Exhibit 99.1
Aurinia Pharmaceuticals Inc.
Interim Condensed
Consolidated Financial Statements
(Unaudited)
(Expressed in thousands of United States (U.S.) dollars)
Third
Quarter ended September 30, 2017
Aurinia Pharmaceuticals Inc.
Interim Condensed Consolidated Statements of Financial Position
(Unaudited)
(Expressed in thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2017
$
|
|
|
December 31,
2016
$
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
87,546
|
|
|
|
39,649
|
|
|
Short term investments (note 3)
|
|
|
94,860
|
|
|
|
—
|
|
|
Accrued interest and other receivables
|
|
|
415
|
|
|
|
86
|
|
|
Prepaid expenses, deposits and other
|
|
|
2,064
|
|
|
|
1,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
184,885
|
|
|
|
41,418
|
|
|
|
|
|
|
Clinical trial contract deposits
|
|
|
448
|
|
|
|
—
|
|
|
|
|
|
|
Property and equipment
|
|
|
27
|
|
|
|
29
|
|
|
|
|
|
|
Acquired intellectual property and other intangible assets
|
|
|
14,472
|
|
|
|
15,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
199,832
|
|
|
|
56,997
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
6,665
|
|
|
|
5,791
|
|
|
Current portion of deferred revenue
|
|
|
118
|
|
|
|
118
|
|
|
Contingent consideration (note 4)
|
|
|
72
|
|
|
|
2,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,855
|
|
|
|
7,930
|
|
|
|
|
|
|
Deferred revenue
|
|
|
472
|
|
|
|
560
|
|
|
|
|
|
|
Contingent consideration
(note 4)
|
|
|
3,654
|
|
|
|
3,419
|
|
|
|
|
|
|
Derivative warrant liabilities
(note 5)
|
|
|
21,207
|
|
|
|
9,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,188
|
|
|
|
21,047
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital
|
|
|
|
|
|
|
|
|
|
Common shares (note 6)
|
|
|
498,698
|
|
|
|
299,815
|
|
|
Warrants (note 6)
|
|
|
906
|
|
|
|
971
|
|
|
|
|
|
|
Contributed surplus
|
|
|
17,442
|
|
|
|
17,017
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
|
(894
|
)
|
|
|
(805
|
)
|
|
|
|
|
|
Deficit
|
|
|
(348,508
|
)
|
|
|
(281,048
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
167,644
|
|
|
|
35,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
199,832
|
|
|
|
56,997
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsequent events
(note 11)
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
Aurinia Pharmaceuticals Inc.
Interim Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
For the three and nine month periods ended
September 30, 2017 and 2016
(Expressed in thousands of U.S. dollars, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
|
September 30,
2017
$
|
|
|
September 30,
2016
$
|
|
|
September 30,
2017
$
|
|
|
September 30,
2016
$
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licensing revenue
|
|
|
29
|
|
|
|
29
|
|
|
|
388
|
|
|
|
88
|
|
|
Research and development revenue
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
50
|
|
|
Contract services
|
|
|
—
|
|
|
|
2
|
|
|
|
1
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
31
|
|
|
|
389
|
|
|
|
143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
10,807
|
|
|
|
3,342
|
|
|
|
25,239
|
|
|
|
9,072
|
|
|
Corporate, administration and business development
|
|
|
2,650
|
|
|
|
1,716
|
|
|
|
8,978
|
|
|
|
4,743
|
|
|
Amortization of acquired intellectual property and other intangible assets
|
|
|
357
|
|
|
|
357
|
|
|
|
1,078
|
|
|
|
1,099
|
|
|
Amortization of property and equipment
|
|
|
5
|
|
|
|
5
|
|
|
|
17
|
|
|
|
15
|
|
|
Contract services
|
|
|
—
|
|
|
|
1
|
|
|
|
1
|
|
|
|
3
|
|
|
Other expense (income) (note 7)
|
|
|
(315
|
)
|
|
|
1,078
|
|
|
|
(392
|
)
|
|
|
1,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,504
|
|
|
|
6,499
|
|
|
|
34,921
|
|
|
|
16,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before change in estimated fair value of derivative warrant liabilities
|
|
|
(13,475
|
)
|
|
|
(6,468
|
)
|
|
|
(34,532
|
)
|
|
|
(16,036
|
)
|
|
|
|
|
|
|
|
Change in estimated fair value of derivative warrant liabilities
(note 5)
|
|
|
355
|
|
|
|
(951
|
)
|
|
|
(32,928
|
)
|
|
|
1,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period
|
|
|
(13,120
|
)
|
|
|
(7,419
|
)
|
|
|
(67,460
|
)
|
|
|
(14,962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item that may be reclassified subsequently to income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in fair value of short-term investments
|
|
|
(89
|
)
|
|
|
—
|
|
|
|
(89
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net comprehensive loss for the period
|
|
|
(13,209
|
)
|
|
|
(7,419
|
)
|
|
|
(67,549
|
)
|
|
|
(14,962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share
(note 8) (expressed in $ per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per common share
|
|
|
(0.16
|
)
|
|
|
(0.21
|
)
|
|
|
(0.91
|
)
|
|
|
(0.44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
2
Aurinia Pharmaceuticals Inc.
Interim Condensed Consolidated Statements of Changes in Shareholders’ Equity
(Unaudited)
For the nine month periods ended
September 30, 2017 and 2016
(Expressed in thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
shares
$
|
|
|
Warrants
$
|
|
|
Contributed
surplus
$
|
|
|
Deficit
$
|
|
|
Accumulated
other
comprehensive
loss
$
|
|
|
Shareholders’
equity
$
|
|
|
Balance – January 1, 2017
|
|
|
299,815
|
|
|
|
971
|
|
|
|
17,017
|
|
|
|
(281,048
|
)
|
|
|
(805
|
)
|
|
|
35,950
|
|
|
Issue of common shares (note 6)
|
|
|
173,104
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
173,104
|
|
|
Share issue costs
|
|
|
(10,780
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(10,780
|
)
|
|
Exercise of warrants
|
|
|
296
|
|
|
|
(65
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
231
|
|
|
Exercise of derivative warrants
|
|
|
29,543
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
29,543
|
|
|
Exercise of stock options
|
|
|
6,720
|
|
|
|
—
|
|
|
|
(2,862
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
3,858
|
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
3,287
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,287
|
|
|
Net loss and comprehensive loss for the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(67,460
|
)
|
|
|
(89
|
)
|
|
|
(67,549
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – September 30, 2017
|
|
|
498,698
|
|
|
|
906
|
|
|
|
17,442
|
|
|
|
(348,508
|
)
|
|
|
(894
|
)
|
|
|
167,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – January 1, 2016
|
|
|
261,645
|
|
|
|
1,297
|
|
|
|
15,579
|
|
|
|
(257,753
|
)
|
|
|
(805
|
)
|
|
|
19,963
|
|
|
Issue of common shares
|
|
|
6,142
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,142
|
|
|
Share issue costs
|
|
|
(407
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(407
|
)
|
|
Issue of units
|
|
|
6,260
|
|
|
|
820
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,080
|
|
|
Share issue costs
|
|
|
(389
|
)
|
|
|
(51
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(440
|
)
|
|
Exercise of warrants
|
|
|
2,498
|
|
|
|
(825
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,673
|
|
|
Expiry of warrants
|
|
|
—
|
|
|
|
(155
|
)
|
|
|
155
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Exercise of stock options
|
|
|
56
|
|
|
|
—
|
|
|
|
(29
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
27
|
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
1,027
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,027
|
|
|
Net loss and comprehensive loss for the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(14,962
|
)
|
|
|
—
|
|
|
|
(14,962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance –September 30, 2016
|
|
|
275,805
|
|
|
|
1,086
|
|
|
|
16,732
|
|
|
|
(272,715
|
)
|
|
|
(805
|
)
|
|
|
20,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
3
Aurinia Pharmaceuticals Inc.
Interim Condensed Consolidated Statements of Cash Flow
(Unaudited)
For the three and nine month periods ended
September 30, 2017 and 2016
(Expressed in thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
|
September 30,
2017
$
|
|
|
September 30,
2016
$
|
|
|
September 30,
2017
$
|
|
|
September 30,
2016
$
|
|
|
Cash flow provided by (used in)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period
|
|
|
(13,120
|
)
|
|
|
(7,419
|
)
|
|
|
(67,460
|
)
|
|
|
(14,962
|
)
|
|
Adjustments for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred revenue
|
|
|
(29
|
)
|
|
|
(29
|
)
|
|
|
(88
|
)
|
|
|
(138
|
)
|
|
Amortization of property and equipment
|
|
|
5
|
|
|
|
5
|
|
|
|
17
|
|
|
|
15
|
|
|
Amortization of acquired intellectual property and other intangible assets
|
|
|
357
|
|
|
|
357
|
|
|
|
1,078
|
|
|
|
1,099
|
|
|
Stock-based compensation
|
|
|
1,068
|
|
|
|
548
|
|
|
|
3,287
|
|
|
|
1,027
|
|
|
Change in value of short term investments
|
|
|
11
|
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
—
|
|
|
Revaluation of contingent consideration
|
|
|
88
|
|
|
|
1,146
|
|
|
|
436
|
|
|
|
1,272
|
|
|
Change in provision for restructuring costs
|
|
|
—
|
|
|
|
(38
|
)
|
|
|
—
|
|
|
|
(116
|
)
|
|
Loss (gain) on disposal of equipment
|
|
|
—
|
|
|
|
(13
|
)
|
|
|
1
|
|
|
|
(13
|
)
|
|
Change in estimated fair value of derivative warrant liabilities
|
|
|
(355
|
)
|
|
|
951
|
|
|
|
32,928
|
|
|
|
(1,074
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,975
|
)
|
|
|
(4,492
|
)
|
|
|
(29,804
|
)
|
|
|
(12,890
|
)
|
|
Net change in other operating assets and liabilities (note 10)
|
|
|
3,450
|
|
|
|
304
|
|
|
|
(284
|
)
|
|
|
(1,563
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash generated from (used in) operating activities
|
|
|
(8,525
|
)
|
|
|
(4,188
|
)
|
|
|
(30,088
|
)
|
|
|
(14,453
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of short term investments
|
|
|
(84,889
|
)
|
|
|
(6,046
|
)
|
|
|
(97,996
|
)
|
|
|
(18,091
|
)
|
|
Proceeds on maturity of short term investments
|
|
|
—
|
|
|
|
5,998
|
|
|
|
3,050
|
|
|
|
25,041
|
|
|
Proceeds on disposal of equipment
|
|
|
—
|
|
|
|
13
|
|
|
|
—
|
|
|
|
13
|
|
|
Purchase of equipment
|
|
|
—
|
|
|
|
(4
|
)
|
|
|
(16
|
)
|
|
|
(5
|
)
|
|
Capitalized patent costs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash generated from (used in) investing activities
|
|
|
(84,889
|
)
|
|
|
(39
|
)
|
|
|
(94,962
|
)
|
|
|
6,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration milestone payments
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,150
|
)
|
|
|
—
|
|
|
Net proceeds from issuance of common shares
|
|
|
—
|
|
|
|
5,735
|
|
|
|
162,324
|
|
|
|
5,735
|
|
|
Net proceeds from issuance of units
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,640
|
|
|
Proceeds from exercise of derivative warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
8,684
|
|
|
|
—
|
|
|
Proceeds from exercise of warrants
|
|
|
21
|
|
|
|
1,673
|
|
|
|
232
|
|
|
|
1,673
|
|
|
Proceeds from exercise of stock options
|
|
|
1,222
|
|
|
|
27
|
|
|
|
3,857
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash generated from (used in) financing activities
|
|
|
1,243
|
|
|
|
7,435
|
|
|
|
172,947
|
|
|
|
14,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents during the period
|
|
|
(92,171
|
)
|
|
|
3,208
|
|
|
|
47,897
|
|
|
|
6,577
|
|
|
|
|
|
|
|
|
Cash and cash equivalents – Beginning of period
|
|
|
179,717
|
|
|
|
9,125
|
|
|
|
39,649
|
|
|
|
5,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents – End of period
|
|
|
87,546
|
|
|
|
12,333
|
|
|
|
87,546
|
|
|
|
12,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
4
Aurinia Pharmaceuticals Inc.
Notes to Interim Condensed Consolidated Statements
(Unaudited)
For the three and nine month periods ended
September 30, 2017 and 2016
(amounts
in tabular columns expressed in thousands of U.S. dollars)
Aurinia Pharmaceuticals Inc. or the “Company” is a clinical stage
pharmaceutical company with its head office located at #1203-4464 Markham Street, Victoria, British Columbia, V8Z 7X8. The Company has its registered office located at #201,
17904-105
Avenue, Edmonton,
Alberta, T5S 2H5 where the finance function is performed.
Aurinia Pharmaceuticals Inc. is incorporated pursuant to the Business Corporations Act
(Alberta). The Company’s common shares are currently listed and traded on the NASDAQ Global Market (NASDAQ) under the symbol AUPH and on the Toronto Stock Exchange (TSX) under the symbol AUP. The Company’s primary business is the
development of a therapeutic drug to treat autoimmune diseases, in particular lupus nephritis (LN).
These interim condensed consolidated financial
statements include the accounts of the Company and its wholly owned subsidiaries, Aurinia Pharma Corp., Aurinia Pharma U.S., Inc. (Delaware incorporated) and Aurinia Pharma Limited (UK incorporated).
Statement of compliance
These interim condensed consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards
(“IFRS”), as applicable to interim financial reports including IAS 34, Interim Financial Reporting, and should be read in conjunction with the annual financial statements of the Company for the year ended December 31, 2016 which have
been prepared in accordance with IFRS, as issued by the International Accounting Standards Board (“IASB”).
