The financial information reported here has been prepared in accordance with IFRS. The Company uses the Canadian dollar (CDN) as its reporting currency. Selected un-audited financial data for interim operations of the Company for the three and six months ended June 30, 2013 and June 30, 2012 is presented below:

 

 

(1)

Financial data for the quarter prepared using IFRS

 

(1)

Financial data prepared using IFRS

 

Cash and equivalents decreased in the first six months by $7,927 from $9,854 on December 31, 2012 to $1,927 as of June 30, 2013. Prepaid expenses decreased by $81,244 from $97,444 on December 31, 2012 to $16,200 as of June 30, 2013. This decrease was due to the consumption of a media promotion and advertising contract that was not renewed.

 

B.	Capitalization and indebtedness.

 

The following table sets forth our capitalization as of June 30, 2013 and December 31, 2012. This table should be read in conjunction with “Item 5. Operating and Financial Review and Prospects” and our financial statements and related notes included elsewhere in this Registration Statement on Form 20-F.

 

 

(1)

Financial statements for the period ended June 30, 2013, were prepared by management and are not audited.

 

 

•

seek collaborators for our product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available; or

•

relinquish or license on unfavorable terms its rights to technologies or product candidates that it otherwise would seek to develop or commercialize itself.

The Company does not have the existing capital resources to fund operations to complete a pivotal bio-equivelency study of PTL-202 providing information for future development studies.

 

The United States Food and Drug Administration (the “FDA”) has defined bioequivalence as, "the absence of a significant difference in the rate and extent to which the active ingredient or active moiety in pharmaceutical equivalents or pharmaceutical alternatives becomes available at the site of drug action when administered at the same dose under similar conditions in an appropriately designed study. In determining bioequivalence, for example, between two products such as a commercially-available Brand product and a potential to-be-marketed Generic product, studies are conducted whereby each of the preparations are administered in a study to volunteer subjects, generally healthy individuals but occasionally in patients. Serum/plasma samples are obtained at regular intervals and assayed for parent drug (or occasionally metabolite) concentration. For a pharmacokinetic comparison, the plasma concentration data are used to assess key pharmacokinetic parameters such as area under the curve (AUC), peak concentration (C max ), time to peak concentration (T max ), and absorption lag time (t lag ). The FDA considers two products bioequivalent if the 90% confidence interval of the relative mean C max , AUC (0-t)  and AUC (0-∞)  of the test (e.g. generic formulation) to reference (e.g. innovator brand formulation) should be within 80.00% to 125.00% in the fasting state.

 

At this time the Company has only nominal funds available and requires immediate funds to continue meaningful operations and conduct a bio-equivalency study of PTL-202. The Company anticipates that it will need to raise additional capital, through private placements or public offerings of its equity or debt securities, in addition to the capital on hand, to complete the long-term development and commercialization of its current product candidates.  The inability of the Company to access sufficient additional capital for its operations could have a material adverse effect on the Company’s financial condition, results of operations or prospects. In particular, failure to obtain such financing on a timely basis could cause the Company to miss certain acquisition opportunities and reduce or terminate its business.

 

Dilution

 

Potential barriers to the success of PTL-202 include the physical size of an ingestible tablet combining PTX and NAC and the high water-solubility of both PTX and NAC.

 

If the PTL-202 pill were to contain the maximum daily dose of both PTX and NAC it would be very large and difficult to swallow. The dosage will likely be divided into multiple tablets to overcome this issue. The high water solubility may be overcome through the use of the VersaTab formulation in collaboration with Intelgenx. The technology used in this formulation is a trilayer tablet. The release of the pentoxifylline and NAC are both controlled by limitation of the surface area available for release and by using a mixture of insoluble and high viscous polymers, controlling the water solubility. 

 

 

In order to market PTL-202 for a new indication such as fibrosis, the Company, in conjunction with its collaborators, will have to conduct additional clinical trials, including pivotal bioequivelency, Phase 2 proof-of-concept clinical trials as well as Phase 3 clinical trials, to demonstrate safety and efficacy. The Company has not initiated any Phase 2 or Phase 3 clinical trials with any of its product candidates. If the proposed clinical trials generate safety concerns or demonstrate a lack of efficacy, or competitive products developed by third parties show significant benefit in the indications in which the Company is developing product candidates, any planned clinical trial may be delayed, altered or not initiated and PTL-202 may never receive regulatory approval or be successfully commercialized.

 

The Company’s other product candidate, PTL-303, has only been tested in cellular assays to determine a signal as a possible drug candidate. PTL-303 has not been tested in animals or humans.

 

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.

 

We are and will remain through December 31, 2013, an “emerging growth company” within the meaning under the Jumpstart Our Business Startups Act of 2012 ("JOBS Act"), and until we cease to be an emerging growth company we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. Investors may find our common stock less attractive because we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

 

We will remain an emerging growth company until we lose such status. We could lose the status of emerging growth company at the earliest of (i) the last day of the first fiscal year in which we have total annual gross revenue of $1 billion or more, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act (which would occur if the market value of our common stock held by non-affiliates exceeds $700 million, measured as of the last business day of our most recently completed second fiscal quarter), or (iii) the date on which we have, during the preceding three year period, issued more than $1 billion in non-convertible debt.

 

Item 3.

Key Information - continued

The Company’s clinical development programs for PTL-202 and PTL-303 may not receive regulatory approval for clinical trials if the Company fails to demonstrate that they are safe and effective in pre-clinical trials. Consequently, failure to obtain necessary approvals from the FDA or similar non-U.S. regulatory agencies to operate clinical trials for the Company’s product candidates could result in delays to the Company’s product development efforts.

