,272,952 | | |
| (15,153,380 | ) | |
| 34,119,572 | |
| | |
Number of shares | |
| | |
Common shares | | |
Treasury shares | | |
Total | |
| Balance as of January 1, 2022 | |
| 49,272,952 | | |
| (11,374,803 | ) | |
| 37,898,149 | |
| Issue of shares – capital increase | |
| 16,000,000 | | |
| (16,000,000 | ) | |
| - | |
| Net purchase of treasury shares under liquidity agreement | |
| - | | |
| (21,949 | ) | |
| (21,949 | ) |
| Balance as of June 30, 2022 | |
| 65,272,952 | | |
| (27,396,752 | ) | |
| 37,876,200 | |
The Company maintains a liquidity agreement with Kepler Capital Markets SA
(“Kepler”). Under the agreement, the Group has provided Kepler with cash
and shares to enable them to buy and sell the Company’s
shares. As of June 30, 2022, 113,319 (December 31, 2021: 91,370) treasury shares are recorded under this agreement in the treasury share
reserve and CHF 3,561 (December 31, 2021: CHF 17,145) is recorded in other financial assets.
As of June 30, 2022, the total outstanding share capital is CHF 37,876,200
consisting of 37,876,200 shares excluding 27,396,752 treasury shares. As of December 31, 2021, the total outstanding share capital was
CHF 37,898,149 consisting of 37,898,149 shares excluding 11,374,803 treasury shares. All shares have a nominal value of CHF 1.00.
On
February 2, 2022, the Company issued 16,000,000 new shares from the authorized capital to its 100% owned subsidiary, Addex Pharma SA,
at CHF 1.00. These shares are held as treasury shares, hence the operation does not impact the outstanding share capital.
Directly related share issuance costs of CHF 0.2 million were recorded as a deduction in equity.
On
December 16, 2021, the Group entered into a securities purchase agreement with Armistice Capital LLC and sold 3,752,202 treasury shares
in the form of 625,367 american depositary share (ADS) listed on the nasdaq stock market at a price of USD 1.08 (CHF 1.00) per share,
equivalent to USD 6.50 (CHF 6.00) per ADS. In addition, 5,478,570 pre-funded warrants in the form of 913,095 ADS were sold at a price
of USD 1.08 (CHF 0.99) per share, equivalent to USD 6.49 (CHF 5.99) per ADS with an exercise price of USD 0.01 per ADS. The total gross
proceeds of this offering amounted to USD 10 million (CHF 9.2 million) and directly related share issuance costs of CHF 1.4 million were
recorded as a deduction in equity for the year ended December 31, 2021 of which CHF 0.5 million has been paid during the first quarter
of 2022. The Group additionally issued to Armistice Capital LLC, 9,230,772 warrants to purchase 1,538,462 ADS with an exercise
price of USD 1.08 (CHF 1.00) per share, equivalent to USD 6.5 (CHF 6.00) per ADS. The fair value of each of the warrants issued is CHF
0.40 per share, CHF 2.4 per ADS, and has been calculated using the Black-Scholes valuation model and recorded in equity as a cost of the
offering for the year ended December 31, 2021, with a volatility of 55.57% and an annual risk-free rate of -0.64%. The total value of
the warrants issued amounted to CHF 3.7 million.
On
April 23, 2021, the Company issued 9,524,317 new shares from the authorized capital to its 100% owned subsidiary, Addex Pharma SA, at
CHF 1.00. These shares are held as treasury shares, hence the operation does not impact the outstanding share capital.
On January 8, 2021, the Company issued 6,900,000 registered shares,
with a nominal value of CHF 1.00 each, at an issue price of CHF 1.46. Out of the total new shares, 6,750,000 are in the form
of ADS. The gross proceeds amounted to CHF 10.1 million (USD 11.5 million) and directly related share issuance costs of CHF 1.8 million
were recorded as a deduction in equity as of June 30, 2021.
On June 21, 2022 the Group entered into a new sale agency agreement
with Kepler Chevreux whose substantive terms are aligned with the agreement entered into on August 24, 2020 that expired on December 31,
2021. No treasury shares were sold during the six-month period ended June 30, 2022 under the sale agency agreement, whilst 39,940 treasury
shares were sold, for a gross amount of CHF 80,944 during the six -month period ended June 30, 2021.
In addition, the Group did not use its treasury shares to pay consultants
during the six-month period ended June 30, 2022, whilst during the six-month period ended June 30, 2021, the Group used 80,306 treasury
shares to purchase services from consultants including 41,937 treasury shares for Roger Mills, the Group’s Chief Medical Officer.