These interim condensed consolidated
financial statements were authorized for issue by the audit committee of the Board of Directors on November 9, 2017.
Basis of measurement
These interim condensed consolidated financial statements have been prepared on a going concern and historical cost basis, other than certain
financial instruments which are recognized at fair value.
Functional and presentation currency
These interim condensed consolidated financial statements are presented in United States (US) dollars, which is the Company’s functional currency.
|
3.
|
Short term investments
|
During the nine months ended September 30, 2017, the Company purchased
short term investments and has classified them as either
held-to-maturity
or as available for sale.
Held-to-maturity
investments which are recorded initially at fair value and
subsequently at amortized cost using the effective interest method less any provisions for impairment. Available for sale investments are recorded initially at fair value including direct and incremental transaction costs. They are subsequently
recorded at fair value. Gains or losses arising from changes in fair value are included as a separate component of equity until sale, when the cumulative gain or loss is transferred to the consolidated statements of operations and comprehensive
loss. Interest is determined using the effective interest method and impairment losses, if any, on monetary items are recorded in the statement of operations and comprehensive loss.
5
Aurinia Pharmaceuticals Inc.
Notes to Interim Condensed Consolidated Statements
(Unaudited)
For the three and nine month periods ended
September 30, 2017 and 2016
(amounts in
tabular columns expressed in thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
September 30,
2017
$
|
|
|
Interest bearing securities (amortized cost)
|
|
|
|
|
|
Held to maturity
|
|
|
|
|
|
Bank discount note
|
|
|
7,006
|
|
|
Canadian Government bond
|
|
|
3,072
|
|
|
|
|
|
|
|
|
|
|
|
10,078
|
|
|
Available for sale (fair value)
|
|
|
|
|
|
United States treasury notes
|
|
|
40,491
|
|
|
Canadian government notes
|
|
|
24,888
|
|
|
Bank corporate bonds
|
|
|
16,951
|
|
|
Bankers acceptances
|
|
|
2,452
|
|
|
|
|
|
|
|
|
|
|
|
84,782
|
|
|
|
|
|
|
|
|
|
|
|
94,860
|
|
|
|
|
|
|
|
The average duration of the interest-bearing securities is 1.2 years and the average yield to maturity is 1.26%. Short term
investments held at fair value are classified as Level 2 fair values in the fair value hierarchy.
|
4.
|
Contingent consideration
|
The outstanding fair value of contingent consideration payable to ILJIN SNT
Co., Ltd. (ILJIN), an affiliated shareholder and related party, is the result of an Arrangement Agreement (the Agreement) completed on September 20, 2013 between the Company, Aurinia Pharma Corp. and ILJIN. Pursuant to the Agreement, payments
of up to $10,000,000 may be paid dependent on the achievement of
pre-defined
clinical and marketing milestones.
In the second quarter ended June 30, 2017 the Company paid ILJIN $2,150,000 upon the achievement of two specific milestones.
At September 30, 2017, if all of the remaining milestones are met, the timing of these payments is estimated to occur as follows:
|
|
|
|
|
|
|
|
|
$
|
|
|
2018
|
|
|
100
|
|
|
2020
|
|
|
2,625
|
|
|
2021
|
|
|
5,125
|
|
|
|
|
|
|
|
|
|
|
|
7,850
|
|
|
|
|
|
|
|
The fair value estimates at September 30, 2017 were based on a discount rate of 10% and an assumed probability adjusted
payment range between 50% and 95%. There were no changes in these assumptions since December 31, 2016. The fair value of this contingent consideration as at September 30, 2017 was estimated to be $3,726,000 compared to $5,440,000 at
December 31, 2016. The change in the fair value was primarily due the payment of the $2,150,000 in the second quarter of 2017.
The Company recorded
in a revaluation of contingent consideration expense of $88,000 and $436,000 respectively for the three and nine month periods ended September 30, 2017 compared to $1,146,000 and $1,272,000 respectively for the same periods in 2016. The change
in the revaluation amounts in 2017 result primarily from the change in the passage of time and the achievement of two milestones in the second quarter ended June 30, 2017 whereas the comparative figures from 2016 reflect probability adjustments
made in the third quarter ended September 30, 2016. These adjustments were determined by estimating the probability and timing of achieving the milestones and applying the income approach.
This is a Level 3 recurring fair value measurement. If the probability for success were to increase by a factor of 10% for each milestone, this would
increase the net present value (NPV) of the obligation by approximately $569,000 as at September 30, 2017. If the probability for success were to decrease by a factor of 10% for each milestone, this would decrease the NPV of the obligation by
approximately $569,000 as at September 30, 2017. If the discount rate were to increase to 12%, this would decrease the NPV of the obligation by approximately $217,000. If the discount rate were to decrease to 8%, this would increase the NPV of
the obligation by approximately $235,000.
6
Aurinia Pharmaceuticals Inc.
Notes to Interim Condensed Consolidated Statements
(Unaudited)
For the three and nine month periods ended
September 30, 2017 and 2016
(amounts in
tabular columns expressed in thousands of U.S. dollars)
|
5.
|
Derivative warrant liabilities
|
In accordance with IFRS, a contract to issue a variable number of shares
fails to meet the definition of equity and must instead be classified as a derivative liability and measured at estimated fair value with changes in estimated fair value recognized in the consolidated statements of operations and comprehensive loss
at each
period-end.
The derivative liabilities will ultimately be converted into the Company’s equity (common shares) when the warrants are exercised, or will be extinguished on the expiry of the
outstanding warrants, and will not result in the outlay of any cash by the Company. Immediately prior to exercise, the warrants are remeasured at their estimated fair value. Upon exercise, the intrinsic value is transferred to share capital (the
intrinsic value is the share price at the date the warrant is exercised less the exercise price of the warrant). Any remaining fair value is recorded through the statement of operations and comprehensive loss as part of the change in estimated fair
value of derivative warrant liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 28, 2016
Warrants
|
|
|
February 14, 2014
Warrants
|
|
|
Total
|
|
|
|
|
# of warrants
|
|
|
|
|
|
# of warrants
|
|
|
|
|
|
# of warrants
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
$
|
|
|
(in thousands)
|
|
|
$
|
|
|
(in thousands)
|
|
|
$
|
|
|
Balance at January 1, 2017
|
|
|
6,388
|
|
|
|
7,405
|
|
|
|
3,748
|
|
|
|
1,733
|
|
|
|
10,136
|
|
|
|
9,138
|
|
|
Conversion to equity (common shares) upon exercise of warrants
|
|
|
(2,859
|
)
|
|
|
(12,399
|
)
|
|
|
(516
|
)
|
|
|
(2,834
|
)
|
|
|
(3,375
|
)
|
|
|
(15,233
|
)
|
|
Income statement adjustment on exercise of warrants
|
|
|
—
|
|
|
|
(3,836
|
)
|
|
|
—
|
|
|
|
(195
|
)
|
|
|
—
|
|
|
|
(4,031
|
)
|
|
Revaluation of derivative warrant liabilities
|
|
|
—
|
|
|
|
28,784
|
|
|
|
—
|
|
|
|
16,028
|
|
|
|
—
|
|
|
|
44,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2017
|
|
|
3,529
|
|
|
|
19,954
|
|
|
|
3,232
|
|
|
|
14,732
|
|
|
|
6,761
|
|
|
|
34,686
|
|
|
Conversion to equity (common shares) upon exercise of warrants
|
|
|
(6
|
)
|
|
|
(23
|
)
|
|
|
(1,364
|
)
|
|
|
(5,526
|
)
|
|
|
(1,370
|
)
|
|
|
(5,549
|
)
|
|
Income statement adjustment on exercise of warrants
|
|
|
—
|
|
|
|
(8
|
)
|
|
|
—
|
|
|
|
(773
|
)
|
|
|
—
|
|
|
|
(781
|
)
|
|
Revaluation of derivative warrant liabilities
|
|
|
—
|
|
|
|
(4,734
|
)
|
|
|
—
|
|
|
|
(1,983
|
)
|
|
|
—
|
|
|
|
(6,717
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2017
|
|
|
3,523
|
|
|
|
15,189
|
|
|
|
1,868
|
|
|
|
6,450
|
|
|
|
5,391
|
|
|
|
21,639
|
|
|
Conversion to equity (common shares) upon exercise of warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
(20
|
)
|
|
|
(77
|
)
|
|
|
(20
|
)
|
|
|
(77
|
)
|
|
Income statement adjustment on exercise of warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(8
|
)
|
|
|
—
|
|
|
|
(8
|
)
|
|
Revaluation of derivative warrant liabilities
|
|
|
—
|
|
|
|
(382
|
)
|
|
|
—
|
|
|
|
35
|
|
|
|
—
|
|
|
|
(347
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2017
|
|
|
3,523
|
|
|
|
14,807
|
|
|
|
1,848
|
|
|
|
6,400
|
|
|
|
5,371
|
|
|
|
21,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2016
|
|
|
—
|
|
|
|
—
|
|
|
|
4,548
|
|
|
|
5,499
|
|
|
|
4,548
|
|
|
|
5,499
|
|
|
Revaluation of derivative warrant liability
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(664
|
)
|
|
|
—
|
|
|
|
(664
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2016
|
|
|
—
|
|
|
|
—
|
|
|
|
4,548
|
|
|
|
4,835
|
|
|
|
4,548
|
|
|
|
4,835
|
|
|
Revaluation of derivative warrant liability
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,361
|
)
|
|
|
—
|
|
|
|
(1,361
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2016
|
|
|
—
|
|
|
|
—
|
|
|
|
4,548
|
|
|
|
3,474
|
|
|
|
4,548
|
|
|
|
3,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revaluation of derivative warrant liability
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
951
|
|
|
|
—
|
|
|
|
951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2016
|
|
|
—
|
|
|
|
—
|
|
|
|
4,548
|
|
|
|
4,425
|
|
|
|
4,548
|
|
|
|
4,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
Aurinia Pharmaceuticals Inc.
Notes to Interim Condensed Consolidated Statements
(Unaudited)
For the three and nine month periods ended
September 30, 2017 and 2016
(amounts in
tabular columns expressed in thousands of U.S. dollars)
Derivative warrant liability related to December 28, 2016 Bought Deal public offering
On December 28, 2016, the Company completed a $28,750,000 Offering. Under the terms of the Offering, the Company issued 12,778,000 units at a subscription
price per Unit of $2.25, each Unit consisting of one common share and
one-half
(0.50) of a common share purchase warrant (a Warrant), exercisable for a period of five years from the date of issuance at an
exercise price of $3.00. The holders of the Warrants issued pursuant to this offering may elect, if the Company does not have an effective registration statement registering, or the prospectus contained therein is not available for the issuance of
the Warrant Shares to the holder, in lieu of exercising the Warrants for cash, a cashless exercise option to receive common shares equal to the fair value of the Warrants based on the number of Warrants to be exercised multiplied by the weighted
average market price less the exercise price with the difference divided by the weighted average market price. If a Warrant holder exercises this option, there will be variability in the number of shares issued per Warrant.
No Warrants were exercised in the three months ended September 30, 2017. Previously, 6,000 of these Warrants were exercised for cash and we issued 6,000
common shares and received cash proceeds of $19,000 during the three-month period ended June 30, 2017, while 2.86 million of these Warrants were exercised for cash and we issued 2.86 million common shares and received cash proceeds of
$8.58 million for the three-month period ended March 31, 2017.
At initial recognition on December 28, 2016, the Company recorded a
derivative warrant liability of $7,223,000 based on the estimated fair value of the Warrants with allocated share issuance costs of $655,000 recognized as other expense. As at December 31, 2016, the Company revalued the derivative warrant
liability to $7,405,000.
As at September 30, 2017, the Company revalued the remaining derivative warrants at an estimated fair value of $14,807,000
(December 31, 2016 – $7,405,000).
The adjustment resulting from the revaluation of the outstanding December 28, 2016 warrants at
September 30, 2017 resulted in a decrease in the estimated fair value of the derivative warrant liability for the three months ended September 30, 2017 of $382,000.
The Company uses the Black-Scholes pricing model to estimate fair value. The Company considers expected volatility of its common shares in estimating its
future stock price volatility. The risk-free interest rate for the life of the Warrants was based on the yield available on government benchmark bonds with an approximate equivalent remaining term at the time of issue. The life of warrant is based
on the contractual term.
The following assumptions were used to estimate the fair value of the derivative warrant liability on September 30, 2017
and December 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2017
$
|
|
|
December 31,
2016
$
|
|
|
Annualized volatility
|
|
|
60
|
%
|
|
|
76
|
%
|
|
Risk-free interest rate
|
|
|
1.80
|
%
|
|
|
1.92
|
%
|
|
Life of warrants in years
|
|
|
4.24
|
|
|
|
5.00
|
|
|
Dividend rate
|
|
|
0
|
%
|
|
|
0
|
%
|
|
Market price
|
|
|
6.27
|
|
|
|
2.10
|
|
|
Fair value per Warrant
|
|
|
4.20
|
|
|
|
1.16
|
|
Derivative warrant liability related to February 14, 2014 private placement offering
On February 14, 2014, the Company completed a $52,000,000 private placement. Under the terms of the Offering, the Company issued 18,919,404 units at a
subscription price per Unit of $2.7485, each Unit consisting of one common share and
one-quarter
(0.25) of a common share purchase warrant (a Warrant), exercisable for a period of five years from the date of
issuance at an exercise price of $3.2204. The holders of the Warrants issued pursuant to the February 14, 2014 private placement may elect, in lieu of exercising the Warrants for cash, a cashless exercise option to receive common shares equal
to the fair value of the Warrants based on the number of Warrants to be exercised multiplied by a
five-day
weighted average market price less the exercise price with the difference divided by the weighted
average market price. If a Warrant holder exercises this option, there will be variability in the number of shares issued per Warrant.