 

The Company does not own or operate manufacturing facilities, and it depends on third-party contract manufacturers for production of its product candidates. The Company has no experience in drug formulation or manufacturing, and it lacks the resources and the capability to manufacture any of its product candidates. Product candidates have been purchased in limited quantities for pre-clinical studies from scientific supply houses. For the Phase 1 clinical trial of PTL-202 supplies of existing approved products were purchased from distributors. For phase 2 clinical trials of PTL-202, the Company will need to obtain additional quantities of active pharmaceutical ingredients and have clinical supplies of the PTL-202 formulation manufactured. The Company will need to contract with a manufacturer for a supply of PTL-303 for pre-clinical, and Investigational New Drug-enabling toxicology studies and initial clinical trials (Phase 1 and 2). If, in the future, one of the Company’s product candidates is approved for commercial sale, the Company or its collaborator will need to manufacture that product candidate in commercial quantities. The Company cannot guarantee that the third-party manufacturers with which it has previously contracted will have sufficient capacity to satisfy future manufacturing needs of PTL-202 or PTL-303, or that the Company will be able to negotiate additional purchases of active pharmaceutical ingredients or drug products from these or alternative manufacturers on terms favourable to the Company, or at all.

 

 

Under the license agreement with Intelgenx, the Company has acquired from IntelGenx the intellectual property solely relating to PTL-202 and US Patent Application 2007/0190144 and all corresponding know-how, patents, patent applications, continuation applications, continuation-in-part applications, divisional applications, provisional applications, supplementary protection certificates, inventors’ certificates, any corresponding foreign patent applications to any of the foregoing, and all patents that may be granted or that may have been granted on any of the foregoing, including reissues, re-examination and extensions worldwide.

 

Under the agreement with Intelgenx, e ach party shall promptly notify the other party upon learning of any infringement allegation or licensed patent dispute. If IntelGenx or the Company determines that any licensed patent or patent right under the agreement is being infringed by a third party’s activities and that such infringement could affect the exercise of the license under the agreement, it will promptly notify the other party in writing. In addition, if IntelGenx or the Company determines that any licensed know-how is being misappropriated by a third party’s activities and that such misappropriation could affect the exercise of the license under this agreement, it will promptly notify the other party in writing.

 

If the Company decides to continue any further development of the product within 90 days of the completion of a pilot biostudy and delivery of the final report on the results of the pilot biostudy, the Company will have the sole, exclusive and first right but not the obligation to remove such infringement and/or misappropriation and to control all litigation to remove such infringement and/or misappropriation relating to the product in the field of use (as defined in the agreement), all as the Company shall deem appropriate in its sole discretion. IntelGenx shall provide notice to the Company of its decision to co-defend (at the Company’s cost) within sixty (60) calendar days from the date the relevant proceeding becomes known to IntelGenx. In the event the Company does, at its discretion, undertake any infringement or misappropriation action and IntelGenx does not co-defend, the Company will provide IntelGenx with copies of all relevant documentation so that IntelGenx will be informed of the continuing action and may comment upon such documentation. The Company shall not be permitted to settle any threatened, pending or completed or any claim, issue or matter therein, on behalf of IntelGenx, without the prior written consent of IntelGenx, such consent not to be unreasonably withheld, delayed or conditioned.

 

According to the agreement, IntelGenx has no obligation nor is it responsible, financially and/or otherwise, for the enforcement of the patent rights related toPTL-202.

 

Item 3.

Key Information - continued

 

Intellectual Property Infringement Claims

 

Licensed Patent Rights

Under the license agreement with Intelgenx the Company has acquired from IntelGenx the intellectual property solely relating to PTL-202 and US Patent Application 2007/0190144 and all corresponding know-how, patents, patent applications, continuation applications, continuation-in-part applications, divisional applications, provisional applications, supplementary protection certificates, inventors’ certificates, any corresponding foreign patent applications to any of the foregoing, and all patents that may be granted or that may have been granted on any of the foregoing, including reissues, re-examination and extensions worldwide.

 

The US Patent Application 2007/0190144 is a methods patent. This patent will protect the method of manufacturing the VersaTab formulation of PTL-202. Specifically, the Patent Application claims “A method of making a controlled release trilayer oral dosage form comprising: combining at least one pharmaceutically active compound and/or at least one nutritionally active compound with one or more polymers capable of forming a non-erodible core layer upon compression to form a core mixture, the resulting core combination optionally including at least one excipient and/or at least one adjuvant; preparing a release-regulating powder comprising at least one polymer selected from swellable erodible polymers, insoluble erodible polymers, and water permeable erodible polymers; and forming a compressed tablet having a core layer consisting of compressed core mixture and a release-regulating layer laminated to each side of the core layer, the release-regulating layer consisting of compressed release-regulating powder.”

 

The Company’s licensors may terminate the license. Without protection for the intellectual property that is licensed, other companies may be able to offer substantially similar products for sale and the Company may not be able to market or sell the planned products or generate any revenues.

For more information, please refer to “Competitive Conditions” beginning at page 23.

 

The Investment Canada Act (Canada) subjects an acquisition of control of a company by a non-Canadian to government review if the value of the Company’s assets as calculated pursuant to the legislation exceeds a threshold amount.  A reviewable acquisition may not proceed unless the relevant minister is satisfied that the investment is likely to be a net benefit to Canada. The threshold amount for review if the buyer is a WTO member is $ 344 million for the calendar year 2013. For non-WTO investors, the threshold is $5 million for a direct acquisition and over $50 million for an indirect acquisition; the $5 million threshold will apply however for an indirect acquisition if the asset value of the Canadian business being acquired exceeds 50% of the asset value of the global transaction.