The total value of consulting services settled in shares was CHF 116,817.
13. Share-based compensation
The total share-based compensation expense recognized in the
statement of comprehensive loss for equity incentive units granted to directors, executives, employees and consultants for the
three-month and six-month periods ended June 30, 2022 amounted to CHF 659,259 and CHF 2,099,311, respectively (CHF 336,849 and CHF
522,951 for the three-month and six-month periods ended June 30, 2021).
As of June 30, 2022, 12,518,255 options were outstanding
(8,615,885 options as of December 31, 2021). During the six-month period ended June 30, 2022, the Group granted 3,902,370 options with
vesting over 4 years and a 10-year exercise period. Of these new options, 3,846,657 were granted at an exercise price of CHF 1.00 on April
12, 2022, 49,713 were granted at an exercise price of CHF 1.04 on April 12, 2022 and 6,000 were granted at an exercise price of CHF 1.00
on May 2, 2022.
On January 4, 2022, the exercise price of 8,294,045 equity incentive
units was reduced to CHF 1.00 and the share-based compensation related to the fair value adjustment for the reduction in the exercise
price was recognized over the remaining vesting period of the respective equity incentive units or immediately for fully vested units
and amounted to CHF 221,271 and CHF 1,450,274 for the three-month and six-month periods ended June 30, 2022, respectively.
As of June 30, 2022 and December 31, 2021, a total
of 198,750 equity sharing certificates (ESCs) were outstanding.
14. Retirement benefits obligations
The amounts recognized in the statement of comprehensive
loss are as follows:
| | |
For the three months
ended June 30, | | |
For the six months
ended June 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Current service cost | |
| (85,432 | ) | |
| (74,885 | ) | |
| (170,864 | ) | |
| (163,439 | ) |
| Past service cost | |
| 36,459 | | |
| - | | |
| 36,459 | | |
| 219,104 | |
| Interest cost | |
| (9,705 | ) | |
| (6,036 | ) | |
| (19,410 | ) | |
| (12,121 | ) |
| Interest income | |
| 6,996 | | |
| 3,857 | | |
| 13,992 | | |
| 7,714 | |
| Company pension amount (note 18) | |
| (51,682 | ) | |
| (77,064 | ) | |
| (139,823 | ) | |
| 51,258 | |
The conversion rates have changed in April 2022 and January 2021 which
has led to a positive past service cost for the three-month period ended June 30, 2022 and for the six-month period ended June 30, 2021.
The amounts recognized in the balance sheet are determined as follows:
| | |
June 30, 2022 | | |
December 31, 2021 | |
| Defined benefit obligation | |
| (7,605,263 | ) | |
| (9,276,675 | ) |
| Fair value of plan assets | |
| 7,475,987 | | |
| 7,995,150 | |
| Funded status | |
| (129,276 | ) | |
| (1,281,525 | ) |
The defined benefit obligation and the fair value of plan assets decreased
by CHF 1.7 million and CHF 0.5 million, respectively, as of June 30, 2022 compared to December 31, 2021 due to the discount rate and the
interest rate on savings accounts being increased to 2.00% as of June 30, 2022 (0.35% as of December 31, 2021).
15. Revenue from contract with customer
License & research agreement with Indivior PLC
On January 2, 2018, the Group entered into an agreement with Indivior
for the discovery, development and commercialization of novel GABAB PAM compounds for the treatment of addiction and other CNS diseases.
This agreement included the selected clinical candidate, ADX71441. In addition, Indivior agreed to fund a research program at the Group
to discover novel GABAB PAM compounds.
The contract contains two distinct material promises and performance
obligations: (1) the selected compound ADX71441 which falls within the definition of a licensed compound, whose rights of use and
benefits thereon was transferred in January 2018 and, (2) the research services to be conducted by the Group and funded by Indivior
to discover novel GABAB PAM compounds for clinical development that may be discovered over the research term of the agreement and selected
by Indivior.
Indivior has sole responsibility, including funding liability,
for development of selected compounds under the agreement through preclinical and clinical trials, as well as registration
procedures and commercialization, if any, worldwide. Indivior has the right to design development programs for selected compounds
under the agreement. Through the Group’s participation in a joint development committee, the Group reviews, in an advisory
capacity, any development programs designed by Indivior. However, Indivior has authority over all aspects of the development of such
selected compounds.