8
Aurinia Pharmaceuticals Inc.
Notes to Interim Condensed Consolidated Statements
(Unaudited)
For the three and nine month periods ended
September 30, 2017 and 2016
(amounts in
tabular columns expressed in thousands of U.S. dollars)
In the third quarter ended September 30, 2017, a holder of 20,000 Warrants elected this option and the
Company issued 11,000 common shares upon the cashless exercise of these Warrants. These Warrants had an estimated fair value of $85,000 on the date of exercise, determined using the Black-Scholes warrant pricing model.
9
Aurinia Pharmaceuticals Inc.
Notes to Interim Condensed Consolidated Statements
(Unaudited)
For the three and nine month periods ended
September 30, 2017 and 2016
(amounts in
tabular columns expressed in thousands of U.S. dollars)
Of this amount, $77,000 was transferred from derivative warrant liabilities to equity (common shares) and
$8,000 was recorded through the statement of operations and comprehensive loss as part of the change in estimated fair value of derivative warrant liabilities. Previously, we issued 749,000 common shares upon the cashless exercise of 1,364,000 2014
Warrants during the three months ended June 30, 2017 and 308,000 common shares upon the cashless exercise of 489,000 2014 Warrants and received proceeds of $88,000 by issuing 27,000 common shares upon the cash exercise of 27,000 2014 Warrants
during the three-month period ended March 31, 2017.
As at September 30, 2017, the Company revalued the remaining derivative warrants at
$6,400,000 (December 31, 2016 – $1,733,000).
The net adjustment resulting from the revaluation of the outstanding February 14, 2014 warrants at
September 30, 2017 and the impact of the revaluation of the exercised warrants immediately before they were exercised resulted in an increase in the estimated fair value of the derivative warrant liabilities for the three months ended
September 30, 2017 of $27,000. (September 30, 2016 – increase in derivative warrant liability of $951,000).
The Company considers expected
volatility of its common shares in estimating its future stock price volatility. The risk-free interest rate for the expected life of the Warrants was based on the yield available on government benchmark bonds with an approximate equivalent
remaining term at the time of the grant. The expected life is based on the contractual term.
The Company uses the Black-Scholes pricing model to estimate
fair value. The following assumptions were used to estimate the fair value of the derivative warrant liability on September 30, 2017 and December 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2017
$
|
|
|
December 31,
2016
$
|
|
|
Annualized volatility
|
|
|
67
|
%
|
|
|
61
|
%
|
|
Risk-free interest rate
|
|
|
1.37
|
%
|
|
|
1.21
|
%
|
|
Life of warrants in years
|
|
|
1.38
|
|
|
|
2.12
|
|
|
Dividend rate
|
|
|
0
|
%
|
|
|
0
|
%
|
|
Market price
|
|
|
6.27
|
|
|
|
2.10
|
|
|
Fair value per Warrant
|
|
|
3.46
|
|
|
|
0.46
|
|
The derivative warrant liabilities are Level 3 recurring fair value measurements.
The key Level 3 inputs used by management to estimate the fair value are the market price and the expected volatility. If the market price were to
increase by a factor of 10%, this would increase the estimated fair value of the obligation by approximately $3,067,000 as at September 30, 2017. If the market price were to decrease by a factor of 10%, this would decrease the estimated fair
value of the obligation by approximately $3,008,000. If the volatility were to increase by 10%, this would increase the estimated fair value of the obligation by approximately $650,000. If the volatility were to decrease by 10%, this would decrease
estimated fair value of the obligation by approximately $638,000 as at September 30, 2017.
10
Aurinia Pharmaceuticals Inc.
Notes to Interim Condensed Consolidated Statements
(Unaudited)
For the three and nine month periods ended
September 30, 2017 and 2016
(amounts in
tabular columns expressed in thousands of U.S. dollars)
Authorized
Unlimited common shares without par value
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
Common shares
|
|
|
|
Number
|
|
|
$
|
|
|
|
(in thousands)
|
|
|
|
|
|
Balance as at January 1, 2017
|
|
|
52,808
|
|
|
|
299,815
|
|
|
Issued pursuant to public offering
|
|
|
25,645
|
|
|
|
162,324
|
|
|
Issued pursuant to exercise of warrants
|
|
|
85
|
|
|
|
296
|
|
|
Issued pursuant to exercise of derivative liability warrants (note 5)
|
|
|
3,960
|
|
|
|
29,543
|
|
|
Issued pursuant to exercise of stock options
|
|
|
1,475
|
|
|
|
6,720
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at September 30, 2017
|
|
|
83,973
|
|
|
|
498,698
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at January 1, 2016
|
|
|
32,287
|
|
|
|
261,645
|
|
|
Issued pursuant to ATM facility
|
|
|
2,618
|
|
|
|
5,735
|
|
|
Issued pursuant to June 22, 2016 private placement
|
|
|
3,000
|
|
|
|
5,871
|
|
|
Issued pursuant to the exercise of warrants
|
|
|
879
|
|
|
|
2,498
|
|
|
Issued pursuant to the exercise of stock options
|
|
|
10
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at September 30, 2016
|
|
|
38,794
|
|
|
|
275,805
|
|
|
|
|
|
|
|
|
|
|
|
On March 20, 2017, the Company completed a public offering of 25,645,000 common shares which included
3,345,000 common shares from the overallotment exercised by the underwriter. The shares were issued at a price of $6.75 per share. Gross proceeds from this Offering were $173,104,000 before deducting the 6% underwriting commission and other offering
expenses which totaled $10,780,000.
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
Warrants
|
|
|
|
Number
(in thousands)
|
|
|
$
|
|
|
Balance as at January 1, 2017
|
|
|
1,257
|
|
|
|
971
|
|
|
Warrants exercised
|
|
|
(85
|
)
|
|
|
(65
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Balance as September 30, 2017
|
|
|
1,172
|
|
|
|
906
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2016
|
|
|
1,368
|
|
|
|
1,297
|
|
|
Issued pursuant to June 22, 2016 private placement
|
|
|
1,050
|
|
|
|
769
|
|
|
Warrants exercised
|
|
|
(879
|
)
|
|
|
(825
|
)
|
|
Warrants expired
|
|
|
(160
|
)
|
|
|
(155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at September 30, 2016
|
|
|
1,379
|
|
|
|
1,086
|
|
|
|
|
|
|
|
|
|
|
|
11
Aurinia Pharmaceuticals Inc.
Notes to Interim Condensed Consolidated Statements
(Unaudited)
For the three and nine month periods ended
September 30, 2017 and 2016
(amounts in
tabular columns expressed in thousands of U.S. dollars)
A summary of the outstanding warrants, including derivative warrants, as at
September 30, 2017 is presented below:
|
|
|
|
|
|
|
|
|
|
|
Expiry date
|
|
Number
|
|
|
Weighted
average
exercise
price
$
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Exercisable in CA$
|
|
|
|
|
|
|
|
|
|
June 26, 2018 (CA$2.50)
|
|
|
190
|
|
|
|
2.00
|
|
|
December 31, 2018 (CA$2.00)
|
|
|
14
|
|
|
|
1.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
204
|
|
|
|
1.98
|
|
|
|
|
|
|
Exercisable in US$
|
|
|
|
|
|
|
|
|
|
June 22, 2018
|
|
|
968
|
|
|
|
2.77
|
|
|
February 14, 2019 (note 5)
|
|
|
1,848
|
|
|
|
3.22
|
|
|
December 28, 2021 (note 5)
|
|
|
3,523
|
|
|
|
3.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,543
|
|
|
|
3.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
c)
|
Stock options and compensation expense
|
A summary of the stock options outstanding as of
September 30, 2017 and September 30, 2016 and changes during the nine months periods ended on those dates is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
September 30, 2016
|
|
|
|
|
Number
|
|
|
Weighted
average
exercise
price
in CDN$
|
|
|
Number
|
|
|
Weighted
average
exercise
price
in CDN$
|
|
|
Outstanding – Beginning of period
|
|
|
4,052
|
|
|
|
3.74
|
|
|
|
2,713
|
|
|
|
4.00
|
|
|
Granted pursuant to Stock Option Plan
|
|
|
2,694
|
|
|
|
5.42
|
|
|
|
1,660
|
|
|
|
3.46
|
|
|
Exercised
|
|
|
(1,475
|
)
|
|
|
3.42
|
|
|
|
(10
|
)
|
|
|
3.50
|
|
|
Forfeited
|
|
|
(422
|
)
|
|
|
3.54
|
|
|
|
(195
|
)
|
|
|
3.94
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
(70
|
)
|
|
|
7.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding – End of period
|
|
|
4,849
|
|
|
|
4.79
|
|
|
|
4,098
|
|
|
|
3.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable – End of period
|
|
|
2,643
|
|
|
|
4.19
|
|
|
|
2,715
|
|
|
|
3.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On June 21, 2017, the Shareholders of the Company approved the Company’s Stock Option Plan for an
additional three years.
The maximum number of Common Shares issuable under the Stock Option Plan is equal to 12.5% of the issued and
outstanding Common Shares at the time the Common Shares are reserved for issuance. As at September 30, 2017 there were 83,973,000 Common Shares of the Company issued and outstanding, resulting in a maximum of 10,495,000 options available for
issuance under the Stock Option Plan. An aggregate total of 4,665,000 options are presently outstanding in the Stock Option Plan, representing 5.6% of the issued and outstanding Common Shares of the Company.
The Stock Option Plan requires the exercise price of each option to be determined by the Board of Directors and not to be less than the closing
market price of the Company’s stock on the day immediately prior to the date of grant. Any options which expire may be
re-granted.
The Board approves the vesting criteria and periods at its discretion.
The options issued under the plan are accounted for as equity-settled share-based payments.
12
Aurinia Pharmaceuticals Inc.
Notes to Interim Condensed Consolidated Statements
(Unaudited)
For the three and nine month periods ended
September 30, 2017 and 2016
(amounts in
tabular columns expressed in thousands of U.S. dollars)
A summary of the stock options granted pursuant to the Stock Option Plan for the years is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2017
|
|
|
Grant Date
|
|
Grant Price
US$
|
|
|
Grant Price
CDN$
|
|
|
Number
|
|
|
January 20,
2017-New
Director
(3)
|
|
|
2.74
|
|
|
|
3.65
|
|
|
|
10
|
|
|
January 27, 2017-Employee
(4)
|
|
|
3.02
|
|
|
|
3.96
|
|
|
|
25
|
|
|
February 9, 2017-Chief Executive Officer
(6)
|
|
|
3.20
|
|
|
|
4.21
|
|
|
|
1,050
|
|
|
February 9, 2017-Officers & Employees
(4)
|
|
|
3.20
|
|
|
|
4.21
|
|
|
|
836
|
|
|
February 16, 2017-Directors
(3)
|
|
|
3.62
|
|
|
|
4.73
|
|
|
|
50
|
|
|
April 26, 2017-Employees
(5)
|
|
|
6.95
|
|
|
|
9.45
|
|
|
|
233
|
|
|
April 26, 2017-Directors
(5)
|
|
|
6.95
|
|
|
|
9.45
|
|
|
|
100
|
|
|
June 23,
2017-New
Director
(3)
|
|
|
6.40
|
|
|
|
8.48
|
|
|
|
50
|
|
|
July 5,
2017-New
Officer
(5)
|
|
|
6.24
|
|
|
|
8.10
|
|
|
|
280
|
|
|
September 20,
2017-New
employees
(5)
|
|
|
6.19
|
|
|
|
7.59
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2016
|
|
|
Grant Date
|
|
Grant Price
US$
|
|
|
Grant Price
CDN$
|
|
|
Number
|
|
|
March 23, 2016-Directors
(1)
|
|
|
3.00
|
|
|
|
3.96
|
|
|
|
60
|
|
|
March 30, 2016-Officers & employees
(1)
|
|
|
3.02
|
|
|
|
3.91
|
|
|
|
220
|
|
|
March 31, 2016-Officer
(1)
|
|
|
2.90
|
|
|
|
3.76
|
|
|
|
40
|
|
|
June 17, 2016-Officer
(2)
|
|
|
2.48
|
|
|
|
3.20
|
|
|
|
1,000
|
|
|
July 12, 2016-Employee
(2)
|
|
|
3.05
|
|
|
|
4.00
|
|
|
|
100
|
|
|
July 21, 2016-Officer
(2)
|
|
|
3.03
|
|
|
|
3.95
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.
|
These options vest in equal amounts over 12 months and are exercisable for a term of five years.
|
|
2.
|
These options vest in equal amounts over 36 months and are exercisable for a term of five years.
|
|
3.
|
These options vest in equal amounts over 12 months and are exercisable for a term of ten years.
|
|
4.
|
These options vest in equal amounts over 36 months and are exercisable for a term of ten years.
|
|
5.
|
These options vest 12/36
on the
12-month
anniversary date and thereafter 1/36 per month over the next 24 months and are
exercisable for a term of ten years.
|
|
6.
|
One quarter of the options vested immediately, with the remainder of the options vesting each month in equal amounts over a period of 36 months and are exercisable for a term of ten years.
|
On February 9, 2017, the Company granted 1,050,000 stock options to the Chairman and Chief Executive Officer upon his appointment as Chief
Executive Officer of the Company.
On May 2, 2016, the Company granted 200,000 inducement stock options to a new employee pursuant to
Section 613 (g) of the TSX Company Manual at a price of $2.92 (CDN$3.66). These options vest in equal amounts over 36 months and are exercisable for a term of five years. In the second quarter ended June 30, 2017, this employee exercised
16,000 of these options to hold 184,000. These options are recorded outside of the Company’s stock option plan.
The Company
recognized stock-based compensation expense of $1,068,000 and $3,287,000 for the three and nine month periods ended September 30, 2017 respectively (2016–$548,000 and $1,027,000) with corresponding credits to contributed surplus. For the
three and nine months ended September 30, 2017, stock compensation expense has been allocated to research and development expense in the amount of $273,000 and $692,000 respectively (2016–$79,000 and $288,000) and corporate administration
expense in the amount of $795,000 and $2,595,000 respectively (2016 – $469,000 and $739,000).
The Company used the Black-Scholes
option pricing model to estimate the fair value of the options granted to employees, officers and directors.
13
Aurinia Pharmaceuticals Inc.
Notes to Interim Condensed Consolidated Statements
(Unaudited)
For the three and nine month periods ended
September 30, 2017 and 2016
(amounts in
tabular columns expressed in thousands of U.S. dollars)
The following weighted average assumptions were used to estimate the fair value of the
options granted during the nine month periods ended September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
|
September 30,
2016
|
|
|
Expected volatility
|
|
|
74
|
%
|
|
|
74
|
%
|
|
Risk-free interest rate
|
|
|
1.31
|
%
|
|
|
0.59
|
%
|
|
Expected life of options in years
|
|
|
6.6
|
|
|
|
4.0
|
|
|
Estimated forfeiture rate
|
|
|
24.6
|
%
|
|
|
16.9
|
%
|
|
Dividend rate
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
Exercise price
|
|
$
|
4.11
|
|
|
$
|
2.68
|
|
|
Market price on date of grant
|
|
$
|
4.11
|
|
|
$
|
2.68
|
|
|
Fair value per common share option
|
|
$
|
2.78
|
|
|
$
|
1.46
|
|
The Company considers historical volatility of its common shares in estimating its future stock price
volatility. The risk-free interest rate for the expected life of the options was based on the yield available on government benchmark bonds with an approximate equivalent remaining term at the time of the grant. The expected life is based upon the
contractual term, taking into account expected employee exercise and expected post-vesting employment termination behaviour.
Determining
the fair value of stock options on grant date, requires judgment related to the choice of a pricing model, the estimation of stock price volatility and the expected term of the underlying instruments. Any changes in the estimates or inputs utilized
to determine fair value could result in a significant impact on the Company’s reported operating results, liabilities or other components of shareholders’ equity. The key assumption used by management is the stock price volatility. If the
market price or volatility factors were to increase or decrease by a change of 10% there would be no significant impact.
|
7.
|
Other expense (income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
|
September 30,
2017
$
|
|
|
September 30,
2016
$
|
|
|
September 30,
2017
$
|
|
|
September 30,
2016
$
|
|
|
Other expense (income) net composed of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
(399
|
)
|
|
|
(7
|
)
|
|
|
(893
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revaluation adjustment on contingent consideration (note 4)
|
|
|
88
|
|
|
|
1,146
|
|
|
|
436
|
|
|
|
1,272
|
|
|
Foreign exchange loss (gain) and other
|
|
|
(4
|
)
|
|
|
(48
|
)
|
|
|
64
|
|
|
|
8
|
|
|
Loss (gain) on disposal of equipment
|
|
|
—
|
|
|
|
(13
|
)
|
|
|
1
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84
|
|
|
|
1,085
|
|
|
|
501
|
|
|
|
1,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(315
|
)
|
|
|
1,078
|
|
|
|
(392
|
)
|
|
|
1,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.
|
Net loss per common share
|
Basic and diluted net loss per common share is computed by dividing net loss
by the weighted average number of common shares outstanding for the period. In determining diluted net loss per common share, the weighted average number of common shares outstanding is adjusted for stock options and warrants eligible for exercise
where the average market price of common shares for the three and nine months ended September 30, 2017 exceeds the exercise price. Common shares that could potentially dilute basic net loss per common share in the future that could be issued
from the exercise of outstanding stock options and warrants were not included in the computation of the diluted loss per common share for the three and nine months ended September 30, 2017 and September 30, 2016 because to do so would be
anti-dilutive.
14
Aurinia Pharmaceuticals Inc.
Notes to Interim Condensed Consolidated Statements
(Unaudited)
For the three and nine month periods ended
September 30, 2017 and 2016
(amounts in
tabular columns expressed in thousands of U.S. dollars)
The numerator and denominator used in the calculation of historical basic and diluted net loss amounts per
common share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
|
September 30, 2017
$
|
|
|
September 30, 2016
$
|
|
|
September 30, 2017
$
|
|
|
September 30, 2016
$
|
|
|
Net loss for the period
|
|
|
(13,120
|
)
|
|
|
(7,419
|
)
|
|
|
(67,460
|
)
|
|
|
(14,962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
#
|
|
|
#
|
|
|
#
|
|
|
#
|
|
|
|
|
In thousands
|
|
|
In thousands
|
|
|
In thousands
|
|
|
In thousands
|
|
|
Weighted average common shares outstanding
|
|
|
83,608
|
|
|
|
36,079
|
|
|
|
74,519
|
|
|
|
33,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Loss per common share
(expressed in $ per share)
|
|
|
(0.16
|
)
|
|
|
(0.21
|
)
|
|
|
(0.91
|
)
|
|
|
(0.44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The outstanding number, calculated using the treasury stock method, and type of securities that would potentially dilute basic
loss per common share in the future and which were not included in the computation of diluted loss per share, because to do so would have reduced the loss per common share (anti-dilutive) for the years presented, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
|
September 30,
2017
#
|
|
|
September 30,
2016
#
|
|
|
September 30,
2017
#
|
|
|
September 30,
2016
#
|
|
|
Stock Options
|
|
|
1,253
|
|
|
|
60
|
|
|
|
1,198
|
|
|
|
717
|
|
|
Warrants (equity)
|
|
|
687
|
|
|
|
135
|
|
|
|
646
|
|
|
|
519
|
|
|
Warrants (derivative liability)
|
|
|
2,774
|
|
|
|
—
|
|
|
|
2,537
|
|
|
|
618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,714
|
|
|
|
195
|
|
|
|
4,381
|
|
|
|
1,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company’s operations comprise a single reporting segment engaged in the
research, development and commercialization of therapeutic drugs. As the operations comprise a single reporting segment, amounts disclosed in the consolidated financial statements represent those of the single reporting unit. In addition, all of the
Company’s long-lived assets are located in Canada.
The following geographic information reflects revenue based on customer location.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
|
September 30,
2017
$
|
|
|
September 30,
2016
$
|
|
|
September 30,
2017
$
|
|
|
September 30,
2016
$
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
—
|
|
|
|
—
|
|
|
|
300
|
|
|
|
—
|
|
|
China
|
|
|
29
|
|
|
|
29
|
|
|
|
88
|
|
|
|
88
|
|
|
Canada
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
|
|
55
|
|
|
Switzerland
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
31
|
|
|
|
389
|
|
|
|
143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
Aurinia Pharmaceuticals Inc.
Notes to Interim Condensed Consolidated Statements
(Unaudited)
For the three and nine month periods ended
September 30, 2017 and 2016
(amounts in
tabular columns expressed in thousands of U.S. dollars)
|
10.
|
Supplementary cash flow information
|
Net change in other operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
|
|
September 30,
2017
$
|
|
|
September 30,
2016
$
|
|
|
September 30,
2017
$
|
|
|
September 30,
2016
$
|
|
|
Accounts receivable
|
|
|
(130
|
)
|
|
|
(49
|
)
|
|
|
(329
|
)
|
|
|
(51
|
)
|
|
Prepaid expenses and deposits
|
|
|
354
|
|
|
|
(117
|
)
|
|
|
(829
|
)
|
|
|
(1,111
|
)
|
|
Accounts payable and accrued liabilities
|
|
|
3,226
|
|
|
|
470
|
|
|
|
874
|
|
|
|
(401
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,450
|
|
|
|
(304
|
)
|
|
|
(284
|
)
|
|
|
(1,563
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Received
|
|
|
279
|
|
|
|
15
|
|
|
|
661
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsequent to September 30, 2017, the Company issued 59,000
common shares upon the cashless exercise of 110,000 derivative warrants.
Subsequent to September 30, 2017 the Company issued 20,000 common
shares upon the exercise of 20,000 stock options for proceeds of $56,000 and granted 5,000 stock options to a new employee at an exercise price of $5.76 (CDN$7.30) per share.
16
Exhibit 99.2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THIRD QUARTER ENDED SEPTEMBER 30,
2017
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) provides
information on the activities of Aurinia Pharmaceuticals Inc. and its subsidiaries on a consolidated basis and should be read in conjunction with our unaudited interim condensed consolidated financial statements and accompanying notes for the third
quarter ended September 30, 2017 and our annual MD&A and audited financial statements for the year ended December 31, 2016. In this MD&A, unless the context otherwise requires, references to “we”, “us”,
“our” or similar terms, as well as references to “Aurinia” or the “Company”, refer to Aurinia Pharmaceuticals Inc., together with our subsidiaries
.
All amounts are expressed in United States (“
U.S.
”) dollars unless otherwise stated. Dollar amounts in tabular columns are
expressed in thousands of U.S. dollars. This document is current in all material respects as of November 9, 2017.
The financial information
contained in this MD&A and in our unaudited interim condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standards or IFRS as issued by the International Accounting Standards Board
or IASB applicable to the preparation of interim financial statements including International Accounting Standards 34:
Interim Financial Reporting.
The unaudited interim condensed consolidated financial statements and MD&A have been
reviewed and approved by our Audit Committee on November 9, 2017. This MD&A has been prepared with reference to National Instrument
51-102
Continuous Disclosure Obligations of the Canadian Securities
Administrators. Under the U.S./Canada Multijurisdictional Disclosure System, we are permitted to prepare this MD&A in accordance with the disclosure requirements of Canada, which are different from those in the United States.
FORWARD-LOOKING STATEMENTS
A statement is
forward-looking when it uses what we know and expect today to make a statement about the future. Forward-looking statements may include words such as “anticipate”, “believe”, “intend”, “expect”,
“goal”, “will”, “may”, “outlook”, “plan”, “seek”, “should”, “strive”, “target”, “could”, “continue”, “potential” and
“estimated”, or the negative of such terms or comparable terminology. You should not place undue reliance on the forward-looking statements, particularly those concerning anticipated events relating to the development, clinical trials,
regulatory approval, (and application process for), and marketing of our products and the timing or magnitude of those events, as they are inherently risky and uncertain.
Securities laws encourage companies to disclose forward-looking information so that investors can get a better understanding of our future prospects and make
informed investment decisions. Forward-looking statements, made in this MD&A may include, among other things, statements with respect to:
|
|
•
|
|
our belief that the Phase IIb lupus nephritis AURA- LV (“AURA”) clinical trial had positive results;
|
|
|
•
|
|
our belief that we have sufficient cash resources to adequately fund operations through Phase III lupus nephritis (“AURORA”) clinical trial results and regulatory submission;
|
|
|
•
|
|
our belief that confirmatory data generated from the single AURORA clinical trial and the recently completed AURA clinical trial should support regulatory submissions in the United States, Europe and Japan and the
timing of such;
|
|
|
•
|
|
our belief that recently granted formulation patents regarding the delivery of voclosporin to the ocular surface for conditions such as dry eye have the potential to be of therapeutic value;
|
|
|
•
|
|
the timing of commencement, enrollment, completion and release of results of clinical trials;
|
|
|
•
|
|
our intention to seek regulatory approvals in the United States, Europe and Japan for voclosporin;
|
|
|
•
|
|
our intention to demonstrate that voclosporin possesses pharmacologic properties with the potential to demonstrate
best-in-class
differentiation with
first-in-class
status for the treatment of lupus nephritis (“LN”) outside of Japan;
|
|
|
•
|
|
our belief in voclosporin being potentially a
best-in-class
CNI (as defined in the “
Business of the Company
” section of
this MD&A) with robust intellectual property exclusivity;
|
|
|
•
|
|
our belief that voclosporin has further potential to be effectively used across a range of therapeutic autoimmune areas including focal segmental glomerularsclerosis (“FSGS”), minimal change disease,
(“MCD”), and dry eye syndrome (“DES”) (each as defined in the “
Recent Developments
” section of this MD&A)
|
|
|
•
|
|
our intention to initiate a Phase II clinical trial for voclosporin in FSGS and MCD patients and the timing for commencement and for data availability for the same;
|
|
|
•
|
|
our intention to commence a Phase IIa tolerability study of voclosporin ophthalmic solution (“VOS”) (as defined in the “
Recent Developments
” section of this MD&A) and the timing for
commencement and for data availability for the same;
|
|
|
•
|
|
Statements concerning the anticipated commercial potential of voclosporin for the treatment of LN, FSGS, MCD, DES and other diseases;
|
|
|
•
|
|
our belief that the expansion of the renal franchise could create significant value for shareholders;
|
|
|
•
|
|
our intention to use the net proceeds from financings for various purposes;
|
|
|
•
|
|
our belief that Aurinia’s current financial resources are sufficient to fund all existing programs, the new indication expansion and new product development work and supporting operations into 2020.
|
|
|
•
|
|
our plans to generate future revenues from products licensed to pharmaceutical and biotechnology companies
|
|
|
•
|
|
statements concerning partnership activities and health regulatory discussions; and
|
|
|
•
|
|
our intention to seek additional corporate alliances and collaborative agreements to support the commercialization and development of our product.