Under terms of the agreement, the Group granted Indivior an exclusive
license to use relevant patents and know-how in relation to the development and commercialization of product candidates selected by Indivior.
Subject to agreed conditions, the Group and Indivior jointly own all intellectual property rights that are jointly developed and the Group
or Indivior individually own all intellectual property rights that the Group or Indivior develop individually. The Group has retained
the right to select compounds from the research program for further development in areas outside the interest of Indivior including Charcot-Marie-Tooth
type 1A neuropathy, or CMT1A, Chronic Cough and pain. Under certain conditions, but subject to certain consequences, Indivior may terminate
the agreement.
In January 2018, the Group received, under the terms of the agreement,
a non-refundable upfront fee of USD 5.0 million for the right to use the clinical candidate, ADX71441, including all materials and know-how
related to this clinical candidate. In addition, the Group is eligible for payments on successful achievement of pre-specified clinical,
regulatory and commercial milestones totaling USD 330 million and royalties on net sales of mid-single digits to low double-digits.
On February 14, 2019, Indivior terminated the development of their
selected compound, ADX71441. Separately, Indivior funds research at the Group, based on a research plan to be mutually agreed between
the parties, to discover novel GABAB PAM compounds. These future novel GABAB PAM compounds, if selected by Indivior, become licensed compounds.
The Group agreed with Indivior to an initial research term of two years, that can be extended by twelve-month increments and a minimum
annual funding of USD 2 million for the Group’s R&D costs incurred. R&D costs are calculated based on the costs incurred
in accordance with the contract. Following Indivior’s selection of one newly identified compound, the Group has the right to also
select one additional newly identified compound. The Group is responsible for the funding of all development and commercialization costs
of its selected compounds and Indivior has no rights to the Group’s selected compounds. The initial two-year research term was expected
to run from May 2018 to April 2020. In 2019, Indivior agreed an additional research funding of USD 1.6 million, for the research period.
On October 30, 2020, the research term was extended until June 30, 2021 and Indivior agreed an additional research funding of USD 2.8
million. Effective May 1, 2021, the research term was extended until July 31, 2022 and Indivior agreed an additional research funding
of CHF 3.7 million, of which CHF 2.4 million has been paid to the Group as of June 30, 2022, a remaining amount of CHF 0.3 million is
expected to be received directly by the Group and CHF 1.0 million paid directly by Indivior to third party suppliers that are supporting
the funded research program.
For the three-month and six-month periods ended June 30, 2022, the
Group recognized CHF 0.2 million and CHF 0.4 million as revenue (For the three-month and the six-month periods ended June 30, 2021, CHF
1.0 million and CHF 1.8 million, respectively) and recorded a combined amount of CHF 0.2 million in contract asset and trade receivable
as of June 30, 2022 (December 31, 2021: CHF 0.2 million).
Janssen Pharmaceuticals Inc. (formerly
Ortho-McNeil-Janssen Pharmaceuticals Inc).
On December 31, 2004, the Group entered into a research collaboration
and license agreement with Janssen Pharmaceuticals Inc. (JPI). In accordance with this agreement, JPI has acquired an exclusive worldwide
license to develop mGlu2 PAM compounds for the treatment of human health. The Group is eligible to receive up to EUR 109 million in success-based
development and regulatory milestone, and low double-digit royalties on net sales. The Group considers these various milestones to be
variable consideration as they are contingent upon achieving uncertain, future development stages and net sales. For this reason, the
Group considers the achievement of the various milestones as binary events that will be recognized as revenue upon occurrence.
No amounts have been recognized under this agreement in the three-month
and six-month periods ended June 30, 2022 and 2021.
16. Other income
Under a grant agreement with Eurostars/Innosuisse the Group is required
to complete specific research activities within a defined period of time. The Group’s funding is fixed and received based on the
satisfactory completion of the agreed research activities and incurring the related costs.
The Group was awarded a grant by Eurostars/Innosuisse in 2019 for CHF
512,032 of which CHF 380,184 were paid as of June 30, 2022. As of June 30, 2022 and December 31, 2021, the amount recognized by the Group
as other receivables remains stable at CHF 131,848 and is expected to be received in the fourth quarter of 2022 in accordance with the
grant conditions.
The Group additionally recognized other income from IT consultancy
agreements.
For the three-month and six-month periods ended June 30, 2022, the
Group recognized CHF 3,089 and CHF 9,800, respectively as other income (CHF 79,285 and CHF 157,483 for the three-month and six-month periods
ended June 30, 2021). The decrease is primarily due to the Group not recognizing any income from Eurostars/Innosuisse during the three-month
and six-month periods ended June 30, 2022, in accordance with the grant conditions.
17. Operating costs
| | |
For the three months
ended June 30, | | |
For the six months
ended June 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Staff costs (note 18) | |
| 1,352,084 | | |
| 1,273,385 | | |
| 3,545,057 | | |
| 2,163,344 | |
| Depreciation (notes 8/9) | |
| 83,346 | | |
| 88,264 | | |
| 170,178 | | |
| 176,909 | |
| External research and development costs | |
| 4,677,306 | | |
| 2,781,951 | | |
| 7,184,492 | | |
| 4,741,337 | |
| Laboratory consumables | |
| 100,849 | | |
| 55,561 | | |
| 182,211 | | |
| 138,906 | |
| Patent maintenance and registration costs | |
| 96,617 | | |
| 66,270 | | |
| 171,849 | | |
| 144,961 | |
| Professional fees | |
| 323,390 | | |
| 642,403 | | |
| 781,544 | | |
| 928,746 | |
| Short-term leases | |
| 14,596 | | |
| 8,046 | | |
| 27,861 | | |
| 16,437 | |
| D&O Insurance | |
| 411,861 | | |
| 396,838 | | |
| 795,688 | | |
| 795,858 | |
| Other operating costs | |
| 218,609 | | |
| 265,799 | | |
| 426,311 | | |
| 542,468 | |
| Total operating costs | |
| 7,278,658 | | |
| 5,578,517 | | |
| 13,285,191 | | |
| 9,648,966 | |
The evolution of the total operating costs is mainly driven by external
research and development expenses, staff costs, D&O insurance, professional fees and other operating costs.
During
the six-month period ended June 30, 2022, total operating costs increased by CHF 3.6 million compared to the same period ended June 30,
2021, primarily due to increased external research and development costs of CHF 2.4 million of which CHF 2.0 million relate to dipraglurant
clinical development activities. During the same period, staff costs increased by CHF 1.4 million of which CHF 1.2 million relate
to higher share-based compensation costs (note 18).
During
the three-month period ended June 30, 2022, total operating costs increased by CHF 1.7 million compared to the same period ended June
30, 2021, primarily due to increased external research and development costs of CHF 1.9 million including CHF 1.6 million for dipraglurant
clinical development activities. During the same period, professional fees decreased by CHF 0.3 million primarily due to certain
one off expenses, in the second quarter of 2021, related to the setting-up of our US shelf registration and “at-the-market”
(ATM) ADS equity sale program.
18. Staff costs
| | |
For the three months
ended June 30, | | |
For the six months
ended June 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Wages and salaries | |
| 649,639 | | |
| 816,750 | | |
| 1,472,876 | | |
| 1,592,602 | |
| Social charges and insurances | |
| 100,542 | | |
| 118,595 | | |
| 219,688 | | |
| 217,606 | |
| Value of share-based services | |
| 550,221 | | |
| 260,976 | | |
| 1,712,670 | | |
| 404,394 | |
| Retirement benefit (note 14) | |
| 51,682 | | |
| 77,064 | | |
| 139,823 | | |
| (51,258 | ) |
| Total staff costs | |
| 1,352,084 | | |
| 1,273,385 | | |
| 3,545,057 | | |
| 2,163,344 | |
During the six-month period ended June 30, 2022,
total staff costs increased by CHF 1.4 million compared to the same period ended June 30, 2021, primarily due to higher share-based compensation
cost for CHF 1.2 million, related to the reduction of the exercise price of the equity incentive units granted to employees to CHF 1.00
on January 4, 2022.
19. Finance result, net
| | |
For the three months
ended June 30, | | |
For the six months
ended June 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Interest income | |
| 204 | | |
| 1,717 | | |
| 299 | | |
| 3,329 | |
| Interest cost | |
| (7,574 | ) | |
| (17,274 | ) | |
| (24,369 | ) | |
| (31,404 | ) |
| Interest expense on leases | |
| (4,758 | ) | |
| (5,665 | ) | |
| (10,377 | ) | |
| (12,275 | ) |
| Foreign exchange (losses)/gains, net | |
| (116,909 | ) | |
| (162,290 | ) | |
| (155,740 | ) | |
| 365,253 | |
| Finance result, net | |
| (129,037 | ) | |
| (183,512 | ) | |
| (190,187 | ) | |
| 324,903 | |
20. Loss per share
Basic and diluted loss per share is calculated by dividing the loss
attributable to equity holders of the Company by the weighted average number of shares in issue during the period excluding shares purchased
by the Group and held as treasury shares.