|
Such statements reflect our current views with respect to future events and are subject to risks and uncertainties and are necessarily based on a number of
estimates and assumptions that, while considered reasonable by management, as at the date of such statements, are inherently subject to significant business, economic, competitive, political, scientific and social uncertainties and contingencies,
many of which, with respect to future events, are subject to change. The factors and assumptions used by management to develop such forward-looking statements include, but are not limited to:
|
|
•
|
|
the assumption that we will be able to obtain approval from regulatory agencies on executable development programs with parameters that are satisfactory to us;
|
|
|
•
|
|
the assumption that recruitment to clinical trials will occur as projected;
|
|
|
•
|
|
the assumption that we will successfully complete our clinical programs on a timely basis, including conducting the required AURORA clinical trial and meet regulatory requirements for approval of marketing authorization
applications and new drug approvals, as well as favourable product labelling;
|
|
|
•
|
|
the assumption that the planned studies will achieve positive results;
|
|
|
•
|
|
the assumptions regarding the costs and expenses associated with Aurinia’s clinical trials;
|
|
|
•
|
|
the assumption the regulatory requirements and commitments will be maintained;
|
|
|
•
|
|
the assumption that we will be able to meet GMP standards and manufacture and secure a sufficient supply of voclosporin on a timely basis to successfully complete the development and commercialization of voclosporin;
|
|
|
•
|
|
the assumptions on the market value for the LN program;
|
|
|
•
|
|
the assumption that our patent portfolio is sufficient and valid;
|
|
|
•
|
|
the assumption that we will be able to extend our patents on terms acceptable to us;
|
|
|
•
|
|
the assumptions on the market
|
|
|
•
|
|
the assumption that there is a potential commercial value for other indications for voclosporin;
|
|
|
•
|
|
the assumption that market data and reports reviewed by us are accurate;
|
|
|
•
|
|
the assumption that another company will not create a substantial competitive product for Aurinia’s LN business without violating Aurinia’s intellectual property rights;
|
|
|
•
|
|
the assumptions on the burn rate of Aurinia’s cash for operations;
|
|
|
•
|
|
the assumption that our current good relationships with our suppliers, service providers and other third parties will be maintained;
|
|
|
•
|
|
the assumption that we will be able to attract and retain a sufficient amount of skilled staff and/or
|
|
|
•
|
|
the assumptions relating to the capital required to fund operations through AURORA clinical trial results and regulatory submission.
|
The factors and assumptions discussed above and the factors discussed below and other considerations discussed in the “
Risks and
Uncertainties
” section of this MD&A could cause our actual results to differ significantly from those contained in any forward-looking statements.
Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or
achievements to differ materially from any assumptions, further results, performance or achievements expressed or implied by such forward-looking statements. Important factors that could cause such differences include, among other things, the
following:
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the need for additional capital in the longer term to fund our development programs and the effect of capital market conditions and other factors on capital availability;
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difficulties, delays, or failures we may experience in the conduct of and reporting of results of our clinical trials for voclosporin;
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difficulties in meeting Good Manufacturing Practice (“GMP”) standards and the manufacturing and securing a sufficient supply of voclosporin on a timely basis to successfully complete the development and
commercialization of voclosporin;
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difficulties, delays or failures in obtaining regulatory approvals for the initiation of clinical trials;
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difficulties in gaining alignment among the key regulatory jurisdictions, European Medicines Agency (“EMA”), Food and Drug Administration (“FDA”) and Pharmaceutical and Medical Devices Agency
(“PMDA”), which may require further clinical activities;
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difficulties, delays or failures in obtaining regulatory approvals to market voclosporin;
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not being able to extend our patent portfolio for voclosporin;
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difficulties we may experience in completing the development and commercialization of voclosporin;
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the market for the LN business may not be as we have estimated;
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insufficient acceptance of and demand for voclosporin;
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competitors may arise with similar products;
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we may have to pay unanticipated expenses, and/or estimated costs for clinical trials or operations may be underestimated, resulting in our having to make additional expenditures to achieve our current goals;
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difficulties, restrictions, delays, or failures in obtaining appropriate reimbursement from payers for voclosporin; and/or
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difficulties we may experience in identifying and successfully securing appropriate vendors to support the development and commercialization of our product.
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Although we have attempted to identify factor that would cause actual actions, events or results to differ materially from those described in forward-looking
statements and information, there may be other factors that cause actual results, performances, achievements or events to not be as anticipated, estimated or intended. Many of the factors are beyond our control.
Although we believe that the assumptions made and the expectations reflected in such forward-looking statements and information are reasonable, undue
reliance should not be placed on forward-looking statements or information because we can give no assurance that such assumptions or expectations will prove to be correct. We disclaim any intention and assume no obligation to update any
forward-looking statements even if new information becomes available, as a result of future events, new information, or for any other reason except as required by law. These forward-looking statements are made as of the date hereof.
Additional information related to us, including our most recent Annual Information Form (“AIF”), is available by accessing the Canadian
Securities Administrators’ System for Electronic Document Analysis and Retrieval (“SEDAR”) website at www.sedar.com or the U.S. Securities and Exchange Commission’s (“SEC”) Electronic Data Gathering, Analysis and
Retrieval system (“EDGAR”) website at www.sec.gov/edgar.
OVERVIEW
THE COMPANY
Corporate Structure
Name, Address and Incorporation
We are a
late clinical stage biopharmaceutical company with our head office located at #1203-4464 Markham Street, Victoria, British Columbia V8Z 7X8. Our registered office is located at #201,
17904-105
Avenue,
Edmonton, Alberta T5S 2H5 where the finance function is performed.
We are organized under the
Business Corporations Act
(Alberta). Our common
shares are currently listed and traded on the NASDAQ Global Market (“NASDAQ”) under the symbol “AUPH” and on the Toronto Stock Exchange (“TSX”) under the symbol “AUP”. Our primary business is the development
of our therapeutic drug, voclosporin, to treat autoimmune diseases, in particular LN, FSGS, MCD and DES.
We have the following wholly-owned subsidiaries:
Aurinia Pharma Corp. (British Columbia incorporated), Aurinia Pharma U.S., Inc. (Delaware incorporated) and Aurinia Pharma Limited (UK incorporated).
BUSINESS OF THE COMPANY
We are focused on
the development of our novel therapeutic immunomodulating drug candidate, voclosporin, for the treatment of LN, FSGS, MCD and DES. Voclosporin is a next generation calcineurin inhibitor (“CNI”) which has clinical data in over 2,400
patients across multiple indications. It has been also previously studied in kidney rejection following transplantation, psoriasis and in various forms of uveitis (an ophthalmic disease).
CNIs have demonstrated efficacy for a number of conditions, including transplant patients, LN patients, DES and other autoimmune diseases; however, side
effects exist which can limit their long-term use. Some clinical complications of CNIs include that they exhibit both acute and chronic nephrotoxicity, and they are a major contributor to decreased renal function after nonrenal treatment.
3
Voclosporin is an immunosuppressant, with a synergistic and dual mechanism of action that has the potential to
improve near- and long-term outcomes in LN when added to mycophenolate mofetil (“MMF”), although not approved for such, the current standard of care for LN. By inhibiting calcineurin, voclosporin reduces cytokine activation and blocks
interleukin
IL-2
expression and
T-cell
mediated immune responses. Voclosporin also potentially stabilizes disease modifying podocytes, which protects against
proteinuria. Voclosporin is made by a modification of a single amino acid of the cyclosporine molecule which has shown a more predictable pharmacokinetic and pharmacodynamic relationship, an increase in potency, an altered metabolic profile, and
potential for flat dosing. Clinical doses of voclosporin studied to date range from 13 – 70 mg BID. The mechanism of action of voclosporin, a CNI, has been validated with certain first generation CNIs for the prevention of rejection in patients
undergoing solid organ transplants and in several autoimmune indications, including dermatitis, keratoconjunctivitis sicca (“Dry Eye Syndrome”), psoriasis, rheumatoid arthritis, and for LN in Japan. We believe that voclosporin possesses
pharmacologic properties with the potential to demonstrate
best-in-class
differentiation with
first-in-class
regulatory approval status for the treatment of LN outside of Japan.
Based on published data, we believe the key potential benefits of voclosporin in the treatment of LN are as follows:
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increased potency compared to cyclosporine A, allowing lower dosing requirements and fewer off target effects;
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limited inter and intra patient variability, allowing flat dosing;
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less cholesterolemia than cyclosporine A; and
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limited incidence of glucose intolerance and diabetes at targeted doses compared to tacrolimus.
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Our target
launch date for voclosporin as treatment for LN is late 2020 or early 2021. We believe our initial estimates of voclosporin peak sales potential in LN may yield a global opportunity of $1.4 billion or higher.
Lupus Nephritis
LN is an inflammation of the kidney
caused by systemic lupus erythematosus (“SLE”) and represents a serious manifestation of SLE. SLE is a chronic, complex and often disabling disorder that affects over 500,000 people in the United States (mostly women). SLE is highly
heterogeneous, affecting a wide range of organs and tissue systems. It is estimated that at between 40% to 60% of all SLE patients have LN that requires treatment. Unlike SLE, LN has straightforward disease measures (readily assessable and easily
identified by specialty treaters) where an early response correlates with long-term outcomes, measured by proteinuria. In patients with LN, renal damage results in proteinuria and/or hematuria and a decrease in renal function as evidenced by reduced
estimated glomerular filtration rate (“eGFR”), and increased serum creatinine levels. eGFR is assessed through the Chronic Kidney Disease Epidemiology Collaboration equation. Rapid control and reduction of proteinuria in LN patients
measured at 6 months shows a reduction in the need for dialysis at 10 years. LN can be debilitating and costly and if poorly controlled, can lead to permanent and irreversible tissue damage within the kidney. Recent literature suggests severe LN
progresses to
end-stage
renal disease (“ESRD”), within 15 years of diagnosis in
10%-30%
of patients, thus making LN a serious and potentially life-threatening
condition. SLE patients with renal damage have a
14-fold
increased risk of premature death, while SLE patients with ESRD have a greater than
60-fold
increased risk of
premature death. Mean annual cost for patients (both direct and indirect) with SLE (with no nephritis) have been estimated to exceed $20,000 per patient, while the mean annual cost for patients (both direct and indirect) with LN who progress to
intermittent ESRD have been estimated to exceed $60,000 per patient.
About FSGS, MCD and NS
Nephrotic Syndrome (NS) is a collection of symptoms that indicate kidney damage, including: large amounts of protein in urine; low levels of albumin and higher
than normal fat and cholesterol levels in the blood, and edema. Similar to LN, early clinical response and reduction of proteinuria is thought to be critical to long-term kidney health. Aurinia is focused specifically on focal segmental glomerular
sclerosis (FSGS), a lesion characterized by persistent scarring identified by biopsy and proteinuria and on minimal change disease (MCD), a kidney disease in which large amounts of protein are lost in the urine. FSGS and MCD both are causes of NS
and characterized by high morbidity. Currently, there are no approved therapies for FSGS and MCD in the United States and the European Union.
About
DES
DES, or keratoconjunctivitis sicca, is a chronic disease in which a lack of moisture and lubrication on the eye’s surface results in
irritation and inflammation of the eye. DES is a multifactorial, heterogeneous disease estimated to affect greater than 20 million people in the United States.
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STRATEGY
Our business strategy is to optimize the clinical and commercial value of voclosporin, in order to become a commercialized global biopharma company with a
focused renal autoimmune franchise.
The key elements of our corporate strategy include:
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Advancing voclosporin through a robust LN Phase III clinical trial (AURORA) with anticipated completion of this trial in the fourth quarter of 2019; and
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Initiating a Phase II proof of concept trial for additional renal indications to include FSGS and MCD
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Evaluate other voclosporin indications – while we intend to deploy our majority of operational and financial resources to develop voclosporin for LN.
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Evaluate voclosporin ophthalmic solution (“VOS”) as we believe that our formulation patents regarding the delivery of voclosporin to the ocular surface for conditions such as dry eye have the potential to be
of therapeutic value. We will explore our strategic options to exploit shareholder value from this intellectual property as more fully discussed in the “
Recent Developments
” section below.
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RECENT DEVELOPMENTS
On October 20,
2017, we announced our plans to expand our voclosporin renal franchise to include focal segmental glomerulosclerosis (“FSGS”) and minimal change disease (“MCD”). Additionally, we announced plans to evaluate our proprietary
nanomicellar voclosporin ophthalmic solution (“VOS”) for the treatment of keratoconjunctivitis sicca or dry eye syndrome (“DES”). The advancement of these new indications, in addition to LN, represents an expansion of our
strategy, pipeline and commercial opportunities.
A Phase II proof of concept clinical trial for voclosporin in FSGS and MCD patients will be initiated in
the first half of 2018. FSGS and MCD affect nearly 150,000 patients globally, accounting for almost 50% of patients with Nephrotic Syndrome (NS). The prevalence of FSGS is increasing through disease awareness and improved diagnosis, and it has been
shown that the control of proteinuria is important for long-term survival of these patients. Interim data readouts are anticipated in the second half of 2018. Assuming positive results in respect of the Phase II proof of concept clinical trial, we
plan to initiate the Phase III trial in the first half of 2019.
Our clinical data in LN demonstrated that voclosporin decreased proteinuria, which is
also an important disease marker for FSGS and MCD. Furthermore, voclosporin appears to demonstrate a more predictable pharmacology and an improved lipid and metabolic profile over legacy calcineurin inhibitors, which have shown efficacy in treating
autoimmune disorders similar to those we are targeting.
If data generated in a Phase II and Phase III trials in FSGS and MCD are positive, we anticipate
voclosporin could receive U.S. FDA approval for these conditions in 2022.
Additionally, we plan to begin a Phase IIa tolerability study of VOS versus the
standard of care for the treatment of DES by the second quarter of 2018, with data available in the second half of 2018. CNIs are a mainstay in the treatment for DES, and the goal of this program is to develop a
best-in-class
CNI for the treatment of DES.
The topical formulation, VOS, has shown evidence of efficacy in our
partnered canine studies and in a small human Phase I study (n=5), supporting its development for the treatment of DES. Animal safety toxicology studies were previously completed in rabbit and dog models, and additional animal safety toxicology
studies are planned.
PHASE III AURORA CLINICAL TRIAL
We achieved a significant milestone in the second quarter of 2017 with the initiation of our single, Phase III (AURORA) clinical trial with patients randomized
on active treatment.
We currently have 138 clinical trial sites activated and able to enroll patients around the globe. We are actively recruiting the
clinical trial and our clinical team is focused on both additional site initiations globally and an aggressive patient recruitment program for this trial. We are making the necessary investments now to ensure the team has the tools to execute a
successful clinical trial. We believe AURORA is on track to complete enrollment in the second half of 2018. Data from AURORA is expected in late 2019. We believe the totality of data from both the AURORA and AURA clinical trials can potentially
serve as the basis for a New Drug Application (“NDA”) submission following a successful completion of the AURORA clinical trial. Additionally, under voclosporin’s fast-track designation, Aurinia intends to utilize a rolling NDA
process. We are actively putting together an NDA, and intend to submit the first module (the
non-clinical
module) in the second half of 2018. We plan to submit the Chemistry, Manufacturing, and Controls
(“CMC”) module in the first half of 2019, and the clinical module in the first half of 2020.
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The AURORA clinical trial is a global
52-week
double-blind, placebo
controlled study of 324 patients to evaluate whether voclosporin added to standard of care can increase overall renal response rates in the presence of extremely low steroids.
Patients will be randomized 1:1 to either of 23.7 mg voclosporin BID and MMF or MMF and placebo, with both arms receiving a rapid oral corticosteroid taper.
As in the AURA clinical trial, the study population in AURORA will be comprised of patients with biopsy proven active LN who will be evaluated on the primary efficacy endpoint of complete remission, or renal response, at 52 weeks, a composite which
includes:
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urine protein-creatinine ratio (“UPCR”) of
£
0.5mg/mg;
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normal, stable renal function (
³
60 mL/min/1.73m2 or no confirmed decrease from baseline in eGFR of >20%);
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presence of sustained, low dose steroids (
£
10mg prednisone from week
16-24)
and;
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no administration of rescue medications.\
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Our current forecast is that the AURORA clinical trial will cost in
the range of $75 million to $80 million, which includes costs of $18.7 million incurred to September 30, 2017.
Patients completing the AURORA
trial will then have the option to roll-over into a
104-week
blinded continuation study. The data from the continuation study will allow us to assess long-term outcomes in LN patient that will be valuable in a
post-marketing setting in addition to future interactions with various regulatory authorities. The current estimate of the clinical cost of the continuation study is in the range of $20 million to $25 million.
In order to complete the clinical dossier we will also conduct a confirmatory two-week drug-drug interaction study between voclosporin and MMF in 2018, in
addition to conducting a pediatric study post-approval.
RESULTS OF OPERATIONS
For the three months ended September 30, 2017, we reported a consolidated net loss of $13.12 million ($0.16 loss per share) as compared to a
consolidated net loss of $7.42 million ($0.21 loss per share) for the three months ended September 30, 2016. The increase in the consolidated net loss for the three months ended September 30, 2017 was primarily related to an increase
in research and development expenses of $7.47 million for the AURORA trial.
On a
year-to-date
basis, we recorded a consolidated net loss of $67.46 million ($0.91 per share) for the nine months ended September 30, 2017, compared to a
consolidated net loss of $14.96 million ($0.44 per share) for the nine months ended September 30, 2016. The higher consolidated net loss for the nine months ended September 30, 2017 was due primarily to; recording a
non-cash
increase in estimated fair value of derivative warrant liabilities on revaluation of derivative warrant liabilities of $32.93 million for the nine months ended September 30, 2017 as compared to a
non-cash
decrease of $1.07 million for the nine months ended September 30, 2016 and higher research and development expenses of $16.17 million.
We record
non-cash
changes in derivative warrant liabilities based on fair value revaluation each quarter. These
revaluations fluctuate based primarily on the market price of our common shares. An increase in the market price of our shares results in an increase in estimated fair value of derivative warrant liabilities (increase in loss) on revaluation while a
decrease results in a decrease in the estimated fair value of derivative warrant liabilities (decrease in loss) on revaluation. The increase in Derivative Warrant Liabilities for the nine months ended September 30, 2017 reflected the increase
in our share price from $2.10 at December 31, 2016 to $6.27 at September 30, 2017.
After adjusting for the
non-cash
impact of the revaluation of the derivative warrant liabilities, the net losses before the changes in estimated fair value of derivative warrant liabilities for the three months and nine month periods
ended September 30, 2017 were $13.47 million and $34.53 million respectively compared to $6.47 million and $16.04 million for the same periods in 2016.
The increase in the net loss before changes in estimated fair value of derivative warrant liabilities on a
year-to-date
basis was due primarily to increases in research and development and corporate, administration and business development expenses which reflected increases in activity levels in 2017 attributable
to our AURORA clinical trial and our transition towards becoming a commercialized global biopharma company.
Revenue
We recorded revenue of to $29,000 and $389,000 respectively for the three and nine month periods ended September 30, 2017 compared to $31,000 and $143,000
respectively for the three and nine month periods ended September 30, 2016.
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Research and Development (“R&D”) expenses
Net research and development expenses increased to $10.81 million and $25.24 million respectively for the three and nine month periods ended
September 30, 2017 compared to $3.34 million and $9.07 million respectively for the three and nine month periods ended September 30, 2016.
The increase in R&D expenses related primarily to the AURORA trial program.
Contract research organization (CRO) and other third party clinical trial expenses were $5.18 million and $15.78 million respectively for the three
and nine month periods ended September 30, 2017 compared to $2.1 million and $6.18 million respectively for the three and nine month periods ended September 30, 2016. The increased costs primarily reflect CRO costs, including
service fees and pass-thru costs related to the AURORA trial.
We incurred drug supply costs of $4.40 million and $6.06 million respectively for
the three and nine month periods ended September 30, 2017 compared to $502,000 and $1.06 million respectively for the three and nine month periods ended September 30, 2016. The increase in these costs primarily reflected an expense of
$3.17 million in the period to manufacture drug product (“API”). In addition, we incurred costs for encapsulating, packaging and distribution of the drug supply for the AURORA trial, whereas the comparative figures for 2016 were
primarily composed of drug distribution costs for the AURA trial.
Salaries, annual incentive pay accruals and employee benefits increased to $719,000 and
$1.96 million respectively for the three and nine month periods ended September 30, 2017 compared to $494,000 and $1.11 million respectively for the three and nine month periods ended September 30, 2016. The increase reflected
the hiring of eight additional R&D employees required for the AURORA program, annual salary increases for employees and higher incentive pay accruals for the three and nine month periods ending September 30, 2017
We also recorded
non-cash
stock compensation expense of $273,000 and $692,000 respectively for the three and nine month
periods ended September 30, 2017 compared to $79,000 and $288,000 for the same periods in 2016.
Other expenses, which included items such as travel,
clinical trial insurance, patent annuity and legal fees, phone and publications increased to $238,000 and $751,000 respectively for the three and nine month periods ended September 30, 2017 compared to $163,000 and $435,000 respectively for the
three and nine month periods ended September 30, 2016. The increases reflect additional costs incurred for the AURORA trial commencement activities.
Corporate, administration and business development expenses
Corporate, administration and business development expenses were $2.65 million and $8.98 million respectively for the three and nine month periods
ended September 30, 2017 compared to $1.72 million and $4.74 million respectively for the three and nine month periods ended September 30, 2016.
Corporate, administration and business development expenses included
non-cash
stock option expense of $795,000 and
$2.59 million respectively for the three and nine month periods ended September 30, 2017 compared to $469,000 and $739,000 respectively for the three and nine month periods ended September 30, 2016.
Salaries, payroll accruals, employee benefits and director’s fees were $803,000 and $2.98 million respectively for the three and nine month periods
ended September 30, 2017 compared to $721,000 and $2.18 million respectively for the three and nine month periods ended September 30, 2016. The increases reflected the hiring of four additional corporate and administration employees
in 2017, higher incentive pay accruals and annual salary increases for employees effective January 1, 2017.
Professional and consulting fees were
$409,000 and $1.53 million respectively for the three and nine month periods ended September 30, 2017 compared to $223,000 and $921,000 respectively for the three and nine month periods ended September 30, 2016. The increase for the
nine months ended September 30, 2017 reflected higher investor and public relations costs of approximately $321,000, which included the use of a public relations firm in 2017, and more audit, legal and corporate consulting fees due to higher
activity levels in 2017 relative to the same period in 2016.
Travel, tradeshows and sponsorships expense increased to $328,000 and $902,000 respectively
for the three and nine month periods ended September 30, 2017 compared to $119,000 and $317,000 respectively for the three and nine month periods ended September 30, 2016. Travel, tradeshows and sponsorships expense in 2017 included costs
of $229,000 and $564,000 on tradeshows and sponsorships respectively for the three and nine month periods ended September 30, 2017 compared to $nil the same periods in 2016.
Rent, insurance, information technology, communications and other public company operating costs were $315,000 and $974,000 respectively for the three and nine
month periods ended September 30, 2017 compared to $185,000 and $589,000 respectively for the three and nine month periods ended September 30, 2016. The increases reflected higher activity levels, higher staff numbers, higher insurance and
costs associated with the progression to a Phase III organization.
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Stock-based compensation expense
For stock option plan information, stock option grants and outstanding stock option details, refer to note 6 of the unaudited interim condensed consolidated
financial statements for the three and nine months ended September 30, 2017.
We granted 340,000 and 2.69 million stock options for the three
and nine months ended September 30, 2017 respectively at weighted average exercise prices of $6.23 and $4.11 per common share respectively compared to 140,000 and 1.66 million stock options at weighted average exercise prices of $3.04 and
$2.68 respectively for the same periods in 2016.
Application of the fair value method resulted in charges to stock-based compensation expense of
$1.07 million and $3.29 million respectively for the three and nine month periods ended September 30, 2017, (compared to $548,000 and $1.27 million respectively for the three and nine month periods ended September 30, 2016)
with corresponding credits to contributed surplus. For the three and nine month periods ended September 30, 2017, stock-based compensation expense has been allocated to research and development expense in the amounts of $273,000 and $692,000
respectively (compared to $79,000 and $288,000 respectively for the three and nine month periods ended September 30, 2016) and corporate, administration and business development expense in the amount of $795,000 and $2.59 million
respectively (compared to $469,000 and $739,000 respectively for the three and nine month periods ended September 30, 2016).
The increase in
stock-based compensation expense in 2017 compared to the same periods in 2016 related to an increase in the number of options granted, an increase in the number of employees and increases in the fair value of the stock options granted due to an
increase in our share price.
Amortization of acquired intellectual property and other intangible assets
Amortization of acquired intellectual property and other intangible assets was consistent at $357,000 and $1.08 million respectively for the three and
nine month periods ended September 30, 2017 compared to $357,000 and $1.10 million recorded for the same periods in 2016.
Other expense
(income)
We recorded other income of $315,000 and $392,000 for the three and nine month periods ended September 30, 2017 compared to other
expense of $1.08 million and $1.25 million for the three and nine months ended September 30, 2016.
Other expense (income) included the
following items:
Interest income of $399,000 and $893,000 for the three and nine month periods ended September 30, 2017 compared to $7,000 and
$20,000 for the same periods in 2016. The increase in interest income reflected the increase in our cash position as a result of completing the March 20, 2017 public offering.
Revaluation expense adjustments on the contingent consideration to ILJIN SNT Co., Ltd. (“ILJIN”) of $88,000 and $436,000 respectively for the three
and nine month periods ended September 30, 2017 compared to $1.15 million and $1.27 million respectively for the same periods in 2016. The contingent consideration is more fully discussed in note 4 to the interim condensed
consolidated financial statements for the third quarter ended September 30, 2017.
Foreign exchange gain of $4,000 for the three months ended
September 30, 2017 and a foreign exchange loss of $65,000 for the nine months ended September 30, 2017 compared to a foreign exchange loss of $48,000 and a foreign exchange gain of $8,000 respectively for the same periods in 2016.
Derivative warrant liabilities
In accordance with IFRS,
a contract to issue a variable number of shares fails to meet the definition of equity and must instead be classified as a derivative liability and measured at fair value with changes in fair value recognized in the consolidated statements of
operations and comprehensive loss at each
period-end.
To clarify, while we will settle these warrants only in shares in the future, accounting rules require that we show a liability because of the potential
variability in the number of shares which may be issued if the cashless exercise option is used by the holder of the warrants under the specific situations discussed below.
As such, the derivative liability will ultimately be converted into equity when the warrants are exercised, or will be extinguished on the expiry of the
outstanding warrants, and will not result in the outlay of any cash by us.
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On December 28, 2016, we completed a $28.75 million bought deal public offering (the “December
Offering”). Under the terms of the December Offering, we issued 12.78 million units at a subscription price per unit of $2.25, each unit consisting of one common share and
one-half
(0.50) of a common
share purchase warrant (a “Warrant”), exercisable for a period of five years from the date of issuance at an exercise price of $3.00. Therefore, we issued 6.39 million Warrants. The holders of the Warrants issued pursuant to the
December Offering may elect, if we do not have an effective registration statement registering the Warrant Shares, or the prospectus contained therein is not available for the issuance of the Warrant shares to the holder, in lieu of exercising the
Warrants for cash, a cashless exercise option to receive common shares equal to the fair value of the Warrants. This calculation is based on the number of Warrants to be exercised multiplied by the weighted average market price less the exercise
price with the difference divided by the weighted average market price. If a Warrant holder exercises this option, there will be variability in the number of shares issued per Warrant. Even though we currently have an effective registration
statement in place, there is no certainty that this will be the situation over the entire life of the Warrants and therefore, under IFRS we are required to record these Warrants as derivative warrant liabilities.