| | |
For the three months
ended June 30, | | |
For the six months
ended June 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Loss attributable to equity holders of the Company | |
| (7,221,252 | ) | |
| (4,690,149 | ) | |
| (13,044,987 | ) | |
| (7,329,762 | ) |
| Weighted average number of shares in issue | |
| 37,467,005 | | |
| 34,060,051 | | |
| 37,891,408 | | |
| 33,789,956 | |
| Basic and diluted loss per share | |
| (0.19 | ) | |
| (0.14 | ) | |
| (0.34 | ) | |
| (0.22 | ) |
The Company has three categories of dilutive potential
shares as of June 30, 2022 and 2021: equity sharing certificates (“ESCs”), share options and warrants. For the three-month
and six-month periods ended June 30, 2022 and 2021, equity sharing certificates, share options and warrants have been ignored in the calculation
of the loss per share, as they would be antidilutive.
21. Related party transactions
Related parties include members of the Board of Directors and the Executive
Management of the Group. The following transactions were carried out with related parties:
Key
management compensation
| | |
For the three months
ended June 30, | | |
For the six months
ended June 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Salaries, other short-term employee benefits and post-employment benefits | |
| 482,228 | | |
| 516,146 | | |
| 922,664 | | |
| 793,077 | |
| Consulting fees | |
| 77,883 | | |
| 63,077 | | |
| 123,707 | | |
| 121,854 | |
| Share-based compensation | |
| 556,724 | | |
| 266,916 | | |
| 1,822,104 | | |
| 421,221 | |
| Total | |
| 1,116,835 | | |
| 846,139 | | |
| 2,868,475 | | |
| 1,336,152 | |
Salaries, other short-term employee benefits
and post-employment benefits relate to members of the Board of Directors and Executive Management who are employed by the Group. Consulting
fees relate mainly to Roger Mills, a member of the Executive Management who delivers his services to the Group under a consulting contract.
The Group has a net payable to the Board of Directors and Executive Management of CHF 130,187 as of June 30, 2022 (December 31, 2021:
CHF 172,443).
22. Events after the balance sheet date
On July 19, 2022, the nominal value of the issued, conditional and
authorized share capital has been reduced from CHF 1.00 to CHF 0.01 with effect on SIX Swiss Exchange and Nasdaq Stock Market on July
26, 2022. The total number of issued, outstanding, conditional and authorized shares remains the same one.
On July 14, 2022 and on July 21, 2022 Armistice Capital LLC exercised
pre-funded warrants for 5,478,570 shares in the form of 913,095 ADSs and paid the exercise price of USD 0.01 per ADS, amounting to a total
of USD 9131.
On July 21, 2022 and July 22, 2022 the Group sold, under the sale agency
agreement with Kepler Cheuvreux, a total number of 1,355,248 treasury shares at an average price of CHF 0.34 per share, with gross proceeds
of CHF 0.5 million.
On
July 22, 2022 the Group entered into a securities purchase agreement with Armistice Capital LLC and sold 4,500,000 treasury shares
in the form of 750,000 ADSs at a price of CHF 0.27 per share (USD 1.70 per ADS). As a result, the total number of outstanding shares increased
to 49,235,768. In addition, 10,500,000 pre-funded warrants, in the form of 1,750,000 ADSs, were sold at a price of USD 1.69 per ADS (CHF
0.27 per share) with an exercise price of USD 0.01 per ADS. The total gross proceeds from the offering amounted to USD 4.2 million (CHF
4.1 million). The Group granted Armistice Capital LLC, 15,000,000 warrants, in the form of 2,500,000 ADSs, with an exercise price of USD
1.90 per ADS (CHF 0.30 per share) and an exercise period of 5 years.
On August 2, 2022, the exercise price of 12,434,713 equity
incentive units was reduced to CHF 0.19 and the share-based compensation related to the fair value adjustment for the reduction in
the exercise price of CHF 0.95 million will be recognized over the remaining vesting period of the respective equity incentive units
or immediately for fully vested units. As a result, CHF 0.6 million will be recognized in the second half of 2022 and CHF 0.35
million over the period 2023 to 2026 as share-based compensation expense.
The research agreement with Indivior has been
extended until March 31, 2023, with an effective date of August 1, 2022. Under the amendment to the research agreement, Indivior committed
additional research funding of CHF 0.85 million.