No Warrants were exercised in the three months ended September 30, 2017. Previously, 6,000 of these Warrants were exercised for cash and we issued 6,000
common shares and received cash proceeds of $19,000 during the three-month period ended June 30, 2017, while 2.86 million of these Warrants were exercised for cash and we issued 2.86 million common shares and received cash proceeds of
$8.58 million for the three-month period ended March 31, 2017.
At September 30, 2017, there were 3.52 million Warrants related to the
December 28, 2016 financing outstanding compared to 6.39 million Warrants outstanding at December 31, 2016.
On February 14, 2014, we
completed a $52 million private placement (the “Private Placement”). Under the terms of the Private Placement, we issued 18.92 million units at a subscription price per unit of $2.7485, each unit consisting of one common share
and
one-quarter
(0.25) of a common share purchase warrant (the “2014 Warrants”), exercisable for a period of five years from the date of issuance at an exercise price of $3.2204. The holders of the
2014 Warrants issued pursuant to the Private Placement may elect, in lieu of exercising the 2014 Warrants for cash, a cashless exercise option to receive common shares equal to the fair value of the 2014 Warrants based on the number of 2014 Warrants
to be exercised multiplied by a
five-day
weighted average market price less the exercise price with the difference divided by the weighted average market price. If a 2014 Warrant holder exercises this option,
there will be variability in the number of shares issued per Warrant. We issued 11,000 common shares upon the cashless exercise of 20,000 2014 Warrants during the three months ended September 30, 2017. Previously, we issued 749,000 common
shares upon the cashless exercise of 1.36 million 2014 Warrants during the three months ended June 30, 2017 and 308,000 common shares upon the cashless exercise of 489,000 2014 Warrants and received proceeds of $88,000 by issuing 27,000
common shares upon the cash exercise of 27,000 2014 Warrants during the three-month period ended March 31, 2017.
At September 30, 2017, there
were 1.85 million 2014 Warrants outstanding compared to 3.75 million Warrants outstanding as at December 31, 2016.
Derivative warrant
liabilities are discussed in additional detail in note 5 of the unaudited interim condensed consolidated financial statements for the three months ended September 30, 2017.
LIQUIDITY AND CAPITAL RESOURCES
We
currently have no significant revenue and we are devoting substantially all of our operational efforts and financial resources towards completing the development program for our late stage drug, voclosporin in LN, including our AURORA trial.
We believe, based on our current plans, that we have sufficient financial resources to complete the AURORA trial, conduct the new indication development work
as discussed in the Recent Developments section above, and fund supporting operations into 2020.
Sources and Uses of Cash for the three and nine month
periods ended September 30, 2017 and September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sources and Uses of Cash
(in thousands of dollars)
|
|
Three months ended
September 30
|
|
|
Nine months ended
September 30
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Cash used in operating activities
|
|
|
(8,525
|
)
|
|
|
(4,188
|
)
|
|
|
(30,088
|
)
|
|
|
(14,453
|
)
|
|
Cash generated from (used in) investing activities
|
|
|
(84,889
|
)
|
|
|
(39
|
)
|
|
|
(94,962
|
)
|
|
|
6,955
|
|
|
Cash generated from financing activities
|
|
|
1,243
|
|
|
|
7,435
|
|
|
|
172,947
|
|
|
|
14,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(92,171
|
)
|
|
|
3,208
|
|
|
|
47,897
|
|
|
|
6,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
At September 30, 2017, we had a total of $182.41 million in financial resources (comprised of
$87.55 million in cash and cash equivalents and $94.86 million in short term investments) compared to $189.79 million at June 30, 2017 and $39.65 million at December 31, 2016.
Net cash used in operating activities for the three and nine month periods ended September 30, 2017, was $8.53 million and $30.09 million
respectively compared to cash used in operating activities of $4.19 million and $14.45 million respectively for the three and nine month periods ended September 30, 2016. Cash used in operating activities in 2017 and 2016 was composed
of net loss,
add-backs
or adjustments not involving cash, such as stock-based compensation and change in estimated fair value of derivative warrant liabilities and net change in other operating assets and
liabilities including prepaid expenses, deposits and other and accounts payable and accrued liabilities.
Cash used in investing activities for the three
and nine month periods ended September 30, 2017 was $84.89 million and $94.96 million respectively compared to cash used in investing activities of $39,000 for the three months ended September 30, 2016 and $6.96 million
generated from investing activities for the nine-month period ended September 30, 2016. These amounts primarily related to changes in our short-term investment balances.
Cash generated from financing activities for the three and nine month periods ended September 30, 2017 respectively were $1.24 million and
$172.95 million compared to cash generated by financing activities of $7.44 million and $14.08 million respectively for the three and nine month periods ended September 30, 2016.
We received $21,000 and $8.92 million from the exercise of warrants and $1.22 million and $3.86 million respectively from the exercise of stock
options for the three and nine month periods ended September 30, 2017 compared to $1.67 million and $1.67 million for warrants and $27,000 and $27,000 for stock options for the same periods in 2016.
Cash generated from financing activities for the nine months ended September 30, 2017 included net proceeds of $162.32 million from our
March 20, 2017 financing. On March 20, 2017, we completed an underwritten public offering of 25.64 million common shares, which included 3.35 million common shares issued pursuant to the full exercise of the underwriters’
overallotment option to purchase additional common shares. The common shares were sold at a public offering price of $6.75 per share. The gross proceeds from the March Offering were $173.10 million before deducting the 6% underwriting
commission and other offering expenses which totaled $10.78 million.
We paid ILJIN $2.15 million during the three months ended June 30,
2017 related to the contingent consideration liability as more fully discussed in note 4 to the interim condensed consolidated financial statements for the three months ended September 30, 2017.
Use of Financing Proceeds
2016
At-the-Market
facilities
In our fiscal year ended December 31, 2016, we
received net proceeds of $7.82 million from two
At-the-Market
(“ATM”) facilities: the November ATM ($294,000) (the “November ATM”) and under a
Controlled Equity Offering Sales Agreement dated July 22, 2016 with Cantor Fitzgerald & Co. ($7.53 million) (the “July ATM” and together with the November ATM the “2016 ATM Facilities”). The net proceeds from the
2016 ATM Facilities are to be used for working capital and corporate purposes.
December Offering
On December 28, 2016, we completed the December Offering for net proceeds of $26.14 million, the net proceeds of which are to be used to advance the
clinical and
non-clinical
development of our lead drug, voclosporin, as a therapy for LN, and for working capital and corporate purposes.
March Offering
On March 20, 2017, we completed the
March Offering for net proceeds of $162.32 million, which are to be used for R&D activities and for working capital and corporate purposes.
10
A summary of the anticipated and actual use of net proceeds used to date from the above financings is set out in
the table below.
|
|
|
|
|
|
|
|
|
|
|
Allocation of net proceeds
|
|
Total net proceeds from
financings
(in thousands)
|
|
|
Net proceeds used to date
(in thousands)
|
|
|
|
|
$
|
|
|
$
|
|
|
2016 ATM Facilities:
|
|
|
|
|
|
|
|
|
|
Corporate matters
|
|
|
7,821
|
|
|
|
6,383
|
|
|
|
|
|
|
|
|
|
|
|
|
December 28, 2016 Offering:
|
|
|
|
|
|
|
|
|
|
Clinical and
non-clinical
development of
voclosporin
|
|
|
21,700
|
|
|
|
21,700
|
|
|
Working capital and corporate matters
|
|
|
4,442
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal:
|
|
|
26,142
|
|
|
|
21,700
|
|
|
March 20, 2017 Offering:
|
|
|
|
|
|
|
|
|
|
Research and development activities
|
|
|
123,400
|
|
|
|
2,847
|
|
|
Working capital and corporate matters
|
|
|
38,924
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal:
|
|
|
162,324
|
|
|
|
2,847
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
196,287
|
|
|
|
30,930
|
|
|
|
|
|
|
|
|
|
|
|
CONTRACTUAL OBLIGATIONS
We have the following contractual obligations as at September 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Less than
one year
|
|
|
Two to three
years
|
|
|
Greater than
three years
|
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Operating lease obligations
(1)
|
|
|
171
|
|
|
|
107
|
|
|
|
64
|
|
|
|
—
|
|
|
Purchase obligations
(2)
|
|
|
7,851
|
|
|
|
4,242
|
|
|
|
3,609
|
|
|
|
—
|
|
|
Accounts payable and accrued liabilities
|
|
|
6,665
|
|
|
|
6,665
|
|
|
|
—
|
|
|
|
—
|
|
|
Contingent consideration to ILJIN
(3)
|
|
|
3,726
|
|
|
|
72
|
|
|
|
295
|
|
|
|
3,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
18,413
|
|
|
|
11,086
|
|
|
|
3,968
|
|
|
|
3,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Operating lease obligations are comprised of our future minimum lease payments for our premises.
|
|
(2)
|
We have entered into contractual obligations for services and materials. The purchase obligations presented represent the minimum amount to exit the Company’s contractual commitments.
|
|
(3)
|
Contingent consideration to ILJIN is described in note 4 to the interim condensed consolidated financial statements for the third quarter ended September 30, 2017.
|
As at September 30, 2017 we are party to agreements with contract research organizations and central laboratories conducting the AURORA trial.
Corresponding anticipated expenditures over the next twelve months total approximately
$25-$30 million.
RELATED PARTY TRANSACTIONS
Stephen P.
Robertson, a partner at Borden Ladner Gervais (“BLG”), acts as our corporate secretary. We recorded legal fees incurred in the normal course of business to BLG of $41,000 and $195,000 respectively for the three and nine month periods ended
September 30, 2017 compared to $35,000 and $159,000 respectively for the three and nine month periods ended September 30, 2016. The amount charged by BLG is based on standard hourly billing rates for the individuals working on our account.
We have no ongoing contractual or other commitments as a result of engaging Mr. Robertson to act as our corporate secretary. Mr. Robertson receives no additional compensation for acting as the corporate secretary beyond his standard hourly
billing rate.
The outstanding contingent consideration payable to ILJIN, an affiliated shareholder, is the result of an Arrangement Agreement (the
‘Arrangement Agreement”) completed on September 20, 2013 between the Company, Aurinia Pharma Corp. and ILJIN. At September 30, 2017, pursuant to the Arrangement Agreement, payments of up to $7.85 million may be payable and
are based on the achievement of
pre-defined
clinical and marketing milestones. The contingent consideration payable to ILJIN is more fully discussed in note 4 to the interim condensed consolidated financial
statements for the three months ended September 30, 2017
11
OFF-BALANCE
SHEET ARRANGEMENTS
To date we have not had any relationships with unconsolidated entities or financial partnerships, such as entities referred to as structured finance or
special purpose entities, which are established for the purpose of facilitating
off-balance
sheet arrangements or other contractually narrow or limited purposes.
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
The preparation of consolidated financial statements in accordance with IFRS often requires management to make estimates about, and apply assumptions or
subjective judgment to, future events and other matters that affect the reported amounts of our assets, liabilities, revenues, expenses and related disclosures. Assumptions, estimates and judgments are based on historical experience, expectations,
current trends and other factors that management believes to be relevant at the time at which our consolidated financial statements are prepared. Management reviews, on a regular basis, our accounting policies, assumptions, estimates and judgments
in order to ensure that the consolidated financial statements are presented fairly and in accordance with IFRS.
Critical accounting estimates and
judgments are those that have a significant risk of causing material adjustment and are often applied to matters or outcomes that are inherently uncertain and subject to change. As such, management cautions that future events often vary from
forecasts and expectations and that estimates routinely require adjustment.
Management considers the following areas to be those where critical
accounting policies affect the significant estimates and judgements used in the preparation of our consolidated financial statements.
Critical
estimates in applying our accounting policies
Contingent consideration
Contingent consideration is a financial liability recorded at fair value (see note 4 to the interim condensed consolidated financial statements). The amount of
contingent consideration to be paid is based on the occurrence of future events, such as the achievement of certain development, regulatory and sales milestones. Accordingly, the estimate of fair value contains uncertainties as it involves judgment
about the likelihood and timing of achieving these milestones as well as the discount rate used. Changes in fair value of the contingent consideration obligation result from changes to the assumptions used to estimate the probability of success for
each milestone, the anticipated timing of achieving the milestones and the discount period and rate to be applied. A change in any of these assumptions could produce a different fair value, which could have a material impact on the results from
operations.
Derivative warrant liabilities
Warrants
issued pursuant to certain equity offerings that are potentially exercisable in cash or on a cashless basis resulting in a variable number of shares being issued are considered derivative liabilities and therefore measured at fair value.
We use the Black-Scholes pricing model to estimate fair value at each reporting date. The key assumptions used in the model are the expected future volatility
in the price of our shares and the expected life of the warrants. (see note 5 to the interim condensed consolidated financial statements for additional information)
Fair value of stock options
Determining the fair value
of stock options on the grant date, including performance based options, requires judgment related to the choice of a pricing model, the estimation of stock price volatility and the expected term of the underlying instruments. Any changes in the
estimates or inputs utilized to determine fair value could result in a significant impact on our reported operating results, liabilities or other components of shareholders’ equity. The key assumption used by management is the stock price
volatility (see note 6 to the interim condensed consolidated financial statements for additional information).
Critical judgments in applying the
Company’s accounting policies
Impairment of intangible assets
We follow the guidance of IAS 36 to determine when impairment indicators exist for its intangible assets. When impairment indicators exist, we are required to
make a formal estimate of the recoverable amount of its intangible assets. This determination requires significant judgment. In making this judgment, management evaluates external and internal factors, such as significant adverse changes in the
technological, market, economic or legal environment in which we operate as well as the results of its ongoing development programs. Management also considers the carrying amount of our net assets in relation to its market capitalization as a key
indicator. In making a judgment as to whether impairment indicators exist as at September 30, 2017, we concluded there were none.
12
Derivative warrant liabilities
We have determined that derivative warrant liabilities are classified as long term as these derivative warrant liabilities will ultimately be settled for
common shares and therefore the classification is not relevant.
A complete listing of critical accounting policies, estimates, judgments and measurement
uncertainty can be found in note 4 of the annual consolidated financial statements for the year ended December 31, 2016.
RISKS AND
UNCERTAINTIES
We have invested a significant portion of our time and financial resources in the development of voclosporin. We anticipate that our
ability to generate revenues and meet expectations will depend primarily on the successful development, regulatory approval and commercialization of voclosporin.
The successful development and commercialization of voclosporin will depend on several factors, including the following:
|
|
•
|
|
Successful and timely completion of our clinical program in LN, including the AURORA trial which is anticipated to be completed in the fourth quarter of 2019;
|
|
|
•
|
|
receipt of marketing approvals from the FDA and other regulatory authorities with a commercially viable label;
|
|
|
•
|
|
securing and maintaining sufficient expertise and resources to help in the continuing development and eventual commercialization of voclosporin;
|
|
|
•
|
|
maintaining suitable manufacturing and supply arrangements to ensure commercial quantities of the product through validated processes;
|
|
|
•
|
|
acceptance and adoption of the product by the medical community and third-party payers; and
|
|
|
•
|
|
our ability to raise future financial resources when required. Future additional sources of capital could include payments from potential new licensing partners, equity financings, debt financings and/or the
monetization of our intangible assets.
|
A more detailed list of the risks and uncertainties affecting us can be found in our AIF which is
filed on SEDAR and EDGAR.
Financial instruments and Risks
We are exposed to credit risks and market risks related to changes in interest rates and foreign currency exchange, each of which could affect the value of our
current assets and liabilities. We invest our cash reserves in U.S. dollar denominated, fixed rate, highly liquid and highly rated financial instruments such as treasury bills, banker acceptances, bank bonds, and term deposits. We do not believe
that the results of operations or cash flows would be affected to any significant degree by a sudden change in market interest rates relative to our investment portfolio, due to the short-term nature of the investments and our current ability to
hold these investments to maturity.
We are exposed to financial risk related to the fluctuation of foreign currency exchange rates which could have a
material effect on our future operating results or cash flows. Foreign currency risk is the risk that variations in exchange rates between the United States dollar and foreign currencies, primarily with the Canadian dollar, will affect our operating
and financial results. We hold our cash reserves in US dollars and the majority of our expenses, including clinical trial costs, are also denominated in US dollars, which mitigates the risk of foreign exchange fluctuations.
As our functional currency is the US dollar, we have foreign exchange exposure to the Canadian dollar.
13
The following table presents our exposure to the Canadian dollar:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2017
$
|
|
|
September 30,
2016
$
|
|
|
Cash and cash equivalents
|
|
|
794
|
|
|
|
696
|
|
|
Accounts receivable
|
|
|
30
|
|
|
|
97
|
|
|
Accounts payable and accrued liabilities
|
|
|
(1,097
|
)
|
|
|
(654
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net exposure
|
|
|
(273
|
)
|
|
|
139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reporting date rate
|
|
|
|
|
September 30,
2017
$
|
|
|
September 30,
2016
$
|
|
|
$CDN - $US
|
|
|
0.801
|
|
|
|
0.762
|
|
|
|
|
|
|
|
|
|
|
|
Based on our foreign currency exposures noted above, varying the foreign exchange rates to reflect a ten percent strengthening
of the U.S. dollar would have decreased the net loss by $27,000 as at September 30, 2017 assuming that all other variables remained constant. An assumed 10 percent weakening of the U.S. dollar would have had an equal but opposite effect to
the amounts shown above, on the basis that all other variables remain constant.
INTELLECTUAL PROPERTY
Patents and other proprietary rights are essential to our business. Our policy has been to file patent applications to protect technology, inventions, and
improvements to our inventions that are considered important to the development of our business. We are pursuing certain avenues to expand the voclosporin patent portfolio, including a use patent strategy (which involves potential development of use
patents driven by AURA Phase IIb data) and a manufacturing patent strategy (which involves potential development of manufacturing patents based on our manufacturing
know-how.)
As of September 30, 2017, we owned over 160 granted patents related to cyclosporine analogs, including granted United States patents, covering
voclosporin composition of matter, methods of use, formulations and synthesis, which expire between 2018 and 2024. The corresponding Canadian, South African and Israeli patents are owned by Paladin Labs Inc. We anticipate that upon regulatory
approval, patent protection for voclosporin will be extended in the United States and certain other major markets, including Europe and Japan, until at least October 2027 under the Hatch-Waxman Act in the United States and comparable laws in other
countries. (including the Supplementary Protection Certificate program in the European Union). Opportunities will also be available to add an additional six months of exclusivity related to pediatric studies which are currently being planned. In
addition to patent rights, we also expect to receive “new chemical entity” (“
NCE
”) exclusivity for voclosporin in certain countries, which provides from five years in the United States to up to ten years in Europe of data
exclusivity beyond the date of regulatory approval.
We have licensed the development and distribution rights to voclosporin for China, Hong Kong and
Taiwan to 3Sbio Inc. This license is royalty bearing and we will also supply finished product to 3SBio Inc. on a cost-plus basis. We do not expect to receive any royalty revenue pursuant to this license in the foreseeable future.
As of September 30, 2017, we also owned two granted United States patents related to ophthalmic formulations of calcineurin inhibitors or mTOR
inhibitors, including voclosporin, and one granted United States patent related to ophthalmic formulations of dexamethasone, which expire between 2028 and 2031. We also own 15 corresponding granted patents and three corresponding patent applications
in other jurisdictions.
In April 2017, we announced an agreement granting Merck Animal Health (“
MAH
”) worldwide rights to develop and
commercialize VOS for the treatment of DES in dogs whereby we licensed the ophthalmic patents, which include the use of voclosporin, to MAH for use in the animal health field.
14
CONTINGENCIES
|
i)
|
We may, from time to time, be subject to claims and legal proceedings brought against us in the normal course of business. Such matters are subject to many uncertainties. Management believes that the ultimate resolution
of such contingencies will not have a material adverse effect on our consolidated financial position.
|
|
ii)
|
We have entered into indemnification agreements with our officers and directors. The maximum potential amount of future payments required under these indemnification agreements is unlimited. However, we maintain
liability insurance to limit our exposure.
|
|
iii)
|
We have entered into license and research and development agreements with third parties that include indemnification and obligation provisions that are customary in the industry. These guarantees generally require us to
compensate the other party for certain damages and costs incurred as a result of third party claims or damages arising from these transactions. These provisions may survive termination of the underlying agreement. The nature of the 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 payments under such agreements and no amount has been accrued in the accompanying interim condensed
consolidated financial statements.
|
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
Disclosure controls and procedures and internal controls over financial reporting
During the third quarter ended September 30, 2017, there were no changes to our disclosure controls or to our internal controls over financial reporting
that materially affected, or are reasonably likely to materially affect, such controls.
UPDATED SHARE INFORMATION
As at November 9, 2017, the following class of shares and equity securities potentially convertible into common shares are outstanding (in thousands):
|
|
|
|
|
|
|
Common shares
|
|
|
84,052
|
|
|
Convertible equity securities
|
|
|
|
|
|
Derivative liability warrants
|
|
|
5,261
|
|
|
Other warrants
|
|
|
1,172
|
|
|
Stock options
|
|
|
4,834
|
|
Subsequent to September 30, 2017, we issued 20,000 common shares upon the exercise of 20,000 stock options for proceeds
of $56,000 and issued 59,000 common shares upon the cashless exercise of 110,000 derivative warrants. We granted a new employee 5,000 stock options at an exercise price of $5.76. (CDN$7.30)
15
Quarterly Information
(expressed in thousands except per share data)
Set forth
below is selected unaudited consolidated financial data for each of the last eight quarters:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
Sept 30
|
|
|
Jun 30
|
|
|
Mar 31
|
|
|
Dec 31
|
|
|
Sept 30
|
|
|
Jun 30
|
|
|
Mar 31
|
|
|
Dec 31
|
|
|
Revenue
|
|
|
29
|
|
|
|
329
|
|
|
|
31
|
|
|
|
30
|
|
|
|
31
|
|
|
|
55
|
|
|
|
57
|
|
|
|
57
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
10,807
|
|
|
|
7,107
|
|
|
|
7,325
|
|
|
|
5,462
|
|
|
|
3,342
|
|
|
|
2,406
|
|
|
|
3,324
|
|
|
|
3,652
|
|
|
Corporate, administration and business development
|
|
|
2,650
|
|
|
|
2,901
|
|
|
|
3,427
|
|
|
|
2,227
|
|
|
|
1,716
|
|
|
|
1,835
|
|
|
|
1,192
|
|
|
|
1,564
|
|
|
Amortization of tangible and intangible assets
|
|
|
362
|
|
|
|
370
|
|
|
|
363
|
|
|
|
365
|
|
|
|
362
|
|
|
|
365
|
|
|
|
387
|
|
|
|
363
|
|
|
Contract services
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
|
Other expense (income)
|
|
|
(315
|
)
|
|
|
(152
|
)
|
|
|
75
|
|
|
|
966
|
|
|
|
1,078
|
|
|
|
85
|
|
|
|
84
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
13,504
|
|
|
|
10,226
|
|
|
|
11,191
|
|
|
|
9,021
|
|
|
|
6,499
|
|
|
|
4,692
|
|
|
|
4,988
|
|
|
|
5,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before change in estimated fair value of derivative warrant labilities
|
|
|
(13,475
|
)
|
|
|
(9,897
|
)
|
|
|
(11,160
|
)
|
|
|
(8,991
|
)
|
|
|
(6,468
|
)
|
|
|
(4,637
|
)
|
|
|
(4,931
|
)
|
|
|
(5,526
|
)
|
|
Change in estimated fair value of derivative warrant liabilities
|
|
|
355
|
|
|
|
7,498
|
|
|
|
(40,781
|
)
|
|
|
658
|
|
|
|
(951
|
)
|
|
|
1,361
|
|
|
|
664
|
|
|
|
1,463
|
|
|
Net loss for the period
|
|
|
(13,120
|
)
|
|
|
(2,399
|
)
|
|
|
(51,941
|
)
|
|
|
(8,333
|
)
|
|
|
(7,419
|
)
|
|
|
(3,276
|
)
|
|
|
(4,267
|
)
|
|
|
(4,063
|
)
|
|
Net loss per common share ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
(0.16
|
)
|
|
|
(0.03
|
)
|
|
|
(0.92
|
)
|
|
|
(0.21
|
)
|
|
|
(0.21
|
)
|
|
|
(0.10
|
)
|
|
|
(0.13
|
)
|
|
|
(0.13
|
)
|
|
Common shares outstanding
|
|
|
83,973
|
|
|
|
83,485
|
|
|
|
82,101
|
|
|
|
52,808
|
|
|
|
38,794
|
|
|
|
35,287
|
|
|
|
32,287
|
|
|
|
32,287
|
|
|
Weighted average number of common shares outstanding
|
|
|
83,608
|
|
|
|
82,973
|
|
|
|
56,680
|
|
|
|
40,172
|
|
|
|
36,079
|
|
|
|
32,551
|
|
|
|
32,287
|
|
|
|
32,287
|
|
Summary of Quarterly Results
The primary factors affecting the magnitude of our losses in the various quarters are noted below and include the timing of research and development costs
associated with the clinical development program, timing and amount of stock compensation expense and fluctuations in the
non-cash
change in estimated fair value of derivative warrant liabilities.
The increase in research and development costs for each of the quarters in 2017 primarily reflect expenditures associated with the commencement and ramp up of
our AURORA trial, including drug supply.
Corporate, administration and business development costs included
non-cash
stock-based compensation expense of $795,000 for the three months ended September 30, 2017 and $718,000 for the three months ended June 30, 2017 and $1.08 million for the three months
ended March 31, 2017. The three months ended March 31, 2017 also included a provision amount of $519,000 related to the departure of the former Chief Executive Officer (Rowland) on February 6, 2017.
Other expense (income), in the fourth quarter ended December 31, 2016 included $655,000 of share issue costs allocated to the derivative warrants issued
pursuant to the December Offering and $319,000 on revaluation of the ILJIN contingent consideration. Other expense (income) for the three months ended September 30, 2016 reflected a revaluation of the ILJIN contingent consideration of
$1.15 million.
We record
non-cash
adjustments each quarter resulting from the fair value revaluation of the
derivative warrant liabilities. These revaluations fluctuate based primarily on the market price of our common shares. An increase in the market price of our shares results in a loss on revaluation while a decrease results in a gain on revaluation.
The change in the estimated fair value of the derivative warrant liabilities for the three months ended June 30, 2017 primarily reflected a decrease in our share price to $6.13 per share at June 30, 2017 compared to $7.34 per share at
March 31, 2017. The change in the estimated fair value of derivative warrant liabilities for the three months ended March 31, 2017 reflected the significant increase in our share price from $2.10 per share at December 31, 2016 to
$7.34 per share at March 31, 2017 and included the additional warrants issued pursuant to the December Offering.
16
